CBI calls for reform of business rates

In a report, From slabs to slices: The path to business rates reform, the CBI said the current system is “one of the biggest challenges affecting competitiveness for firms of every size and sector”, with its members complaining the regime is “over-complex and unfair, cumbersome yet unpredictable”.

Recommendations in the report included:

• Moving towards a progressive tax system that provides certainty
• Greater support for investment
• A streamlined reliefs system
• Overhaul of the Valuation Office Agency (VOA)

The Labour Party committed to replacing the business rate system in its general election manifesto, while the CBI’s own 2024 Business Rates Reform Project has seen consultation with business leaders.

Progressive tax system

The report suggested moving business rates multipliers from an “all or nothing” (“slab”) system to a banded (“slice”) one, removing cliff edges and “barriers to expansion”. It added that an extra zero band would also reduce the need for a separate small business rate relief and the “associated administrative burden” that brings.

“The cost of shifting from a ‘slab’ to a ‘slice’ approach would depend on the thresholds and multiplier rates used,” it added. “However, this requires careful consideration as achieving revenue neutrality under a ‘slice’ system risks increasing the tax burden for many businesses.”

Revaluations

The report also called for annual revaluations from 2029, which it says will create a system that is “responsive to economic conditions and therefore sustainable”, reducing the need for future reliefs and reform.

The current revaluation cycles are causing “significant business uncertainty”, it added, with revaluations only taking effect once every three years and a full cycle taking two years, so the tax base can be as much as five years behind the rest of the economy.

The CBI said annual revaluations would ensure “greater business certainty” but warned that this cannot happen overnight and a “realistic” roadmap which phases in annual revaluations will be required.

VOA

The CBI said “more can be done” by the VOA to ensure that its workings and decisions are more transparent. It said by using three different methods of working out rateable value, the VOA “add complexity” in the system, resulting in “wildly different” costs for otherwise similar buildings.

It also suggested delaying the “duty to notify” for businesses of changes to their property from 2026 to 2028 and introducing metrics to measure VOA performance, especially in relation to customer satisfaction.

Reliefs and exemptions

While the report said reliefs and exemptions are “necessary to an extent”, it warned that they can be complex and expensive. “The vast number of overlapping reliefs in the English business rates system creates complexity, and the lack of transparency on how they work or how to apply for them adds to the difficulties faced by business in trying to navigate the system,” it said.

The report targeted charitable rate relief and the inclusion of public buildings as areas for government review, while adding that other recommendations in the paper, such as moving to a more progressive tax system and annual revaluations, will diminish the need for small business rate relief and transitional relief.

Investment

Recommendations in the report around encouraging investment included making improvement relief more generous and conducting an impact assessment to help understand how empty property relief can produce “better outcomes”. It called for the Treasury to conduct an impact assessment on extending empty property relief from three to six months, with a 50% discount thereafter.

It added that the green plant and machinery exemption should include “key green growth technologies” CCUS (carbon capture, utilisation, and storage) and hydrogen but warned that capital allowances “do little to incentivise the transition to net zero”. “The introduction of a green super deduction would shift the dial on investing in making buildings more energy efficient,” it added.

Conclusion

Concluding, the report said business rates reform is “needed to develop a better system that is underpinned by the principles of certainty, transparency, simplicity, competitiveness and fairness”.

However, it warned that a condition that the new system should continue to raise the same amount of revenue “undermines the fairness the government aims to achieve”.

“It is imperative that this condition be re-evaluated to ensure that business rates reform is approached with an open mind,” the report added. “Not doing so risks business rates reform that inadvertently sustains the imbalances it seeks to rectify.”

The CBI also urged the government to engage with itself and the wider business community to help create a reformed business rates system that “aligns with this report’s principles”.