Rishi Sunak is risking his Conservative credentials if he ignores business rates
For anyone who watches economic policy, reforming business rates seems rather like changing the House of Lords: everyone agrees it’s absolutely vital, the system needs to be modernised to enhance our productivity, but no one away from the think-tank fringes actually wants to get involved.
The chancellor, Rishi Sunak, promised in March 2020 to review the levy. A year later, the Treasury produced an interim report with a host of ideas from private industry but made no definitive promises. This only served to anger the business world which described it as a “huge disappointment”. A further review of the system is expected in this week’s Budget, but the mood music from Whitehall is that this will be a modest exercise. Wholesale rethinking will be pushed further down the track under the unconvincing banner of “more work needed”.
The Conservatives describe themselves as “the party of business”. They trumpet that “businesses are good for society” and that they want Britain to be “the best country in the world to start and grow a business”. Thirty years ago, this was a given. But as the political landscape becomes so fluid, as adherences and loyalties change and fall away, the government needs to answer tough questions about its commercial credentials.
The CBI is warning that green investment—increasingly not just the holy grail but the sine qua non of economic policy—needs a cut in business rates to stimulate its growth. It wants to see exemptions for environmentally friendly technology and decarbonisation, as part of a rolling narrative which leads all the way from next month’s Cop26 in Glasgow to the achievement of our Net Zero targets in 2050.
Another constituency pressing for change is the Conservatives’ new well of support in the North and Midlands, the so-called “Red Wall” seats. Both the Northern Research Group and Blue Collar Conservatism argue that a reduction in business rates is vital to translate promises into growth on the ground in these areas, and that failure to do so could mean the loss of some of the seats at the next election.
There is, of course, a discernible conflation here: when talking about the “reform” of business rates, many interested parties actually mean their reduction. The chancellor’s team is spinning that a proper intellectual exercise needs to be carried out, and points to the £16 billion in rate relief which the Treasury has already provided. Sunak is also said to want to address the issue of online retail and its battle with bricks-and-mortar stores.
Reforming business rates is hard. They are based on a valuation of a firm’s physical premises, which naturally penalises bricks-and-mortar; but any revaluation, or a change to the formula for the calculation, would be a political minefield (see the problems attendant on council tax revaluations) and would need to identify a different and better intellectual underpinning.
The government is caught, as with so many policy issues, between a very popular idea (reform business rates!) and a potentially unpopular execution (actually change them!). The House of Commons Treasury Committee looked at the alternatives in a thorough report two years ago. In its response, the government “commit[ted] to carrying out a fundamental review of business rates”. But that was not really answering the question posed.
The chancellor is that dangerous thing in politics, a clever man with ambition. If he wants to do some good, he must look at the income which business rates generate, whether that burden is too high or too low, and how else a similar sum could be raised from roughly the same constituency (or else how the burden can be reduced overall).
Business is Britain’s heart and soul of productivity. The chancellor has to find a way to nourish that heart and soul, so that it can fill voters’ pockets as well as the public purse.
It is St Crispin’s Day, so perhaps Sunak should consider the words of our national bard: “He which hath no stomach to this fight/Let him depart… all shall be forgot/But he’ll remember with advantages/What feats he did that day”.