Local Councils will be able to retain 100 per cent of all business rates from 2020 claims Chancellor

If there’s one issue accountants know gets SMEs hot under the collar, it’s business rates. That’s why business organisations have been calling for root and branch reforms for many years. But why do businesses get so irate about the issue? Why have they been calling for fundamental reforms? Well, it’s simply because they see the current business rate regime as complicated, opaque, regressive and unresponsive to changes in economic conditions. For many SMEs paying business rates has become their third biggest cost after rent and wages, yet the tax is poorly targeted and not based on ability to pay.

So when Chancellor, George Osborne’s, recently announced fundamental changes to the business rates regime at this year’s Tory Party Conference he probably thought the announcement would warmly welcomed by the business community. However, judging by the responses from both the British Retail Consortium and the Confederation of British Industry, he might just have been disappointed. The response at best has been mixed. So what exactly are the changes he has proposed, and what reforms would SMEs and the business community really like to see introduced?

At the conference in Manchester earlier this month Mr Osborne announced plans to enable local councils across England to keep all the proceeds from business rates raised in their area. He also announced that under his new regime councils will also be able to cut and raise their business rates. He called it the “biggest transfer of power to our local government in living memory”.

What’s the current position on business rates? Well, as things stand local councils retain 50 per cent of all the uniform business rate proceeds with the rest being sent to Westminster. The amount paid by businesses is calculated by multiplying the rental value of a property by either the standard rate (49.5p) or the lower rate (48p), before subtracting any rate relief. The Treasury then then redistributes the tax so that areas with fewer businesses do not lose out.

Under the new proposals local councils will be able to retain 100 per cent of the business rate taxes levied in their catchment areas. Local councils will also be given the power to cut these rates in order to entice more businesses into the area, creating additional investment and jobs. In addition, elected mayors in large cities such as London, Manchester and Birmingham would be allowed to add a premium – thought to be capped at 2p – to pay for major infrastructure projects.

Mr Osborne said that the change, which is due to be in place by 2020, would mean cities and local communities no longer had to go to the Government “with a begging bowl”.

“Attract a business, and you attract more money; regenerate a high street, and you’ll reap the benefits; grow your area, and you’ll grow your revenue too”, he added.

But how have the proposals been greeted by businesses and local authorities? Well, perhaps not as enthusiastically as the Chancellor would have liked. The changes have been welcomed as “good news” by the Local Government Association (LGA). However, the British Retail Consortium (BRC), which has long led the charge for business rates reform, was only prepared to go as far as offering a cautiously optimistic response to the news, with a spokesman saying that “the detail of the Chancellor’s plan and on-going review is now absolutely essential”.

As far as the Confederation of British Industry, the UK’s biggest business lobby group, was concerned the response was generally non-committal, with director-general, John Cridland, simply saying “the devil would be in the detail.” He added that “this must not be a way to increase rates without the consent of the local business community.”

If you’d like any further information on business rates or would like more detailed information on the Chancellor’s latest proposals, then contact Steven Glicher accountants on 0161 405 8007 or email info@stevenglicher.co.uk

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