Business rates system a major barrier to UK investment and competitiveness – CBI

A new CBI survey of nearly 700 businesses across the UK has revealed stark evidence that the current business rates system is acting as a major brake on investment, productivity and economic growth.

• Nearly a third of all respondents (32%) said that the business rates system has played a major role in cancelled, reduced, or delayed planned investment in their property. Of those 222 respondents:
  • The overwhelming majority (76%) say that higher overall business rates bills suppress investment.
  • More than half (53%) say uncertainty about future liabilities undermines their ability to plan long-term investment.
  • Nearly a quarter (22%) reported that losing rates reliefs directly affected their investment decisions.
• Three in ten (30%) of all 694 businesses surveyed said they would reinvest as much as 91–100% of any potential savings from lower business rates, with a focus on: productivity, automation and AI (49%); property improvements (37%); and hiring and recruitment (35%).
• One airport operator warned that their rates bill will rise by 112% by 2028–29 when transitional relief ends – making business rates the organisation's single largest non-employee cost.
• Facing a 200% increase to its rateable value, an infrastructure operator has halted millions of pounds of planned rail investments.

For the second consecutive year, the UK has the highest property tax levels in the OECD, with property tax as a share of GDP four times higher than Germany. Businesses say that the level of their business rates bills and the system's unpredictability, complexity and “cliff edges” are undermining confidence and deterring investment.

That's why the CBI is urging governments at a national and devolved level to deliver fundamental reform to boost competitiveness and support long-term investment across the UK. This reflects longstanding concerns raised by CBI members about the impact of business rates on investment decisions, and comes at a critical moment as the government considers options for reform in the context of boosting UK investment.

CBI members report that business rates:

• Increase both the cost and risk of investing in property and productive assets.
• Often function as a “tax on improvement”, with bills rising after refurbishments, expansions or sustainability upgrades.
• Are fixed and difficult to mitigate operationally, unlike labour, energy or supply chain costs.
• Are highly unpredictable, with new valuations and multipliers making long-term planning difficult.

Louise Hellem, CBI Chief Economist, said:

“Business rates are no longer just a cost of doing business – they're a major tax on ambition and one that effectively penalises investment. When a single refurbishment can trigger a 40% increase in rateable value, or a £1 change can move a firm from one band to another and add £39,000 to their bill, the system is clearly not fit for purpose in a competitive, modern economy.

“That uncertainty is a growth killer, with vital projects being delayed, scaled back or cancelled. Businesses are clear that, if the burden of business rates were reduced, savings would be reinvested productively across the economy. Without reform, we're missing out on huge economic gains, stifling better transport connections for everyone, and putting a lid on much-needed job creation and training opportunities.

“Reform of the business rates system is no longer a ‘nice to do', it's an economic necessity. If we want to unlock private investment, level up local economies and support the UK's long term growth ambitions, there's simply no time to wait.”

A call for fundamental reform

To create a system that supports rather than suppresses business investment, the CBI is urging government to adopt three core principles:

1. Remove the revenue neutrality constraint
   Reform must deliver real relief, not simply shuffle costs from one sector to another to ensure that the total amount of revenue collected by the Exchequer remains the same.
2. Increase certainty and transparency
   Fixing multipliers, improving the valuation process, and making it possible to plan ahead without fear of sudden bill shocks.
3. Support investment and growth
   Removing cliff edges by moving from a slab to a slice-based system, strengthening improvement and empty property reliefs, and incentivising green investment.

Meaningful business rates reform would unlock materially higher levels of private investment, stimulate productivity and better align the tax system with our competitors – as well as shoring up the UK's long term growth ambitions.

ENDS

Notes to editors:

A total of 694 UK firms responded to the survey.