The business rates system has become “uneconomical” and “unsustainable”, and should be reviewed, the Confederation of British Industry (CBI) has said.
Business rates are a tax on most properties used for business purposes, and are calculated based on an estimate of the property’s open market rental value.
The CBI argues that long gaps between rate revaluations mean business rates are lagging behind economic cycles and rises in property costs.
In some cases, businesses’ tax bills have surged by up to 50% due to property prices increasing in the time between business rates revaluations.
John Allen, president of the CBI, said the system “rewards those places already on their way up in the short-term, but eventually pulls the rug from under them”, and “punishes those areas that are already struggling”.
He also said the system in its current form disincentivises investment, as improvements to an existing property result in higher rates.
The Government has said it is already making business rates fairer, having announced measures to help smaller retail businesses in Budget 2018 last autumn.
From 6 April 2019, business rates were reduced by a third for retail properties with a rateable value of less than £51,000. This is set to remain in place for both 2019/20 and 2020/21.
However, the CBI says small changes like this are not enough, and is calling for a full review of the business rates system.
“These tweaks have only served to reinforce the idea that business rates are a high street issue rather than a problem for our whole economy.
“And the more sticky plasters we add, the greater the signal that the system is broken and in need of a fundamental rethink.”
In February 2019, the Treasury committee launched an inquiry into business rates and their impact on businesses.
It looks into the way business rates policy has changed over time, and examines alternatives to property-based business taxes.
This includes the proposal of a digital services tax, which the Government has said it will introduce in April 2020.
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