Business rate reform could generate £1.75bn, says BPF

10 Dec 15

The business rates system is hindering development and reforming it could boost the economy by £1.75bn and create almost 4,000 jobs over the next five years, the British Property Federation has concluded.

A BPF, conducted with the British Council of Shopping Centers and British Council for Offices, found approximately three quarters of any increase in business rates is transferred to landlords as occupiers push for lower rents. 

As a result, higher rates limit the rents landlord are able to charge, leading to less new real estate development.

The report by economic consultancy firm Regeneris found that over the past three years, annual increases in business rates may therefore have led to the economy missing out on as much as £670m of new development.

Ahead of the outcome of the government’s review of business rates, which is expected to report at Budget 2016, the organisations called on government to reduce the burden of business rates and introduce more frequent revaluations.

The Treasury review is being conducted as the government also develops plans to devolve rate revenue to local government by the end of the decade. Today’s report found that if business rates increased in line with inflation as planned over the next five years, approximately £1.75bn of new commercial property development could be foregone, affecting as many as 4,000 jobs. 

Revaluations are carried out every five years, which the groups concluded was too infrequent to pick up changes in wider economic conditions.

Ion Fletcher, BPF’s director of policy (finance), said the close relationship between business rates and rents suggested new development could respond positively to reductions in rates if councils used the devolved powers to cut the multiplier from 2020.

“Business rates are often seen as a cost for occupiers; one that gets in the way of growing their businesses. This research shows that business rates also harm landlords and in particular they discourage new, economically valuable development,” he said.

“The government’s desire to maintain a high level of income from business rates, although understandable, means we are missing out on opportunities to provide new jobs, skills and growth in various sectors of the economy, not least construction and retail.”

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