Devolution for business rates announced

Tuesday 6 October 2015

For the self-employed, one of the biggest pieces of news to emerge from the Conservative Party conference in Manchester is the chancellor George Osborne’s planned changes to the way in which business rates are collected.

In his conference speech, Mr Osborne said that he planned to devolve taxing businesses to local councils across England and Wales. At present, local authorities keep 50 per cent of the business rates collected, while the rest goes to central government.

It has been suggested that the change could put over £26 billion in the hands of councils, who will then use it for providing services to their local communities.

Mr Osborne claimed that his plans would encourage businesses and councils to support each other, and reduce dependence on central government. He told local authorities: “Attract a business, and you attract more money; regenerate a high street, and you'll reap the benefits; grow your area, and you'll grow your revenue too."

However, contractors may be more interested to learn that councils will gain the power to lower the rate of business taxation in their area to, which could potentially have a major impact on small businesses and self-employed people.

The theory is that lowering the local rate would encourage new businesses to come to the area. Councils would not be able to raise business rates, except in very limited circumstances.

At present, business rates are calculated by multiplying the rental value of a company’s property or properties by either the lower or standard rate (48 pence and 49.5 pence respectively). This system was introduced by Margaret Thatcher’s government in the 1980s.

Directly elected mayors in cities such as London and Sheffield will be allowed to add a premium (which is expected to be capped at two pence in the pound by the Treasury), which would be used to pay for major infrastructure projects that benefit the wider community. They will only be able to add this premium if local businesses vote in favour of it in a local referendum.

However, concerns that the changes will make it harder for less prosperous parts of the country to attract businesses have been raised, as councils with less disposable income in the first place may not be inclined to reduce a major income source such as business rates. In response to this, Mr Osborne promised to announce a replacement that will continue to make sure that poorer areas are not unfairly penalised, but detail of this have yet to be revealed.

In response to the news, the Association of Independent Professionals and the Self-Employed’s policy director Simon McVickers said: "We hope local councils recognise the value the self-employed contribute to the economy. Councils can support them by ensuring competitive business rates for work hubs and shared workspaces. These spaces are vital entrepreneurial communities where independent professionals can develop their businesses in a supportive environment with their peers."

Local councils have not yet revealed whether they plan to lower their rates as a result of the announcement once control is handed over.

By Victoria McDonnell

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