Chief Executive's Blog: Business Rates Revolution, or Changes at the Margins?

We heard about George Osborne’s promise to devolve business rates to local authorities while waiting to start our fringe meeting at the Conservative party conference, just yards from where the Chancellor was speaking. This looked like another Osborne bombshell, hot on the heels of his planned devolution of Sunday trading and announcement of a national living wage of over £9 by 2020.

But behind the rhetoric, what’s actually being proposed is far less radical. The uniform business rate – ‘abolished’ according to the spin – remains firmly in place, but local authorities will have the opportunity to vary it.  So the fundamental way in which your business rates are calculated has not been changed, and this remains the key decision for the government to make in its review of business rates.

The facility for local authorities to reduce business rates is also nothing new.  Since 2011, councils have been able to give discretionary relief to businesses, and central government has funded half of this.  Just to illustrate, that means that if a council wants to support a high street, or a type of business, it can do so, taking half the financial hit itself and the Treasury paying the rest.  But the reality is that apart from in a few isolated cases, councils have failed to use this power to support high streets (or at all).

Councils can also already keep part of increases they achieve in overall business rates income.  The logic is that business-friendly councils get to see the benefit of their policies attracting firms to locate, invest and grow in their area.  George Osborne has increased the additional amount that councils can keep from 50% to 100%, so that is a significant change, but hardly a new concept.

What is almost new is the ability for city mayors to increase business rates for infrastructure projects.  A lot of businesses may be worried by this, and the safeguard that these additional rates will only be payable if agreed by businesses only gives limited reassurance. But even this isn’t a new idea: Business Improvement Districts work to this model, and Crossrail was part-funded by a supplement on London businesses’ rates.

So was George Osborne’s announcement a false alarm, or even just a con?  It’s probably worth thinking about the tone and direction of this part of his speech, even if the details are less radical than they appeared to us in Manchester.  Giving more powers to local authorities is a crucial part of this government’s ideology and its programme of government as it seeks to cushion the impact of council budget cuts, so we can expect further movement in the direction of local business rates discretion.

We should also remember that the Autumn financial statement is set to contain more details on the government’s response to their consultation on the business rates system.  I think this may be where the substance of the government’s policy in this area gets revealed, and we should remain hopeful that high streets and small retailers will be net beneficiaries of any impending changes to the business rates system.

This entry was posted by Victoria on Thu, 08/10/2015 - 10:28