Business rates reform – a new dawn?

Like many of the most vaunted changes, the Chancellor’s announcement at the Conservative conference that he plans a radical overhaul of the business rates system throws up as many uncertainties as it does solutions. For many business groups and local authorities, these reforms have been a long time coming, and will lead to a much-needed revamp of a system that divorces local growth from local revenue and does little to encourage inward investment.

In line with the Chancellor’s vision of devolved regional governments and a ‘northern powerhouse’, his announcement this week will ostensibly loosen the grip that central government exerts on regions of the UK, giving councils the ability to incentivise growth in a way that makes sense for their area.

The most immediate concerns that have arisen in response to the plans focus on the risk that they will deepen the divide between richer and poorer councils. Some of the councils that have been the most vocal in campaigning for business rates reform are, unsurprisingly, those that already generate the most in business rates and have to stand by while their revenues are purloined by central government. These councils will no longer have to tolerate this revenue being redistributed via Whitehall to less affluent areas.

Conversely, some voices – most notably the new shadow chancellor – have raised concerns that poorer councils will be driven to a ‘race to the bottom’ in order offer the most attractive rates, dramatically reducing their income. Alternatively, some commentators have suggested that richer authorities could offer a discount to attract businesses to their area, to the detriment of less prosperous areas.

However, the safety net that currently exists is not about to be pulled from underneath less affluent councils, and the mechanisms to protect local authorities from these variables will undoubtedly form part of the ongoing structural reform of business rates and the consultations around these reforms.

The Chancellor’s announcement has also raised another set of questions relating to whether certain types of businesses will benefit at the expense of others. While the changes have been broadly, if cautiously, welcomed by the business community, there is a strong feeling that we need to see how this pans out before getting out the bunting. How will these reforms interact with planning regulations? Will established businesses, including retailers, lose out as councils seek to generate new jobs rather than protect existing ones? Currently these are all ‘known unknowns’ that will need to be meticulously worked through.

In the Chancellor’s own words, “I don’t know if it will work. But I do know that if you don’t even try you’re bound to fail.”

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