At the weekend, local authorities across Scotland were given the power to cut business rates in their own areas.
Through the Community Empowerment Bill, councils can reduce rates liabilities by granting reliefs; they are also able to retain the money collected from the tax.
But these new powers – billed as empowering for local authorities and communities – have the potential to cause confusion among ratepayers and are unlikely to deliver the essential savings businesses need.
This latest change on business rates is receiving a lot of publicity but it sends out a confusing message; councils are already able to apply discretionary reliefs on applications made by individual ratepayers. What the Community Empowerment Bill will now allow is for applications to be made by a group of ratepayers for properties in a certain sector, street or locality – similar to the way business improvement districts (BIDs) operate.
Adding to the muddle, alterations to the Scottish system are incongruous with the changes announced by George Osborne last month which allow English local authorities different enhanced powers, including the ability to reduce liabilities to assist specific ratepayers, or to boost investment in struggling locations. Meanwhile, England’s lord mayors are to be given the power to increase rates in their respective district to fund specific developments or infrastructure projects.
Unfortunately, the overall policy changes send out mixed messages and ultimately will present no real benefits for Scotland’s ratepayers.
There are no funds available from central government to pay for these proposed reliefs, so the cash will have to come from each local authority’s budget, with cuts made to areas that are financed by business rates, such as education, highways etc.
Applications from groups will likely be incredibly complex and no guidance has been provided to ratepayers or to local authorities on how to apply, but already councils are anticipating a high demand. With no statutory guidelines and lack of detailed procedure, there can be no uniform approach across the local authorities.
The only constant in the calculation of rates liability is the rateable value, which is open to challenge by the ratepayer as part of the appeals process at the time of a revaluation. Of course, the 2015 revaluation was postponed, with the government stating that this would help businesses budget for the future by keeping rates static. However, the actual impact is that ratepayers may lose out on any reductions brought about by the recessionary effects on property rents which is the basis for the rateable value calculation.
Councils in Scotland are lobbying the Scottish Government to follow suit with the scheme proposed in England which extends the power to increase the business rate, enabling investment in individual local authority areas. Meanwhile, this new policy will see applications for relief made directly by businesses to their local councils.
Due to the lack of funding and potential complexity involved, it is hard to foresee many successful applications for this particular type of relief.
Ratepayers are advised to review – and appeal if necessary – their new value in 2017, as a more likely opportunity to obtain savings in future rates liabilities for the five-year revaluation period to 2022.
• Tim Bunker is a partner at property consultant Ryden, specialising in valuation and rating