Make business rates ‘fit for 21st century’, says LGA

11 Nov 14

Councils should be given the right to set business rates and retain any growth in income, while Whitehall should lose its current redistribution powers, the Local Government Association has said.

 

The association said today that the business rates system needed refreshing to be ‘fit for the 21st century’ and called on the government to work with businesses and councils to go back to the drawing board on business rates.

The current system was not working well for small business, the LGA argued. Despite the introduction last year of a £1,000 business rates discount for retailers in properties with a rateable value of £50,000 or less, councils remained concerned the business rates bill would make it more difficult for small traders to open.

An independent body needed to be set up to distribute funding to councils, the LGA suggested. This would take the politics out of financial distribution and would ensure areas with lower business bases do not lose out disproportionately.

To that effect, the association is urging Chancellor George Osborne in his Autumn Statement on December 3 to commit to devolving control of business rates for small firms, giving councils greater local control and the flexibility to reduce the bill.

LGA chair David Sparks said that the current business rates system was hindering business and economic growth. There were many areas in which local authorities have been successful in helping new firms to open and keeping small businesses alive, he said, but ‘in reality councils were working with one hand tied behind our back’.

‘The money which a business pays should be retained by local government to invest in the vital local services, all of which help local businesses either directly or indirectly,’ Sparks said.

‘We need to remove Whitehall’s hands from the business rate purse and find a fairer way to invest the taxes paid by business so that areas with growing economies feel the benefit in a way which does not come at the expense of those parts of the country where business is less buoyant.’

The LGA also wants the government to reform the business rates appeals system to reduce the time is takes to resolve a problem. There are about 131,590 outstanding appeals over business rates, with 125,500 relating to 2010 valuations and another 6,090 to 2005.

In response, local government minister Kris Hopkins said the government had already launched the local retention of business rates, allowing councils to keep half the revenues raised from business rates – equivalent to £11bn a year. He said this provided real incentives for councils to support enterprise and economic growth.

He added: ‘Councils already have the powers to provide local discounts, and they can levy a supplementary rate or business improvement district levy if they are backed by a referendum of local firms.’

Last month, the interim report of the Independent Commission on Local Government Finance, said councils should be more financially self-sufficient. The commission was established by the LGA and CIPFA in June to examine the current funding regime and propose reforms.

  • Judith Ugwumadu

    Judith Ugwumadu joined Public Finance International and Public Finance online as a reporter after stints at Financial Adviser, Global Security Finance and The Sunday Express. Currently, she writes about public finance, public services and economics.

    Follow her on @JudithUgwumadu_

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