Advice: Using business rates income to promote development

Government plans to give councils greater control over their business rates income could help stimulate development in deprived city areas, Ben Kochan reports.

Miles Gibson says Crossrail was part funded by levying a supplement on the business rates [Pic credit: Ian Patterson via Flickr]
Miles Gibson says Crossrail was part funded by levying a supplement on the business rates [Pic credit: Ian Patterson via Flickr]

At the Conservative Party Conference this week, chancellor George Osborne announced that he would give councils greater control over their business rates income. Under the proposals, local authorities will be allowed to retain 100 per cent of business rates raised locally, have the ability to reduce the rate level, and be given the freedom to introduce a supplementary business rate levy to fund new infrastructure.

Here are some ideas about how the new rates freedoms might be used.

Encouraging cross-district infrastructure projects
While the details of the proposals are still to be finalised, Miles Gibson, head of research at the property consultancy CBRE, says the new freedom to introduce a supplementary business rate to fund strategic infrastructure projects could help raise new funds for road and rail projects that cut across districts. The powers are currently only available to the mayor of London, but they would be extended to other areas with directly elected mayors as long as they get the support from business representatives on the Local Enterprise Partnership, Gibson says. He highlights how the new Crossrail line in London was partly funded through levying a 2p supplement on the business rates across all London-based businesses with a rateable value over £55,000.

Paul Swinney, senior economist at think tank Centre for Cities suggests that councils will need to carefully plan where they choose to promote new infrastructure projects using a supplementary business rates levy. "They have got to bring real benefits to business across a wide area of the city," he says.

Stimulating development in deprived areas
Karen Cooksley, head of planning at solicitors Winckworth Sherwood, says the new freedom to allow councils to reduce their business rates could be used to promote development in particular areas within districts. She says local authorities could reduce business rates in deprived parts of cities to stimulate business activity.

Richard Wackett, rating partner at property consultants Montagu  Evans, says councils could reduce their rates across the whole authority to make their districts more attractive to development. He adds, however, that this could be expensive and may not actually attract any new business activity. He points out that if councils reduce their rates income, they will need to make up the shortfall from other sources to ensure that they can continue to fund services.

Facilitating new development
The ability to retain all their business rates is likely to act as an incentive to councils to bring forward schemes, says Ion Fletcher, director of policy at property lobby group the British Property Federation. "The potential extra rates income will be an additional factor which could push a council to support new development," he says. 

Harvey Emms, senior director at consultancy Nathaniel Lichfield & Partners, says better certainty about business rates income could allow local authorities to borrow against the income to fund infrastructure projects. The additional rates income from the subsequent new development would then help to repay the loan used to pay for the infrastructure, he says.

However, the BPF is concerned that not all local authorities will benefit from the proposal to retain 100 per cent of business rates. "The fact that some local authorities have a much higher tax intake than others could lead to rate distortion across the country and have a knock-on effect on growth, leaving some local authorities struggling to keep up," Fletcher says.  Redistribution arrangements would still be necessary, he adds.

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