• Oct 10 / 2015
  • 1

George Osborne unveils plan to overhaul UK business rates

George Osborne has unveiled a radical new plan to overhaul the UK business rates system that will see councils able to keep the proceeds from rates raised in their area.

Councils keep up to 50% of local business rates under the current system while the rest goes to Westminster. Osborne’s shake-up of the system will see councils holding on to around £26 billion each year.

How will councils’ roles change in terms of business rates?

Councils will gain the freedom to cut the tax so that companies are encouraged to invest locally. Directly elected mayors will be able to increase business rates if they invest the extra money into infrastructure schemes.

The uniform business rate that prevents councils from offering more attractive rates than their rivals is also being scrapped in what is the biggest restructuring of the system since 1990.

How does the new system differ?

Businesses currently pay a uniform business rate set by central government. Councils collect the tax and send the funds to the Treasury, which then redistributes the money as grants so that areas with fewer businesses do not lose out. Central government currently takes in about £11.5bn in business rates and redistributes £9.4bn in grants.

Osborne has described the move as “the biggest transfer of power in recent history” as he steps up his devolution revolution campaign.

He said the change would mean cities and communities no longer had to go to the government “with a begging bowl”.

Closing or widening the poverty gap?

However critics have warned that the new business rates system could widen the poverty gap.

Frances O’Grady, General Secretary of the British Trades Union Congress, has said that by devolving business rates without any national safeguards, regional inequalities will get wider. She claims the communities that most need investment are those with the weakest business revenue base.

Andy Burnham, the shadow Home Secretary, tweeted: “Big contradiction at heart of Osborne speech. Says wants to close North-South divide but then announces taxation reform that will widen it.”

The reform is due to come into effect by the end of the current Parliament in 2020. However, the Treasury’s review into business rates is ongoing and details of that will not be announced until the Autumn statement at the end of next month.

  • Oct 20 / 2015
  • 0

Business review could bring no significant business rates change for retailers

Earlier in the year, we wrote a blog on the proposed government review of business rates that was set to shake up the commercial property tax system. Unfortunately, it does not appear as though any significant changes are on the way for retailers.

Talks between the Treasury and retailers to revamp business rates have been considerably slowed down, the Guardian reported, so much that industry sources said they were “extremely concerned by the lack of ambition” of the government and “patience is running out across the business community”.

Mike Spicer, director of research and economics at the British Chambers of Commerce, said that voices in the Treasury suggested not to “get your hopes up, there is not going to be any change”.

Why business rates are in need of review

The current (and controversial) property tax makes the Treasury more than £25bn a year, and has been due for a review since George Osborne promised to do so last year.

Retailers fear that today’s rates are damaging high streets as they are based on outdated property valuations and not on business revenue. The rates could be corrected by either valuing property regularly, or basing it on the economic output of a business.

Revamped business rates could help fund the new national living wage

New business rates could help fund the introduction of the new national living wage, which was announced during the summer budget in July and is set to reach £7.20 in April 2016.

Even large companies have been said to be struggling to pay the new minimum wage and they warned that they might need to increase prices or cut employee numbers to keep up with legislation.

At what stage is the promised review?

The British Retail Consortium said that retailers supported the Treasury’s decision to conduct a ‘radical’ review of business tax rates, but “we are all looking for some sign that the government intends to keep to the spirit in which the review was announced”.

A Treasury spokesman said that that the review is “considering the impact of business rates on the retail sector as part of the ongoing business rates” and “will be complete by the end of the year”.