CIPFA joins others in call for local retention of business rates

16 Jun 15

CIPFA has joined with organisations including London Councils, Westminster Council and the Greater Manchester Chamber of Commerce to call for local government to retain more of business rates as part of reforms to the “outdated” tax.

The submission to the Treasury’s business rate review said the current system often left councils unable to respond to the needs of local areas.

Currently, a national “multiplier” is used to calculate business rates, with this used to determine tax as a proportion of the value of commercial premises. Property values are meant to be assessed every five years, although the next evaluation is set for 2017 following an assessment in 2010.

As a result of reforms introduced by the previous coalition government, local authorities retain 50% of the growth in rates.

However, the group called for all authorities to be offered the deal that Chancellor George Osborne has set out for Manchester and Cambridge, which allows local retention of all growth above forecast levels.

This would further incentivise local government to prioritise business growth, they stated.

Westminster City Council leader Philippa Roe said the wide range of backers for reform showed “a strong consensus that fundamental changes are needed”.

She added: “We welcome the breadth and scope of the government’s review and look forward to continuing to work constructively with government in the coming months to help shape the ideas and evidence base needed to make real change happen.”

The report also called for current national relief schemes, which cover small businesses, firms in rural areas or those located in enterprise zones, to be devolved.

The joint response said there was a need for more flexible reliefs so that town halls could tailor support to local circumstances. This would expand the limited freedoms granted under the previous government’s Localism Act, which allowed additional discretionary reliefs to be created.

“There is potential to consider local determination of the current statutory reliefs, for example the level and period of empty property relief,” the submission stated.

“In addition, the notional revenue currently used for reliefs and exemptions (the government’s discussion paper cites partial figures of between £3.5bn and £4bn) could be devolved and used more flexibly under local oversight at the level of a recognised grouping of local authorities.”

The response also highlighted there was a “broad consensus” to link business rate multipliers to the Consumer Prices Index rather than Retail Prices Index in order to better reflect the conditions faced by businesses.
However, CIPFA chief executive Rob Whiteman called for any move to CPI to not be used to further reduce funding for local authorities at a time when budgets are already stretched.

“The CBI have calculated that a move to CPI from RPI could save firms up to £1.5bn annually. This should not be an excuse to undercut funding to local government by this amount. Any such reform to the way business rate increases are calculated must ensure funding for councils remains fiscally neutral.”

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