Calls for major reform of business rates ahead of Cop26

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The CBI and 40 industry trade associations have issued a statement calling on the Chancellor to consider sweeping reforms of the business rates system in the forthcoming Budget later this month, emphasising the urgency of reform.

Combined, the statement represents the views of employers of around 261,000 businesses and nine million employees, including British Retail Consortium, UK Hospitality and SMMT. They are arguing that reform of the long derided business rates system is essential if the Government is to reach its green investment targets.

Autumn Budget

The autumn Budget will take place on 27 October and these trade associations think this is an ideal time to reform what they collectively see as an outdated and outmoded business rate regime which acts as a drag on the Government’s goal of a high wage, high productivity and high investment economy. They think that reform of the system could unleash a wave of business investment which will lend support to the key Government priorities of working towards net zero and levelling up.

Currently, as the system operates, 50 per cent of business investment is potentially subject to business rates. The system thereby actively acts as a disincentive to new business investment and to decarbonisation. Without new investment there will be no improvement in the all-important productivity rates, the only sustainable route to higher wages, the statement argues.

CBI Chief Economist, Rain Newton-Smith, says:

“Action to get investment flowing into and around the UK is sorely needed to reinforce our recovery. The Government deserves credit for convening the supply chain advisory group to unblock temporary challenges, but as we’re seeing with energy prices, there is no substitute for longer-term planning and investment.

“The Chancellor has an opportunity to fix this, starting with fundamental business rates reform at the Budget and Comprehensive Spending Review. By setting out an approach which attracts investment, he can equip the UK with the tools it needs to secure the high wage, high productivity and high skill economy of the future.

“With up to half of business investment potentially subject to business rates, it has literally become a tax on investment. Action to stimulate investment, starting with business rates reform, unites firms spanning the whole economy. If the government is serious about achieving its net zero ambitions, kicking reforms further into the long grass cannot be the answer.”

Helen Dickinson OBE, Chief Executive of the British Retail Consortium, says:

“Sky high business rates are closing stores up and down the country and preventing new ones from opening. A recent BRC survey found that four-in-five retailers will be forced to close shops unless the rates burden falls following the Government’s upcoming Fundamental Review. Without change, the areas most in need of levelling will be hit hardest, and the Government’s levelling up agenda will fail. The choice is clear – cut rates and boost investment and jobs, or leave them unchanged and see more shops closed and jobs lost.”

Business Rates Consultation

Following a recent business rates consultation and review the Government has confirmed that policy announcements on business rates are to be made this autumn. The statement reminds Government that UK business need to see “fundamental reform of the system” if it is to address these long-standing barriers to investment.

The forthcoming business rates revaluation is coming two years later than planned and seven years after the last revaluation, a delay that has made worse an already dysfunctional system.

Major shocks to the system

The statement argues that the current system creates “major shocks” to businesses and local government revenue streams, and the system is not responsive to economic conditions. The current five-year revaluation cycle means that “over time businesses are often paying rates based on out of-date valuations.”

The system involves a “long and technical process of valuation, and a lack of correlation between the rates and businesses’ ability to pay”, plus the annual changes in the business rate multipliers, all combine to make the system opaque and hard for businesses to navigate, says the statement.

The business rates appeals system also creates financial uncertainty for local authorities. There is constantly a large volume of appeals to the Valuation Office Agency and the delays in solving these cases creates uncertainty for authorities, meaning they may have to refund several years’ worth of rates to businesses, playing havoc with their budgets.

Finally, the current system can reward perverse behaviour as it rewards large “space-hungry developments” often out of town, often to the detriment of town and city centres.

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