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

Business investment is a core factor 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. The policy environment needs to provide businesses with the confidence to invest, with tax policy being a key lever the government can use to directly stimulate business investment.

However, there are gaps in the tax system for incentivising investment in commercial property (whether new builds or property improvements), despite investment in commercial property remaining a core part of business investment. On top of this, the business rates system is a key barrier when making decisions to invest in commercial property. While there are many levers the government can use to stimulate business investment, addressing the challenges in the business rates system would play an important part. Through reform of the system, business rates could also play a critical role in meeting our net-zero ambitions by driving investment in low carbon technologies for commercial property. It is therefore important that the government consider business rates reform as part of its wider policy agenda, including how to ensure a sustainable economic recovery.

This is why we have partnered with Avison Young again to examine the impact of business rates on business investment. Together, we have developed a set of proposals to reform the business rates system that we hope will help to address these challenges and 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.

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