Overhaul business rates to help small firms and save high streets

Popular independent traders, family firms and businesses which use local suppliers could pay less in business rates under reforms proposed by councils which could help save England’s high streets. Local authorities are concerned that many small firms and businesses which do most of their trade on the high street rather than online are unfairly penalised by business rates in their current form.

Councils, which are responsible for collecting business rates, are hugely restricted in their ability to introduce local discounts. This is because government sets the charge and keeps half of business rate income as well as growth – extra income earned from new business premises – which it redistributes to local authorities in grants.

The Local Government Association (LGA), which speaks on behalf of councils, says that instead, business rates should be set by local government. Any growth in business rates income should be retained by local government. And the redistribution of business rates should be taken out of central government’s hands.

The Chancellor is being urged to deliver a boost for small businesses in next month’s autumn statement by committing to devolving control of business rates down to local government.

With greater local control, councils would have more flexibility to reduce business rates for the types of shops and businesses that residents want in their high streets and neighbourhoods.

Locally decided policies could include start-up leases for new businesses or rate relief for firms which use local suppliers. Such schemes operate in some areas already but could benefit thousands more businesses nationwide if business rate income was kept by local government.

Councils are also calling for government to explore the potential for linking business rates to turn over and e-commerce as part of a wider package of reforms to make business rates fairer for business and local areas.

Small shops and independent traders in some areas can pay many times more than internet start ups and e-commerce firms which have a much bigger turnover. Almost one in seven shops on the high street is currently empty. Councils are concerned that the burden of expensive business rates for small traders is making it more difficult for new businesses to open.

David Sparks, chair of the LGA, said: “We need a system of local business taxation which is fit for the 21st century, which supports the areas in which companies operate and which helps, rather than hinders, business and the growth of our economy.

“The current system is failing to do that. Councils can’t support their local businesses as much as they would like to. There are many areas in which local authorities have been successful in helping new firms to open and keep small businesses alive, but in reality we are working with one hand tied behind our backs.

“The money which a business pays should be retained by local government to invest in the vital local services, all of which help local businesses either directly or indirectly.

“We need to remove Whitehall’s hands from the business rate purse and find a fairer way to invest the taxes paid by business so that areas with growing economies feel the benefit in a way which does not come at the expense of those parts of the country where business is less buoyant.

“Government should work with businesses and councils to go back to the drawing board on business rates.

“The idea that the local taxes paid by business should be based solely on the size of a building predates the English civil war. In a world where business and retail is increasingly happening online, a fundamental rethink is clearly long overdue.”

Councils have set out five key areas for long-overdue reform. They are urging government to:

– Devolve the setting of rates and discounts to local authorities who would be able to use this power to reduce bills to help support local and independent businesses.

– Commit to 100% of business rates income, including growth, being retained by local government. Currently 50% of business rate income is paid to the Treasury as is half of the extra income raised when new businesses open. They use this to pay grants to local authorities.

– Establish an independent body for the distribution of funding to councils. This would take the politics out of financial distribution and would redistribute business rates income across the country in a way which would ensure those areas with less business activity do not lose out.

– Work with local government to minimise business rates avoidance.

– Reform the appeals system. The number of appeals and time they take to resolve is major problem which restricts the ability of local authorities to reinvest the money to support business. According to most recent government data there are more than 130,000 outstanding appeals from businesses over the rates they pay.