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The Queen’s Speech to Parliament includes proposals for changes to the business rates system, to be contained in legislation during the coming parliament. The reforms will be enacted by the proposed Local Growth and Jobs Bill. However none of the proposals for this bill appears likely to address the fundamental problems of the business rates system which are a very high level of tax in relation to other corporate taxes and in relation to property taxes in other countries, and an excessively complex business rates system.
The Local Growth and Jobs Bill will confirm plans for councils to retain 100% of business rates in a major shake-up, a potential transfer of up to £13 billion from Whitehall to town halls. At present local authorities retain 50% of new business rates income generated in their area, but under the proposed powers this will increase to 100%; although the existing “safety net” system whereby local authorities whose business rates income cannot pay for their expenditure receive a top-up payment, will remain. Whilst it might be though that local authorities would welcome this proposal, many of them appear to be concerned about potential volatility of business rates income when revaluations are carried out and appeals made against new valuations.
Ministers hope the change will encourage local authorities to grow their local economies, and would also give councils the ability to cut rates for local firms. These powers already exist, having been granted under the Localism Act 2011, but very few authorities exercise them because they have to make up the income that has been lost. In regions where there is a combined authority mayor, they are to be given the power to levy a business rates supplement to fund new infrastructure projects for the area. The only example at present of such a supplement is that levied for Crossrail across the whole Greater London Authority area.
Whilst the Queen’s Speech contains only an outline of the Government’s proposed legislation, those who were hoping for real reform of the business rates system are likely to be disappointed by what is proposed.
