Embargoed: 00:01 Friday 14th October 2022
It’s widely known that business rates are impacting our High Streets. The TaxPayers’ Alliance’s (TPA) dynamic tax model shows that business rates stunts growth, chokes off investment and holds down wages
Were business rates to be abolished, GDP could be £34.5 billion higher by 2032. The modelling shows a range of other scenarios also increase growth
- At Conservative Party Conference, the TPA’s chief executive challenged the Chancellor to take action on business rates
At last week’s Conservative Party Conference, TPA chief executive John O’Connell challenged the Chancellor to take action on business rates during an ‘in conversation’ session. Referring to the review of the tax system announced during the ‘mini-budget’, Kwasi Kwarteng said to John “when I was BEIS Secretary, business rates came up a lot.”
The previous government committed to shortening the business rates revaluation cycle from five to three years from 2023. This will ensure the rate is more closely aligned to current market conditions, creating a fairer system for businesses. But high rates continue to strangle businesses and hold back economic growth.
Using a dynamic tax model that has been commissioned by the TaxPayers’ Alliance, this note demonstrates the real-world impact of business rates.
Key findings from the TPA’s dynamic tax model:
If business rates were abolished (in England), by 2032 GDP could be £34.5 billion higher, investment spending could be £8.6 billion greater and average weekly earnings could increase by £7.69.
That is a more than one per cent boost to GDP and an almost 3 per cent increase for investment. Average weekly earnings would also be more than one per cent higher.
The greatest proportional effect was higher investment spending: the impact across all four scenarios was almost three times greater than either average weekly earnings or GDP.
With abolition of business rates in England, investment spending could be 0.3 per cent higher each year.
Even with a 50 per cent reduction in business rates, there was a still noticeable increase in average weekly earnings. For instance, on an annual basis a 50 per cent reduction boosts earnings by enough to cover three weeks’ worth of average weekly expenditure on food and non-alcoholic drinks, which in 2021 was £69.20 per week.
John O’Connell, chief executive of the TaxPayers' Alliance, said:
"Business rates are one of the most damaging taxes for small firms, especially those on our high streets.
“After taking a hammering during the pandemic, many are still struggling to get back on their feet as inflation bites and economic headwinds make for a bumpy ride ahead.
“Tax cuts that help those who need it most - alongside more responsible spending - will deliver a strong boost to growth while giving a breather to small businesses under the cosh.”
The regional impact of business rates:
If business rates grow by the trend rate of GDP growth out to 2032, total receipts could be £27.6 billion. Assuming that regional proportions of contributions stay the same, London’s contribution would be just below £9 billion. In the absence of business rates, GDP in London alone could be £11.2 billion higher, with investment spending up by £2.8 billion by 2032.
There is wide variation in the business rates collected across local authorities. In the four local authority areas with the highest median price paid for a property in England – Kensington & Chelsea, Westminster, City of London and Hammersmith & Fulham – forecast net business rates ranged from £196 million to £1.9 billion in 2022-23.
Local authorities with the lowest forecast receipts from business rates – less than £20 million – are invariably rural and a smaller tier of local government: all but two below that threshold are district councils.
- The forecast average business rate receipt is £399 per person in 2022-23 (in England). In London, it is over twice the national average for England, at £837 per person. Removing London, the average is £319 nationally.
TPA spokesmen are available for live and pre-recorded broadcast interviews via 07795 084 113 (no texts)
Investigations Campaign Manager, TaxPayers' Alliance
24-hour media hotline: 07795 084 113 (no texts)
Notes to editors:
Founded in 2004 by Matthew Elliott and Andrew Allum, the TaxPayers' Alliance (TPA) campaigns to reform taxes and public services, cut waste and speak up for British taxpayers. Find out more at www.taxpayersalliance.com.
TaxPayers' Alliance's advisory council.
- The dynamic tax model, which looks at the impact of tax changes on growth, wages, and investments, was produced by economics consultancy Europe Economics for the TaxPayers’ Alliance.