Chancellor George Osborne has revealed plans to abolish the uniform business rate and hand local authorities the power to set rates.

  • Local authorities can cut rates ‘as much as they like’
  • Directly elected mayors will be able to add a ‘premium’ to business rates
  • The retail industry has been campaigning for years for business rates reform

The policy was revealed by Osborne at the Conservative Party conference as a means of empowering local councils to boost business and economic activity in their areas.

The Treasury has said local authorities will be able to cut business rates “as much as they like”.

However, directly elected mayors, if they win the support of a majority vote at the Local Enterprise Partnership, are able to add a “premium” to business rates in order to pay for new infrastructure.

The ability to introduce a premium will be limited by a cap, which the Treasury said is “likely” to be set at 2p on the rate.

It is believed only elected mayors being allowed to add a premium to business rates is an attempt by the Chancellor to spur the creation of more mayors.

Industry reaction

British Council of Shopping Centres (BCSC) director of policy and public affairs Edward Cooke said: “In response to the new additional levy being available to pay for infrastructure investment, we do not see this as a new measure, with councils already able to levy additional business rates for infrastructure investment – such as with Crossrail.

“Is the Chancellor now saying this power is only available to areas with elected mayors and to be determined by unelected Local Enterprise Partnerships?”

By the end of this parliament in 2020 the Chancellor aims to allow local government to retain 100% of local taxes, which will include £26bn of revenue from business rates.

A British Retail Consortium spokesman said: “We look forward to learning more about the Chancellor’s plans to fundamentally reform the business rates system in the autumn.

“We will now look closely at the detail as it emerges but it’s worth remembering that there is a widespread consensus that any package of reform to the system must address head on the need to reduce the burden of a tax that discourages investment in jobs and growth.”

Policy clarification

The Government is keen to ensure reforms are “fiscally neutral”, but more clarity on how the reforms can still raise the same amount in tax if local governments are allowed to determine rates is not expected until the autumn statement.

British Property Federation chief executive Melanie Leech said: “This is a bold step by the Chancellor, and one that we are keen to see more detail on quickly. The business rates system as it stands has myriad problems and needs dramatic reform, and we would not want this move to exacerbate those issues.

“The fact that some local authorities have a much higher tax intake than others could lead to rate distortion across the country and have knock-on effect on growth, leaving some local authorities struggling to keep up.”

The retail industry has campaigned for years for a reform to the business rates system, which they argue is outdated and places an unfair burden on their businesses.

Pressure led to the Coalition Government pledging the “most wide-ranging review in a generation” of business rates in March.

It is understood the Government is not wrapping up the structural review revealed in March as a result of today’s announcement by the Chancellor.

Chief Secretary to the Treasury Danny Alexander said at the launch of the review the new system would be “fair, efficient and effective” after admitting the industry had changed “beyond recognition” since business rates were created almost 30 years ago.

In June, research from the British Retail Consortium claimed more than 80,000 shops across the UK could close within two years without an overhaul of business rates.