Business rate reform – the need to make it balance

13-04-2016

By Jo Pitt, Local Government Policy Advisor, CIPFA

The review of business rates is now a topic that occupies the mind of all finance directors as they consider the financial implication of this change. There is a recognition that this alteration to local government funding comes with a number of very important health warnings that the sector must accept and plan for, including the increase in funding volatility. 

Recently, Clive Betts MP chaired a select committee meeting on business rates to identify some of these challenges and Sean Nolan, CIPFA Specialist Advisor, gave evidence on behalf of the Institute. 

In his opening remarks Sean described the challenge as being one of a ringmaster having to control horses all pulling in different directions. This imagery reflects the need to recognise that while some growing authorities will welcome the retention scheme, others which have less business rate income are concerned that their funding gap will increase. Sean also drew attention to the fact that while incentives are important, the need for stability must be high on the agenda. View the video of Sean at the House of Commons committee meeting. 

Uncertainty 

Given that the business rate steering group formed by the DCLG and LGA has only just met, it is unsurprising that there is considerable uncertainty about the future. This group, supported by three work streams, has the enormous responsibility of designing a new scheme that brings together often naturally opposing considerations. Their task is made even harder following recent government announcements that highlight the vulnerability of the business rate scheme to central government policy changes. 

The change in small business rate relief was identified by CIPFA’s Chief Executive Rob Whiteman who said: "While councils will welcome reduced costs for small businesses, they are likely to feel as though they’ve been stitched up. Business rate revenues are planned to replace Whitehall grants but have now been cut with no warning."

Shifting sands 

Looking back to the introduction of the 50% business rate, it is recognised to have been a far simpler task. The foundations on which the scheme was built in 2013 were solid and there was a clearer understanding of the starting point. With budget announcements such as the changes to academy status, which results in a reduction of business rate income, it has become even more unclear where the line must be drawn. Other influencing factors that also come to mind when thinking about a starting position include:

  • needs review 
  • RPI to CPI
  • business rate pilot details.

Keeping the sector informed and aware of developments around the new scheme will be key to its success and the involvement of the LGA goes a long way to making sure that this happens. 

Discover more

  • As part of the steering group, and with technical staff on the working groups, CIPFA is well placed to influence the discussion and contribute its technical expertise. Visit the local government section of CIPFA Thinks to see the latest on CIPFA comment, views and analysis. 
  • Need help with making sure you are getting the most from commercial properties and are forecasting accurately? Find out about Rates Plus.