Employers groups representing more than a quarter of jobs in Britain have called on Rishi Sunak to cut business rates in the budget later this month to unlock billions of pounds of investment in London.
In a joint statement ahead of the chancellor's post-lockdown budget, the Confederation of British Industry CBI and 41 other leading trade groups demand fundamental changes to the system which taxes companies based on the premises they operate.
Representing more than 260,000 businesses and 9 million employees between them, the trade groups warned failure to take action would weigh on the government s ambition to create a high-wage, high-productivity and high-investment economy.
The intervention will add to pressure on the chancellor for new business rates, after a flurry of demands from Labour MPs and a proposal from Red Wall Labour to phase them out altogether. Companies are looking for help from the chancellor as they face severe headwinds from soaring costs and supply chain disruption caused by Brexit.
The industry groups representing all sectors of the UK economy from airports to pubs, shops, construction and manufacturing said that the current system served as a tax on investment and could hold back firms from spending on green projects and boosting their operations outside London and large cities.
Their statement urged the chancellor to announce a cut in business rates alongside other reforms to lower the burden on firms, including removing disincentives for green investment.
Under the current system, a company investing in its physical premises by installing solar panels or heat pumps could add to the value of the building, raising its rateable value and therefore their tax burden.
The recommendation echoes the proposals presented at last month's Labour Conference by the shadow chancellor Rachel Reeves. Reeves said a Labour government would replace business rates and eventually freeze them with a new, as yet undefined system which she said would reward investment, with a particular focus on businesses investing in decarbonisation and green technology.
Labour is looking to position itself as an ally of business while Boris Johnson's Tories raise taxes on firms despite mounting costs facing companies and weaker economic growth.
Responding to the CBI statement, Reeves said it was clear that the business rates system was no longer fit for purpose. It deters new-pack companies in favour of online giants and penalises them from investing in green technologies, she said.
According to the trade associations that include the British Retail Consortium, UK Hospitality and the Federation of Master Builders, up to 50% of business investment is potentially subjected to business rates.
The groups told the chancellor that decisions made in autumn would dictate the shape of Britain's economic recovery from pandemic and whether firms could meet ambitious targets to decarbonise the economy.
Issuing a warning in a joint statement: If we are to truly level up and meet our Net Zero commitments, leading by example in the year we host Cop 26, then unleashing a wave of business investment should be the focus. The following years of consultations on the future of the fundamental rates system will culminate in the autumn budget, with repeated delays to an initial review by Sunak.
Several major companies, including Tesco, B&Q and Waterstones have warned the government that failure to take action would put thousands of high street jobs at risk while allowing online giants to avoid paying fair taxes. With far smaller physical footprints, in cheaper locations outside high city centres, digital firms pay less in business rates than traditional retailers with wider networks of digital stores.
Earlier this year it emerged the Treasury was mulling options for an online sales tax as part of the business rates review. While such a step is opposed by some large retail partners, it is supported by others including large trade bodies.
Rain Newton-Smith, chief economics of the CBI, said Sunak could not afford to delay taking action on business rates. If the government wants to achieve its long grass ambitions, kicking reforms further into net zero can not be the answer, she said.
Action to get investment flowing to and around the UK is vital to strengthen our recovery. The government deserves credit for convening a supply chain advisory group to unblock intermediate challenges, but as we see with energy prices, there is no substitute for longer-term planning and investment. A government spokesperson said it would conclude the business rate review this autumn and had provided extensive business rates relief in the pandemic worth 16 bn with support continuing until March next year.
We ve also shown that we support investment through the tax system, in particular by increasing the Annual Investment Allowance for another year and by introducing the super-deduction the biggest business tax cut in modern British history.