Local authorities and businesses have been reacting to George Osbourne’s announcement yesterday that councils in England will keep 26 billion pounds in business rates.
The Chancellor made the announcement that the central government will no longer hold on to the funds at the Conservative party conference in Manchester. Instead, councils will have the authority to cut or raise rates and keep 100 per cent of them, rather than the current structure of 50 per cent with the rest going to Whitehall.
George Osbourne’s calling the changes the “biggest transfer of power” in recent history. It comes off the back of the cabinet office’s recent announcement that for every £3 spent on government contracts, they want £1 of it to go to SMEs in the UK. Both this initiative and the change in business rate payments are planned to be in place by 2020.
So what are the implications for SMEs?
This very much depends on where your business is located. For those in business hotspots like Yorkshire and the East Midlands which have seen the biggest growth in business rates, competitive packages and a thriving economic climate can spell good news for SMEs. It’s also being seen as a positive step forward for big cities such as London, Manchester and Sheffield who have their own elected Mayors and will be able to add a premium to pay for major infrastructure projects, benefitting the local council and businesses. This is expected to be capped at 2p.
Following Chancellor George Osborne’s speech to the Conservative Party Conference in Manchester, John Allan, National Chairman for the Federation of Small Businesses, said:
“The surprise announcement to allow councils to retain Business Rates presents a huge opportunity for local authorities and business to work together to boost local growth, develop a fairer tax system and create the jobs of the future.
“We also know there will be challenges to get the new system right. We want to ensure businesses don’t get short-changed. It is essential the new Rates structure works for all our 5.2m small firms.”
Indeed there has been criticism that the changes could create regional inequalities and widen the economic gap for areas that already struggle to attract businesses. Under the current arrangements, Central government takes in about £11.5 billion in business rates and redistributes £9.4 billion in grants. Head of Businesscomparison.com, Philip Brennan says that getting the balance of affordable rates and competition is essential if small businesses are to boom,
“It’s positive that there will be pressures on councils to work more closely with businesses, however the danger here is that the rich will get richer and the poor will get poorer. It is encouraging to see that the government are planning to introduce a ‘safety net’ for any area where business receipts fall by 7.5 per cent. However, there are very real concerns that, in areas where there is already less business competition, regeneration will be an uphill struggle.”