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Tony Travers: Ministers must guarantee business rate yield

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The press have reported that the chancellor will use the 22 November Budget to switch the basis for next year’s up-rating of the business rates multiplier from the retail prices index to the consumer prices index. 

The pressure to do so originated from the higher bills faced by many ratepayers following the 2017 revaluation. The Treasury also provided a limited amount of relief for those facing higher rates.

There can be little doubt that five-yearly revaluations (though after seven years in 2017) lead to unpredictable shocks for many businesses. The UK government could move to more frequent revaluations in England, but has so far failed to do so.

In Scotland, the Barclay Review has proposed revaluing the tax base every to three years, which would have the benefit of smoothing out changes in values. Some form of self-assessment could plausibly allow annual revaluations.

But there is a broader issue at play for councils in England. The more that non-domestic rates are retained locally, the greater the risk central government will feel free to intervene to reduce the burden on businesses. If the chancellor moves from RPI to CPI uprating in 2018, will councils see the difference made up in some way?

Looking ahead, it will be tempting for ministers to move from CPI to, say ‘CPI minus 1’ or even zero. Then there is the possibility that the Treasury will want to exempt increasing numbers of smaller (and then medium-sized) businesses from paying at all.

Perhaps those who find it hard to pay will be given ‘grace periods’ or longer-term instalment-type methods of payment. Once the government can shift the cost of exemptions, lower multipliers and softer collection methods to local authorities, it will be most tempting to extend their use.

Local government needs assurance that further moves to NDR retention will not be accompanied by any erosion of the underlying base or yield. The final delivery of full retention must also remain a short-term objective.

Making councils more self-funding and accountable was a noble objective which must not be lost even though the government finds itself struggling on many fronts. Sound local finance requires predictability and a strong UK economy.

Tony Travers, director, LSE London

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