A few people have asked me recently about how business rates work, and whether or not Kettering Borough Council could reduce them to help shopkeepers and other businesses so I thought I would write a short blog giving a brief explanation.
Currently the amount charged to an individual business is set by central government and local councils have no control over the rate set. How the finances work can be quite complicated but in simple terms, of all the money raised from business rates, 50% goes to central government. This is then supposedly recycled back to local councils through the Revenue support Grant [RSG] they receive from government although it is extremely debatable whether the full amount finds its way back, and certainly with the recent cuts to grants and the complicated method used to decide an individual council’s grant, that is extremely questionable.
Of the remaining half, 40% goes to the County Council and just 10% to the local Borough Council. As you may know there are plans for the support grant from central government to be stopped completely and the idea is that this amount of money (or at least part of it), will in the future be paid to the council from the business rates and they will get to keep all of this money themselves instead under a scheme called Business Rates Retention
However it is unclear as to exactly how this will work which is making things very difficult for local government to plan its finances for the future. For example will the same proportion remain between the upper and lower tier councils, an 80/20 split? Nobody knows, and despite the government having already consulted on the issue and hinting that more details would be hopefully available by now, there is still no answer to that.
Another issue is that clearly some areas of the country are more economically successful than others and therefore raise far more in business rates than some poorer areas who arguably also have greater need for services and consequently higher expenses, so some sort of top-up and tariff system is need to ensure money is spread our fairly across the country. Again, so far the government have given no idea how this might work.
I mentioned at the start that currently the rate charges is set nationally, but under the proposed Business Rate Retention system, councils will be allowed to reduce their local rate (not increase). So this means that in answer to whether Kettering borough can support shopkeepers by reducing the amount charges, then yes, in the future they may be able to. However, this does not come without problems. The first is that local councils could end up in a race to the bottom to try and compete with each other to have the lowest rate. That might seem a good idea on the face of it but the loss of funding could have a dramatic effect on local services and a 5% cut in business rates might need to be offset by a10% increase in peoples’ domestic rates. There really is no way of knowing at the moment.
Another issue that may have a particular bearing for Kettering is that some hospitals are currently considering setting up as charities because they would then be able to access discounts on their business rates. This would obviously have a huge benefit to the NHS but a massive impact on local councils, particularly Kettering and Northampton who both have large hospitals with large business rates contributions, and of course the County Council who get a much larger slice than the Borough councils. This is important because the County Council provide social care and are being rightly asked to work more and more closely with the NHS, but any changes in funding is more likely to put them at loggerheads with one another.
So in conclusion, currently borough council’s have little say over business rates, and while that might change in the future, nobody actually knows what the result of that will be but there could be huge financial pressures put on some councils which may end up affecting ordinary household council tax bills. Only time will tell.
Photo by J D Mack