David Magor and Richard Harbord outline the confusion in town and county halls following the chancellor’s £14bn cut to business rates announced in the Autumn Statement.
Industry bodies have welcomed the changes to business rates announced by the chancellor in his Autumn Statement. Jeremy Hunt told the House of Commons on 17 November that he would go ahead with the revaluation of business properties from April 2023, but that he would “soften the blow” on businesses with a nearly £14bn tax cut over the next five years.
Business may be relieved by the announcement, but local government finance departments are left in bewilderment. Local authorities have been told that they will be fully compensated for the loss of income, and yet confusion remains on much of the detail.
As well as the business rates policy decisions contained in the Autumn Statement, the government has issued amending regulations in relation to the life of the current valuation list and published the draft of the list that comes into force on 1 April next year.
The measures delivered by the chancellor create enormous practical and fiscal problems for those administering the rating system, managing the valuation process on behalf of clients and forecasting the financial impact on the budgets of local authorities.
Business may be relieved by the announcement, but local government finance departments are left in bewilderment.
Software nightmare
Because of this activity, the mechanics of the changes present a massive problem for the software suppliers. We are already at the beginning of December. Billing authorities are starting to prepare for the next financial year in terms of their local taxation administration.
One of the major dates in the calendar is the raising of the bills for the next financial year. Normally this happens at the end of February or early March, so the software suppliers have only three months at best in which to amend systems, test the changes and take the appropriate action in relation to their clients’ systems.
This work cannot start until we have the documentation outlining the detail. To say this is a challenging timeline is a huge understatement.
Of course, this is only part of the story. Budgets have to be set and assumptions made concerning the pattern of the income flow for the coming year. There are still a number of unknowns: what will be the behaviour of the ratepayers as the existing valuation list ends; what will be the impact of the adjustment in the baselines; and will it be necessary to make further provisions.
Multiplier mystery
We also have for the first time the decision to freeze the multiplier on the introduction of the new valuation list. Normally, at a revaluation, the multiplier is revised to take account of the change in the quantum of the list. The decision to freeze the multiplier together with a modified transition scheme is unique and we wait with interest to see how these measures will work in the real world.
Add to this the changes to the council tax levy and the ability of the taxpayer to meet the burden and you have the makings of a perfect storm.
The cost-of-living crisis is going to create mayhem in the day-to-day lives of families across the country. The pressures on local authority services will reach breaking point. There will be unintended consequences in the development of polices to meet the challenges that will test the most resilient players in the local government community.
Levelling up secretary Michael Gove has also suggested that the government is considering reform of council tax. This is long overdue, but as yet there are no clues as to how far-reaching this might be. When this has been discussed before it has been considered too risky politically. It is therefore unlikely to be carried out before any election.
On business rates, as it seems that the quantum will be less next financial year, local authorities will be looking to the settlement in late December for some acknowledgement that this shortfall in funding will be made up. The shortfall as a result of revaluation is not explicitly covered in the Autumn Statement and therefore leaves local authorities, not for the first time, asking who is going to pick up the bill.
David Magor is the former chief executive of the Institute of Revenues, Rating and Valuation, and Richard Harbord is the former chief executive of Boston, Richmond and Hammersmith & Fulham councils.
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