Councils failed to collect a “substantial” amount of business rates last year, potentially reducing their income from this new source unless collection improves.
The Audit Commission said in a Value for Money report that in 2012-13 councils collected £21.9bn out of £22.4bn due.
But the commission’s analysis as challenged by both the Chartered Institute of Public Finance and Accountancy and the LGA over the significance of the total arrears cited of £1.2bn, made up of the uncollected amount for 2012-13 plus previous outstanding sums.
Since April, councils have become able to keep up to half of any increase in business rates they collect, rather than paying it into a national pool for redistribution by central government.
“These new arrangements mean it has never been more important for councils to understand their local economy and associated business rates, the timeliness of their collection and outstanding arrears, and whether their approach to collection is cost effective,” the report said.
Shire districts had the highest median collection rate at 98.2%, and metropolitan councils the lowest on only 96.7%.
Among districts, 55% of councils collected more than 98% of business rates due, while this fell to only 17% of metropolitan councils.
Councils of all kinds spent £90m collecting business rates in 2011-12 but the commission found no statistically significant relationship between the amount spent and that collected.
Alison Scott, assistant director, local government at Cipfa, said: “Councils across the country work incredibly hard in often difficult circumstances to collect all of the tax owed to them to help fund public services.
“Cipfa figures show that councils collect around 98% of the business rates payable to them and this high collection rate has hardly changed over the past five years.”
An LGA spokesman said: “Councils have an excellent track record of working with businesses and residents to collect local taxes, with both businesses rates and council tax having among the highest collection rates of any tax.
If central government’s collection rates matched those of councils the public purse would be more than £20bn better off.”