Westminster leader slams business rate retention system

30 Sep 14

The current system for business rate retention is not effective as it does not give local authorities the ability to support growth, the leader of Westminster City Council has said.

Speaking at a Conservative Party conference fringe event, Philippa Roe said her hands ‘are very much tied’ in how much support the authority can provide to boost local growth as a result of how the partial localisation has been implemented.

Under the current system, town halls retain 50% of the growth in local rates as a result of new developments, which is intended to incentivise construction approval.

However, Roe noted that town halls were now exposed to the impact of appeals against rate valuations. This meant that, although Westminster was initially thought to be one of the authorities that would benefit most from localisation, it had in fact triggered safety-net payments in the system and received around £37m, she told Public Finance.

‘Because the volume of appeals that we get is so enormous – and we have absolutely no control over [valuations] because it’s done by the Valuation Office – businesses almost automatically appeal.

‘It takes a very long time for those appeals to go through and we take the risk. We’re the ones who have to take the financial hit if the businesses win the appeal, and they win quite a number of them. We have this ongoing long-term risk that we might be losing financially because the appeals have gone the wrong way for us.’

This was why Westminster had triggered safety-net payments, Roe said. ‘We would lose £43m, but they’ve got a cut off, so we’re capped at £6m loss, but still that’s significant for us, which is why the business rate reform just doesn't work for us at all. We would like to work very much to reform it in a way that benefits businesses as well as us.’

Publishing a report called Free Cities, which set out the need for greater devolution, Roe called for the business rate retention system to be reviewed so that authorities also benefited from business rate uplift as a result of public realm improvements. ‘Business rate retention that was brought in fairly recently billed itself as tying local authorities to the growth in its area, but if you’re a city area, that simply isn’t the case. In fact, we’re significantly worse off following the business rate reform, because it’s all based around growth in floorspace and there’s very little opportunity to actually increase that floorspace.

‘When you talk to our businesses about what they want money to be spent on to support them in growth, [they talk] about public realm and infrastructure, and we don’t have the money to support them in that.

‘So we’re asking for more powers and for business rate devolution to actually work with businesses, so that we can then invest some of that business rate money in the infrastructure.

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