Today EEF responded to the HMT’s discussion paper on changing business rates revaluation periods from five to three years.
Feedback from EEF members suggests that this move would be detrimental to a sector that requires certainty and stability in its cost base to make long-term investments. Let’s not forget that:
a. Manufacturers’ investment in R&D is six times higher and their investment in machinery three times higher than their output share of the economy.
b. In the post-war period, manufacturing productivity - as measured by output hour - has increased almost twice as fast as in the whole economy.
Given that the economy relies heavily on the manufacturing sector for investment and productivity growth, any policy that disrupts manufacturers’ ability to plan their investments should be avoided. This includes higher volatility in business rates bills and the inevitable additional administrative cost embedded in the switch to three year revaluation periods.
This is even more relevant in a post-Brexit world; surely there’s enough uncertainty in the economic landscape at the moment to warrant a reconsideration of whether topping that up with uncertainty about business rates bills is the right way to go. What’s more, the potential for an increase in administrative costs at a time that economic growth is likely to slow is a big no-no for manufacturers.
Below are some of the key points from EEF’s response:
1. Changes to the rateable value thresholds that businesses are required to pay business rates (from £6k to £12K) mean that those businesses arguing the strongest in favour of three year revaluation periods are now likely to fall outside the scope of the business rates system altogether.
2. Concerns about the flexibility of the business rates system to respond to real economic conditions can be accommodated within the existing system – such as through greater transparency and support at the local level (e.g. targeted reliefs for specific properties or activities), as well as through the switch to CPI from RPI in the uprating of the multiplier.
3. Certainty in business rates bills is more important than flexibility – manufacturers view business rates as a fixed cost, allowing them to factor that in when making long-term investment decisions.
4. Five year revaluation periods naturally align with manufacturers’ investment and business cycle.
5. The inevitable increase in the administrative cost for businesses arising from the need to self-asses property values in a system with more frequent revaluations will add to already ballooning costs for UK manufacturers.
Removing plant and machinery is back on the menu
We never miss an opportunity to argue against a counter-productive tax and our response to this discussion paper was no different. In our submission we reiterated our call for removing plant and machinery from the calculation of rateable values.
We’ve argued extensively that the inclusion of plant and machinery in the business rates system is a tax on productivity-enhancing capital spending, which seems contradictory in the context of the government’s efforts to boost productivity and investment in the economy.
This argument was echoed earlier in the week by the Business Secretary, Sajid Javid, in his five-point economic plan for the post-Brexit era. Hopefully this means that removing plant and machinery from business rates could be back on the menu in the next fiscal event.
The Business Secretary also called for doubling tax credits for Research & Development and increasing the annual investment allowance, both policies which are high on EEF’s priority list for the post-Brexit world published immediately after the referendum result on 24 June.
As EEF told the Chancellor this is the time to think how the Government can support businesses to propel economic growth in choppy waters. Fiscal consolidation – while still important – should take a back seat to this objective. Encouragingly, this appears to be message that was taken up by the Chancellor in his latest speech.