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Govt promises to give business rates revenue to local authorities

Chancellor George Osborne has announced plans to give local authorities complete control over business rates in a move that has been welcomed by the industry with reservations until the finer details emerge.

Osborne said that he is giving "power to the people" by handing local authorities control over £26bn in revenues from business rates.

In his speech at the Conservative party conference in Manchester today, Osborne said the move would give "power to the people" by giving local authorities control over £26bn in revenues.

At present the Treasury redistributes back business rates to local authorities after national government takes a significant slice.

The chancellor said the government will also abolish the uniform business rate for councils.

"Any local area will be able to cut business rates as much as they like to win new jobs and generate wealth," Osborne said. "It's up to them to judge whether they can afford it."

Cities with elected mayors, including London, will be able to add a premium to the rates to pay for new infrastructure and other building projects.

Mark Williams, director of Hark Group and past chair of the industry-wide Government Distressed Retail Property Taskforce, said: "The transfer of business rates revenues to local authorities is part of what the task force called for but the elephant in the room is what happens to transitional relief which by implication has to be abolished.

"It has to be good news that local authorities can now work more quickly with businesses to set rates and access the benefits but the concern remains what happens when companies go bust having not paid their rates and the debt is left with local authorities and not central government - the most extreme warning here being what has happened in Detroit.

"It does suggest that local authorities will now encourage and promote more development but there is the caveat that there will of course be an overt financial gain in them doing so."

BPF warned of the potentially 'distortive' effect of business rates devolution.

Melanie Leech, chief executive of the British Property Federation, said: "This is a bold step by the Chancellor, and one that we are keen to see more detail on quickly. The business rates system as it stands has myriad problems and needs dramatic reform, and we would not want this move to exacerbate those issues. The fact that some local authorities have a much higher tax intake than others could lead to rate distortion across the country and have knock-on effect on growth, leaving some local authorities struggling to keep up.

"It will be imperative for Treasury to engage with industry to ensure that this does not lead to a proliferation of different rates of tax across the country, which businesses will find difficult to negotiate and which could lead to uneven growth across the country."

James Thompson, head of business rates at Deloitte Real Estate, said: "This is a return to total local retention of rates and locally set poundages. In essence, winding the clock back to the pre "Poll Tax" system that was swept away in 1990. As always, the devil will be in the detail as the current legal framework is designed for a national tax and is unsuitable for a local one. This is particularly relevant for central rating lists and properties that cross council boundaries.

"One important check and balance that used to exist pre 1990 was the link to domestic rates paid by voters. Very few business ratepayers have a vote, so the temptation may now be for the most cash-strapped councils to increase the business rates. This could trigger a downward spiral if it drives out business and drives down values.

"There will be some very big winners and losers here unless there is some equalisation mechanism put in place. For example, the City of London and Westminster currently collect far more rates than they receive back from government. These boroughs will be able to cut their rates, whilst some councils currently that receive far more than they collect could be forced to increase rates substantially."

Mike Flecknoe, Senior Director in Cushman & Wakefield's Rating team, said: "This is a huge step that reverts to the pre-1990 system of councils keeping the business rates revenue for their area. It should foster closer links between councils and business which is positive as business rates do pay for many local services.

"However we need greater clarity to understand the consequences. What happens about equalisation? Will there still be some redistribution of rates revenues from urban councils with many high street businesses and high property values, especially in London, to councils without the tax base to pay for the current level of services provided? Clearly, that will need addressing to avoid many councils losing out substantially.

"Will councils be able to set their own multiplier or uniform business rate? Will there be central controls to limit variations of multiplier between councils or increases each year? Some form of business rates control may need to be introduced to ensure local authorities do not use punitive business rates in order to keep their council taxes low."

 

Paul Norman - CoStar

 

05 Octotober 2015

 

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