Local councils will be given control of business rates in a complete overhaul of the system, chancellor George Osborne has revealed.
Speaking at the Conservative party conference in Manchester today, Osborne said councils will be allowed to retain the £26bn raised through the tax each year and will be able to set their own rates.
Under the current system, councils collect business rates and send them to Whitehall. Central government takes a cut and then redistributes the rest back to local authorities.
Osborne said: “Today I am embarking on the biggest transfer of power to our local government in living memory. We’re going to allow local government to keep the rates they collect from business. That’s right, all £26bn of business rates will be kept by councils instead of being sent up to Whitehall.
John Cridland, director general of the Confederation of British Industry, welcomed the move: “If this bold announcement on business rates is a way to cut them, then it will spur councils to take a pro-growth approach and has the CBI’s support. But this must not be a way to increase rates without the consent of the local business community.”
However, Melanie Leech, chief executive of the British Property Federation, warned of a distortive effect: “The business rates system as it stands has myriad problems and needs dramatic reform, and we would not want this move to exacerbate those issues. The fact that some local authorities have a much higher tax intake than others could lead to rate distortion across the country and have knock-on effect on growth, leaving some local authorities struggling to keep up.”
The British Retail Consortium said: ‘We look forward to learning more about the chancellor’s plans to fundamentally reform the business rates system in the autumn. Today’s announcement only highlights the urgency of reforming this outmoded tax, which acts as a drag on the economy.
“We will now look closely at the detail as it emerges, but it’s worth remembering there is a widespread consensus that any package of reform to the system must address head on the need to reduce the burden of a tax that discourages investment in jobs and growth. The national business rates multiplier needs to be frozen, and then reduced to encourage local and national growth.
“The detail of the chancellor’s plan and ongoing review is now absolutely essential.”
Mike Flecknoe, senior director in property consultancy Cushman & Wakefield’s rating team, said “greater clarity” was needed on the reform. “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.”