Economic recovery fails to provide business rates boost

LEEDS business rates income will fail to reach expectations despite the opening of Trinity Shopping Centre and Leeds Arena.

A lower-than-forecast inflation rate – 2.3% rather than the working assumption of an RPI of 2.76% – will result in business rate income in Leeds being down £660,000.

Improvements in the economy have not fed through to a significant increase in business premises, with the property merry-go-round hiding the lack of growth.

In addition, the Business Rates Retention Scheme, which began in April 2013 and was designed to encourage local authorities to stimulate growth with the incentive of being able to share the additional income with central government, has had only a small impact on the Leeds City Council’s revenues.

Andy Gay, deputy chief executive of Leeds City Council, said: “In recent months two trends have become clear. The gradual economic recovery is not resulting in significant volumes of new-builds in Leeds. Most new or expanding businesses are moving into existing premises that are already subject to empty rate charges, so the overall growth in rateable value is minimal.

“The benefit of any growth that does occur is being largely offset by the effect of demolitions, conversions and successful appeals.

£In 2013/14 Leeds benefited from the opening of Trinity Shopping Centre and the Leeds Arena, but even after taking those large new assessments into account, over the 20 months since the scheme was introduced the total rateable value for Leeds has grown by less than 0.7%.”

Revenue from business rates also suffers from a lack of certainty because of the flawed appeals process. In Leeds, around one-third of the entire business rates tax base is subject to appeal, and companies that are successful can get reductions backdated to 2010.

The problem of lower-than-expected income from business rates is not just restricted to Leeds. Chancellor George Osborne acknowledged in last week’s Autumn Statement that the national yield from business rates in the next financial year will be below forecasts that had been produced for the Budget just nine months earlier.