Rishi Sunak delays business rates reform

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Rishi Sunak
Rishi Sunak

The Government has stepped up its war on corporate Britain by snubbing a call from the CBI and 41 other trade associations to announce a business rates overhaul at the upcoming Budget.

Government plans for a major overhaul of the controversial levy have been “thrown into the long grass” and only smaller scale tweaks will be unveiled by Rishi Sunak, the Chancellor, later this month, The Telegraph has learned.

Mr Sunak is committed to reforming the system in England but has not had enough time to consider the impact of a significant shake up due to the pandemic, Government sources said.

The Treasury is expected to publish its review into business rates at the Budget on October 27, after it was delayed beyond the earlier Budget in March this year.

Minor changes to the system are expected to be announced, but “wholesale reform” has been shelved until a later date so ministers and officials can undertake further work.

Business rates are based on the property value of a company’s physical premises, sparking criticism that the present system unfairly hits firms with bricks-and-mortar sites compared with online retailers.

It is thought there will not be any change announced to the valuations of properties, which is technically complex and would have significant political consequences. Moves to slash business rates on green investments are also unlikely, it is understood.

The Confederation of British Industry (CBI) and other trade associations representing more than a quarter of a million businesses will on Thursday warn ahead of the COP26 climate summit that business rate reform is essential to catalyse green investment.

The “outdated” present system sees rates slapped on up to 50pc of business investments in England, industry chiefs will say, arguing it disincentivises firms investing in decarbonisation and other moves to boost productivity.

They called for the system to be adapted to adjust more quickly to economic changes, and for green machinery and technology to be exempted from rates.

“Reforms will have real-world ramifications for investment in local communities, in creating the jobs of the future, and to help meet our net zero ambitions,” bosses said. ‘They will unlock business investment to boost the UK’s international competitiveness.”

Rain Newton-Smith, chief economist at the CBI, said demands for rates reform “unites firms spanning the whole economy”.

“If the Government is serious about achieving its net zero ambitions, kicking reforms further into the long grass cannot be the answer,” she said.

Their intervention follows two influential factions of Tory MPs joining forces this week to demand a cut to business rates at the Budget, arguing it is key to Boris Johnson’s flagship “levelling up” agenda.

More than 100 parliamentarians spanning the Northern Research Group and the Blue Collar Conservatives cautioned that the party could lose a series of “Red Wall” constituencies across the north at the next election if the Treasury fails to take action this month.

The growing momentum of the campaign for business rate reform has sparked alarm in Whitehall that companies may be expecting a wholesale overhaul to be unveiled later this month.

Small-scale changes are being looked at, it is understood, but a Government source told The Telegraph: “I think the expectations are quite high and the reality is we just haven’t had enough time to look at it. It’s obviously something that needs looking at. Rishi is keen to do a proper reform of the whole system.”

The Chancellor believes that reform is particularly needed to tackle “the problem of high street versus online” retailers, the source added.

However, the economic turmoil sparked by Covid-19 has prevented the Treasury having the time and resources to examine in depth any alternative systems at this juncture.

A source close to the Chancellor stressed that £16bn in rate relief has already been pumped towards sectors such as hospitality and retail during the pandemic, meaning some of the worst-hit industries have already had a reprieve.

Labour has pledged to scrap business rates altogether and replace them with a system that is “fit for the 21st century”.

Responding to the business groups’ call, Rachel Reeves, shadow chancellor, said the current system “penalises high-street shops in favour of online giants and deters businesses from investing in new green technologies”.

A government spokesperson said: “We’ve provided extensive business rates relief worth £16 billion to support businesses and the high street throughout the pandemic, with support continuing until March next year.

“We’ve also shown we are committed to supporting investment through the tax system, extending the Annual Investment Allowance increase for another year and introducing the super-deduction – the biggest business tax cut in modern British history.”

They confirmed the business rates review will conclude this autumn.

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