Business rates: how many council areas will face rate rises?
22nd Feb 2017
The government has been "peddling misinformation" by claiming that business rates will fall in the majority of English council areas next year.
The government's figures aren't the only way to look at the impact of the revaluation, but it’s not necessarily been "peddling misinformation". Its estimates ignore regular rate rises that match inflation, and assume that some businesses will successfully appeal against the revaluation of their property. If you factor in inflation and look at the picture before appeals, then most English council areas will see average rates rise from next year.
Business rates are a kind of tax on businesses, based on the value of the property they occupy. They’re set to change on 1 April to reflect property prices in different areas more accurately.
Overall, the revaluation on 1 April is designed to be revenue neutral—the government shouldn’t collect more or less overall than it did before due to the revaluation.
But the impact on different regions, council areas and types of business will vary.
Business rates will be pushed up in some local authorities and pushed down in others, depending on where property prices have grown the fastest.
So how many local authorities will see their average rates fall?
"But last night Mr Javid was accused of peddling misinformation of his own as a new analysis suggested the Government's figures were inaccurate.
Mr Javid’s letter—also signed by Chief Secretary to the Treasury David Gauke—said rates would fall in 250 of the 329 local billing authority areas in England—and detailed these in a list accompanying the letter.
According to an analysis by ratings specialist Gerald Eve, rates will fall in only 135 councils—and increase in 191.”
Daily Mail, 21 February 2017
It certainly looks like a clash… but actually Gerald Eve and the government’s estimates are talking about different things.
First, the government is estimating the impact of changes due to the revaluation on its own, ignoring any increases that are designed to keep business rates in line with inflation.
Second, they’re showing what they think the picture will be after some businesses have appealed against the revaluation of the ‘rateable value’ of their property.
Gerald Eve, a property consultant, has produced estimates that show a different side of the story.
Its estimates show how rates will change when you include the increases that will come with inflation, and they’re showing what the picture will look like before any businesses have appealed.
(Incidentally, the figures covered 326 local authorities, not 329.)
Neither estimate is automatically the ‘best’—it depends on what you want to understand about the revaluation
It’s possible to make reasonable arguments for looking at the rate rise either way, depending on what you want to understand about the changes.
As an example: from a policy-making perspective it might be useful to single out the effects of the revaluation separate from inflation, as the government has done; but individual businesses might want to know how the revaluation will combine with the rate rises that come with inflation.
Equally, it makes sense to assume that a number of businesses will appeal against rate changes, and this will lower the revenues that eventually get collected.
But at the same time, it’s debatable how many businesses will successfully appeal, especially since the appeals process is being reformed as well. Individual businesses may want to see estimates for the likely state of play, prior to the point when they might enter an appeal.
Neither set of estimates tells you what the actual average rate changes will be next year
The government is offering transitional relief for some businesses, so the impact of the revaluation will be phased in over the next few years.
Update 22 February 2017
We added in the word "from" next year to our conclusion shortly after we published this piece, to account for the transitional arrangements.