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Government urged to give councils greater control over business rates

The case for business rates reform gathered momentum today, as the Local Government Association urged Chancellor George Osborne to give councils greater control over the system in his Autumn Statement on December 3.

In a statement broadly welcomed by trade associations and retailers, the LGA said councils are “hugely restricted in their ability to introduce local discounts” because central government sets business rates and keeps half of the income they generate. Whitehall also controls half of any extra income earned from new business premises, which it redistributes to local authorities as grants.

The LGA said business rates should be set and the income redistributed by local authorities. This would allow them to reduce rates for certain types of shops and businesses and offer more start-up leases for new businesses and rate relief for firms that use local suppliers.

Councillor David Sparks, chair of the LGA, said: “There are many areas in which local authorities have been successful in helping new firms to open and keep small businesses alive, but in reality we are working with one hand tied behind our backs.”

Soly Daneshmand, co-owner of the Ju-Ju boutique in Brighton, said she would welcome a move to give her local council greater control over business rates, if there were safeguards in place: “I think it would be brilliant as long as they look after small indies, not put the extra money towards housing or other issues. Local councils know their cities better than the government.”

She said one-store Ju-Ju is currently over the threshold for business rates relief [because the value of the property, which is used to set business rates, is relatively high]: “What we pay in business rates equates to the yearly rent of some shops in Brighton. It’s such a big chunk and it’s killing us. I dread my monthly direct debit.”

Chris O’Dea, owner of premium indie OD’s in St Helens, Merseyside, said: “I sit on a council board with other local businesses and this comes up every week. We all know our local councils have no control, and things would be massively improved if they did. They could give incentives for businesses to expand or to bring new businesses in, which would increase footfall in the town. A percentage should go back to central government to help rural areas without big town centres – but a smaller percentage.”

Business rates campaigner Paul Turner-Mitchell agreed on the need for caveats, such as requiring London authorities to give some money to regional councils to avoid exacerbating the north-south divide. “Central London has huge revenues from business rates, so local authorities [would have room to] drastically reduce the rates, whereas businesses in the north would need to increase theirs to stand still.”

The LGA is also calling on the government to explore the potential for linking business rates to turnover and ecommerce activities, rather than simply the value of the property.

Trade associations welcomed the proposals as a step forward in the fight to reform the business rates system. Michael Weedon, deputy chief executive of the British Independent Retailers Association, said: “The debate is now gathering momentum, with new ideas coming in, and that’s what we have been aiming for these past three years. As we approach the general election we need to see similarly concrete proposals from the political parties.”

A spokeswoman for the British Retail Consortium, which wants small businesses taken out of the rates system altogether, said: “Local councils are absolutely right to focus on the needs of small businesses, which include our family-run shops and independents, but if business rates are to be fit for the 21st century we need the next government to deliver fundamental reform.”

Responding to the LGA, Kris Hopkins, minister for housing and local government, said: “This government has introduced the local retention of business rates, allowing councils to keep half the revenues raised from business rates – equivalent to £11bn a year. This provides real incentives for councils to support enterprise and economic growth.

“Councils already have the powers to introduce local discounts and they can levy a supplementary rate or business improvement district levy if they are backed by a referendum of local firms.”

Last week, the government’s Valuation Office Agency said it has cleared 69% of the business rates appeals backlog that came to light this time last year.

At the end of September 2013, 168,210 appeals were outstanding in England. The VOA subsequently committed to resolve 95% of those by July 2015, and last week announced it had brought this figure to 51,870 by the end of September 2014.

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