Both the CBI and the Local Government Association (LGA) welcomed the proposals unveiled by Chancellor George Osborne to give councils in England the authority to alter the level of business rates in their area, and the opportunity to keep all of the proceeds of those rates.
Currently, businesses pay a uniform business rate set by the national government, which 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. Councils retain 50% of the earnings, with the rest going to the Treasury which then redistributes the revenue to compensate areas with fewer businesses.
The new proposals, announced by the Chancellor at the Conservative Party Conference this week, will mean that councils can cut these rates and effectively compete with each other to encourage enterprise and attract businesses to their area.
CBI director-general John Cridland said that the change could spur councils to take a pro-growth approach, and has the CBI’s support.í He added: ëBut this must not be a way to increase rates without the consent of the local business community.
Gary Porter of the LGA, said: While this is good news for councils and businesses, local authorities will face almost £10bn of cost pressures by 2020 so we will now seek to work with government about how this proposal can be introduced more quickly.
We would expect measures to ensure local areas with less ability to generate business rates income do not suffer as a result of these changes and all councils are also given leeway to vary business rates up as well as down.
John McDonnell, the new shadow chancellor, criticised the announcement, saying: ëWithout the right safeguards in place it’ll be the poorest areas that are hit hardest. We run the real risk of seeing the explosion of Tory tax haven councils, and it’ll be consumers and taxpayers who are left to pick up the bill for it in our communities.
However, as many analysts have noted, the proposals are not necessarily as radical as they might first appear. A system of tariffs and top-ups to support areas with lower levels of business activity will be kept in its present state, and the Government also plans to introduce a safety net for any area where business rate receipts fall by 7.5%.