Latest Public Sector News

03.10.16

IFS: Business rates dependence on London ‘difficult square to circle’

London businesses will provide an even greater share of business rates income as a result of a planned rates re-evaluation, new research from the Institute for Fiscal Studies (IFS) shows, with many other regions set to face a decrease.

Business rates are currently assessed based on the 2008 value of properties, but this is due to change from 2017, with the 2015 value used as a base instead.

The IFS predicted that under the changes, London will be the only region to see an increase in its rates, by about 11%.

Other regions are expected to see a decrease, with the greatest loss in the north, where bills will decrease by 11% in the north east and 10% each in Yorkshire and Humber and the north west.

London has experienced the biggest increase in property values, interest from businesses and employment rates since the 2008 financial crisis.

The IFS said: “This trend means the UK government is becoming more and more dependent on revenues – from many other taxes like income tax, as well as business rates – from London to fund services across the country as a whole.

“At the same time there is growing pressure for devolution of more of London’s revenues to the Greater London Authority – a difficult square to circle if these trends continue.”

Cllr Claire Kober, the new chair of London Councils, has said that it is ‘vital’ that more powers are devolved to London following the EU referendum result. London councils have also called for more freedom in setting business rights.

But the Centre for Cities has warned that London is providing an increasingly dominant share of tax income.

Although the government has said it will redistribute funds fairly between councils, the IFS warned that some councils could lose out in the longer term, because of appeals against the new rates.

The IFS said small businesses will be most hit by the change in rates, with 242,000 properties seeing a rates increase of at least 24%. In addition, it predicted that 100% devolution of business rates will “have a big impact on the kinds of financial risks and incentives councils face”.

The IFS said it will conduct a new programme of research on business rates and other issues relating to local government and devolution. The CCN and DCN have both said in their responses to the proposals that business rates devolution must be ‘fiscally neutral’ for councils in the long term.

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