Concern over business rate retention proposals

22 Feb 19

An umbrella group has called for the government to delay its plans to increase business rate retention for English councils from 50% to 75%. 

The District Councils’ Network said the plans should not be brought in in 2020-21 as councils could be coping with other changes at the same time.

“The complexity of the changes being made to the local government finance system introduces a real risk of destabilising the system if all the planned changes are introduced in the same year,” the DCN said in response to the consultation on the business rates plan, which ended yesterday.  

“We therefore call for a one-year delay in the introduction of all changes to business rates, to allow the changes from fair funding and the Spending Review to bed in successfully.”

The Institute for Fiscal Studies think-tank, the Local Government Association and London Councils, also raised concerns about changes to the business rates appeals process.

Business rate valuation errors can be costly for councils and the consultation promised to resolve this issue. 

Appeals occur when a business disagrees with the value the Valuation Office Agency gives a property. The appeal can take a long time and councils must often set aside funds in case they need to repay businesses.

The IFS said that the ministry’s proposals in the consultation on how to protect councils from this cost is “confusing, imprecise and appears to be internally inconsistent”.

“The consultation says that the proposal will result in a one-year lag before councils see business rates growth reflected in their income, but the mechanism set out would result in a two-year lag,” the IFS pointed out.

David Phillips, associate director of the IFS, said: “This is a very complex area where clarity and accuracy from the government are vital.

“The issues with this consultation suggest that MHCLG still has some way to go on this front.”

The DCN said: “We believe that, in order to ensure successful implementation, it is still necessary to explain the model more simply, operate the system in a transparent way so that it is evident how it compensates for appeals.”

London Council’s response said: “The funding local councils are required to set aside in provisions for appeals could otherwise be spent directly on service delivery and local priorities.

“The impact has been particularly unwelcome during a period of funding cuts, when overall resources have been reduced by almost a third over the decade, and councils are under ever increasing financial pressure.”

The Local Government Association’s response to the consultation also called for the appeals system to be explained “more simply”.

It was also concerned about the level of business rates avoidance, which a 2014 survey estimated to be £230 million per annum.

“The LGA considers that measures should be taken to tackle business rates avoidance along the lines of those to be introduced in Wales in 2021 including new legal powers for local authorities to request information from ratepayers and effective measures to tackle abuse of mandatory reliefs relating to empty properties, charitable occupation and voluntary liquidation,” the umbrella group’s response said.

The County Councils’ Network, in its response, called for a full reset of funding baselines when the new retention rate is implemented in 2020. The current baseline levels are based on assessments last made in 2013-14, when 50% retention was introduced.  

The fair funding formula consultation also ended yesterday. PF will be reporting on the responses to that consultation in due course. 

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