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Business rates to bring in a 'record-breaking' £23.5bn for local authorities in England, says government

Local authorities in England are expecting to receive their share of a "record-breaking" £23.5 billion in business rates next year, according to figures from central government.19 Feb 2016

Marcus Jones, the local government minister, said that the projected £400 million increase in business rates receipts could be attributed to the rising number of new businesses across the country. Many small businesses did not have to pay business rates at all as a result of the government's Small Business Rates Relief scheme and other incentives, he said.

Local authorities have been able to keep 50% of the business rates that they generate to reinvest in their own communities since 2013. This is due to increase to 100% by 2020 to correspond with the devolution of more powers over business rates and reliefs to local areas, Jones said.

"Councils already plan on handing out discounts of £3.2bn which supports charitable work, fills vacant shops and encourages entrepreneurs but we want to further incentivise councils to do even more," he said.

"That's why by 2020 councils will have greater financial autonomy and be handed the power to cut rates as much as they like to boost enterprise in their local areas. And those that do give business a helping hand will reap the rewards - keeping 100% of the additional growth they generate," he said.

However, the figures were published in the same week as the pre-Budget submission by business body the Confederation of British Industry (CBI), which heavily criticised the burden of the country's "outdated" business rates regime on businesses. The government launched a "structural" review of the way in which business rates are calculated alongside the Budget last year, but has not yet published its findings or proposed any policy changes.

Introduced in their current form in 1990, business rates are paid by occupiers of non-domestic properties such as shops, offices, warehouses and factories and are currently the third biggest cost for small businesses after rent and staff costs. The tax is based on a rateable value set by the Valuation Office Agency, with revaluations usually taking place every five years.

From 2020, the government intends to abolish the uniform business rate and give local authorities the power to cut rates as a way of attracting businesses to their areas. Areas with elected mayors will be given additional powers, including the ability to increase business rates by up to 2p in the pound with the support of local businesses. It also intends to change the way in which rates are distributed, allowing local authorities to keep 100% of rates collected locally rather than transferring a share to central government for redistribution in the form of a grant.

When the changes were announced in October, retail property expert Andrea McIlroy-Rose [link] of Pinsent Masons, the law firm behind Out-Law.com, said that although the announcement was a move in the right direction, it did not address "the main issue facing retailers" in relation to rates. Many were more concerned that the current system of business rates was "based on historic values and needs to be modernised to address the changes in shopping habits within the UK and the difficut market conditions faced by retailers still wishing to invest in the high street", she said.