‘A perverse, uncompetitive system in dire need of reform’

‘A perverse, uncompetitive system in dire need of reform’

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 3.2pc. Just one month later this had fallen to 2.6pc.

There must be a better way for businesses to contribute to the cost of local services that is fairer and more transparent. 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 1.6pc of UK GDP – the highest share in Europe. Compare that to Germany at 0.3pc and France at 0.5pc.

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 0.1pc 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 not only lead to higher investment and create more jobs but eventually will also mean more tax receipts for the Exchequer when hard-pressed businesses 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.

John Longworth is Director-General of the British Chambers of Commerce

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