The briefing from the Audit Commission published today on how successfully local authorities have collected business rates provides an interesting window into how the recession and aspects of government policy have combined to affect local businesses and local authorities across the country.
The data implies that metropolitan districts ‘perform' worse than shire districts and London boroughs for business rates collection. Shire districts collect the highest proportion of business rates due at an average of 98.2%, whilst metropolitan authorities collect the lowest at 96.7%.
It is important that the figures should not be considered primarily as a measure of performance but instead as an indicator of the economic outcomes for local businesses across the country.
Not all of the business rates that are due get collected. Businesses that struggle or fail, for example, may not be able to pay their business rates, and therefore generate a debt to the billing authority. This results in uncollected rates.
The percentage of business rates collected has decreased since 2008/9, in line with the onset of recession. As more businesses have failed, collection rates have decreased.
In general, areas that have been the worst hit by the recession have had the highest number of business failures. These areas are most likely to be metropolitan districts, and we therefore see the greatest decrease in collection rates for them.
The figures present a view of the speed of the recovery outside of London. London boroughs as a whole suffered a fall in collection rates at the onset of recession, and have had a steady increase since. The recovery in metropolitan districts is underway, but will not be reflected in the collection rate figures until next year.
The collection rates will also be affected by the decision by government to postpone the revaluation of business premises from 2015 to 2017.
Government set business rates every five years according to property values. However, the business rate has not kept pace with changes in property values since rates are currently based on 2008 valuations.
Over the last five years there have been ever-increasing rents in London and the South East and decreasing rental values in the north. Rental values have decreased as much as 40% in Rochdale, for example. This means that businesses in more deprived metropolitan districts are paying artificially high business rates in relation to the value of their property. Because of the slow pace of revaluation, the business rate is an inherently regressive taxation system.
Currently, businesses in the south east are being subsidised by those areas hit the hardest by the recession. Re-evaluating business rates would see the gap in collection rates close and a tax that is fairer to both business and local authorities.
The recession has hit the poorest areas hardest, and the burden of local authority funding cuts has been borne disproportionately by metropolitan districts in deprived areas. The first response to the figures from the Audit Commission therefore should not be a criticism of council ‘performance' but instead a search for solutions to redress the balance.
