Dianne Sharp: reform of the business rates system is needed

Regional head of the CBI says the current system is outdated and unfair to some sectors

Dianne Sharp
Dianne Sharp

Businesses from a variety of sectors are calling for the fundamental reform of business rates, beyond what the Treasury have done thus far in their technical review and the Autumn statement.

The increase in the ‘high street discount’ for around 300,000 shops, pubs, cafes and restaurants from £1,000 to £1,500, and the extension of the cap on the annual increase in business rates at 2% from April 2015 to March 2016 were welcomed, but more needs to be done.

The CBI believes the Government should reform the business rates system, because the system is uncompetitive, distortive and complex. Government should commit to reforms which can address all of the issues outlined below at once:

* High business rates burden relative to international rivals;

* As some sectors move away from property usage, the tax is becoming increasingly concentrated in businesses or sectors that remain property-intensive;

* The revaluation cycle means rates are often out of kilter with rental values, and there are negative economic outcomes during a downturn due to the counter-cyclical nature of the system.

Failing businesses with empty property are punished by being charged rates, and there are perverse incentives on energy efficiency, where companies are discouraged from increasing efficiency due to the higher rates that will follow. Furthermore growing firms which move to a larger property are penalised with a higher business rates payment.

The CBI is of the view that the Government can send a positive signal to firms of all sizes and in a whole range of sectors by setting out a clear package of reforms.

First, the Government should switch from uprating business rates by the Retail Price Index to an uprating based on the annualised Consumer Price Index. This would bring the uprating of business rates into line with the Bank of England’s official measure of inflation.

Second, the Government should consider how SMEs can be removed from the system altogether through exempting properties with a rateable value of £12,000 or below from the business rates system. The Treasury spends a considerable amount of time administering the collection of business rates from these small properties in return for minimal revenue, so such as move would save the Government time without a sizeable exchequer cost.

Third, the Government must commit to more frequent property valuations.

Obviously, we understand the ongoing need to eliminate the deficit and recognise that this limits the government’s firepower, but are firmly of the view that steps can and should be taken now to tackle the business rates burden which affects retailers, manufacturers and many other businesses in the North East and the rest of the UK regardless of their profitability.

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