The Head of Finance and Investment will be in attendance to provide the Panel with information in relation to Business Rates Pooling.
RECOMMENDATION: that the Panel determine whether further information is required.
Minutes:
The Head of Finance and
Investment gave a presentation in relation to Business Rates Pooling. Business rates were a key funding source for
the Council and a complex topic. Essentially
business rates were an occupation tax on companies that occupied premises. There had been different ways of collecting
and distributing business rates and it was a source of Council funding. Middlesbrough Council acted as the Billing
Authority for the collecting income from all business properties in the
Borough.
The basis of the business rate
charge was the rateable value of the property based on a multiplier in the
pound. The Government’s Valuation Office
determined and set a comparable rateable value for every property. The Valuation Office had criteria including
floor space, type of occupation, and age of the building to set the rateable
value. The multiplier was set by the
Government each year in the Fiscal Statement.
The multiplier for a business was currently 49.9 pence in the pound and
for a small business 48.5 pence in the pound.
The national valuation was
updated every 4 to 5 years and the Valuation Office would inspect certain
properties and re-assess them. For
example, if the use of the property had changed. Like for like uses might be inspected every few
years. The Council needed to keep track
of properties that were empty or where business uses had changed. Initially no business rates were payable on
an empty property for the first twelve months but the charge then doubled.
The Government’s business rates
multiplier usually increased by the rate of inflation each year. However, since inflation was currently around
10%, the Government had frozen the multiplier to try and protect businesses.
Prior to 2013, every business
premises had a rateable value and a national multiplier was used to calculate
business rates. The Council, as the
Billing Authority, would collect that amount and give 100% to the
Government. The Government would then
redistribute the money collected based on population. This meant there was no relationship between
business rates and growth in the local area.
In 2013 the Government
established Business Rates Retention; so if businesses grew in the area, the
Local Authority could keep some of that growth.
The rateable value of Middlesbrough was about £95 million, so around £45
to £50 million was collected. 50% of the
business rates collected was paid to the Government, 1% to the Fire Authority
and 49% retained by Middlesbrough Council, which equated to around £24
million. As part of the local government
finance settlement, if Middlesbrough went below the safety net of £24 million
the Government would provide a top up grant.
A levy charge would be made if that amount went higher.
In 2013 Middlesbrough Council was
collecting around £40 million in business rates and was now collecting around
£30 million. The rateable value and the
amount being collected was now significant lower and the Government protected
the Council once the amount dropped below 10% of the original starting point.
Payments collected on business
rates were generally much higher than on Council Tax. 97-98% of the amounts owed were
collected. If not, there was a normal
debt collection process. There were
various discounts that businesses could qualify for including small business
rates relief for those below a certain turnover. The reduction could be up to 25% of the
charge. Provision were also made in the Council’s budget for bad debt where
business rates were not collected.
On the Council’s net budget of
£120 to £125 million around £25 million was received from business rates. Whilst this was not as much as Council Tax,
it was a significant factor that influenced the budget. It was highlighted that the ratable value of
properties in the north of England might not be comparable to those in the
south west. The Valuation Office used
their own formula, the details of which were not published. Businesses or the Local Authority could challenge
or appeal against a valuation.
Over time, as businesses had not
succeeded, the level of income to Middlesbrough Council was reducing. Currently the figure was around £17
million. The Council could have
requested a higher percentage of business rates retention but this only made
sense if business rates were growing.
The intention of the updated
business rates retention scheme was to provide incentives for local authorities
to increase economic growth, through retention of a share of revenue generated
from locally collected business rates.
A business rate pool was a voluntary
arrangement between a group of local authorities in England whereby their
combined business rates income and any growth was collected as one common fund
or ‘pool’. The pooling process was a
statutory mechanism based on powers conferred by Part 9 of Schedule 7B to the
Local Government Finance Act 1988 (inserted by Schedule 1 to the Local
Government Finance Act 2012). Broadly,
the Act provided a mechanism for two or more authorities to pool business rates
and pools would start in each financial year from 1 April.
The rationale as to the benefits
of pooling had been stated by the Government in previous pooling prospectuses
since 2013-14. The Government believed that pooling could deliver a range of
benefits for local authorities:
• The
act of setting up pools could help further the process of joint working and
could result in wider benefits that go well beyond the immediate scope of
pooling;
• The
pooling of business rates across a wider and economically coherent area ensured
that all authorities in the pool could benefit. This could mean that the
strategic decisions that were needed about economic growth and infrastructure
investment are easier to make;
• Pooling
can help authorities manage the volatility of income through business rates
retention by spreading this risk across a wider geographical area.
It was for local authorities to
establish if pooling was a benefit to them.
The effect of forming a pool would be different in each case, depending
on the membership of the pool, and their individual circumstances (ie the
balance of top-ups and tariffs) and the rate of growth in business rates income
over the life of the pool. Local
authorities would need to undertake their own due diligence, modelling the individual
position alongside the pool position.
An application to the Government
to pool must include an explanation of the potential benefits to pool members
from pooling their business rates under the rates retention scheme. This might
include the rationale for the pool’s geography and a description of its role in
promoting growth, promoting strategic and service integration, and managing
cash flows. The management of the pool,
the distribution of pool income, the arrangements for meeting any liabilities
and the overall governance of the pool were entirely matters for each
individual pool.
At the present time there was no
business rates pooling in the Tees Valley or indeed the North East. Generally in the north east, business rates
income had reduced since 2013 and in the Tees Valley there were pinch points
around properties. The only way a Local
Authority could benefit if their business rates were reducing would be if they
were to reduce less than others and the Authority was willing to take a risk.
With regard to the proposed
Middlesbrough Mayoral Development Corporation and the new Freeport, both would
impact on business rates. Enterprise
Zones could be created where there was an emphasis on growing businesses and
business rates retention could be 100%.
For the Mayoral Development Corporate for example, the business rates
money would go to the Tees Valley Combined Authority (TVCA). Potentially, it could be redistributed to
Middlesbrough or some grant funding provided.
If business rates in Middlesbrough fell beyond a certain rate, it was
anticipated that the government would protect the Council with an extra safety
net grant.
Teesside Park Shopping Centre was
an example of an Enterprise Zone in the neighbouring Stockton Local Authority
area. It was highlighted that TVCA, as
the planning authority, would make decisions as to where businesses would be
placed.
If the Councils worked together
and used the land and space together,
business pooling and business rates retention was a good idea. However in the Tees Valley, Local Authorities
wanted to get some of the growth into their own budgets and were not currently
prepared to go into a pool.
AGREED that:
1. the information provided was received and
noted.
2. further information would be sought from other Authorities that had pooling arrangements.