Rishi Sunak urged to cut business rates to unlock billions in investment

British High Street job losses

Employers’ groups representing more than a quarter of jobs in Britain have called on Rishi Sunak to cut business rates in the budget later this month to unlock billions of pounds of investment in the economy.

In a joint statement ahead of the chancellor’s post-lockdown budget, the Confederation of British Industry (CBI) and 41 other leading trade groups are demanding fundamental changes to the system, which taxes companies based on the premises they occupy.

Representing more than 260,000 businesses and 9 million employees between them, the trade groups warned failure to take action would weigh on the government’s ambition to create a high-wage, high-productivity and high-investment economy.

The intervention will add to pressure on the chancellor to cut business rates after a flurry of demands from “red wall” Tory MPs and a proposal from Labour to phase them out entirely. Companies are looking for help from the chancellor as they face severe headwinds from soaring costs and supply chain disruption caused by Covid and Brexit.

The industry groups – representing all sectors of the UK economy from airports to pubs, shops, construction and manufacturing – said the current system served as a tax on investment and could hold back firms from spending on green projects and boosting their operations outside London and large cities.

Their statement urged the chancellor to announce a cut in business rates alongside other reforms to lower the burden on firms, including removing disincentives for green investment.

Under the current system, a company investing in its physical premises by installing solar panels or heat pumps could add to the value of the building, raising its rateable value and therefore the firm’s tax burden.

The recommendation echoes proposals made by the shadow chancellor, Rachel Reeves, at last month’s Labour conference. Reeves said a Labour government would freeze business rates and eventually replace them with a new, as yet undefined system that she said would reward investment, with a particular focus on businesses investing in decarbonisation and green technology.

Labour is seeking to position itself as an ally of business while Boris Johnson’s Tories raise taxes on firms despite soaring costs facing companies and weaker economic growth.

Responding to the CBI statement, Reeves said it was clear the business rates system was no longer fit for purpose. “It penalises high-street shops in favour of online giants and deters businesses from investing in new green technologies,” she said.

According to the trade associations – which include the British Retail Consortium, UK Hospitality and the Federation of Master Builders – up to 50% of business investment is potentially subject to business rates.

The groups told the chancellor that decisions made this autumn would dictate the shape of Britain’s economic recovery from the pandemic and whether firms could meet ambitious targets to decarbonise the economy.

Issuing the warning in a joint statement, they said: “If we as a country are to truly level up and meet our net zero commitments, leading by example in the year we host Cop26, then unleashing a wave of business investment should be the focus.”

Sunak is due to conclude years of consultations on the future of the business rates system at the autumn budget, after repeated delays to a fundamental government review.

Several major companies, including Tesco, B&Q and Waterstones, have warned the government that failure to take action would put thousands of high street jobs at risk, while allowing online giants to avoid paying fair taxes. With far smaller physical footprints, in cheaper locations outside big city centres, digital firms pay less in business rates than traditional retailers with vast networks of high street stores.

Earlier this year it emerged the Treasury was mulling options for an online sales tax as part of the business rates review. While such a step would be supported by some large retailers, it is opposed by others including large trade bodies.

Rain Newton-Smith, the chief economist of the CBI, said Sunak could not afford to delay taking action on business rates. “If the government is serious about achieving its net zero ambitions, kicking reforms further into the long grass cannot be the answer,” she said.

“Action to get investment flowing into and around the UK is sorely needed to reinforce our recovery. The government deserves credit for convening the supply chain advisory group to unblock temporary challenges, but as we’re seeing with energy prices, there is no substitute for longer-term planning and investment.”

A government spokesperson said it would conclude the business rates review this autumn and had provided extensive business rates relief worth £16bn during 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.”