Business Rates system is holding back UK Investment and Competitiveness

I thought I would write a small piece about Business Rates and why I am against this tax which is not directly related to the ability to pay.

In the last few days the owners of the SSI iron and steel plant in Redcar announced a ‘pause’ in production. Since then the British steel industry has complained that they are finding it difficult to make iron and steel competitively in the UK due to high energy costs here compared with their competitors (even in other parts of Europe) and have called for Government help. As well as high energy costs, they also cited the UK’s Business Rates system as a reason for them not being competitive.

A spokesman for the British steel industry said that they can and would invest in more modern and efficient plant in the UK but the Business Rates system stops them. If they invest, what is a lot of money, in new plant and equipment, this increases their Business Rates bill before a single penny of new and additional income or profit has been made from which to make the payments.

I have heard this in many places and from many businesses over the years. Too many UK businesses continue to work with old and outdated equipment, not investing in new machinery and plant because of the fear of immediately getting an increased Business Rates bill – it is too risky for them. I don’t know enough about the detail of Research and Development Tax Credits and Capital Allowances to know if these outweigh the increased costs of additional Business Rates, but neither do too many of the businesses involved.

I have also heard the same thinking with regard to buildings. Over the years I have met many businesses owners who are in old poor quality and dilapidated buildings, who would like to refurbish them in order to give their staff better working conditions, and/or to be a good neighbour and improve the street scene, but this expenditure doesn’t actually give them any additional profit. They have the same concerns with building extensions to their premises in order to have space in which to increase capacity. They are reluctant to invest because they can’t afford the increased Business Rates Bill this will bring in. Removing this concern would help with efforts to regenerate places which are not in prime areas which will be regenerated anyway (or more likely redeveloped) via the property development industry; and with economic growth.

So, for these reasons, I believe that the Business Rates system needs not reform but abolition, to be replaced by something which is directly related to the ability to pay: perhaps a higher rate of corporation tax which doesn’t require complicated and time-consuming revaluations of property and rental values. Taxes based on income or profits are also something which can easily be adjusted (up or down) in order to reflect the needs of economic cycles and to address booms and busts.

As an aside, but I think an important one, the spokesman from the British steel industry also called on the Government to support it by ensuring that major UK infrastructure projects such as High Speed 2 and the new Nuclear Power Stations used steel which was made in the UK in order to ensure that the UK retains the manufacturing knowledge, skills and capacity. Supply chain and skills security should be just as important as energy security.

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3 Responses to Business Rates system is holding back UK Investment and Competitiveness

  1. David Cannon says:

    Wind farms & solar panels use steel.
    Nuclear Power; ‘No Thanks’. Too centralised, too capital intensive, too corporate, too vulnerable to major disasters, too supportive of nuclear weapons & its radio-active by-products too dangerous!!!
    Contradiction of using China & France for UK energy security???
    More localised renewables are our future…

  2. Ed says:

    The origins of Business Rates are as a property tax. Like Council Tax, it should really be converted to a land value tax in order not to discourage investments in building / plant / whatever. I was shocked to read that industrial plant is taxed in Business Rates, though I knew that buildings were.
    But I’d oppose scrapping a land/property tax for any category of users.

    • stevenboxall says:

      Hello Michael, thanks for commenting. I think it is interesting that we seem to agree on many things but I just can’t help not being a fan of land value taxation. To be fair, you are likely to have given the subject a lot more in depth thought than me, but I just keep seeing the down sides and think that they outweigh the advantages. If I don’t stop here (for now) I will go on far too long and I can’t do that today – but I do agree that ‘we’ have got far too much ‘value’ in property (and also think that corporations are not paying their fair share of tax)

      All the best, Steve.

      PS I did read your Thames Gateway paper over the weekend. Liked it.

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