Risks of 100 per cent business rate retention must be addressed, report warns

The risks posed by proposed plans to give local authorities the ability to retain 100 per cent of business rate revenue must be addressed before the plans are rolled out, a report from the Communities and Local Government Committee has warned.

The report said it supports the plans and believes it is an important power to be devolved to local authorities. However, it warns that problems with appeals and the withdrawal of the Revenue Support Grant (RSG) could leave council’s worse off.

The Committee found that the impact of appeals by ratepayers could dwarf increases in business rate revenue. The Local Government Association (LGA) has warned that council’s have been forced to divert at least £1.75 billion to cover the risk of back dated appeals over the past three years. Under the new plans, council’s will be liable to cover 100 per cent of the cost of successful appeals, which could see this figure double.

The report also suggested that without the RSG it could prove difficult to provide a system which gives incentives to growth and looks after those authorities with particular need.

Clive Betts, Committee chair, said: “Our interim report has highlighted a host of issues regarding the reformed business rates system and we are calling on the Government to take these on board and work closely with local government to find the necessary solutions.

“The issue of appeals is of significant concern to local authorities and it is essential that it is resolved before the government pushes ahead with business rates changes. Similarly, the government must address the alarm of councils, which are understandably worried that their spending needs and the funding of their local services will not be supported by their business rates revenue."

Responding to the report, Claire Kober, resources portfolio Holder at the LGA, said: "Almost 900,000 businesses have challenged their business rates bill since 2010 and the Committee is right to highlight the need to tackle this growing problem before any new system is introduced.

"Councils have been forced to divert at least £1.75 billion from stretched local services in the past three years to cover the risk of backdated appeals – of which they have to cover half the cost at present. Under localised business rates, local government could be liable for 100 per cent of the cost of successful appeals. Improvements to the appeals system are essential to avoid the need for them to divert such significant sums of money that could otherwise be invested into local services.”