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Small business rates relief could have long-term implications for councils

Councils will lose national government funding and suffer a significant reduction in income generated by small firm business rates by 2021, local authorities have warned following yesterday’s Budget.

George Osborne told Parliament that by 2020, local councils will be 100% funded by locally raised revenue instead of government grants, with the planned full devolution of business rates being granted to the Greater London Authority as early as next April.

But at the same time, he announced permanent cuts in rates to support small businesses that will reduce the income to local councils.

Osborne said: “That’s a permanent long-term saving for all businesses in Britain. A typical corner shop in Barnstaple will pay no business rates. A typical hairdresser’s in Leeds will pay no business rates. A typical newsagent’s in Nuneaton will pay no business rates.”

The new budget will permanently raise the threshold for small business rate relief from £6,000 to £15,000 at a cost of £1.6bn in 2016-17 and a cumulative loss of £5.9bn by 2020-21.

The threshold for the higher rate will increase from £18,000 to £51,000 at a cost of £125m next year and £460m by 2021. Osborne told Parliament that the reduction means that from April 2017, 60,000 small businesses will pay no business rates at all and 250,000 businesses will see their rates cut, meaning half of all British businesses will benefit.

He also promised to ‘radically simplify’ administration of business rates, and, from 2020, ensure that they follow the consumer price index instead of the retail price index, costing local authorities £370m.

Cllr Neil Clarke, chair of the District Councils’ Network, said: “The re-confirmation that 100% of business rates will be retained locally by 2020 is welcomed, as is the increased support of small and micro-businesses. However, we will need to more fully understand the longer-term implications of the £6.7bn small business rate relief on the overall resourcing for local government post-2020.”

Clive Betts, Labour MP for Sheffield South East and chair of the Communities and Local Government Committee, wrote to communities secretary Greg Clark, asking him to confirm that local authorities will be compensated for the loss in income.

Betts said: “Given the Budget news today, it’s important for local authorities, and the communities they serve, that the secretary of state confirms that no councils will be worse off as result of the business rate measures announced by the chancellor.”

Financial leaders from local councils recently warned the committee’s inquiry on business rates that there are many unresolved issues about the business rates devolution, including whether there should be top-up grants for low-income areas.

The Department for Communities and Local Government also announced recently that councils will spend all proceeds from the sale of assets from 1 April.

Lord Porter, chair of the Local Government Association, said: “While it won't in itself solve the long-term challenges facing councils and local services, allowing local government to retain 100% of its business rates income is now vital.

“Pilots are an important first step, although it will be important to avoid a knock-on financial impact on other councils, and local government will rightly need to play a lead role in making sure any new national system works effectively and fairly.”

He added that the LGA were relieved that there had been no further cuts to local government funding, which they warned in their submission to the Budget would be a false economy.

However, he expressed disappointment that the government had not listened to their calls to help tackle the funding gap in social care by bringing forward £700m funding.

(Image c. PA Wire)