Easing impact of revaluation could undermine business rates devolution
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Sajid Javid. Photo: DCLG Flickr
Giving in to pressure from businesses and MPs to scrap the forthcoming revaluation of business rates could scupper plans for 100% retention, according to sector experts.
Recent weeks have seen a crescendo of criticism about the revaluation, which will see bills rise in areas where property prices have risen the most.
However, local government finance professionals said that the government’s hands are tied unless it commits more money to soften the blow for these businesses.
Richard Harbord, former chief executive of Boston Borough Council, told Room151: “I am watching this with increasing amazement.
“With the business rates steering committees, the draft legislation and the second consultation government seems committed to 100% rates retention and decreasing the quantum would mean that they have to continue with specific grants from some things that were going into business rates.”
Jonathan Carr-West, chief executive of the Local Government Information Unit, said that it was unlikely that the government would put any extra cash into the system.
He said: “I imagine they will just try to shift the burden around. But it is hard to do that — you just end up annoying one set of people rather than another.”
Local government is anxious about where the current row over revaluation will lead, Carr-West said.
“To cave in completely,” he said, “could be detrimental to the business rates quantum. The government hasn’t got any wriggle room because of 100% business rates retention.
“They seem so committed to that I can’t see them u-turning and changing that. It is the only idea they have in terms of local government finance reform.”
Speaking in the House of Commons this week, communities secretary Sajid Javid said: “It is clear to me that more needs to be done to level the playing field to make the system fairer.
“I am working closely with the chancellor to determine how best to provide further support to businesses facing the steepest increases.”
However, reports said that the prime minister’s official spokesman had ruled out extra cash to bolster the system.
Rather, the government is proposing to ensure that the transitional fund already announced would go to places in greatest need.
Harbord said that chancellor Philip Hammond could look north of the border for a solution to the conundrum he faces.
Photo: Scottish Government, Flickr
The Scottish Government this week announced a 12.5% cap on rate rises under its own revaluation for 8,500 firms in the hospitality sector and more than 1,000 office premises in Aberdeenshire.
However, this option would require funding from other businesses if the government refuses to inject more resources.
According to Paul Dossett, Grant Thornton’s head of public sector assurance for London and the South East, some of the steepest rises in rate bills are party due to the government’s decision last March to take 600,000 small businesses out of the system, meaning the balance had to be made up from other firms.
He said the episode provided an insight into a future where council services rely more heavily on business rates to fund services.
“Businesses are going to start realising they are virtually paying for everything and might — with some justification — start demanding a bigger say in how councils spend their money,” he said.
In addition, large increases in business rates are likely to make businesses less willing to approve new infrastructure tariffs under devolved powers granted to regional authorities, he said.
Dossett added that property-based businesses are now suffering from the rise of internet companies which have a much smaller property footprint.
He said: “Supermarkets are paying business rates on their large and small stores and warehouses, so are feeling quite aggrieved. They are paying for the upkeep of roads, while the Amazons of the world, which are using them heavily, are contributing much less.”
According to Carr-West, the episode demonstrates the need for a comprehensive shake-up of the local government finance system.
He said: “We are boxing ourselves into a corner over reform. Business rates is the only game in town, but is now looking less supported, and there is nowhere else to go.”
Sean Nolan, director for local government at the Chartered Institute of Public Finance and Accountancy, said: “As councils differ widely in terms of both the levels of income generated through business rates and differing service need, CIPFA supports the government’s acknowledgement of the need for a ‘fair funding’ review.
“The turbulence caused by the current revaluation of business rates will only exacerbate the uncertainty around the level of income councils will see.”
