The business rates retention scheme as currently configured is a car crash waiting to happen, according to Chris Buss. He argues Westminster must still provide a base level of resource from central taxation.
One hundred percent business rates retention is one of those matters absorbing many hours of thought amongst colleagues, particularly those who have been involved in the various DCLG working groups trying to make it happen.
I have to be honest and say that it’s not something that I have taken a detailed interest in until recently, largely because it is something due to be introduced after my retirement.
However, I’ve had to take a closer look in recent months particularly after recent press coverage which, if one believes parts of the press, will lead to wholesale closure of high streets as well as many of the local hostelries I intended to visit in retirement.
I have reached the conclusion that in the words of one of the books I first read as a child, 1066 and All That, 100% business rates retention is a bad thing — well, at least in the way that’s currently being proposed. Why have I reached this view, you might ask.
Those of us who have done a few years in local government will remember the system pre-nationalised non-domestic rates when rates, both business and residential, were set locally (although from the mid 1980s the concept of capping had been introduced).
The local government financing system pre-1990 also did not have compartmentalisation of local authority accounts — there was no ring fence around the Housing Revenue Account (HRA) and no ring-fenced schools budget.
Oh, and of course, there was the concept of central government support for those authorities that had either high needs, or a low resources base or both: this concept was called grant which, at the time, was regarded as a good thing.
Grant theoretically enabled (if local authorities wished to) for a base uniform level of service to be provided across the country. The effect of this system was that local authorities had a range of levers at their disposal to source income or reduce expenditure, rather than the straight jackets that we now have to work within.
As I see things the 100% business rate retention scheme effectively leaves the local authority sector in England to argue over how we fund and support those who have greatest need and less resource without central government financial support.
Some might argue that this is preferable to leaving it up to central government, and I do have some sympathy with this view. However, the argument only stacks up if there is no central government interference in the new localised system which past and current experience shows is unlikely to happen.
What do I mean by that? Well, an example is the decision to change on business rates the inflation linkage from RPI to CPI which will reduce resources over time. And there will, no doubt, be further interventions to smooth out the impact of revaluations.
These are just two examples of potential central government interference in the system and there will, no doubt, be many more to come when central government, usually the Treasury, decides that they have the divine right to amend the system without thinking of the consequences (for good examples, just refer back to HRA interventions of recent years).
Effectively, local government has been given a mechanism which is supposed to enable it to fund itself but without the tool kit to make the mechanism work. In effect, a Meccano set without a spanner.
All of the above is bad enough without the fact that in the future we will have a politically sensitive tax base — business rates — which is also extremely vulnerable to the economic cycle. It will also fund two services which have an inexhaustible demand for resources as we, as a society, live longer and seem unable to provide adequate safeguarding arrangements for our most vulnerable young residents.
The impact of this is potentially a financial car crash likely to happen in the next five years i.e. on, or about, the next business rates revaluation.
I do hope I’m wrong. But unless someone actually accepts that central government needs to have a financial say in the funding regime by providing a base level of resource from central, rather than local, taxation —funding those services that central government has mandated local government to provide to a minimum standard — we have, in my view, a crash in the making.
Those in authority in local government will only have themselves to blame for going along with a plan that has the reliability of a Friday afternoon built Austin Allegro or Morris Marina.
Central government will say they gave us what we asked for and will wash their hands of it all. And it will be our residents that will suffer. We really ought to have the courage to say, ‘Sorry, but as currently configured, the car you’re asking us to drive won’t work: it’s badly built, under powered, has no brakes and only one gear.’
Asking for a Rolls Royce or even a high spec BMW in the current austerity climate won’t wash, but something that’s reliable and, more importantly, works is still required. Localised business rates as a single solution just doesn’t fit the bill.
Chris Buss is finance director and deputy chief executive at Wandsworth Borough Council.