100% of business rate revenue equals 100% of the risk

At the end of last year there was an awful lot written about Local Authorities being able to keep 100% of the business rates revenue and I’ve had a chance to reflect on it a little more.

No longer will LAs have to go cap in hand to Whitehall for handouts every year; they will be in charge of their own financial destiny. But is that really the case?

Yes, it certainly signals one of the biggest shake ups of centralised funding we have seen in decades and perhaps bring us more in line with some of our American and European counterparts. Local leaders at grass roots are surely the best placed people to decide where and how funds are allocated after all. They will fund their own public services and develop their own economic strategies – financed largely with proceeds of business rates revenues.

So, what do these changes actually mean for LAs and all the businesses and communities they represent? Yes, LAs may well have to power to lower business rates to try and attract new business to their patch but is this is even financially possible with funding so tight across the board and services being cut? Only those LAs who have a budgetary surplus will be able to afford this, or they are taking an awfully big punt on attracting the right kind of new businesses in sufficient numbers to their neighbourhood.

Another concern is the financial uncertainty. LAs can only plan their spending in the medium to long term if they have a degree of certainty in relation to future income. With the transfer of 100% of business rates’ revenue comes the transfer of 100% of the risk, particularly when it comes to the appeals system. At the moment LAs are liable for 50% of the cost of any successful appeal, back-dated to 2010 (further where historical appeals have not been resolved). After 2020? That liability goes up to 100% – ouch!

One final element that could have a huge impact would be if the Government rethinks its position on Empty Rates Relief. By reintroducing the relief it would offer a far bigger incentive to promote indigenous economic growth locally, helping to swell LA business rate coffers.

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This new fiscal responsibility is already getting an early test. Refunds of up to 65% are falling due on many purpose built Health Centres throughout the Country.
As this is being backdated by more than 5 years, Billing Authorities are having to find many £millions to refund prior year accounts.

There are already BA’s crying ‘foul’ and asking for a judicial review. Who will blink first!

By Julian Rosenthal