Article

Commercial property tax in the UK: business rates and rating appeals

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Abstract

Purpose The purpose of this paper is to investigate the impact of the introduction of the business rates retention scheme (BRRS) in England which transferred financial liability for backdated appeals to LAs. Under the original scheme, business rates revenue, mandatory relief and liability for successful appeals is spilt 50/50 between central government and local government which both share the rewards of growth and bear the risk of losses. Design/methodology/approach The research adopts a microanalysis approach into researching local government finance, conducting a case study of Leeds, to investigate the impact of appeals liability and reveal disparities in impact, through detailed examination of multiple perspectives in one of the largest cities in the UK. Findings The case study reveals that Leeds, despite having a buoyant commercial economy driven by retail and service sector growth, has been detrimentally impacted by BRRS as backdated appeals have outweighed uplift in business rates income. Fundamentally BRRS is not a “one size fits all” model – it results in winners and losers – which will be exacerbated if local authorities get to keep 100 per cent of their business rates from 2020. Research limitations/implications LAs’ income is more volatile as a consequence of both the rates retention and appeals liability aspects of BRRS and will become more so with the move to 100 per cent retention and liability. Practical implications Such volatility impairs the ability of local authorities to invest in growth at the same time as providing front line services over the medium term – precisely the opposite of what BRRS was intended to do. It also incentivises the construction of new floorspace, which generates risks overbuilding and exacerbating over-supply. Originality/value The research reveals the significant impact of appeals liability on LAs’ business rates revenues which will be compounded with the move to a fiscally neutral business rates system and 100 per cent business rates retention by 2020.

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... The academic and policy inquiry has focused on England (Amin-Smith and Greenhalgh et al., 2016;Muldoon-Smith and Greenhalgh, 2015), as local retention was adopted in 2013, thus initiating research related to the effects on local government finance. The approach in England, part of the far-reaching local financing agenda, started in 2012-13, with a 50% NDR retention scheme alongside tariffs or top-ups for councils' budgets, and has developed since, with several 100% retention pilots already in operation . ...
... The retention in effect breaks the link between business rates and the RSG. However, evidence shows that the English scheme has exposed the council budgets to additional variability on both the upside and the downside, leading to winners and losers (Greenhalgh et al., 2016;Muldoon-Smith and Greenhalgh, 2015). Moreover, since 2011, in practical terms, the councils in Scotland retain the whole amount of business rates income they generate. ...
... Primarily, it is the first in-depth investigation of the business rates system in Wales, which currently presents crucial differences with England and Scotland. Further, most studies in retention of business rates in the UK have sought to evaluate the impact of policy changes that have been already adopted (Amin-Smith and Greenhalgh et al., 2016;Mor and Sandford, 2017;Muldoon-Smith and Greenhalgh, 2015). This paper adds to this literature by studying the potential impacts of a future retention of NDR by the Welsh councils, responding to calls of the National Audit Office (2017) for an ex ante evaluation of the NDR system changes' implications. ...
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The shape of local government finance in the United Kingdom is changing. The UK Government has been promoting fiscal devolution in the context of austerity following the 2007 global economic crisis. Consequently, local government finance is becoming an increasingly important issue. According to the current regulation, the revenues from business rates, a local tax on non-domestic properties, are pooled to the Welsh Government and then redistributed to the councils, based on their adult population. In the context of fiscal devolution, and following England and Scotland, which adopted retention of business rates income, the discussion for the local retention of business rates revenues in Wales is topical. This paper looks at the organisation of the current business rates system in Wales and the impacts of a potential local retention. It provides a rigorous review of the current state of business rates scheme and the features of the councils according to the net difference between business rates, settlements and contributions. The findings suggest that the current system financially backs the economically disadvantaged Welsh councils, whereas a local retention of business rates income would possibly polarise the uneven allocation of local funding.
... various levels of non-domestic properties across space, spatially differentiated rateable values, and geographically varied reliefs (Greenhalgh et al., 2016). This implies that any localisation of a centrally managed local tax could entail a divergence of councils' funding. ...
... Muldoon-Smith and Greenhalgh, 2015;Greenhalgh et al., 2016). The BRRS has the potential to benefit the budget of the councils with vibrant property markets and negatively affect theincome of the LAs with less developed rental structures (Muldoon-Smith and Greenhalgh, 2015). ...
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This report describes existing business rates arrangements in Wales, summarises the current approaches to business rate retention in England and Scotland, and discusses existing proposals for NDR change in Wales. It then explores a conceptual city-region shared-gain business rates incentivisation model which would enable regional growth partnerships to retain a portion of the business rates they generate and incentivise them to grow their business rate tax base.
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This chapter examines how the Northern Powerhouse agenda will be financed, in part, through the Government’s Business Rate Scheme (BRRS). It begins with a brief summary of local government finance in England, describing the transference from a centralised model to one based on the parallel rubrics of localism and local economic growth. The central findings are structured around three interrelated themes: liability and growth potential, demand divergence, and the nature of local commercial property markets. It concludes that the BRRS has begun to roll out the conditions that will provoke parts of the Northern Powerhouse to enter an era of civic financialisation and entrepreneurial activity. However, asymmetries between commercial property markets, economic conditions and welfare need could result in a defined set of winners and losers—those that can take part in autonomous civic financialisation and those that remain reliant on a system of redistribution and equalisation.
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