Manchester’s new powers to retain 100% of business rates growth could be a double- edged sword for the city.
The policy, announced in the Budget on Wednesday, is designed to help promote growth by allowing the local authority to benefit from the rising tax revenues generated by new development.
Manchester city council, however, said it had resisted the offer of taking full control of business rates due to fears it could leave the area with a shortfall if rates revenue falls, exacerbating the authority’s £5bn budget deficit.
An analysis of rates revenues in the first year since rules that allow councils to retain up to 50% of rates were introduced found that dozens of authorities accrued lower revenues than anticipated, leaving them substantially out of pocket.
Jerry Schurder, head of business rates at Gerald Eve, said: “With the current system of 50-50 rates sharing between local authorities and the government, you have to meet the 50% decline in revenues before any benefits of retention can be felt. More local authorities are worried about their losses rather than seeing achievable growth.”
Experts have also questioned whether the timing of the deal – the announcement of which comes less than two weeks ahead of the postponed revaluation – might compound the problem.
The new rates based on 2015 valuations will come into effect in 2017, triggering what are expected to be significant changes in rateable values across the country. High-growth areas such as London are likely to see substantial increases while values in many parts of the North are expected to fall.
Cheshire East, Cambridge and Peterborough also gained powers to retain 100% of additional business rates growth as part of the Budget announcement.
