Identifying areas for business rates reform

The ask 

Business rates are out of balance, unjust and inequitable. This campaign brings together the businesses most affected by business rates to deliver a policy proposal that sets a clear path forward for the next government.

At the first meeting, the CBI convened businesses to discuss the principles that should underpin our reform proposal (certainty, transparency simplicity, competitiveness, and fairness). And we refined the scope of the campaign by identifying areas of consensus to improve the current business rates system.

The second meeting 

The CBI convened businesses across all sectors to discuss the trade-offs associated with reducing the business rates burden. Given the tight fiscal environment the next government will inherit, any proposals would need to ensure revenue neutrality – meaning that a new system would need to raise the same amount of tax revenue. Attendees representing their various businesses discussed the implications of introducing and/or raising other taxes such as a General Sales Tax (GST), Value Added Tax (VAT) or Land Value Tax (LVT).

Businesses in the room told us that: 

• They would not want to shift the whole burden of business rates onto a different tax.
• They recognise the political difficulty in raising VAT or introducing a GST which would trickle down to consumers.
• They noted the difficulty in designing and implementing a LVT and the complexity that would introduce, which is a tough option for them to get behind without knowing how much businesses would be paying.

Identifying areas for reform within the current system 

Following the initial conversation, the participants then divided into break out rooms to discuss how the business rates system could be made more certain, competitive and fair. Measures included changes to the multiplier, having a more progressive business rates system and reducing barriers to investment.

Businesses in the room told us that: 

• It is hard to agree on an exact number for the multiplier, but they all agree that it is too high, and it should not be allowed to keep going up indefinitely. 
• They pointed out that unlike other taxes, business rates can punish businesses on two fronts: through higher rateable values and inflation-adjusted multipliers. 
• They would like to remove the link with inflation by fixing the multiplier, and to have more frequent valuations to accurately reflect rent increases. 
• There was limited appeal to the idea of sector-specific multipliers, but some were open to considering the idea of property-specific or tiered multipliers. Some voiced concerns that this would add yet more complexity to the system.
• Businesses agreed that the current business rates system imposes barriers to green investment, and there is significant scope for both the business rates system and capital allowances to play more of a role to incentivise green investment. 
• They noted that the current set of reliefs and exemptions available do not provide the certainty required to boost long-term investment, as they are mostly discretionary and temporary. 
• They suggested reviewing the existing reliefs and exemptions as significant savings are possible which can in turn enable a reduction of the multiplier, or to amend them in a way which incentivises the right type of investment.

What’s next? 

The CBI will take away some of the proposals discussed in this meeting and draft more detailed policy proposals, accompanied by the relevant economic analysis. The proposals will be presented at the next and final roundtable, taking place on Monday 8 July.

In the meantime, the CBI team will continue to engage with political stakeholders and officials, keeping them updated on policy development and sharing the member feedback provided during these first two roundtables.