7 February 2016

  |  CBI Press Team


Out of date Business Rates hit UK firms - and getting worse

The CBI is calling on the Government to put reform of business rates at the heart of its Business Tax Roadmap at Budget 2016.

The current system is outdated and is undermining our high streets and manufacturers and makes investment in commercial property unattractive, which results in sub-standard premises and a drag on productivity. That's according to a new CBI briefing.

The UK’s leading business group argues that the current system is based on a decades-old model, unresponsive to changes in economic conditions and an increasing tax burden on firms. In the last seven years, tax revenue growth from business rates has far outpaced other taxes (up 28%) and the Government’s overall tax take.

A distorted business rates system means that there are powerful incentives to convert commercial property into residential – up 80% in 2014/15 alone. New commercial property developments in depressed areas, where property demand is lower and more price sensitive, have been made less viable because of business rates. The resulting lower quality, higher cost, commercial property starves high growth businesses from the premises they need to grow.

The CBI is calling for the Government to make the system:

  • Simpler, by removing businesses with a “rateable” property value of less than £12,000 from the system altogether
  • Fairer, by carrying out more frequent valuations of “rateable” property values
  • More competitive, addressing the unsustainable rate of increases, by changing the index for annual increases in business rates from the Retail Price Index to the Consumer Price Index.

Rain Newton-Smith, CBI Economics Director, said:

“The current business rates system is from another era and proving an ever-increasing problem for firms, hitting our high streets and manufacturers across the country. And devolving business rates does not tackle the significant problems that this distortive tax is causing for businesses.

“The high tax rate makes investment in new commercial property pretty unattractive in some depressed parts of the country where property demand is lower, resulting in sub-standard business premises and blocking growth across the UK.

“The Government cannot put business rates reform off forever and we want to see urgent action taken at the Budget. Business wants to see the smallest firms completely removed from the system, more frequent valuations and ensure the system is tied to the Consumer Price Index to make it fairer and more competitive.”

In the longer-term, more fundamental reform of business rates will deliver further improvements to the UK business environment: using modern technology to deliver an online one-stop shop for billing and payment and showing a lighter touch valuation by excluding new investments in plant, machinery and energy efficiency.