CBI: Business rates 'need fundamental reform'

"Business rates form part of the overall tax competitiveness story for the UK, and we should be looking to have one of the most competitive regimes for business in order to attract investment," she said. "This government has made some good progress on corporation tax, but we've got one of the least competitive business rate tax systems in the world."

The Business Innovation and Skills (BIS) committee, led by MP Adrian Bailey, has argued that business rates should be replaced by a sales tax. Sir James Mirrlees, who conducted a review of the tax system with the Institute for Fiscal Studies, believes a tax on land values would be fairer.

"We think they should look at more frequent revaluations. Part of the problem is that property values end up being not a reflector of the market. We also think that we should move as quickly as possible to end the link between business rates increases and the retail prices index, and at the very least link it to the [lower] consumer price index, but we think there's a case maybe for linking it to rental values in the local economy."

The CBI calculates that exempting SMEs would cost the Exchequer about £1.5bn. However, Ms Hall said a good proportion of this would be clawed back through savings. "Even if a business isn't making a profit, they still have to pay business rates, and ultimately local authorities spend a lot of time administering them for SMEs but they're not worth not that much money," she said.

The Treasury raised almost £27bn from business rates last year, nearly as much as it gets from fuel duty and council tax. Chancellor George Osborne introduced a range of business rate reliefs and extensions in last December's Autumn Statement, including a move to cap rises this year at 2pc, instead of at the higher RPI measure of inflation.

However, the Government has refused to commit to the BIS committee's suggestions before the Treasury's own review. "We will definitely keep pushing for a fundamental review," said Ms Hall. "In the meantime, we'll look at what kind of increase there should be next year, and whether the Government could move the link to CPI rather than RPI."

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