John Webber, Head of Rating at real estate advisors Colliers International, said: “As it is the Government’s stated policy to make local government self-sufficient in finance, the cynics amongst us might be forgiven for thinking that these new taxation powers may turn out to be a ‘poison chalice’ for local councils as austerity bites even deeper, leaving local government unable to point the finger elsewhere for lack of funding for essential local services such as health and social welfare, children’s services and policing.
“Before evaluating the changes to business rates proposed by the Chancellor, one should firstly stop and examine his stewardship to date of the present system, i.e. overseeing a record number of appeals – circa 255,000 today , a postponed revaluation 2015 – 17 that has resulted in continuation of high streets looking like they are bomb damaged.
“What is in effect phase two of the Government’s review of local government resources, George Osborne’s apparently radical announcement on business rates today builds on the measures stemming from the March 15 budget that Greater Manchester and Cheshire East Councils together with Cambridgeshire and Peterborough would become ‘pilot’ authorities with the power to retain 100 per cent of any additional business rate growth above forecast, starting in April 2015.
“However his statement that this is “the end of the uniform business rates” appears tempered by his comment that “Any local area will be able to cut business rates as much as they like to win new jobs and generate wealth”. So we will have to wait and see the extent of these new ‘tax raising’ powers above and beyond the power that councils already have to raise a supplementary rate of up to 2p in the pound to spend on infrastructure projects.
“The ‘devil is always in the detail’ and what safety net ‘rate capping’ rules will accompany these new found powers, we just don’t know. I’m sure businesses in the UK would be going into meltdown if they thought “the end of the uniform business rates” meant a return to the pre-1990 ‘rate capping rebellion’ days when we saw tax rates of £3.00-plus as opposed to the 49.3p it is today, and which ushered in a nationally set rate.
“The first phase of the review was implemented in April 2013, when a new system of business rates retention began in England. Before April 2013 all business rate income collected by councils formed a single, national pot, which was then distributed by government in the form of formula grant. Through the Local Government Finance Act 2012, the Government gave local authorities the power to keep up to 50 per cent of business rate growth in their area.
“In terms of the evidence as to whether so far this new system of local government finance has been entirely beneficial for local authorities, a study by the Local Government Association in Spring 2015 set out that the business rates retention scheme finished its first year £27 million in the red, with local authorities losing out as a result of having to set aside significant sums of business rates income to cover appeals which had been lodged with the Valuation Office Agency prior to the scheme’s introduction.
“Additionally, although business rates retention is seen as a positive step, it contains a very complicated system of ‘tariffs’ and ‘top ups’ designed to ensure a level playing field and has to be seen against the background of the Government’s austerity policy, as a consequence of which since 2010 councils have seen their resources from central government fall by 40 per cent in real terms and will need to have made £20 billion of savings by April 2016.
“A significant proportion of these savings will be ‘efficiency savings’, which will run out all too soon and this will have a very real effect on local government’s ability to improve people’s quality of life and support local businesses.
“As it is the Government’s stated policy to make local government self-sufficient in finance, the cynics amongst us might be forgiven for thinking that these new taxation powers may turn out to be a ‘poison chalice’ for local councils as austerity bites even deeper, leaving local government unable to point the finger elsewhere for lack of funding for essential local services such as health and social welfare, children’s services and policing.”