Business rates played a central role in George Osborne’s Autumn Statement this year. Among the announcements, Mr Osborne said he would cap the inflation-linked increase at two per cent. He also announced a full review of the business rates structure to help High Street stores be more competitive against online retailers.
I recently spoke at the Institute of Revenues Rating & Valuation Conference in Telford about the business rates retention scheme. It was introduced by the government in 2013 to allow councils to retain up to half of the revenue generated through business rates in their area. It aims to provide a direct link between business rates growth and the amount of money councils have to spend on local people and services, stimulating economic growth and localism.
During my talk I sought to explain this extremely complex system and what issues councils might face in the next five years.
One of the problems councils have faced since the introduction of the scheme is the fact that their resources have been reduced significantly in recent years thanks to austerity measures. In 2014, the average spending power of English councils will have been cut by 2.9 per cent.
These cuts have inevitably led to authorities shifting their priorities to collecting money rather than monitoring the rating list. However, because the revenue collected by finance departments from 1990 to 2013 has not been retained by local authorities, there’s concern that the list won’t be fully up to date. This is not a quick fix task though – a significant amount of time and resources should be invested in this process.
Local finance departments need to try and forecast medium and long-term budgets and the levels of business rates to be retained. However, most of them do not have the information available to accurately predict what their likely yield will be at the end of each year. There are also many variables to consider, such as whether the vacancy rate is rising or falling.
The next revaluation
Each non-domestic property has a rateable value (RV) and the ratepayer can appeal against this if they consider it’s incorrect. Because the effect of RV loss is so central to the success of the retention scheme, in last year’s Autumn Statement, Mr Osborne said he wanted all outstanding appeals as of September 2013 to be resolved by July 2015.
The government has postponed the next revaluation to 2017, which will undoubtedly lead to more appeals than in previous lists. The general feeling is that the reason for this delay was purely political and that the current government didn’t want it to coincide with the next general election. However, the Valuation Office has revealed figures that show what would have happened if the 2015 revaluation took place. For example, there would have been a 25 per cent reduction in London office rateable values as compared to a 19 per cent drop in the West Midlands.
This shows how a revaluation can have a major impact on the finances of a local authority. Previously, the pool would have absorbed regional differences and redistributed accordingly – but going forward this won’t be the case.
Advice for councils
It is important local authorities do not rely on the valuation office to verify the current list. Councils have a duty to inform the office as to whether all of the relevant ratepayers are paying business rates. They also need to be aware of all planning applications and at what stages they are at. Therefore, I’d advise local authorities to keep their own list and ensure it is regularly subject to review. By staying abreast of all proposed developments in the area and liaising with the economic development department, councils can build these into their estimates going forward.
I’d suggest that revenue departments can to do more to get to know their ratepayers and who the major players are in an area. Indeed, if a great deal of revenue is in the hands of one business, councils need to know about any plans for expansion, relocation, or indeed if it is on the brink of collapse.