Why Brexit and business rates could bust council budgets

Funding for local councils has undergone drastic changes. Already dealing with the transition away from grant funding, budget cuts and EU funding, local authorities are now having to deal with the largest change to business rates in almost ten years.  

Initially scheduled for 2015, the previous government delayed the rise by two years - meaning that this year’s rate change is one of the largest ever. 

In April 2017, the business rates saw businesses face a whopping 42% increase. Since the 2015 adjustment was postponed, this year’s reassessment of rateable values by the Valuation Office Agency marks the first change in 7 years, taking into account the changes in property prices since them. 

Business rates are assessed with reference solely to the rental value of the property. Since they do not fluctuate with the economic cycle or with revenue, business rates can become onerous during downturns. 

And with the property market remaining buoyant in London and the south east after years of strong growth, the new rates are especially burdensome in areas with high property prices - potentially a double blow to growth. 

As online retailers take an ever-growing share of consumer spending, local councils are struggling to rejuvenate their high streets - and higher rates could make the challenge even harder. Small Business Rate Relief can help to keep individual firms afloat and encourage entrepreneurialism, but as rates replace central government grants local authorities must keep an eye on the bottom line. 

Having funded everything from sea defences to cultural attractions and transport infrastructure, EU grants have played an increasingly important role in Britain, especially in less prosperous areas. The current government has promised to create a UK Shared Prosperity Fund in order to carry out redistribution post-Brexit, but the Local Government Association has lamented that details have been ‘scarce so far’.

Wherever possible, local councils should carefully plan ahead for each potential scenario. Risk assessments should be carried out on both existing and proposed new projects, taking into account the new business rates and the presumed absence of EU funding.  

The recession and its concomitant budget cuts has proven local authorities’ resilience. They are also going through different challenges: the latest revaluation has made many business rates cheaper in the north, for instance, or find themselves more exposed to EU grant funding holes. However, the solutions remain similar: plan ahead, be resourceful, and carry out risk assessments wherever necessary. That way, the shifts away from grant funding and EU stipends can be seamless - rather than bumpy.


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https://www.independent.co.uk/business/uk-firms-struggling-money-business-rates-81000-a8508901.html (2018)

https://www.theguardian.com/business/2018/sep/10/economic-growth-rate-expected-slow-kpmg-report-brexit-uncertainty (2018)

 

 

Risk Management Partners Limited is authorised and regulated
by the Financial Conduct Authority.
Registered office: The Walbrook Building 25 Walbrook, London EC4N 8AW.
Registered in England and Wales. Company no. 2989025.