Business rates are fast becoming for local shops what energy bills are for hardworking families: an ever-increasing expense that’s hard to justify. As with energy bills, Ed Milliband has taken out his fag packet and drawn up a quick fix policy of a freeze on business rates, this time paid for by an unbelievable proposal to increase corporation tax. At a time when Britain is advancing in the global race and open for business, Labour wants to slam on the brakes and stifle that growth. It falls to the Conservative Party to produce a workable, pro-growth policy that benefits businesses.
Let’s be clear: in the long term, we need whole scale reform of business rates. But we also need to give small businesses help right now by halting or even cutting business rates. For let’s face it, we now have a property tax on business that’s rightly perceived for many as disproportionate, delivering no value and unfair. For many retail businesses on the high streets they are paying almost as much in rates as they are in rent. For the same businesses they see no return in local services for the high level of tax they pay, indeed many are often charged for services such as collection of rubbish at an extra cost.
There is growing resentment that, as business owners, while they can negotiate their rent to reflect the economic times, the clumsy one-size-fits-all levy administered – not set – by their local authority is broadly speaking “non-negotiable”. In the age of localism it seems, when it comes to business rates, there is nothing local to commend it except that the demand for payment comes from a local council.
This is not in keeping with the reforming spirit of this Government, which wants to see more decisions made at a local level, with politicians held accountable for the choices they make. After all, as an individual householder if I don’t think I get good value from my council tax I can, every now and then, sack the people responsible for the services and the bill. Why shouldn’t it be the same if I own a shop?
What isn’t very well known is that this Government has actually already delivered the legislation to allow councils considerable discretion to reduce (but not increase) business rates. Not many business owners know that, and interestingly, only 18 authorities have chosen to exercise these powers. Indeed, not only do the powers exist to reduce rates but, in a little known amendment to the 2012 Finance Act, the Government will subsidise discounts by up to 50 per cent if councillors can demonstrate that a reduction is in the interest of local taxpayers.
What’s more, the discounts can be on a wholly discretionary basis. In other words, if an authority just wants to help the high street shops with a reduction, then they can – without having to offer the same discount to all other businesses. It’s therefore rather strange that only 18 councils are doing this to assist hard-pressed local businesses.
Perhaps it’s because councils have choices to make on spending decisions every year and, for now, it’s more comfortable to just blame the Government and wash their hands of the problem. When faced with a choice between discounting rates and other spending priorities in the knowledge that they can be scrutinised by a knowledgeable, financially astute business audience, some councils may feel uncomfortable – and all the more so because the government is prepared to effectively subsidise such discounts by 50 per cent.
If a council wanted to reduce business rates for shops to the tune of £1 million, half that money would have to come from somewhere else in the local authority budget. It follows, then, that councils would be made to look at the spending choices they make and be held to account for those choices. Is it right, for example, that over a quarter of a million is spent on translation services when this is not legally required? Is it right that PR news magazines are maintained above discounts on business rates? Is it right that councils funding employees to work for trade unions full-time should come above small businesses? By empowering councils to help businesses, we are also empowering the electorate to judge their managing of the books.
But why stop there? Although shopping habits are changing, the High Street remains a vital economic and social ingredient for many neighbourhoods, but local authorities remain reluctant to influence them much beyond licensing and planning matters. If only 5 per cent of councils have employed a discount, is that because they are ignorant of the government’s 50 per cent support – or just reluctant to make choices on spending priorities?
My answer would be not to use that as a reason to abandon local decision-making, but to push for greater powers and greater accountability by incentivising councils to do more for the hard-pressed high streets and shopping parades. For example, if developers want to open out of town shopping sites, then why shouldn’t councils be free to negotiate one-off payments, and pass that benefit down to town centre shops through the form of business rate discounts?
In theory, the legislation exists, but the duty to justify such a move as being in the interests of the local tax payer gives unambitious or just plan cautious councils an opt-out clause. As one Local Authority Finance Director put it to me: “ we can’t guarantee any steps we might to promote the High Street will mean an increase in local employment: jobs may go to non-residents”. I have urged the Chancellor, therefore, to remove any doubt about councils’ discretion, and strengthen their powers to act this way, if they see fit, from retail chains that wish to reap the benefits of a local population’s purse.
Of course, Government should not dictate or make mandatory the concept, but surely a council should be free to negotiate such an arrangement? For too long, residents have bemoaned yet another multiple chain outlet only to vote with their feet and use it. Fair enough – but the discretionary powers we have already granted councils would allow such a scheme to balance this habit to help make the high streets and shopping parades we also want more competitive, more diverse and above all sustainable.
Ultimately the Chancellor will want his £27 billion of business rates, thanks to the mess he has been left to sort out. That, however, does not release Conservatives from the obligation to ultimately reform a discredited system. In the meantime, though, let’s not be afraid of making local authorities part of the solution – and not leave them to be part of the problem.