Contributed by Sybron
7/10/2020 - Avison Young
There is broad consensus that the current Business Rates system is out-of-date, unsustainable and in urgent need of reform. Inaction would mean more than £6bn added to business bills over the next 5 years. The CBI and Avison Young argue that the pandemic has fast-forwarded that need for change with so many businesses – retailers, manufacturers and distributors – under serious strain.
In a new joint report, “Over-rated – Making the case for business rates reform”, the CBI and Avison Young reveal that the burden of business rates in England – at nearly 50p in the pound – will continue to climb without reform. New analysis reveals that would cost businesses at least an extra £6bn over the next 5 years.
The CBI’s Chief Economist, Rain Newton-Smith, warns that “left unchecked business rates will continue to rise; sinking many investment plans, hitting bottom lines and inadvertently growing inequality between England’s richest and poorest areas”.
Business Rates are and should remain an important source of revenue in England, for both central and local authorities. But the Government has rightly recognised the need for reform by launching a fundamental review and the subsequent call for evidence which rightly identifies the key issues. As a first step to reform, the CBI and Avison Young have set out a package of 12 critical measures, which would save business £21.8 billion over 5 years including:
Rain Newton-Smith, CBI Chief Economist, said:
“It’s no secret that the Business Rates system in England is archaic and unsustainable.
“The Government gets it and knows that action is needed. It’s a real drain on many businesses and that’s why business rates relief was one of the first levers the Government reached for in their business support packages in spring.
“But the pandemic has fast-forwarded the need for wholesale change. The scale of economic damage from COVID-19, along with growing shifts towards online retail and remote working, is a heavy weight to bear for already struggling businesses.
“Left unchecked business rates will continue to rise, sinking many investment plans, hitting bottom lines and inadvertently growing inequality between England’s richest and poorest areas.
“The Government review must be the moment where we finally rethink the future of the system to one that is fairer, encourages investment and supports its leveling up agenda.
“Businesses want to see a freeze in the rate before taking steps to lower the rate by 2023.
“Reducing the overall burden of business rates has the potential to realise wider economic benefits, increasing tax revenue elsewhere in the system. We are rebuilding our economy and that can only be achieved with a tax system that supports, not hinders business efforts.
“Shorter valuation periods to ensure that bills match the economic conditions of the day and supporting those who will have higher bills in any revaluation, can be key planks to a successful programme of reform.
“Our proposals would be an important first step towards a fair and sustainable system and the Autumn Budget would provide an opportunity to get the ball rolling. At a cost of £21.8bn over 5 years this is obviously not cheap, but now is the time for the Government to take action to drive investment and growth in the economy.”
David Jones, Principal and Managing Director, Business Rates at Avison Young, said:
“The government for the last thirty years has enjoyed absolute certainty in business rates revenue, confident that income would be protected through inflation. Revaluations have helped redistribute the tax base, but the underlying trend of rates collected has increased out of recognition to the performance of the commercial rental market.
“The result has been an increase in the tax rate to over 50p, 40% higher than when first introduced in 1990, and the highest % tax rate in the UK. The government had the chance in 2011 to align inflationary increases with the lower CPI measure but failed to act for seven years at a cost of £13 billion to business.
“The time for action is now to reverse the decision of the past, freeze bills for the next two years, and then reduce and fix the future UBR to 44p. From April 2023 any future growth in the tax must be created from rental performance through regular revaluations. Business needs help to build back better after the Covid-19 pandemic. Business rates can be used as a major tool and our proposed package over the next 5 years delivering savings of £21.8 billion will act as a stimulus for business growth through investment.
“Reliefs need to be fair and equitable. Fundamentally, the tax needs to be fit to meet the dynamic challenges of the 21st Century and encourage not detract from business decision making.”
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