Leading business groups join forces to call for business rates reform

Ahead of COP26, employers representing around 261,000 businesses and nine million employees say business rates reform is essential for green investment

The CLA, along with the CBI and 40 trade associations spanning the UK economy, have issued a joint statement outlining how action by the Chancellor at the Budget to reform the current business rates system could unleash a wave of business investment across key government priorities, including net zero and levelling up.

Presently, in England, the existing, outdated and outmoded business rate regime acts as a drag on the government’s goal of a high wage, high productivity and high investment economy.

With up to 50% of business investment potentially subject to business rates, the current system actively disincentivises business investment in decarbonisation and wider investments which can improve all-important productivity, which is the only sustainable route to higher wages.

The joint statement from businesses is backed by 40 trade associations including British Retail Consortium, UK Hospitality and SMMT, representing around 261,000 businesses and nine million employees .

CLA President Mark Bridgeman said:

“We have long supported reform of the current business rates system in order to encourage investment. The rural economy has immense potential for economic growth and job creation, but we need the right policies to unleash it, and this includes a fair and proportionate business rate system which would help incentivise businesses to increase investment to the benefit of the wider economy.”

“Our rural economy is 18% less productive than the national average, but realising this untapped potential could grow the rural economy by billions of pounds each year. Business rates disadvantage rural businesses as they are supported by less infrastructure than their urban counterparts but are still taxed the same way. Business rates need to be proportionate to the profitability of the business, and the economy more widely. A fundamental reform of business rates should also encourage green investment, not tax it.”

Rain Newton-Smith, CBI Chief Economist, said:

“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.”

The joint statement reads:

Government and business are united in a mission to Build Back Better and Greener from the global pandemic. If we as a country are to truly level up and meet our net zero commitments, leading by example in the year we host COP26, then unleashing a wave of business investment should be the focus. Up to 50% of business investment is potentially subject to business rates[1], so the financial burden on firms is high and the 2023 revaluation could see it increasing further. Therefore, with the current business rates system acting as a tax on investment, action is needed to rebuild the UK’s international competitiveness.

The Government has confirmed that policy announcements as part of the long-awaited reform of the business rates system will now be made this autumn. Firms need to see fundamental reform of the system to address long-standing barriers to investment. The Government has backed business throughout the pandemic with short-term reliefs, but as businesses begin to rebuild, they need the confidence to invest.

However, the current system hasn’t kept pace with the challenges and opportunities we face as a country. No business begrudges paying into the tax system, and the pandemic has shown how important and valued our public services are. But in their current form, our business rates system is uncompetitive, unproductive and unfair.

Uncompetitive, when compared to international rivals. UK property tax levels are four times higher than Germany’s, and 50% higher than the G7 average, as a proportion of GDP[2].

Unproductive, in that they directly put firms off from investing to make their business more energy efficient or competitive. If a business invests in solar panels, or other plant & machinery to improve their property, this increases their rates bill. As these investments take several years to yield a return, the immediate increase in rates often makes the investments unviable.

And unfair, when the current system helps ingrain considerable inequalities between the richest and poorest areas of the country, penalising businesses in areas of slower growth.

Reform to address these inefficiencies can be acted on through this Autumn’s policy decisions. We want to see government act now to:

  1. Reduce the overall burden of the business rates system to unlock business investment in net zero and support levelling-up. Allow business rates liabilities to fall in line with property values, and without further increases in the headline rate, equivalent to a reduction in the uniform business rate for these businesses. Ensure firms can instantly benefit from any fall in property values following a revaluation, while maintaining a phased transition to a higher bill where property values increase.
  2. Increase the frequency of business rates revaluations and ensure rates adjust quickly to economic changes to ensure business rates reflect firms’ ability to pay.
  3. Create a ‘Greener’ business rates system to support the government’s net zero ambition, unlocking investment to make buildings more energy efficient and decarbonising property stock, starting with exempting green Plant & Machinery and new technologies that directly link to the ‘green’ agenda, including solar PV and heat pumps, from business rates.

Reforms will have real-world ramifications for investment in local communities, in creating the jobs of the future, and to help meet our net zero ambitions. They will unlock business investment to boost the UK’s international competitiveness.

Decisions this Autumn must lead to real change and set the parameters for a new, modern system that rewards investment, turbo charges net zero and kickstarts growth for the next decade.