How the government can improve the business rates system for manufacturers

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Last week we made our submission to the Treasury as part of their structural review of the system of business rates in England. We've previously blogged about business rates before.

 

The review presented an opportunity for all interested parties to put forward changes.

 

It's clear that the case for moving to a fundamentally different system has not been made.

Stability must be front and centre

For manufacturers, the key outcome following reform of the business rates system must be a tax that is more stable and where business investment leads to more predictable returns and clarity on future tax liabilities.


As part of that, maintaining the fundamental structure of the system is key, primarily:

  • Individual site valuations
  • 5 yearly revaluation periods
  • A nationally set multiplier and
  • The system remaining as a property based tax

 

EEF members see no value in exploring other options for the tax base.



We believe that the system can be geared towards supporting better balanced growth of increased levels of investment, productivity and exports across the UK economy. EEF's recommendations for changes in our submission are based on that rationale.

 

An end to taxing movable investments

While the system doesn't dissuade renewal or replacement investment projects in general, there is evidence to suggest that for those with higher rateable values it is enough to put off capacity increasing investment, potentially pushing these overseas.

 

As part of our work for this review, it became clear that Britain is in the minority when it comes to taxing equipment and machinery - a burden that weighs more heavily on investment intensive sectors such as manufacturing.


While it would be difficult to shift immovable non-domestic property from one country to another, shifting the investment location for movable items to areas where they are not subject to higher levels of tax as part of the rating process, can take place.

 

Our key recommendation therefore is that plant and machinery should be removed from rateable value assessments. This would gear the system towards supporting those wishing to make productive investments.

 

Other improvements we would like to see as part of the system include shifting the annual uprate of the multiplier from a September RPI to an annual average CPI figure. CPI is a more stable measure of inflation and this would make bills more stable year on year, without eroding the long-run tax base.

 

Additionally business investments to improve the use of energy and with it business productivity should be treated in a neutral way and not, as at present, increase the business rates liability of properties.

 

Delivering an internationally competitive system

Manufacturing as a sector is more productive and investment intensive than the whole economy average. As the government grapples with the UK’s productivity challenge, seeking ways to build on the strength of the manufacturing sectors productivity will be crucial.


Tax is an important part of that picture, in particular the importance of gearing the tax system towards encouraging higher levels of productive investment.

 

EEF believes that the system must be updated to remove plant and machinery to ensure manufacturers are operating in a more internationally competitive environment.

Author

This person has now left EEF. Please contact us on 0808 168 1874 or email us at enquiries@eef.org.uk if you have any questions.

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