It’s widely acknowledged that the current business rates system requires a dramatic overhaul, and there has been various pre and post election claims in respect of changes that will be made.
During his address at the recent Conservative Party Conference, George Osborne announced that the system is going to be overhauled and there will be devolution back to local councils.
In 1990 it was a Thatcher Government that decided all business rates would be collected and sent to Whitehall where is would then be distributed. Councils applied for a grant if they required funds to use.
Changes in 2013 allowed local councils to retain half and remit the other half to the treasury.
It would seem in an attempt to address the business rates system, the Tories have decided that local councils can retain all business rates and utilise the same. They can also reduce rates if they so wish. The merits of this, according to Mr. Osborne, is to encourage new businesses in certain areas and growth especially on the high street. The plan is “attract business, grow your area, and you will grow your revenue too” according to Mr. Osborne
Whilst devolution and the potential opportunity to reduce rates may appeal to many, it is important to note that certain councils where there is an elected Mayor can actually increase business rates! For example London and Manchester, although any increase will be expected to be capped at 2%.
This is being called a ‘luke warm’ approach by many, including Labour and indeed the Shadow Chancellor, suggesting that some councils may cut their rates more than others in a effort to encourage new businesses to the area.
I ask how much thought will be given by local councils to the deficit left by low business rates? How will this affect local business? Will local businesses even be consulted? Indeed, the Shadow Chancellor has commented that “we run the risk of seeing the explosion of Tory tax haven councils”
What about the actual overhaul and review of the system itself? Is this radical plan potentially masquerading the fact that the Treasury is still reviewing the system itself and indeed the rate bands, referred to by many as the “finer details” of the reform plan for business rates.
The proof will be in the pudding when the Autumn statement is announced in November. At the very least the Tories are dipping their toes in the waters of change but whether they will take the plunge and overhaul this system in a truly radical way for big and small businesses alike remains to be seen.