While the Tory Government is hammering local government funding, leading to cuts in front line services, the collection of business rates is being expected to make up at least some of the shortfall.
The Government is doing this by allowing councils to retain a greater proportion of business rates and Salford is one of the pilots in a 100% retention scheme. However, alongside this, the city is also losing millions of pounds by companies challenging Valuation Office Agency (VOA) figures upon which business rates are set...
Since 2010, there have been a cumulative total of over 11,000 appeals against valuations in Salford, with a new Council report stating that "The current value of appeals outstanding is c.£200million" (£210.7million according to a previous report).
The Council has had to set aside £11.13million this financial year (up until the end of January) to cover losses from outstanding business rates appeals, while the actual cost of fighting appeals is estimated to hit £5million this year.
A Salford Council report in January on the state of business rates emphasised the "adverse impacts of the continued use of business rates avoidance tactics", while a new report being discussed this week cites...
"The volatility in the level and subsequent cost of appeals; the use of aggressive business rate avoidance tactics; legal challenges relating to charitable relief; and changes in the business rate relief schemes announced by the government which will impact on the council's business rate yield..."
The report also mentions "the ease by which speculative appeals can be made", and adds that, while the Government brought in a new procedure in April last year aimed at streamlining the appeals process, it is only in operation for new appeals from that date.
The Council report concludes that all these issues "could potentially increase the pressure on business rate resources and make it more difficult to deliver a balanced budget".
As Salford continues to grow, with new businesses springing up seemingly everywhere, the Council is mired in 'aggressive business rate avoidance tactics'. Indeed there's now almost an industry springing up to help businesses indulge in it...
Meanwhile, the Council forecast that £87.374million would be brought in from business rates this year. In the event, only £84.68 is expected to materialise – a deficit of £2.68million.
The reasons are varied, from adjustments that have seen the rateable value of the city reduced by 1.5%, to more small businesses being eligible for business rate relief, to 'losses in collection'. The deficit means that "reduced distributions will be
made to the council's general fund and GMCA (fire) in 2018/19" the Council report concludes.
With the Tory Government pushing councils to rely more and more financially on business rates, it's apparent that the eggs in this particular basket are getting well scrambled.