George Osborne announces UK Business Rates overhaul

Today George Osborne, Chancellor of the Exchequer, made three important announcements regarding business rates and, more broadly, how councils are funded:

1) All business rates collected locally will go to local councils.
2) The grant from central government given to councils will end.
3) The universal business rate will end: councils will be able to set their own rate.*

Here’s what Osborne said to the Conservative Party conference this morning: “Today I am embarking on the biggest transfer of power to our local government in living memory. We’re going to allow local government to keep the rates they collect from business. That’s right, all £26bn of business rates will be kept by councils instead of being sent up to Whitehall. Right now, we collect much more in business rates than we give back in the main grant. So we will phase out this local government grant altogether.

But we will also give councils extra power and responsibilities for running their communities. The established transfers will be there on day one, but thereafter, all the real growth in revenue will be yours to keep. So this is what our plan means.

Attract a business, and you attract more money. Regenerate a high street, and you’ll reap the benefits. Grow your area, and you’ll grow your revenue too. And to help local people do that I want to make another announcement today. We’re going to abolish the uniform business rate entirely. That’s the single, national tax rate we impose on every council. Any local area will be able to cut business rates as much as they like…”

Reform of business rates is long overdue. And this is seismic stuff, not so much for small businesses in the first instance, but for how local councils are funded. The devil will be in the detail, of course, but did you notice one thing? Councils will have the power, it seems, only to cut rates but not raise them.

Giving councils flexibility to frame deals and attract businesses is a good change but how good a change this is depends on how much flexibility the councils are given and then how well they execute new powers strategically.

Cities with mayors, however, such as as London, Manchester and soon Sheffield will have the power to apply an additional premium for infra-structure programmes on businesses.