Two leading property industry trade bodies have warned that unless government significantly changes the business rates system, businesses could face a 60% rate of tax by 2022.

In a joint response to the government’s review of business rates, the British Property Federation (BPF) and British Council of Shopping Centres (BCSC) have outlined how out-of-kilter the tax is with rental values, which it says have grown only 5% since 2000 and remain lower than their 2007 high.

The response cites research by a number of rating surveyors which suggests that the business rates multiplier applying after the 2017 business rates revaluation will represent a tax rate of over 50%, which is likely to increase to nearly 60% by 2022.2 The multiplier, which determines how high the business rates bill will be, is currently set at 49.3%.

Given that the UK already has one of the highest rates of property tax in the OECD, both the BPF and BCSC are concerned that this tax rate will negatively affect the UK’s competitiveness. In particular, such a high tax rate could – by putting additional pressure on rents – further discourage additional investment in real estate, particularly in more marginal locations. This would deprive small and growing companies of the space they need in order to thrive, ultimately stunting new job creation.

The response outlines the need for the introduction of a fixed business rates multiplier rather than one determined by RPI, which would align business rates more closely with wider economic conditions.

Further suggestions in the response include more frequent revaluations; ensuring that ratepayers’ liabilities always reflect up-to-date rental values, and reintroducing a relief for empty property rates.

The response also recommends a series of administrative changes to increase the predictability and transparency of the system in the short-term. These include a more streamlined appeals system, exploring the potential for a central collection/billing point and greater use of online tax compliance.

Melanie Leech, chief executive of the British Property Federation, said: “From the advent of the internet to the financial crash, the way we use property has seen enormous changes since business rates were introduced in the early nineties. In order to ensure that the business rates system is fair, government must ensure that the rates system takes account of these changes. Failure to do so could mean the UK missing out on investment, with longer term risks for the competitiveness of our economy.”

Edward Cooke, director of Policy and Public Affairs, BCSC, commented: “The current business rates system is an unsustainable way of raising tax to contribute towards running local public services. This has been reiterated time and time again, and Ministers’ statements and this review are an acknowledgement of this. Now government has a chance to show business that it believes in great British retailers and vibrant places as a key part of a multichannel retail future. The market in which these businesses operate is changing faster than ever and a tax system that reflects these fluctuations is critical.”

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