It is worth understanding that the government’s proposals for the retention of business rates, are part of a trend towards a situation where funding follows performance.
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The Treasury needs growth. Those who get that and deliver it will be rewarded, and those who don’t, won’t. The challenge for Whitehall is to convert that political philosophy into a funding scheme.
There are some specific challenges which will need to be addressed in two-tier areas.
Firstly, there is what I call ‘double dilution’. Any incentive is diluted if only a proportion of it reaches the decision maker. In districts a small percentage share of an incentive might be all that’s received because the rest is retained at the county level. That might be further diluted by levies, pooling or regular resets of the tax base.
If you don’t have a forensic understanding of your business rates base or at least already know if you’re a top-up or tariff authority then you’re behind the curve
The districts are the planning authority and given that the Chartered Institute of Public Finance & Accountancy statistics have also shown the districts are the primary spenders on economic development, too much dilution needs avoiding.
Secondly, town centre regeneration schemes are another pinch point: they are often promoted and facilitated by districts.
They have the unfortunate necessity of requiring business rates to be knocked down before new (albeit higher) business rates premises are built in their place.
Most town centre regeneration schemes require “gap” funding often involving the district’s land or car park to be gifted into the scheme. A reduction in business rates resources while the re-development timetable takes its natural course will prove difficult to assimilate in this climate.
Indeed, even if there is a 50% increase in business rates and a scheme takes three years to deliver then it takes nine years just to break even overall – that’s an awful long time in politics!
Unless some sensible mechanism can be found to allow for replacement buildings then there will be the unintended consequence of discouraging redevelopment of sites currently in use.
Thirdly, the importance of particular incentives for green energy projects cannot be overstated. The coalition document emphasises sustainable development but the uncomfortable truth is green energy projects don’t generate much in the way of non-domestic rates.
How about making such projects free of business rates and paying an incentive to the planning authority based on kilowatts of energy produced? That would get the sparks flying!
There are many more issues to be considered as the eight technical consultation papers roll out. Now is the time to pay attention to your business rates base. If you don’t have a forensic understanding of your business rates base or at least already know if you’re a top-up or tariff authority then you’re behind the curve.
As Steven Seagal’s character said in Under Siege “Change favours the well prepared”.
David Cook, chief executive, Kettering BC
Three specific challenges - a district view