CBI reveals how Rachel Reeves can reform business rates regime at the Budget - and why change is needed

Firms right across Yorkshire and the Humber have told myself and my CBI colleagues that the current business rates system is too complex, unpredictable and unfair, dampening productivity and economic growth.

In effect it works against investment plans for businesses from factories and airports to pubs and offices.

Whether they want to make their buildings more energy-efficient or upgrade their manufacturing plant or rebuild a high street shop, firms often face a raft of challenges resulting in thousands of pounds in unexpected costs and cumbersome red tape.

The CBI is ready to partner with Labour to deliver its manifesto commitment on business rates reform to revitalise the high street and boost long-term, sustainable growth.

Now is the time to move away from an all or nothing system, staggered with cliff edges to a progressive tax system that is predictable and fair – closer in style to the banding of income taxes.

We should also include a zero band, cutting the need for separate reliefs for small properties which add to the complexity. The current revaluation system for business properties is neither of these things.

Revaluations can be up to five times behind real property values, which combined with inflationary rises, leaves many businesses reeling.

Instead of our haphazard revaluation cycles, the CBI proposes phasing up to annual revaluations from 2029 – to give firms certainty that when the economy and property values shift, the tax base keeps pace.

Let’s not forget that tax can be used to encourage the flow of private investment whilst helping to tackle the climate emergency by incentivising firms to green their existing shops, offices and factories. But harsh business rate calculations discourage investment in renovating and improving buildings, which is no small problem given the built environment accounts for 40 per cent of the UK carbon footprint.

A targeted green super-deduction with a capital allowance rate of at least 120 per cent has the potential to supercharge net zero investment.

Simplifying the system to remove the patchwork of reliefs, with no less than 26 different schemes, is critical.

The short-term, sticking plaster approach that these reliefs offer is not for purpose in a modern economy. A review of all reliefs is urgently needed, removing them where possible and favouring strategic reforms instead. That said, we know reform takes time, and it’s clear that we need a bridge between the current system and any long-term systematic changes.

That could mean short-term support for the most adversely affected sectors, which could be delivered, along with a long-term plan, at the coming Autumn Budget.

If the Government is serious about having the highest, sustained growth in the G7 it has to be bold when it comes to business rates reform. That means accepting reforms will bring in less revenue. Business in our region cannot be allowed to endure harsh and disproportionate penalties simply to maintain the status quo in terms of revenue neutrality.

Of course, business rates are a vital and substantial part of the UK’s tax system, but they are currently out of kilter with our European counterparts. At present, the UK consistently has one of the highest property tax levels in the OECD, with a share of GDP figure more than three times that of Germany.

Moreover, the complexities and imbalances in the system are working against firms who want to invest and grow.

Beckie Hart is CBI regional director for Yorkshire and Humber