CBI at odds with councils over business rate reforms

Council chief executives have warned the government to steer clear of business rates reforms championed by business leaders which could fillet £1.5bn from budgets by the end of this parliament.

In its response to a Treasury consultation on the structure of the non-domestic rates system, the Confederation of British Industry (CBI) called for increases to be calculated using the Consumer Price Index (CPI), rather than Retail Price Index inflation (RPI).

The CBI says the move would be fair because it would stop business rates outpacing the official measure of inflation, which now uses CPI as its basis.

Katja Hall, deputy director general of the CBI, said: “The current business rates system harms businesses by relying on a decades-old model that no longer reflects economic conditions. That’s made life tough for retailers in particular.

“These reforms are long overdue so it’s good that the government is following through on its commitment to look closely at how it can help alleviate the most onerous aspects of business rates.”

She said that moving to CPI to calculate business rate increased could benefit businesses by £1.5bn by 2020/21. But Graham McDonald, director of Solace, the representative body for chief executives and senior managers working in the public sector, told Room151: “Of course that figure would need to be made up from somewhere else by local government. I suspect that the same taxpayers would end up paying the same amount somewhere else in the system.

“The CBI talks a lot about taxpayers but what we can’t forget is that tax funds adult social care as well as services that support businesses individually.”

However, he agreed that the system needed some reform to correct unfairness which he said was disincentivising business growth.

Business rates are a hotly contested area. Many councils claim they are disadvantaged by the volume of rate appeals and last week London Councils, the body representing councils in the capital, claimed  the business rate retention scheme introduced by the current government in 2012 had failed as an incentive for job creation and enterprise.

The recommendation to move to a CPI-based system is one of a raft of unimplemented recommendations included in a review of UK high streets undertaken by retail guru Mary Portas in 2011.

Elsewhere in its submission to the Treasury, The CBI set itself firmly against devolving rate-setting powers to local authorities, a move for which the Local Government Association has called.

Hall said: “We must avoid devolving rate-setting powers as this will create an uneven playing field, distort growth across the UK and add extra costs for companies.

“Any further moves towards business rates retention must be backed up by clear evidence that it contributes to growth. As far as businesses are concerned the case is yet to be proven.”

Photo (cropped): William Warby, Flickr