There has been a lot of talk about business rates in recent months, with many calling for 'fundamental reform' of the system. The Government published a discussion paper, submissions to which closed today. EEF's response is summarised below.
Many have suggested business rates discourages investment, due to the nature in which property rateable values (on which the tax is applied) are calculated. This calculation takes into account some installed plant and machinery.
We tested this view with manufacturers and the sign is that for the vast majority, other taxes such as Corporation tax, NICs and R&D tax credits are more likely to determine levels of investment in the UK, the level of business rates is not seen as a high priority in normal economic circumstances. However clearly in the recent downturn, for some businesses in some sectors, it did become an onerous burden on the cost of doing business.
In our forthcoming investment survey, only 3.6% of respondents chose the impact on their business rates valuation as one of their top three options impacting on their level of investment in plant and machinery in the next two years. This lack of a link between business rates and investment intentions has also been picked up by other surveys.
However it is worth stressing that for larger manufacturers the picture will be different, as investment decisions will be taking place at a global level. Additionally, the way larger sites have their rateable values calculated means that a disproportionate weight is put on the level of plant and machinery installed.
Feedback from members suggests that business rates accounts for between 1 and 3% of site operating expenditure
And more generally, it is seen as a fixed cost. Suggested changes by others such as moving to more frequent revaluations (currently every five years) received a strong negative reaction from manufacturers, as this would reduce the predictability of this fixed and manageable cost. Possibly resulting in wildly fluctuating bills year on year.
This is not to say that there are not problems with the current system, but manufacturers would prefer the fundamental structure, namely individualised rateable values, five year revaluations and a multiplier set at the national level, to be kept in place.
Within this however there are some changes which should improve the operation of the system:
Move to an annual average CPI rate to uprate the multiplier each year, rather than the preceding September's RPI
- CPI is more stable and our analysis shows that on average ratepayers would have paid £1,200 less across the last four years compared to the present system
Reintroduce a Committee to look at plant and machinery orders alongside the creation of every new Rating List
- The rules governing what plant and machinery should be considered when developing rateable values were last significantly looked at in 1993. Much has changed in how businesses operate but the system has fallen behind, a regular review would keep this up to date.
Alongside this exempt plant and machinery which is required for regulatory or statutory reasons from the calculation of rateable values
- It seems to us perverse that certain plant and machinery can be mandated and that this stipulation then increases the tax liability
Move ratepayers with a rateable value above £3m and who own or occupy sites across multiple billing authorities to the Central/National Rating List
- Realistically (due to the way the tax is pooled at the national level and then redistributed to local authorities) these rate payers are contributing to several local authority budgets, but yet when a discretionary relief is required (such as for temporary or partial shut downs) the lost revenue affects only the local authority in which the site is based.
- By moving such sites to the Central Rating List, such reliefs would be applied to from the Secretary of State, allowing local authorities to focus their discretionary reliefs on genuinely local businesses.
Extend empty property rates relief for industrial buildings from 6 months to 12 months
- Manufacturers are aware of the current national financial constraints and are not seeking to return to the previous regime (where empty industrial property enjoyed 100% relief); however given the downturn in the property market, the 6 month window for empty rates relief is not sufficient to allow for property to be sold. We recommend an extension to 12 months with a similar proportionate increase for other business sectors.
These changes will continue to ensure a predictable and stable environment for manufacturers, ensuring that long term investments continue and that the overall business rate system is kept up to date with changing business practices.