Government proposals for the handling of business rates appeals under the move to 75% retention are “confusing, imprecise and… inconsistent”, the Institute for Fiscal Studies has warned.
In its response to the Ministry for Housing, Communities & Local Government’s consultation on the new system, the institute says this is concerning, given recent criticisms of the ministry’s management of the 50% business rates retention system by the Hudson review.
From April 2020 the proportion of business rates retained by local government will increase from 50% to 75%. The consultation on the reform, which closes on Thursday, proposes a new way of managing the risk to councils’ business rates income as a result of “valuation errors” with a property’s original rateable value as set by the Valuation Office Agency. Businesses can challenge the rateable value through a process that can take years to resolve. If the value is found to have been too high, councils will have to refund them and so make provisions to cover these payments.
The ministry is proposing to make the system more “flexible and responsive” by setting the business rates baseline more frequently as more up to date information on actual business rates income becomes available.
The consultation response said: ”The consultation’s description of how proposals to protect councils from the risk of valuation changes will function is confusing, imprecise, and appears to be internally inconsistent.” It said the mechanism proposed would have a two-year time lag, rather than the one-year time lag as stated by the ministry.
David Phillips, associate director at the institute, said: “Much of what is in this consultation is sensible and welcome, such as proposals to reduce the risk to councils’ funding arising from business property valuation errors.
“However, as the Hudson review concluded this is a very complex area where clarity and accuracy from the government are vital. The issues with this consultation suggest that MHCLG still has some way to go on this front.”
The review of the governance and processes for managing the business rates retention system found that while the ministry had “responded well to the challenges” that had “relied very heavily on the efforts of the people in the teams, rather than on established structures and processes”.
Responding to the institutes concerns, a spokesman for the ministry said: “The government is currently consulting on options for business rates retention reform and no decision has yet been made.
“We will be considering the feedback from the sector before responding”.