Business

London loses out in business rates revamp

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The revaluation of business rates next month will see London paying an extra £800m a year to support services in other parts of England, the Institute for Fiscal Studies said.

Under the changes, London councils will see their incomes rise as business rates there jump, while northern councils will lose out as rates fall.

As a result, London councils will have to pay more to "top up" other councils.

The IFS said this reflected a "greater reliance" on the capital.

Neil Amin-Smith, one of the report's authors, said: "Revaluation will mean rates bills will go up, and revenues become more concentrated in London. This is part of a more general trend of greater reliance on the capital for revenues."

Revenue neutral

Business rates are in effect the commercial version of council tax, and are paid on the rental value of the space that businesses occupy. The amount depends on the size of the property and what it's used for.

The next business rates revaluation comes into effect on 1 April - the first for seven years.

Although many businesses are expecting small falls in business rates in April, about a third are expecting very sharp rises, with a fifth, mainly in the South East, expecting a rise of more than 40% immediately.

The government says three quarters of businesses' rates will either go down or stay the same.

The changes are designed to be "revenue neutral" across England as a whole. However, rates in London are due to go up by about 11% above inflation over the next five years, while rates in northern England will fall by 10%.

Business rates revenues are redistributed among councils to compensate those that lose out.

London councils are not the only ones that will "top up" local authorities in other regions.

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However, the changes mean that those in the capital will contribute an extra £400m a year to councils with less income from business rates.

In addition, all councils pay half their revenue from business rates to central government.

As a result of the changes, London councils will be paying an extra £400m into this central pot.

Redistribution

The changes to business rates is part of a wider trend for London to shoulder a bigger proportion of the UK's tax take.

In the 2004-5 tax year London's taxes - including income tax, corporation tax and stamp duty - accounted for 25% of Britain's overall tax revenue. By 2014-15 that had increased to 30%.

However, one of the report's authors said it depended on your point of view as to whether this was a good or a bad thing.

"As London's economy pulls further ahead, more of its revenues need to be redistributed to stop the rest of the country falling behind," said David Phillips, IFS associate director.

In the longer term, though, London stands to gain from increase in business rates, because the rules mean it will be allowed to retain the higher rates it gets from any new developments in the capital.

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