Tax & admin · 19 February 2016

Councils expect business rate windfall as CBI warns of “policy burden”

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England’s local authorities can expect a £23.5bn business rate haul next year

The government has announced an increase in expected income from business rates in 2017 due to the rise in the number of new businesses being established.

According to newly published figures, local councils across England are anticipating a £23.5bn windfall from business rates in the next tax year, a £400m increase on the current year’s figures.

The news comes amid growing worries that the burden of business rate payments, combined with the spate of recent government policies including the Apprenticeship Levy and national Living Wage, could significantly hinder economic growth and impact small businesses the most.

Partner at law firm ReesRussell, Jonathan Russell, said: “The new economic model of the government seems to be to change regulations to increase the costs of businesses, whilst taking the credit for the process.”

Russell added: “That councils will be receiving business rates going forward is probably a double edged sword. I suspect the central grants to councils will be cut to take business rates into account, whilst businesses will remain neutral and costs remain the same unless councils do something locally.”

The Confederation of British Industry (CBI) has warned that the growing policy burden could cost the economy around £9bn a year by 2020, and has urged the government to alter the “outdated” business rate system.

Ahead of the government’s 16 March Budget, the CBI submitted a proposal to the Treasury requesting that small businesses be excluded from paying business rates altogether. CBI director general Carolyn Fairbairn said: “The UK needs to be able to grow its way out of the deficit, but the danger of these policies is that they hold back businesses, particularly smaller firms.”

Currently, the power to set business rates is partly devolved to councils and local authorities, with rate-setting power set to be fully localised by 2020.

Despite the perceived threat to business growth, the so-called “policy burden” may present some opportunities. Tax partner at Whittingham Riddell, Duncan Montgomery, said that the measures can encourage firms to innovate and streamline business models. “The combination of issues highlighted by the CBI, the Living Wage, business rates and levies, is pushing more businesses toward smaller premises and frequently third party logistics. Space can be freed up, capital tied up in buildings can be released and businesses can move forward more efficiently,” Montgomery explained.

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ABOUT THE EXPERT

Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

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