Tax & admin · 5 October 2015

George Osborne begins “devolution revolution” with business rates overhaul

Osborne said the changes marked “the biggest transfer of power to local government in living memory”
Osborne said the changes marked “the biggest transfer of power to local government in living memory”

George Osborne has unveiled a radical change to the business rates system, with full devolution of business rates giving councils control of an extra £13bn by 2020.

The chancellor said by 2020, councils will retain 100 per cent of local taxes, including the £26bn from business rates, while the uniform business rate will be abolished, the core grant from Westminster phased out and directly-elected mayors will be able to add a premium to business rates for spending on infrastructure.

In his speech at the Conservative party conference in Manchester, Osborne called the overhaul “the biggest transfer of power to local government in living memory” and said the plan meant, “attract a business, and you attract more money”. Similarly, “regenerate a high street and you’ll reap the benefits”, which could be a concern for areas with little business revenue. Local authorities will have the freedom to compete with one another to attract businesses.

Theoretically, councils could compete with lower rates in order to win firms, or fund better council services through higher rates.

The IoD’s director general, Simon Walker, said he hoped councils would use the new powers to “attract businesses and regenerate high streets” which would bring jobs and wealth. Walker said that while firms support devolution, “they will not stand for local politicians using it as an excuse to hike taxes” as more than half of IoD members had said they were concerned devolution would lead to higher taxes.

highst

Osborne said that “proud cities and counties should not be forced to come to national government with a begging bowl” and all £26bn of business rates will be kept by councils, which can then spend the money raised, rather than being sent up to Whitehall. The amount currently goes to central government before local councils receive a grant in return.

Andy Burnham, the shadow home secretary, has criticised the reforms, saying there was a “big contradiction at heart of Osborne speech”. While Osborne claimed he wants to close the North-South divide, Burnham said he contradicted this by announcing taxation reform that will widen it.

Last year, the British Retail Consortium commissioned a poll, which said 80 per cent of MPs agreed the way rates were structured was “in need of fundamental reform”. The BRC has been lobbying for reform around four principles – reducing the burden of the tax, ensuring the tax moves in line with the economic climate, that it is shared across industries and includes incentives for investment from businesses.

The FSB’s national chairman, John Allan, also reiterated the importance of ensuring “businesses don’t get short-changed”. “It is essential the new rates structure works for all our 5.2 million small firms,” he added.

Business rates are charged on firms that occupy commercial property and to calculate them you need to know the rateable value of the property – based on the annual market rent value. These values are reviewed every five years, taking into account the size and usage of the property. It has been a sticking point for small businesses as the government doesn’t share the information used to decide the value with individual firms.

While businesses can appeal the decision, it is often a drawn-out process and with the government looking to bring in an upfront fee for appealing, this would also make it a costly one too.

Jerry Schurder, head of business rates at Gerald Eve, said: “In business rates, your own liability depends not on your own property but what’s being paid by lots of other people and you have no right to obtain that information. In any other tax, the taxpayer has the relevant information to make an appeal, but not on rates.”

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ABOUT THE EXPERT

Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.

Tax & admin