Green light for investment: how the business rates system can encourage economic growth

The CBI has long been calling on the government to urgently reform the business rates system. This change would put business rates back on a sustainable path to supporting investment, economic growth and prosperity across the UK. We have welcomed the government’s review of the business rates system and their subsequent call for evidence and have drawn on the views across our membership to formulate our response to their tranche 1 and tranche 2 calls.

Business investment is a core determinant of sustainable economic growth and prosperity and should therefore be a pivotal part of rebuilding the economy following the pandemic. However, UK business investment remains weak both relative to historical standards and international peers, which means the potential gains from boosting business investment could be huge.

We believe that the policy environment needs to provide businesses with the confidence to invest, with tax policy a key lever the government can use to directly stimulate business investment.

As the government and business look to build back better, there is an opportunity to re-think the future of the business rates system. Businesses need certainty to be able to make investment decisions that will deliver the economic growth needed to help rebuild the economy. Business rates reform has a part to play in incentivising green investments in the stock of commercial property, as well as in ensuring that these investments, and by extension growth, is distributed evenly across the country.

We believe there has never been a better time for government to reform an overly complex business rates system and ensure that it is incentivising the right behaviours, is beneficial to business investment, and supportive of other government objectives such as green recovery.

However, business rates impact investment decisions at a time when business investment has a critical part to play in the economic recovery.  

As the government and business look to build back better, there is an opportunity to re-think the future of the business rates system. Businesses need certainty to be able to make investment decisions that will deliver the economic growth needed to help rebuild the economy. Business rates reform has a part to play in incentivising green investments in the stock of commercial property, as well as in ensuring that these investments, and by extension growth, is distributed evenly across the country. Businesses have shown the willingness to play their role in meeting the net-zero target; however, business rates stand in their way.

This is why we have partnered with Avison Young again to evidence the impact of business rates on business investment and consolidate the evidence from our members. Together, the CBI and Avison Young have developed a set of four proposals to reform the business rates system that will help to boost business investment more generally, while also supporting the green agenda, driving sustainable economic growth and prosperity.

The proposals can be grouped into two broader objectives:

• Encouraging investment in commercial property through a 12-month exemption as a minimum on any rateable value increase following property improvements, and a regular review of the P&M regulations
• Supporting the government’s net-zero ambition by exempting certain P&M and linking energy efficiency improvements to further business rates incentives.

While reform to the business rates system is not the only solution to both the business investment and the net-zero challenges, it has a critical role to play. Therefore, we believe the government should consider this business rates package of proposals as part of its wider policy thinking on how to ensure a sustainable economic recovery and become carbon neutral by 2050.

Download our full submission below and please get in touch with Adriana Curca for further information on the CBI’s business rates work.