Business rates reform – 'devolution revolution' or con-trick? | Analysis

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At first glance, the devolution of business rates looks like good news, but is it smoke and mirrors from George Osborne?

Last year councils across England collected a net of £22.44bn in business rates but handed over almost half, £10.93bn, to central government. The government redistributes a similar amount back to councils through the revenue support grants scheme RSA, which can be used to finance revenue expenditure on any service.

However, this is set to be scrapped in 2020 and councils are to become self-sufficient by retaining all of their business rate income.

Good news, I hear you say. On the face of it, there will be more money for councils and local services. But these type of ‘deals’ always come with a caveat; in this case, councils will have to do more for their money and less responsibility taken by central government.

In reality, with the government’s desire to run a surplus in their budget, this smells like a cut to local government finance.

Winners and losers

There are going to be some big winners and some big losers.

Westminster is by far the largest contributor to the business rates pool. It collected £1.74bn in business rates last year, handing central government £856m, which was redistributed to less affluent areas.
Westminster received £70m through RSA. Under the new financial structure, 100% business rate retention will provide it with an extra £786m.

In contrast - and despite George Osborne’s announcement to boost the ‘Northern Powerhouse’ - the 10 local councils across Greater Manchester will be effectively £29.5m worse off.

So will this exacerbate England’s north-south divide? Possibly.

Osborne wants councils to compete against each other to drive down business rates. But how could Oldham compete with Westminster’s huge new war chest?

The ability to discount business rates and reduce them is nothing new. It came into force in April 2012. It’s rarely used. The reality is councils which currently pay more back in business rates compared to what they get in RSA will have a huge competitive advantage.

Poorer and more deprived areas will, potentially, decline further.

Blame game

At a time when business rates in the UK are the highest as a percentage of GDP across not only Europe but of any G7 or G20 country, Osborne has pulled a masterstroke. Come 2020, blame your council, not the government.

What is worse, should you get an elected mayor, like Greater Manchester will in 2017, business rates could actually rise by about 4% through an infrastructure levy.

In a move that mirrors the Crossrail supplement in London, it is anticipated a 2p supplement is there for the adding.

Businesses across Greater Manchester could see their rates bills increase by £55m each and every year at a time they want the tax to be competitive and come down.

There are certainly more questions that have been answered this week but, for me, it’s all smoke and mirrors.

Pre-election promise

The important question still to be answered is, where does this leave the government’s pre-election promise of meaningful structural review into business rates by the end of the year?

There was no mention of that by the chancellor. That is for what retailers have campaigned so hard and is their primary objective.

I want to see meaningful review on business rates. Is there a desire for this now? Certainly, with 100% retention, councils will be lobbying hard to maintain the status quo.