Here are five reasons why the business rates system doesn’t work

Chancellor Philip Hammond, with his friends and allies from the prime minister's team. Image: Getty.

In recent weeks, the upcoming revaluation of business rates has risen to the top of the news agenda, prompted by opposition to the changes from some of the UK’s biggest employers’ groups; the debate led the chancellor, Philip Hammond, to take steps to soften the impact in his recent budget.

The impending revaluation is intended to ensure business rates are set at a level which reflects the rental value of the property they occupy. This has a significant bearing on how competitive a business environment cities can offer, and the revenue generated by the tax is crucial for funding local government.

The problem is, however, that the forthcoming revaluation comes two years later than planned and seven years after the last revaluation. This delay has worsened an already dysfunctional business rates system, which increasingly does not work for either businesses or local government, for the following reasons:

It’s volatile. The lengthy gap between revaluations creates major shocks to the business rates system for both local government as a revenue stream, and for firms as ratepayers.

As a result, businesses across the country are facing dramatic changes in their business rates bill – with many in London and the South East facing significant increase in rates.

It’s not responsive to economic conditions. The current five-year revaluation cycle means that over time businesses are often paying rates based on out of-date valuations.  This is the especially the case since the last revaluation, which occurred before the 2008 recession and came into force in 2010.

Since 2010, businesses in prosperous areas such as London have been paying less in rates than they should be, while companies in poorer places such as Burnley and Hull have been paying more – hence why London firms are now facing particularly large hikes in their rates. 

It’s complex and poorly understood. The long and technical process of valuation, the lack of correlation between the rates and businesses’ ability to pay, and the annual changes in the business rate multipliers, all combine to make the system opaque and hard for businesses to navigate. 

The appeals system creates financial uncertainty for local authorities. The large volume of appeals to the Valuation Office Agency (for example, to raise issues or changes in property valuation),  and the delays in solving cases, mean that many places might have to refund several years’ worth of rates to businesses, putting their budget at risk.

It can reward perverse behaviour. Because the tax is primarily based on growth in commercial floor-space within the revaluation period, the current system rewards space-hungry developments which are often out of town. This can be to the detriment of town and city centres, and the firms based in them. 


By the same logic, the system does not reward behaviour that supports business and public investment, and economic growth which does not increase net rateable floor space.

With the government now considering reforms of business rates ahead of the tax being devolved to local authorities in 2020, how can it make the system more effective and ensure it maximises the benefits from devolution? Three things stand out in particular.

Firstly, more frequent revaluations are needed on a yearly or bi-annual basis, to make the system more accurate and timely, reduce volatility, and to maintain the legitimacy of the tax. More frequent revolutions would also have the additional effect of reducing the significance of appeals. 

Secondly, the government should replace the fixed yield with a fixed rate. The current system requires that business rates should generate a fixed yield in revenue, irrespective of the state of the overall economy. This both amplifies the volatility in the system and creates distortions which benefits more economically vibrant places. 

Removing the cap on business rates and moving to a fixed rate system would make it more responsive to the wider economy and the ability of firms to pay.

Finally, extend the period of time between resets of the system. Revenue from business rates is used to fund local government, and the amount of baseline funding places receive is reset every five years to ensure that it broadly reflects their level of need. This creates uncertainty for local authorities towards the end of this period, as they don’t know how much business rate income they will retain after resetting. It also gives places only a small time-period in which to accumulate growth, and therefore less incentive to make this a priority.

Carrying out the reset every 10 years instead wouldn’t prevent similar issues arising at the end that period – but it would provide authorities with more long-term certainty and greater incentive to grow their economy.

Making these changes will be critical in creating a business rates system that works for both local government and businesses, makes the most of devolution and offers the stability places need to drive local economic growth.

Andrew Carter is chief executive of the Centre for Cities. This is an edited version of an article first posted on the think tank's blog

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The Delhi Metro: How do you build a transport system for 26m people?

Indraprastha station in 2006. Image: Getty.

“Thou hath not played rugby until thou hath tried to get onto a Delhi Metro in rush hour,” a wise Yogi once said.

If you’ve never been on New Delhi’s Metro, your mind might conjure up the the conventional image of Indian trains: tawdry carriages, buckets of sweat, people hanging out of windows and the odd holy cow wandering around for good measure.

Well, no. The Delhi Metro is actually one of the most marvellously sophisticated, affordable, timely, and practical public transportation systems out there. On a 45C day in the Indian summer, many a traveller has shed tears of joy on entering the spacious, air-conditioned carriages.

Above ground, Delhi is a sprawling metropolis of the scariest kind: 26m people, three times the population of London, churn and grind through Delhi itself.

The National Capital Region, an area which includes Delhi and its surrounding satellite cities – now victim of its never-ending urban sprawl – has an estimated population of almost 50m. So how do you tie such a huge population together?

The map; click to expand. Image: Delhi Metro Rail.

Motorised vehicles won’t do it alone. For one, air pollution is a horrific problem in Delhi, as it is across India. Last November, the government declared a state of emergency when the Indian capital was engulfed by a toxic, choking fog so thick that you could barely see several metres in front of you, drawing allusions to the great Victorian fogs in London.

Then there’s Delhi’s famous traffic. Twenty-five years ago, the travel writer William Dalrymple observed that you could reduce the Delhi’s road laws to one simple idea: the largest vehicle always had the right of way. The traffic has tamed somewhat in the 21st century, but the number of vehicles has multiplied again and again, and it’s not uncommon for people to be stuck in four-hour traffic jams when they try to traverse the mighty city.

Enter the Delhi Metro – a huge network of 164 over- and underground stations – and by any account, a titan of civil engineering and administration.

The numbers are simply colossal. Every day the metro serves on average almost 3m people. Annually, it carries around 1bn.

In a country where intercity trains still turn up a day late, the Delhi Metro is extraordinarily timely. On the major lines, trains will come every several minutes. The trains are extraordinary speedy, and you’ll reach your destination in a fraction of the time it would take for you to drive the distance.

The minimum fare is 10 rupees (12p); the maximum fare, to and from the airport, is 50 (60p).

The evolution of the metro. Image: Terramorphus/Wikimedia Commons.

Construction of the metro system began in 1998, with the first section completed in late 2002. Keen to avoid the catastrophic corruption and bureaucratic mismanagement which plagued eastern city of the Kolkata Metro, developers took advice from Hong Kong’s high-tech system There have been several stages of development to add extra lines; more is planned. By 2020, it is hoped that the 135 miles of line will have increased to over 300.  

One thing quite striking about the metro is its women’s only carriages at the rear and the front of the train, marked by pink signs. Sexual assault and harassment has been a horrific problem on Delhi’s transport systems. Women can of course go anywhere on the train – but men who violate the carriage system will have to deal with the scathing anger of the entire pink carriage.


One of the under-discussed impacts of widespread and well-used public transportation systems is their propensity to break down social and class barriers over time. As the London Tube began to be used more and more in early 20th century London, people from completely different walks of life and classes began to brush shoulders and share the same air.

The story is similar in Delhi. The necessity of the metro helps to break down old caste and class divisions. Of course, many elite Delhiites would not be seen dead on the metro, and choose their private chauffeur over brushing shoulders with the common man. But slowly and surely, the times are a changing.

What’s more, the Delhi Metro system is one of the greenest around. Six years ago, the Metro was the first railway system in the world to be awarded carbon credits from the United Nations for helping to reduce pollution in the capital by an estimated 640,000 tonnes every year.  

All praises sung and said, however, at peak times it’s less mind the gap and more mind your ribs – as a fifth of humanity seems to try to get on and off the train at once.

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