Business rates – the enemy of growth and investment

Business rates are stifling business growth. The next Government should prioritise reform

Wed 18th, Mar

What’s the most powerful deterrent for people thinking about starting their own business? Lack of finance? Fear of failure? Well, I would argue that we should look no further than business rates.

They also deter investment and, because they are based on the value of the property a business occupies rather than its profits, they penalise companies that need larger premises and the bills bear no relation to ability to pay.

Business rates are a principal reason why our high streets have too many empty units. What makes things worse is that traditional retailers are often in competition with internet giants whose tax arrangements they can only envy.

While corporation tax is deferred until a business starts making profits, even the smallest enterprise with the least access to finance has to pay often crippling charges from day one.

We have supported the British Chambers of Commerce in its call for a freeze on business rates until the revaluation scheduled for 2017.

Chancellor George Osborne, who postponed the revaluation until then, announced that the Treasury would review business rates in his last autumn statement.

Labour leader Ed Miliband has made encouraging noises about the need to cut business rates for small firms but has proposed to couple this with a delay to cuts in corporation tax. This would help struggling businesses which may have no profits to pay tax on, but for most it would simply be giving with one hand and taking away with the other – something politicians are good at.

The problem with business rates is that the system is so badly broken and such a deterrent to enterprise that it needs to be completely reformed. Tinkering just won’t do.

The problem is that this tax is worth more than £25bn a year to the Exchequer and it works as a sort of cross-subsidy between different parts of the country, with the surplus from richer districts being remitted in grants to support local government spending in poorer ones.

Therefore, any reform of the system may need to be considered in tandem with devolution in England and, unfortunately, that can only delay the process.

Nevertheless, we hope that whoever forms the next government will realise that business rates are making businesses ill – and a remedy is needed quickly.

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