Pandemic pushes business rates to change in England

Pandemic pushes business rates to change in England

There is broad consensus that the current Business Rates system is out-of-date, unsustainable and in urgent need of reform. The CBI and Avison Young argue that the pandemic has fast-forwarded that need for change with so many businesses – retailers, manufacturers and distributors – under serious strain.

In a new joint report, “Over-rated – Making the case for business rates reform”, the CBI and Avison Young reveal that the burden of business rates in England – at nearly 50p in the pound – will continue to climb without reform. New analysis reveals that would cost businesses at least an extra £6bn over the next 5 years.

The CBI’s Chief Economist, Rain Newton-Smith, warns that “left unchecked business rates will continue to rise; sinking many investment plans, hitting bottom lines and inadvertently growing inequality between England’s richest and poorest areas”.

Business Rates are and should remain an important source of revenue in England, for both central and local authorities. But the Government has rightly recognised the need for reform by launching a fundamental review and the subsequent call for evidence which rightly identifies the key issues. As a first step to reform, the CBI and Avison Young have set out a package of 12 critical measures, which would save business £21.8 billion over 5 years including:

  • For the remainder of the 2017 revaluation period (up to 2022/23), the government should freeze the Uniform Business Rate (UBR) at its current 49.9p and therefore not continue to index it in line with CPI. This is estimated to cost around £0.8 billion.
  • At future revaluations, the government should reduce the business rates burden by fixing the UBR at a much lower and sustainable rate to realign it with growth in rental values. At a minimum, the government should offset the cost of delaying the switch from RPI to CPI, equating to a reduction in the UBR from 49.9p to 44p, an estimated saving of £17.7 billion. 44p is still well above the original rate of 35p when the tax was introduced in the 1990s and higher than many other countries.
  • The government should delay the next valuation date until 1st October 2021, shortening the valuation period to 18 months, to ensure bills reflect the economic situation of the day and the property market in a post Covid-19 world. Subsequent revaluations should consider reducing this period to 12 months.
  • Reliefs should continue to be targeted to support the most vulnerable businesses, but reform would ensure they also continue to serve their intended purpose. That can be achieved in part by removing transitional arrangements for properties whose rateable values decrease but maintaining that support for those whose rates will increase. It is estimated that would cost the government up to £2bn.
Rain Newton-Smith, CBI Chief Economist, said:

“It’s no secret that the Business Rates system in England is archaic and unsustainable. The Government gets it and knows that action is needed. It’s a real drain on many businesses and that’s why business rates relief was one of the first levers the Government reached for in their business support packages in spring.

But the pandemic has fast-forwarded the need for wholesale change. The scale of economic damage from COVID-19, along with growing shifts towards online retail and remote working, is a heavy weight to bear for already struggling businesses.

Left unchecked business rates will continue to rise, sinking many investment plans, hitting bottom lines and inadvertently growing inequality between England’s richest and poorest areas.

So the Government review must be the moment where we finally rethink the future of the system to one that is fairer, encourages investment and supports its levelling up agenda.”

For more details on the information mentioned, please visit the CBI website.

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