Government must address issues with business rates retention plan
14 June 2016
The Government must address a range of issues, including problems with appeals and withdrawing Revenue Support Grant (RSG), before bringing in 100 per cent business rates retention for councils, the Communities and Local Government Committee has said in its report.
- Report: 100 per cent retention of business rates: issues for consideration
- Report: 100 per cent retention of business rates: issues for consideration (PDF 1.14 MB)
- Inquiry: Business rates
- Communities and Local Government Committee
The Committee found the impact of appeals by ratepayers is dwarfing increases in business rates revenue and affecting growth incentives, with local authorities setting aside substantial sums of money, often for long periods of time, in case an appeal is successful.
The interim report – focusing on plans to bring in the reformed scheme in 2020 – also states that without RSG it will prove difficult to provide a system which gives incentives to growth and looks after those authorities with particular need.
It calls on the Government to specify how it will protect councils which rely on redistributed business rates and are worried that they will lose out under the new system.
The Committee hopes the Department for Communities and Local Government (DCLG) will consider the report ahead of its consultation on business rates proposals this summer. Once this is complete, the Committee will invite DCLG Ministers to give evidence before making a final report.
Committee chair Clive Betts MP said:
"The committee believes this is an important policy and we want it to work. We believe the policy needs to be seen as part of a wider, more comprehensive approach to fiscal devolution.
Our interim report has highlighted a host of issues regarding the reformed business rates system and we are calling on the Government to take these on board and work closely with local government to find the necessary solutions.
The issue of appeals is of significant concern to local authorities and it is essential that it is resolved before the Government pushes ahead with business rates changes. Similarly, the Government must address the alarm of councils, which are understandably worried that their spending needs and the funding of their local services will not be supported by their business rates revenue."
The report highlights evidence that the "massive problem" with appeals has been "repeatedly ignored" by Government and proposes a number of options to resolve it. These include dealing with appeals outside the business rates retention system and funding them separately.
The report also highlights the fact that, without RSG, it will likely prove difficult to shift resources to authorities in direct response to need, while increasing incentives for growth. It recommends that consideration should be given to handing local authorities power to increase their business rates multiplier and vary it according to business type.
The Committee also said councils need reassurances that they will not be required to take on new responsibilities that are or will become unaffordable. The report lists principles by which decisions on new responsibilities should be based, such as giving local government genuine discretion over how services are provided.
The Committee also calls for:
- a review into whether Local Enterprise Partnerships should play such a key role in deciding whether to raise the infrastructure premium, following concerns that some are not representative of all business
- consideration of whether, by making the infrastructure premium available only to those areas with a directly-elected mayor, it is placing areas without such a post at a disadvantage, in conflict with the aims of the new scheme
Committee chair Clive Betts MP said:
"After discussions with the DCLG we planned our inquiry to serve as a platform from which the Government's proposals could be discussed and scrutinised.
As the Government has now indicated, it is going to consult further and we want this, as a first report, to feed into that consultation.
We hope to come back later in the year and produce a definitive report when Ministers are in a better position to say how these issues can be resolved."