Spring Budget: Compensation on the way to quell business rates anger

Councils will be compensated in full by the Treasury for a £435m package intended to head-off uproar over this year’s business rates revaluation.

Chancellor Philip Hammond had been under intense pressure from business organisations over the effect of the changes on struggling businesses.

In his budget statement, this week, the chancellor announced new measures designed to soften the blow. Speaking in the House of Commons, he said that the revaluation “has undoubtedly raised some hard cases, especially for those businesses coming out of small business relief”.

In response to such cases, he announced that no business losing small business rate relief will see their bill increase next year by more than £50 a month, with a cap on subsequent increases.

Pubs with a rateable value of less than £100,000 — around 90% of the total — will also receive a £1,000 discount on business rates in 2017.

Thirdly, local authorities will be given a £300m fund to deliver discretionary relief to target individual cases of hardship caused by the rises.

The fund will be allocated to local authorities by formula, with communities secretary Sajid Javid set to announce details at an unspecified point in the future.

Hammond said that he was required by law to ensure that the revaluation process was revenue neutral for the government.

But a report released alongside the budget by the Office for Budget Responsibility said: “When the package is fully specified, we will include it in the forecast and judge whether we do indeed expect it to be fiscally neutral.”

Even if the measures do not change the total take from business rates, some authorities could “be left out of pocket because of delays to billing caused by the lack of certainty about relief over recent weeks,” according to Claire Kober, chair of the Local Government Association’s resources board.

She said that it was important that government reimburses councils for any loss of income or extra costs incurred as a result.

Other public sector finance experts said more detail was needed before a judgement could be made on the effect of the revaluation measures on planned 100% business rate retention.

Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, said: “Additional financial support to help head off the furore over business rates revaluations was expected and we will just wait to see how that will work in practice, but also how the fundamental issues raised by the revaluation affect the longer term plans for the 100% retention of business rates by local government from 2020 onwards.”

Kober said: “Councils do not set business rates but any likely rise in appeals as a result of this latest revaluation will pose a risk to the funding of already-stretched local services.

“This means a transparent and fair system of valuation and appeals is vital to provide greater certainty of cost and income to businesses, and allow councils to release the money currently put aside to cover the risk of appeals to invest in vital local services.”

The Federation of Small Businesses, which campaigned hard against the revaluation, gave a cautious welcome to the extra cash announced in the budget.

National chairman Mike Cherry said: “The £300m discretionary relief fund for local authorities to target those businesses most in need is a very welcome short-term measure — but there is concern that the fund may not be big enough.

“Many small firms are already receiving their bills and so it is vital that government and local councils communicate immediately with their local business population to explain how this fund will work.”

The  formula to distribute the £300m needs to take into account those areas hardest hit in London and in regions across England, he added.

The chancellor also promised to reform the revaluation process, “making it smoother and more frequent, to avoid the dramatic increases that the present system can deliver”.

Cherry called for a cross-party commission “to create a simple, fair tax system for a modern economy”.

Get the Room151 Newsletter