Decentralised business rates – who will win really?

Some weeks, I admit, I struggle to find a newsworthy rating story with which to regale you – certainly not this week!

Everybody and next door’s dog has been commenting on George Osborne’s announcement to decentralise business rates and opinions don’t seem to letting up any time soon. Apparently it took up 10% of his conference address; I wasn’t counting but some economics student out there was.

As you may know by now, Councils in England will be able to keep the proceeds from business rates raised in their area under plans unveiled by Osborne at the Tory Party conference, as well as being able to cut the rate. He claims councils will hold on to around £26bn.

At the moment they currently keep up to 50% of the rates and the rest goes to Westminster. Central government currently takes in about £11.5bn in business rates and redistributes £9.4bn in grants so it should have an effect of cutting back on the merry-go-round of red tape and grant paperwork which has got to be welcome.

The amount paid by businesses is calculated by multiplying the rental value of a property by either the standard rate (49.5p) or the lower rate (48p), before subtracting any rate relief. Under the plans, councils will be able to cut these rates to attract new investment and jobs. Elected mayors in big cities such as London, Manchester and Sheffield will be allowed to add a premium – expect a 2p here – to pay for major infrastructure projects. A system of tariffs and top-ups designed to support areas with lower levels of business activity will be maintained in its present state.

Surprise surprise, The Local Government Association (LGA) said the move was “good news” – it’s putting the mice in charge of a limited cheese larder, so why wouldn’t they welcome it.

Labour however warn it could start a “race to the bottom” with councils competing to cut their rates the most.

Robert Peston, BBC economics editor – soon to be ITV political editor –  doesn’t actually see this as a comprehensive decentralisation of tax-raising and spending powers but he agrees and does think it will pit local authorities against each other to attract businesses.

And, although local authorities will be able to cut business rates, they won’t be able to put them up, unless they are cities like London and Manchester with directly elected mayors. Even then, they’ll only be able to put the rates up by 2p in the pound to finance infrastructure, and only if businesses vote in favour in local polls – that’s still a lot of ifs and buts to overcome for the LA’s to get their full wedge of Business Rates income.

City AM saw the move as good news for London where interestingly, between them, Harrods and Selfridges pay more in rates than all the businesses in Hastings combined. In the capital, business rates are serious money and the more that flows back into local public coffers for services and investment the better for Londoners. London business rates raised an estimated £6.2bn in 2013-14 – more than twice council tax revenues. But if this is good news for London does it mean that the regions once again become the poor relations, with the South East keeping more of the overall revenue?

Some commentators are concerned that, even after various safeguards, the proposed reforms will lead to growing inequality between different parts of the UK and I share their concerns. As always, only time will tell…