Reforming business rates: Fixing a broken system

A 10-point plan for ensuring that a reformed business rates system puts local economic growth at its heart.

Briefing published on 29 October 2020 by Kathrin Enenkel, Tom Aubrey and Tom Sells

Business rates are one of the most important taxes for local government, yet our current system has come under huge scrutiny in recent years. This much-maligned tax has been blamed for the struggles of retailers, the death of the high street and for exacerbating the country’s economic divides.

Responding to this criticism, the Chancellor is reviewing the current business rates system. In response to this review this briefing sets out the problems with business rates as they are, and makes proposals for a reformed system that would support cities and towns in improving their businesses environments, raise productivity and boost prosperity.

What’s wrong with the business rates system?

The report identifies four fundamental problems with business rates:

  1. Business rates do not reflect local economic realities
  2. Business rates are too complex
  3. Business rates disincentivise investment
  4. Business rates do not incentivise local growth

How should the business rates system be improved?

We have set out eleven proposals for reforming of business rates in a way that addresses each of these issues.

 Reflecting local economic realities

  1. Introduce annual business rates revaluations
  2. Devolve the valuation process to local government

Simplifying the system

  1. Ensure the valuation process uses the most up to date local economic information transparently
  2. Reform the system of discounts and incentives
  3. Make landlords take on 50 per cent business rates liability
  4. Abolish business rate relief, with some exceptions for community groups
  5. Equalise the empty rates relief between retail and industrial units

Promoting investment

  1. Remove plant and machinery from the valuation process

Incentivise local growth

  1. Allow local authorities that participate in a new pooling system to retain 100 per cent of business rate revenue growth
  2. Remove the cap on total business rates revenue.

These recommendations are inspired by changes made the Dutch business rates in the 1990s, which faced very similar challenges to those that the English system faces today. The Dutch experience, which is referred to throughout this briefing, demonstrates that it is possible to successfully reform a centralised, slow and cumbersome business rates system and turn it into a more responsive and fair tax that considers actual local conditions and rewards local economic growth.

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