Business rates reform is needed to boost local economies

16 Apr 15

Amid a changing municipal landscape, local enterprise partnerships, business improvement districts and businesses themselves need to take a lead on developing reforms to the out-of-date system of business rates.

Regardless of who becomes Prime Minister in four weeks’ time, the message to small business is clear – business rates will soon be reformed. Chancellor George Osborne’s Budget announcement of a ‘radical’ investigation into the reform of the current business rate system delivered news that businesses have been demanding for a long time. During her recent visit to Camden Collective business support initiative, Labour’s shadow work and pensions secretary Rachel Reeves also announced Labour’s intention to freeze and cut business rates, indicating a broad consensus on the need for reform.

Britain has 1.8 million businesses paying rates, and the highest business rates of any EU country. The system dates back to the 1601 Poor Law, with rates calculated on the basis of property rental value, rather than turnover. However, this system fails entirely to take into account modern developments. For example, online retailers, who may enjoy a substantial turnover but only need minimal office space, pay relatively low levies in comparison to businesses based in large premises.

A review is therefore desperately needed in order to reinstate a level playing field between small and large companies, giving firms of all sizes a fair chance to grow and develop without the hindrance of disproportionate business rates.

Business leaders, local enterprise partnerships and business improvement districts need to take a position of leadership on the matter. As I have commented before, the municipal landscape of London is morphing; sub-regional bodies and their private sector partners have the resources and flexibility to react to the needs of local areas, and make changes according to specific and unique circumstances. These entities are in a position to build a consensus on what the new rates system should look like, in order to create a fairer landscape that accounts for the invaluable contribution high street businesses make to our economy.

Businesses that already pay a levy towards their BID should be protected from the possibility of higher fees in the form of the Business Rate Supplement, currently under consideration for funding Crossrail 2. The financial contribution of small firms through their BID levy already helps to make a significant improvement to the surrounding area. Businesses paying a levy towards Camden Town Unlimited, for example, have funded the creation of a hugely successful regeneration project that incubates countless young, independent businesses, offers free technical and creative courses, and provides retail space for designers to showcase their products.

Small- and medium-sized enterprises should be at the heart of business rates reform. There seems to be some optimism, albeit extremely cautious, that a new system in place will take into account the struggles of smaller companies and provide an environment where they are able to thrive, rather than being stifled by crippling rates.

  • Simon Pitkeathley

    Chief executive of Camden Town Unlimited, private sector co-chair of the Cross River Partnership and chair of the London Enterprise Panel’s European Structural & Investment Funds (ESIF) Committee

Did you enjoy this article?