Today (Sunday), the British Chambers of Commerce has published its Autumn Statement submission, calling on the government to freeze business rates for the next two years.
Ahead of the Chancellor’s announcement on December 5th, the business group is urging the government to conduct an extensive review and completely reform the business rates system by 2015, with a new, more responsive and transparent system enacted early in the next parliament.
• Abandon up-rating business rates for the next two financial years (2014/2015 and 2015/2016).
• The cost to the exchequer of a two-year freeze would be around £1.7bn, which is equivalent to just 0.1% of total government spending.
• The cost of a freeze can be accommodated within the government’s fiscal plan, for instance by using some of the estimated £11.5bn underspend1 from last year.
• The government should conduct a comprehensive review of the business rates system by 2015, so that a new, more responsive system can be enacted early in the next parliament.
• The new system should be fair for businesses across the UK, flexible enough to respond to changes in the economic cycle, and defined according to an appropriate measure of business costs.
THE CASE FOR BUSINESS RATE REFORM:
• An iniquitous tax that aggravates already uncertain business cashflow and imposes hefty new costs. Business rates are fixed no matter the stage of the economic cycle, company performance or ability to pay. Businesses have had to absorb relentless increases in the uniform business rate, in line with the September Retail Prices Index figure. The 2.6% rise in April 2013 followed a 5.6% rise in 2012 and a 4.6% rise in 2011.
• Up-rating on September’s RPI inflation figure alone is unsustainable, and adds uncertainty to rising costs. Take this year’s figure for September, which was 3.2%. Just one month later this had fallen to 2.6%, highlighting the absurdity of using just one month’s figure to determine the additional tax that businesses pay.
• Businesses face paying £900m extra next year due to inflation linked up-rating. If the government up-rates business rates in line with the September RPI figure of 3.2%, the additional rates businesses will have to pay due to RPI up-rating will rise by around £900m. This is £200m more than the £700m rise seen in 2013/2014.
• The business rates system is at odds with the government’s pro-business rhetoric. Freezing council tax while continuing to increase business rates sends confusing messages to business people about the government’s devotion to improving the business environment. According to the OBR, business rate receipts are set to exceed council tax receipts by 2015/2016.
• UK firms face the highest business rates bill in Europe. This goes against the government’s ambition of having one of the most competitive tax systems in the G20. Research shows that UK revenue from business rates is equivalent to 1.6% of GDP – the highest of any country in Europe and double the combined income from business property taxes in Germany (0.3%) and France (0.5%).2
• Continued pressure on business cashflow can impact firms’ decision to export. BCC research shows that more than 70% of potential exporters said that cashflow and payment risk influenced their decision on whether to export. We must address this constraint on growth if we are to rebalance the economy towards exports.
Commenting, John Longworth, Director General of the British Chambers of Commerce (BCC), said:
“There is no question that the business rates system is broken. This is a tax that hits companies of all sizes long before they a make profit, and acts as a drag on business growth and investment. Firms across the UK have been crying out for relief from these burdensome taxes for years, but so far their pleas have been ignored. It is cynical to freeze council tax while allowing the pain caused by business rates to continue, and goes against pro-business pledges made by the government. The cost of spiralling business rate bills is without a doubt the most commonly cited issue facing firms’ ability to grow. We have just seen that RPI inflation dropped off in October after a spike in September. But it is the higher figure used to determine the additional tax that businesses pay. Now, firms across the country have reached boiling point, and demand action to reform the system as a whole.
“The Chancellor should use the Autumn Statement to announce a two-year freeze on business rates, along with a root and branch reform of the entire system. We need a new framework that is more flexible, transparent and responsive to changes in the economic environment. We know this costs money, but there is scope to do it within the government’s fiscal plan. That way, businesses can put more money into driving economic growth, which benefits UK plc far more than the cost to the Treasury.”