Inaction on business rates could cost businesses up to £9bn a year

New CBI analysis reveals that inaction on business rates, together with recent Government policy changes, including the National Living Wage and the Apprenticeship Levy, will cost businesses around £9 billion every year by 2020-21 and around £29 billion over the course of this Parliament.

Businesses are committed to delivering jobs, investment, raising skills and living standards - and will work with the Government on implementing the Apprenticeship Levy and National Living Wage.

However, the CBI cautions that the rising burden of policy costs has now crept up far enough, if the Government is serious about supporting the UK’s companies to drive growth in the economy.

In its Budget submission out today (Monday), the CBI urges the Chancellor not to increase this ‘cumulative burden’ on business further, and instead calls for a series of targeted steps to back UK-based businesses and support their growth ambitions.

Carolyn Fairbairn, CBI Director-General, said:

“A spate of recent Government policies, including the National Living Wage and the Apprenticeship Levy, will cost the economy around £9 billion a year by 2020.  The UK needs to be able to grow its way out of the deficit, but the danger of this rising policy burden is that it holds back businesses, particularly smaller firms.

“This cost burden has now crept up far enough, if the Government is serious about supporting the UK’s companies to drive growth in the economy.

“In this Budget, businesses will want to see the Government updating the UK’s business rates system, supporting investment through the capital allowance system and equipping our world-class innovators with the tools they need to compete globally.”

Among the CBI’s recommendations are:

• Tackling the UK’s outdated Business Rates regime, by switching the uprating of the tax rate (“multiplier”) from RPI to CPI, more frequent revaluations and taking the smallest businesses out of the tax altogether
• Setting a clear direction on energy policy through simplifying energy efficiency taxes, setting out the future of the Carbon Price Floor and providing clarity on the Levy Control Framework to support investment in low-carbon energy
• Supporting investment through increasing the scope of capital allowances and keeping the UK competitive on interest deductions for Corporation Tax
• Propelling innovation by broadening access to existing research and development (R&D) incentives and cutting the cost of recruitment of high-skilled employees for smaller innovators through a payroll incentive
• Providing stability for employees and companies by maintaining upfront National Insurance Contribution tax relief on pensions and marginal rate relief for middle-earning families. Removing these would be a false economy, damaging pension saving and increasing the fiscal load on the Government in years to come.

Commenting on the CBI's energy and pensions measures, Carolyn said:

“We now need to see clear and stable long-term price signals from the Government on energy.  It’s vital that investors can unlock the capital they need to plan for construction projects that will last into the next decade, creating jobs and boosting UK manufacturers in their supply chains.

“An overwhelming number of our members have told us they are concerned by repeated changes to pensions taxation.  The Government should stick with the current system, which ensures employers are able to do more than businesses in many countries in Europe.

“Any reduction in the role of the employer would only create greater fiscal pressure on the government in the long run.”

The CBI is calling for action in five areas: making the UK tax and regulatory system more competitive; creating the environment and capabilities to innovate; providing certainty on energy policy; promoting skills and talent needed for growth and improving access to world markets.

To read our letter to the Chancellor in full, please click here.

1. Globally competitive tax and regulation

Companies want the Government to set out a competitive Business Tax Roadmap for this Parliament, building on the positive progress made through the 2010 Corporation Tax Roadmap.

CBI recommendations include:

• Tackling the burden of Business Rates by making the regime simpler, fairer and more competitive by removing the smallest businesses with ‘rateable’ property values below £12,000 from Business Rates, more frequent revaluations and switch from RPI to CPI uprating
• Driving productive investment by improving capital allowances, through the introduction of an allowance for new investments in structures and associated buildings, and making the Enhanced Capital Allowances for energy efficiency more effective
• Ensuring employment tax policies do not jeopardise the UK’s flexible labour force while maintaining upfront tax relief on pensions
  • 79% of employers said changes to pensions taxation should not be a priority for the Government (CBI/Mercer pensions survey, October 2015)
  • 43% of employers say a loss of National Insurance Contribution relief would ‘significantly reduce our ability to contribute to employee pensions above the statutory minimum’ *
  • 59% of businesses believe that their employees would level down their own contributions if a flat rate was put in place over the current system of upfront tax relief. *
• Providing clarity on the long-term direction of a range of other taxes facing business, particularly those that have seen recent increases, such as Insurance Premium Tax and the 8% Corporation Tax surcharge on banks.

2. The environment and capabilities for innovation

Innovation investment is critical to productivity and global competitiveness.  Currently the UK is ranked lowest among the G8 for R&D spend.  In the Budget, the Government should support smaller innovators by broadening access to the UK’s existing R&D incentives.

The CBI is calling on the Government to:

• Allow small companies below the thresholds for quarterly payments of Corporation Tax to claim the benefits of R&D Tax Credits throughout the year, rather than wait until the end of the accounting period
• Consider a payroll incentive to help small firms with the costs of hiring the high-skilled staff needed for risky innovation projects
• Introduce an incentive for savers to allow them to invest long-term capital in scale-up companies.

Rain Newton-Smith, CBI Director of Economics, said:

“Sustainable public finances are essential to long-term prosperity, but we won’t get the deficit down unless businesses are freed up to deliver the jobs and investment our economy needs.

“That’s why we’re calling on the Government to refrain from layering further costs on firms, and instead to take a number of steps to support investment and propel innovation.”

3. World-class enabling industries and infrastructure across the UK

Energy users, investors and producers want the Budget to set out a long-term plan that supports investment in a secure, affordable and diverse energy mix.

CBI recommendations for the Chancellor include:

• Providing clarity on the future path of the Carbon Price Floor beyond 2020. The CBI believes that in the short term an extension of the current freeze would strike the right balance between encouraging low carbon investment and tackling high energy costs relative to other European nations

• Giving investors a clear view on the future of the Levy Control Framework beyond 2020/21 and reviewing the role of the Capacity Mechanism to ensure it is effective in driving the Government’s desired transition from coal to gas.

Juergen Maier, Chief Executive, Siemens plc said:

“Policy certainty is crucial to deliver competitive, secure and sustainable energy in the UK. Clarity on the future of the Levy Control Framework well beyond 2020, for example, will help the energy industry bring down costs and maximise jobs and industrial opportunities in renewable energy.  Similarly, and to ensure a balanced energy mix, we need action now to accelerate the transition away from coal to gas.”

4. Access to the skills, talent and capabilities needed for growth

The Budget is an opportunity to create a stable, business-led skills system that helps companies flourish, as well as the careers of apprentices.

The CBI wants the Government to:

• Work with business to give the Apprenticeship Levy system the best chance of long-term success; by ensuring that revenue from the levy solely funds apprenticeships, giving the new Institute for Apprenticeships credibility and longevity and allowing the system to flex for business needs by sector and commitment to training.

5. Easy and open access to world markets

With net trade likely to remain a drag on the UK’s economic outlook, doing what we can to boost our export performance is paramount.  It is down to individual businesses to step up to the exports challenge, but to support them the Government must offer consistent and clear advice for firms with international ambitions.

The CBI recommends that the Government:

• Sets up an independent national Exports Commission to help turn the UK’s export performance around
• Considers further financial products through UK Export Finance to underwrite some of the risks which small and medium-sized exporters face when exploring opportunities in new markets
• Freezes the remaining long-haul Band of Air Passenger Duty to support the development of new export routes.