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George Osborne Announces Major Changes To The Business Rates System

Chancellor George Osborne has told the Conservative Party Conference that the Government plans a ‘devolution revolution’ and the revitalisation of Britain’s high streets by allowing councils to keep all the money they raise from business rates.

In what the Chancellor described as the biggest transfer of power to local government in living memory, Mr Osborne said that all of the £26 billion raised from business rates will be kept by councils instead of being sent to Whitehall, by the end of this Parliament.

He added that local councils will be able to cut business rates as much as they like to win new jobs and generate wealth, that it will be up to councils to judge whether they can afford it – and that they will be able to add a levy to the rate to pay for infrastructure investment.

The reform will mean local government retaining all revenue from business rates for the first time since 1990, and will mean phasing out the main grant from Whitehall, to ensure the reforms are fiscally neutral.

Since 1990, local business rates have been set by central government at a uniform national rate. Rates are collected locally, but then transferred to central government to be distributed back to local areas in the form of grant.

Since 2013, local councils have been enabled to retain 50 per cent of the proceeds of rates, to ensure that when local areas take steps to boost business growth in their area, they should see the benefit.

The latest reforms go much further, moving to 100 per cent retention of the full stock of business rates by 2020. It will mean that all income from local taxes will go on funding local services.

Local authorities will be able to cut business rates as much as they like. Directly elected mayors – once they have support of local business leaders through a majority vote of the business members of the Local Enterprise Partnership – will be able to add a premium to business rates to pay for new infrastructure. This power will be limited by a cap, likely to be set at 2p on the rate.

Edward Cooke, Director of Policy and Public Affairs, British Council of Shopping Centres (BCSC) says: “BCSC has been a leading voice in calling for the meaningful reform of the opaque and outdated business rates system and for a new approach which is better for businesses, local councils and the local communities they serve.

“However, we question how the announced approach will work in practice – particularly for local councils which are currently net beneficiaries of the existing redistribution system.

“How would councils which have high public service costs but low business tax income pay for delivering public services? Would they compete in the new system, in which case are some destined to sink and others to swim? We await more detail.

“In response to the new additional levy being available to pay for infrastructure investment, we do not see this as a new measure, with councils already able to levy additional business rates for infrastructure investment – such as with Crossrail.

“Is the Chancellor now saying this power is only available to areas with elected mayors and to be determined by unelected Local Enterprise Partnerships?”

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