Posted by

John Longworth, Director General

28 Nov 2013

For most business people across the country, there will be just one thing on their minds when the Chancellor delivers his Autumn Statement next week – will he act in the economic interest of the nation and announce a freeze on business rates? Business rates are an inflexible and irrational tax that thousands of companies have to pay before they turnover a single pound. We hear from our members constantly that they want to grow, but are held back because the business rates imposed on new premises are too punishing for them to bear. The last thing the government should be doing is weighing down on business growth, at a time when we need the economy to move from being just about good, to being truly great.

Though collected locally, business rates are set by central government and go up each year based on the September RPI inflation figure. Ministers claim this keeps the tax burden from rising in real terms. But in reality, RPI is not an accurate gauge of rising costs, and even the Office for National Statistics recently said it is not fit for purpose. Even if it were, using one month’s figure is completely irrational because recorded inflation changes from month to month and businesses need to plan. Take this year’s September figure of 3.2%. Just one month later this had fallen to 2.6%.

Without action from the Chancellor, firms face paying an extra £900m next year – that’s £200m more even than the rise seen last year. This will hammer businesses who are only just managing to get back on their feet following a challenging few years of economic instability. So we are calling for a freeze on rates and a review of the whole system.

There must be a better way for businesses to contribute to the cost of local services that is more transparent and fair. Here in the UK, we have the highest business rates bill in Europe. This completely goes against the government’s ambition of having one of the most competitive tax systems in the G20. Business rates revenue is the equivalent to 1.6% of UK GDP - the highest share in Europe. Compare that to Germany at 0.3% and France at 0.5%. This doesn’t sit well with the government’s pro-business mantra, and sends a confusing message about its devotion to improving the business environment – particularly when council tax bills have been frozen for years.

Some may argue that the government can’t afford to freeze rates at a time of austerity. But the cost to the exchequer of a two year freeze would be the equivalent to just 0.1% of government spending. Furthermore, we know that this can be accommodated within the government’s fiscal plan, given the estimated £11.5bn underspend from its budget last year, so it doesn’t have to affect local services.

There is no doubt in my mind that the business rates system is uncompetitive, perverse and in dire need of reform. A complete root and branch review, while rates are frozen for this year and next, is the only way to create a system that works for business, government and the economy as a whole. Lower business rates will lead to higher investment, more jobs, more businesses being able to export, and eventually more tax receipts for the exchequer when they start to make a profit. The Chancellor must use the Autumn Statement to diffuse this business rates crisis, so that businesses of all sizes can really thrive.