Now is the time to take on business rates fraud


by Marc McAuley, CIPFA Counter Fraud Centre Manager

Business rates are set to become an increasingly important stream of funding for local government, as councils slowly move closer towards 100% business rates retention in 2020. This shift represents a transfer of both risk and reward to local authorities by the Ministry of Housing, Communities and Local Government (MHCLG), which brings new challenges and opportunities. While the business rates retention scheme is intended to incentivise authorities to support local economic growth, it should also bring about greater focus on protecting business rates from fraud. 

The most recent CIPFA Fraud and Corruption Tracker found the largest growing area of fraud being detected or prevented by councils is business rates fraud, up from £4.3m in 2016/17 to £10.4m in 2017/18. This shows significant effort being made by councils. However, this likely represents only a fraction of the fraud going on, with the Local Government Associations estimating that avoidance could be costing the government around £230m. Research by data analytics company Destin Solutions estimated that there could be over £25m worth of fraud being perpetuated by businesses falsely claiming Small Business Rates Relief across England. 

While this form of relief should only apply to businesses using one property or have a rateable value of less than £15,000, the research found multiple businesses with branches set up in neighbouring authorities, and fraudulently claiming relief from those councils. 

It goes back to the age old problem of information sharing between councils, with some fraudsters simply taking advantage of these knowledge gaps in between local authorities by not declaring the full extent of their operations. Without councils talking to each other, they can get away with it undetected. While we can see in the tracker local authorities are getting better at tackling this form of fraud, making a real impact will require far greater cooperation between local authorities.

The most obvious solution is sharing more data between councils, and, of course, making use of new technologies to ensure that suspicious activity can be easily identified. CIPFA is working with local authorities to develop this technology and enhance the ability of local authorities to get greater value out of the data they collect, including with the London Counter Fraud. There remains a lot of work to do, but it is an exciting time, with an official "go-live" in the next few months. 

This adds to CIPFA’s work in fraud sharing best practice, research, hosting events, and bringing together the community with the Government Counter Fraud Awards. Whether it relates to housing, council tax, or indeed business rates, fraud in all its forms is never a victimless crime, as it diverts money from public services which are sorely in need of funding. It has a real and tangible effect on the community, and when it comes to business rates fraud, the circle of those affected can be perceived as being wider than public services.

Other legitimate businesses which do meet their obligations are undermined by the fraudster, who is seeking an unfair competitive advantage. So by taking action against business rates fraud we actually come back around to the very purpose of the retention scheme as put forth by the Ministry of Housing, Communities and Local Government – supporting a thriving local economy. With the reforms of business rates currently under way, reducing the harm from this form of fraud has never been more important within local government. 

This article first appeared in Public Finance.

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