Mixed reaction to Osborne’s business rates shake-up

THE West Midlands property industry has given a cautious welcome to Chancellor George Osborne’s announcement on business rates.

Speaking at the Conservative Party conference in Manchester this week, Osborne signalled a transfer of power to local councils.

He said councils will now be able to keep all revenues collected from business rates.

Property consultancies based locally have largely welcomed the move but have raised a number of issues of concern.

Mark Clapham, head of rating at Lambert Smith Hampton in Birmingham, said: “Local councils have got what they pushed for but are there perhaps dangers that haven’t been taken into account?

“Last week for example, Redcar and Cleveland council issued a warning about a probable shortfall in their budget from a £10.7m business rates arrears created by the liquidation and administration of the biggest employer in the authority..
 
“No one should be better placed to know what is required in their authority than those elected but there is potential for a “kid in a sweet shop mentality”, with councils spending left, right and centre, without proper checks and balances.
 
“The real question is how and when this will be implemented? In 2004, the Housing, Planning and Local Government Select Committee recommended that the Government return business rates to local control ‘as soon as possible’ and nothing resulted. This Government will need to follow up the rhetoric, with clear, practical action.”

David Cureton, the head of rating at Johnson Fellows, takes a largely positive view of the move. He said: “This is a real sea-change, reversing entirely what Margaret Thatcher introduced as part of the 1988 Local Government Finance Act.

“This will be good for local authority investment and will encourage councils to spend more now they have the power to increase income through business rates. In turn, this will lead to improved services to businesses.

“Not only will local authorities be able to keep the monies raised by business rates, they will also be able to adopt their own rate poundage as the uniform business rate, which was introduced on 1 April 1990, is to be abolished.

“Once again, this will encourage local authorities to spend money raised via business rates system and will hopefully stimulate the economy and business generation.

“No doubt some people will have a sceptical view on this, believing that some local authorities may go back to pre-1990 days and increase the rate poundage to excessive levels but I suspect this will not be the case, as lessons have been learned from the economic downturn.”

Peter Fullam, director in Cushman & Wakefield’s rating team in Birmingham, said: “This is a huge step that reverts to the pre-1990 system of councils keeping the business rates revenue for their area. It should foster closer links between councils and business which is positive as business rates do pay for many local services.
 
“However we need greater clarity to understand the consequences. What happens about equalisation? Will there still be some redistribution of rates revenues from urban councils with many high street businesses and high property values, especially in London, to councils without the tax base to pay for the current level of services provided?

“Clearly, that will need addressing to avoid many councils losing out substantially.”
 
Phil Harrison, director rating at the Midlands office of Colliers International in Birmingham, said: “As it is the Government’s stated policy to make local government self-sufficient in finance, the cynics amongst us might be forgiven for thinking that these new taxation powers may turn out to be a ‘poison chalice’ for local councils as austerity bites even deeper, leaving local government unable to point the finger elsewhere for lack of funding for essential local services such as health and social welfare, children’s services and policing.
 
“Before evaluating the changes to business rates proposed by the Chancellor, one should firstly stop and examine his stewardship to date of the present system, i.e. overseeing a record number of appeals – circa 255,000 today , a postponed revaluation 2015 – 17 that has resulted in continuation of high streets looking like they are bomb damaged.
 
“What is in effect phase two of the Government’s review of local government resources, George Osborne’s apparently radical announcement on business rates builds on the measures stemming from the March 15 budget that Greater Manchester and Cheshire East Councils together with Cambridgeshire and Peterborough would become ‘pilot’ authorities with the power to retain 100 per cent of any additional business rate growth above forecast, starting in April 2015.
 
“However his statement that this is “the end of the uniform business rates” appears tempered by his comment that “Any local area will be able to cut business rates as much as they like to win new jobs and generate wealth”.

“So we will have to wait and see the extent of these new ‘tax raising’ powers above and beyond the power that councils already have to raise a supplementary rate of up to 2p in the pound to spend on infrastructure projects.
 
“The ‘devil is always in the detail’ and what safety net ‘rate capping’ rules will accompany these new found powers, we just don’t know.”