Today, at the Conservative Party Conference, George Osborne announced that councils will keep £26million of the business rates that they collect. I’m very concerned about these changes. Whilst local control could be good I can see numerous pitfalls. However, more worrying is his assertion that the plan is designed to help councils boost their local high streets. Given rates are payable on vacant property (I can only assume that the chancellor knows this?!) I really can’t see what possible incentive there is for councils to encourage occupancy and support business growth… in fact the ONLY difference that can make to their revenue is to reduce it (through discounts and incentives they may well be expected to offer)!
If you’re not up to speed with this news you can read various features if you simply google “business rates” – however, here’s the article from BBC News http://www.bbc.co.uk/news/business-34445311
Business Rates and the Localism Act
My other concern is that under the localism act councils already had the power to offer discounts on business rates. In practice few could as they’d already had budgets culled so there was no spare cash to offer such incentives! I feel that this move gives local councils far greater responsibility but offers them no more resource to manage this new requirement. Putting onus on local councils, one might cynically wonder, simply absolves central government of all responsibiltiy. Not only will there be central savings in terms of resources previously allocated to the administration of business rates but now government have the ability to declare “Business rates are killing the high street – gosh, how awful – the problem is it’s nothing to do with us, it’s your local council who are responsible!”
Balancing business rates revenue centrally has some merit…
So, to me, these changes seem to be central government washing their hands of the job of administering business rates centrally. In so doing they are potentially burdening local councils who are already over stretched, under resourced, and facing continuing budget cuts.
Until now, local councils collected rates and sent a proportion back to central government. This pool of revenue was then reassigned out as part of all councils budgets / funding to deliver their key services. Clearly that proportion of funding allocation will now stop as central government can’t give out what they’ve not collected. Councils in areas with a high density of commercial property will get considerable revenue (whilst business rates are calculated based on a % of property value and property values are higher in high density areas), and may feel able to reduce rates. Councils in areas with far fewer businesses / commercial premises may struggle to get what they need (or what they get now) and may have to increase business rates to make up the shortfall.
Whilst it could be argued that redistribution of tax collected in areas with a high density of commercial premises to areas with few is unfair (in so much as one area funds another), it is also true that the highest proportion of small businesses are in smaller towns as they already can’t afford major metropolitan areas, not to do with rates specifically but to do with rents! If the government want to really help drive grass roots growth, helping small businesses and encouraging occupancy of vacant high street premises, implementing a scheme that makes it more achievable in high density locations where rent already prices-out most small businesses seems a little ill-considered to say the least!
Encouraging councils to revitalise their high streets through devolution of business rates responsibility
Finally, Osborne claimed this move was going to encourage local authorities to support business growth. This could only work if empty commercial property incurred a reduced business rates bill… whilst landlords are liable to pay rates on vacant buildings there is no incentive. Only when revenue collected is directly linked to the property being occupied by viable, profitable trading businesses can councils be properly incentivised to “revitalise their high streets”.
So, I love the sentiment but in implementation I have considerable reservations… let’s see how this plays out in practice!