Local authorities will be able to retain 100% of their business rates, the chancellor confirmed in today’s Spending Review.
George Osborne has reaffirmed his commitment to allow councils to keep all of the money raised through taxing local businesses in their areas. Nationally, this adds up to an estimated £26bn.
Local authorities will also, according to the chancellor, be able to lower business rates in order to attract business investment.
Directly elected mayors will also have new fiscal powers, with confirmation of the planned Infrastructure Levy, allowing them to raise rates on the condition that they use the revenue to invest in local infrastructure and have the support of the Local Enterprise Partnership's business members.
Central government grants will also be phased out.
Historically, local authorities paid all revenue raised through business taxes to the Exchequer. It would then be redistributed on a needs-basis according to the Formula Grant System.
This changed on 1 April 2013 when the Government allowed local authorities to retain 50% of business rates, while the remainder went to Whitehall.
Then in October 2015 the chancellor announced that councils would be allowed to keep hold of 100% of the revenue derived from local businesses.
Today’s announcement to ‘abolish uniform business rates’, as he said in the Spending Review, is an integral part of the chancellor’s ‘devolution revolution’, an attempt to correct what he characterised as the ‘geographical imbalance’ in the UK.
By devolving the responsibility for business rates to councils, the chancellor hopes to encourage local authorities to become more competitive and to focus their attentions on attracting private investment into their own areas.
Reacting to the chancellor’s October announcement, Cllr Gary Porter, chairman of the Local Government Association (LGA) said: ‘Councils and businesses both agree that business rates should be a local tax set by local areas. It is right that all of the money which a business pays is retained by local government and this will be a vital boost to investment in infrastructure and public services.’
Andrew Jepp, director of public sector, Zurich Municipal, said: 'Today’s spending review will take some local councils to the edge. While the chancellor has thrown councils a bone by allowing them to levy an additional 2% to fund health and social care integration, abolishing the uniform business rate and giving councils the revenues, and creating new enterprise zones, the financial pressures continue to be immense. Local authorities can’t go bankrupt, but they can financially fail and the risk of this happening has been increased today.
'Paradoxically, the financial pressures themselves aren’t the biggest problem facing councils. Most councils are having to step in to the unknown to become ‘Council-preneurs’ and have had to embrace risk in a manner like never before. This increases the potential for some of these risks to materialise with significant consequences that will only increase future pressure. We would urge all local authorities to ensure that they have robust plans in place to minimise and mitigate the risks of the change agenda.'
