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Ahead of COP26, employers representing more than 261,000 businesses and nine million employees say business rate reform essential for green investment
The CBI, along with 41 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Presently, in England, the existing, outdated and outmoded business rate regime acts as a drag on the government’s goal of a high wage, high productivity and high investment economy.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 41 trade associations including British Retail Consortium, UK Hospitality and SMMT, representing around 261,000 businesses and nine million employees (see notes to editors for full list of TAs).
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, 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.
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 as business organisations representing 261,000 employers, want to see government act now to:
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.
Supportive quotes from key trade associations:
Helen Dickinson OBE, Chief Executive of the British Retail Consortium, said:
“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.”
Michael Hawes, Society of Motor Manufacturers & Traders, said:
“The business rates system is overdue an overhaul. Business rates are an absolute, and relatively high, fixed cost, unresponsive to the economic cycle and generally seen as a competitive disadvantage when UK automotive plants compete with others across Europe and beyond. The current arrangements, whereby anyone wanting to invest in new equipment – especially green technologies – sees their business rates rise, is a perverse disincentive to investment and productivity improvement. To address this uncompetitive situation, rateable and non-rateable plant and machinery should be removed from manufacturing business rates valuation. Automotive is fully supportive of the government’s levelling-up and net zero ambitions but we need a modern and progressive rates regime, one that incentivises investment and helps deliver productivity improvements.
James Lowman, Association of Convenience Stores chief executive, said: “The business rates system acts as a brake on investment and growth, with local shops penalised for investing in improving their stores and expanding the range of essential services they provide within local communities. We need a system that is fair, accounts for the changing nature of the economy and incentivises investments.”
Emma McClarkin, British Beer & Pub Association chief executive, said:
“The BBPA supports CBI’s calls for reforms to the broken Business Rates system. We agree that the current way of taxing our nation’s pubs and brewers is, as CBI concludes, uncompetitive, unproductive and unfair. Our sector was overpaying by as much as £570 million before Covid and cannot afford to be shouldering this unfair burden any longer. The pub acts as a community anchor and as we come out of lockdown, we need a Business Rates system that supports investment in our sector just as investment in our sector supports the community.”
Kate Nicholls, Chief Executive of UK Hospitality, said:
“The current business rates system has long been unfit for purpose and places an unfair burden on all types of hospitality venues. Fundamental reform is long overdue and it’s vital that Government recognises the severity of this issue, as the large, fixed costs of rates bills will hamper the sector’s ability to recover from the pandemic if not addressed. We urge the Government to work closely with the sector to introduce a business tax system fit for the modern world and which empowers hospitality businesses to invest, create jobs and continue their essential role in local communities and high streets across the UK.”
Melanie Leech, Chief Executive, British Property Federation said:
“The business rates system is undermining town centre recovery and poses a significant risk to the future of our high street businesses. Business rates have become so unaffordable, they are now hampering town centres’ ability to adapt, modernise and thrive. Fundamental business rates reform will unlock much-needed investment for businesses, town centre regeneration and the nation’s net zero ambitions – the Government cannot afford to waste this opportunity.”
The BSSA support the CBI’s call for reform of the Business Rates