AHThe Chancellor’s announcement that councils will be able to keep the proceeds from business rates sounds like a great idea, but is it a double-edged sword for poorer business communities?
George Osborne’s plans mean that councils in England will be able to keep the proceeds from business rates raised within their area, enabling them to better fund communities – a noble gesture and one that will certainly drive growth – IF you are based in the right area.
In what Osborne called ‘the biggest transfer of power’ in recent history, the Universal Business Rate multiplier is to be abolished and a new national multiplier will be introduced, which local authorities will have the power to lower, resulting in reduced business rate charges being levied on businesses within their area.  The intention will be to allow councils to compete with one another for jobs and investment.
In theory, this is a great idea. At present, councils keep 50 per cent of the revenue from business rates, while handing the rest over to the Government, but the intention is that by holding onto it, authorities will be better placed to support their areas with funding and help drive growth.
The finer details of these reforms will have a great bearing on its likely success, from what we understand at the moment only combined authorities with an elected mayor will have the power to increase the multiplier in their areas, and only for the implementation of infrastructure projects with the increase being capped at two per cent.
In a best-case scenario, it will give councils the opportunity to support businesses through investment in infrastructure, and allow them to attract more businesses to the area and drive growth, all the while gaining increased revenue to keep the cycle going.
But in the poorer local authorities, there will still be a need for additional financing and I doubt that the business rate revenue for these areas will be sufficient to maintain services let alone drive development, so it’s really a double-edged sword for those regions that can’t command that level of revenue.
Ultimately, London authorities have an automatic advantage over other parts of the country due to high values of commercial property within their boundaries, there will have to be some form of redistribution of the income, so while the new system looks fantastic on paper, and a surefire way to drive growth, it is more likely to do so in already-affluent and well-populated business areas, rather than in rural or poorer regions. A redistribution aspect would even up the scale and leave every business community feeling that they were being supported by the scheme,” he added.