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LGA - Overhaul business rates to help small firms and save high streets

Popular independent traders, family firms and businesses which use local suppliers could pay less in business rates under reforms proposed by councils which could help save England's high streets.

Local authorities are concerned that many small firms and businesses which do most of their trade on the high street rather than online are unfairly penalised by business rates in their current form.

Councils, which are responsible for collecting business rates, are hugely restricted in their ability to introduce local discounts. This is because government sets the charge and keeps half of business rate income as well as growth – extra income earned from new business premises – which it redistributes to local authorities in grants.

The Local Government Association (LGA), which speaks on behalf of councils, says that instead, business rates should be set by local government. Any growth in business rates income should be retained by local government. And the redistribution of business rates should be taken out of central government's hands.

The Chancellor is being urged to deliver a boost for small businesses in next month's Autumn Statement by committing to devolving control of business rates down to local government.

With greater local control, councils would have more flexibility to reduce business rates for the types of shops and businesses that residents want in their high streets and neighbourhoods.

Locally decided policies could include start-up leases for new businesses or rate relief for firms which use local suppliers. Such schemes operate in some areas already but could benefit thousands more businesses nationwide if business rate income was kept by local government.

Councils are also calling for government to explore the potential for linking business rates to turn-over and e-commerce as part of a wider package of reforms to make business rates fairer for business and local areas.

Small shops and independent traders in some areas can pay many times more than internet start-ups and e-commerce firms which have a much bigger turnover. Almost one in seven shops on the high street is currently empty. Councils are concerned that the burden of expensive business rates for small traders is making it more difficult for new businesses to open.

Cllr David Sparks, Chair of the LGA, said:

"We need a system of local business taxation which is fit for the 21st century, which supports the areas in which companies operate and which helps, rather than hinders, business and the growth of our economy.

"The current system is failing to do that. Councils can't support their local businesses as much as they would like to. 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.

"The money which a business pays should be retained by local government to invest in the vital local services, all of which help local businesses either directly or indirectly.

"We need to remove Whitehall's hands from the business rate purse and find a fairer way to invest the taxes paid by business so that areas with growing economies feel the benefit in a way which does not come at the expense of those parts of the country where business is less buoyant.

"Government should work with businesses and councils to go back to the drawing board on business rates.

"The idea that the local taxes paid by business should be based solely on the size of a building predates the English Civil War. In a world where business and retail is increasingly happening online, a fundamental rethink is clearly long overdue."

Councils have set out five key areas for long-overdue reform. They are urging government to:

  • Devolve the setting of rates and discounts to local authorities who would be able to use this power to reduce bills to help support local and independent businesses.
  • Commit to 100 per cent of business rates income, including growth, being retained by local government. Currently 50 per cent of business rate income is paid to the Treasury as is half of the extra income raised when new businesses open. They use this to pay grants to local authorities.
  • Establish an independent body for the distribution of funding to councils. This would take the politics out of financial distribution and would redistribute business rates income across the country in a way which would ensure those areas with less business activity do not lose out.
  • Work with local government to minimise business rates avoidance.
  • Reform the appeals system. The number of appeals and time they take to resolve is major problem which restricts the ability of local authorities to reinvest the money to support business. According to most recent government data there are more than 130,000 outstanding appeals from businesses over the rates they pay.

Case studies

Business rates reduction schemes operate in some areas already but could benefit thousands more businesses nationwide if business rate income was kept by local government.

  • Sutton Council is offering 50 per cent off business rates for new start-ups and expanding small businesses, along with support drawing up business plans. Across the borough, the council's business support offer has helped reduce the number of vacant business premises from 517 in 2010 to 426 in 2014.
  • Oldham Council is spending £1 million supporting businesses in the town centre. The money has been spent refurbishing key buildings, helping existing firms to relocate and introducing grants for local firms looking to acquire their own buildings. It has led to the creation of an ‘Independent's Quarter in the town centre. It aims to increase footfall in parts of the town which are less busy.
  • Mid-Sussex District Council and West Sussex District Councils are teaming up on a £1.87 million development which will provide 35 new business starter units including offices, studios and workshops on the site of a former council waste depot in Haywards Heath. Building work is due to start on the site shortly and is expected to be completed by May 2015.
  • The Staffordshire Business Loan Fund has given £3 million to more than 100 businesses in the county, creating and protecting 860 jobs since it was established in 2009 by Staffordshire County Council. The fund is offering £1 million to support small businesses this financial year. It is run in partnership with specialist loan organisation BCRS and offers loans of between £10,000 and £50,000 to companies with up to 250 employees.

Notes to editors

1. Councils estimate that about £22.4 billion will be collected in business rates in 2014/15. This is after accounting for costs of collection and about £347 million expected discretionary relief.

2. There are nearly 1.8 million properties liable for business rates in England. Business rates account for around one-fifth of local government income.

3. Government last year introduced a £1,000 business rates discount for retailers in properties with a rateable value of £50,000 or less. Under the overhaul being called for by councils, bigger discounts could be offered to a wider range of businesses. Targeted schemes could be introduced to make it easier for certain types of business to open in a particular area, for instance if local shoppers wanted to see more independent gift shops, cafes or bakers.

4. Speaking at LGA annual conference earlier this year, Communities Secretary Eric Pickles said that he wanted to move toward councils keeping 80 to 90 per cent of business rates collected in their local area by the end of the decade. He said: "I would be very disappointed if we couldn't by the year 2020, have got it up to higher 80 per cent or lower 90 per cent." The LGA is calling for the Department for Communities and Local Government to set out firm plans to make that happen.

5. There are 131,590 outstanding appeals over business rates. 125,500 relate to valuations of businesses in 2010 and there are another 6,090 which relate to 2005 valuations.

6. Research published by the Local Data Company in July showed the shop vacancy rate across Britain was 13.4 per cent in June.

Contact

Simon Ward, Local Government Association
Telephone: 020 7664 3147
Email: simon.ward@local.gov.uk 
Local Government House, Smith Square, London SW1P 3HZ

www.local.gov.uk

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