George Osborne’s radical plan to overhaul the UK’s £26bn business rate system may not lead to a reduction in the overall cost to industry, despite a cautious welcome from UK plc.
The Chancellor used his speech to the Conservative party conference in Manchester to reveal plans to allow local councils to retain all the business rates collected by them, as opposed to the 50 per cent they currently hold on to, reports The Telegraph.
The surprise move – along with the abolition of the uniform business rate that prevents councils from offering more attractive rates than their rivals – is the biggest shake up of the system since 1990.
Mr Osborne said the reform, due to come into effect by the end of the current Parliament in 2020, was the “biggest transfer of power to our local government in living memory”.
However, the Treasury’s review into structural reform of business rates – looking into what sort of businesses should pay the rates and at what bands – is ongoing.
Details of that review will not be announced until the Autumn Statement at the end of next month, along with more detail on how councils will be allowed to benefit.
It is understood that although the intention is for councils to retain 100 per cent of their rates, there will still be some form of redistributive mechanism for those councils with small rates receipts.
Although the pending devolution was welcomed by some as a step in the right direction, other business leaders questioned whether the reform was as radical as it first seemed.
The British Retail Consortium, which has led the charge on the call for rates reform, issued a muted welcome to the news, with a spokesman saying that “the detail of the Chancellor’s plan and on-going review is now absolutely essential”.
John Cridland, head of the CBI, the UK’s biggest business lobby group, said the “devil would be in the detail”, adding: “This must not be a way to increase rates without the consent of the local business community.”
One business source, who asked not to be named, said that without the detail on structural reform, little could change: “On the face of it, this is a major change. But in reality, the overall amount paid could alter very little.”
Others pointed to the potential for geographic disparities, and questioned the ability to raise rates to fund infrastructure for those cities with an elected mayor.
Simon Walker, director general of the Institute of Directors, said that while more than 60pc of his members backed devolution of rates, “councils must avoid the temptation to increase rates to raise revenues, and instead compete to attract businesses to the areas, which will bring jobs and wealth”.
Debbie Warwick, of property consultancy Daniel Watney, said the proposals could “wreak havoc” on the private sector.
“The uniform rate was originally introduced to give businesses a sense of certainty. For larger businesses with operations spanning several authorities, not knowing the multipliers each property will pay will wreak havoc on their long-term planning.”
In addition to confirming his plans for a national infrastructure commission led by Lord Adonis, the Chancellor also announced plans to rejuvenate local authority pension schemes, morphing the current 89 into half a dozen regionally-focused schemes.
He said the larger schemes would be christened “British wealth funds”, which would focus in part on investing in infrastructure in the regions in which they operate.