ICAEW has proposed practical measures for business rates reform, such as a rates break and a rates-free period, to provide short-term improvements to the system and make it more business-friendly, as the Chancellor prepares her Budget for 26 November.

Business rates can almost act as a tax on the expansion of premises and productivity investment when faced with the prospect of a rates increase. ICAEW has said repeatedly that the tax is a “major obstacle” to delivering a level playing field for businesses. A survey of 500 members has found that 62% would favour replacing the current business rates system with one that rewards investment and green upgrades as a means to achieving business growth in the UK.

Business rates continue to hold back growth, despite several reviews of the tax and a commitment from the government to replace the system.

In its pre-Budget submission to HM Treasury, ICAEW outlined four ways the government could get reform going with small changes ahead of any substantive changes:

• A rates break on a new property when a business moves premises. This would reduce costs associated with needing to retain two premises during transition, which would remove one disincentive for businesses to expand.
• Rates-free periods or reductions to help a business increase in size, to prevent a lag between taking on increased costs and generating incremental revenue.
• Increased limits under which properties can qualify for small rates relief, so more small properties are in scope.
• Reducing by half the percentages by which rate liabilities can increase year-on-year under transitional relief.

These measures would support growth while preserving the £29bn in revenues that business rates raises.

“The business rates system is poorly designed and creates a major obstacle to delivering a level playing field for businesses,” said Frank Haskew, ICAEW Head of Taxation Policy.

Bold action now, such as the tax break for businesses moving to a new property, would be a shot in the arm for the UK high street, he added.

“While business rates remain an important source of revenue for local authorities, the system must be evolved to support a modern, dynamic economy that provides a more stable platform for businesses and for both central and local government.”