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| Business Rates Retention | |
|---|---|
| Name | Business Rates Retention |
| Type | Fiscal policy mechanism |
| Country | United Kingdom |
| Introduced | 2013 |
| Related | Local government finance in England, Local Government Finance Act 1988, Localism Act 2011 |
Business Rates Retention
Business Rates Retention is a fiscal framework for local taxation in the United Kingdom created to alter funding between central and local authorities, incentivize local economic development and change the distribution of revenue from non-domestic property. It interacts with a web of statutes, administrative regimes and political initiatives and has influenced fiscal relations involving Department for Communities and Local Government, HM Treasury, Local Government Association, National Audit Office, and numerous councils across England, Scotland, Wales, and Northern Ireland.
The policy was introduced following reviews by Miles College Review, consultation papers led by Eric Pickles and implementation overseen by Eric Pickles's successors at Department for Communities and Local Government and Ministry of Housing, Communities and Local Government. It sought to replace block grant-style funding shaped under Barnett formula and earlier arrangements from the 1988 Local Government Finance Act with a system where local authorities retain a portion of growth in non-domestic rates to better align incentives for local economic growth, reflecting debates from Local Government Association and fiscal studies by Institute for Fiscal Studies, Resolution Foundation, and Institute for Public Policy Research.
The statutory basis derives from amendments to the Local Government Finance Act 1988 and subsequent statutory instruments guided by HM Treasury. Policy design was shaped by green papers and white papers involving Department for Communities and Local Government, consultations with Local Government Association and scrutiny by the Public Accounts Committee and House of Commons Treasury Committee. Implementation required coordination with statutory valuation processes administered by Valuation Office Agency and reforms linked to the Non-Domestic Rating Act 2023 and interactions with EU-era rules that referenced the European Commission prior to Brexit referendum changes.
Under the scheme local billing authorities collect non-domestic rates using rateable values established by the Valuation Office Agency. Authorities currently operate within funding baselines and tariffs and top-ups calculated from national rateable income, with safety nets and levies applied by HM Treasury and administratively managed by Ministry of Housing, Communities and Local Government. Pilot designs have included business rate retention pilots coordinated with Greater London Authority and combined authorities such as Greater Manchester Combined Authority and West Midlands Combined Authority. Redistribution also engages mechanisms from National Non-Domestic Rates pools and resets informed by periodic revaluations, interacting with legal rulings from the Supreme Court of the United Kingdom on local fiscal competence and statutory compliance.
The reform altered fiscal flows between HM Treasury and local authorities, changing incentives for areas with strong growth such as London, Birmingham, Manchester, Leeds, and Bristol. Analysis by Institute for Fiscal Studies, National Audit Office, Local Government Association, and think tanks like Resolution Foundation highlighted winners and losers based on rateable base, with redistribution adjusted via top-ups and tariffs. Major projects associated with uplift—like infrastructure schemes in Thames Gateway, HS2, and urban regeneration in Liverpool—demonstrated asymmetric fiscal effects. Distributional consequences also engaged social policy debates in Department for Work and Pensions and cross-cutting spending reviews by HM Treasury.
Pilot schemes included full retention pilots in combined authorities such as Manchester City Council, West Midlands Combined Authority, Cambridgeshire and Peterborough Combined Authority, and bespoke arrangements for London Borough of Tower Hamlets and Glasgow City Council in devolved contexts. Devolution deals negotiated with Cabinet Office and signed by figures like George Osborne and successors enabled 100% retention pilots, multi-year settlements, and business rate pooling agreements influenced by Northern Powerhouse and City Deals frameworks. Pilots tested levy rates, safety nets, and growth baseline resets, with evaluation by National Audit Office and academic input from London School of Economics and University of Oxford researchers.
Critics including Centre for Cities, Institute for Fiscal Studies, Joseph Rowntree Foundation, and parliamentary panels argued the scheme increased volatility for authorities such as Islington, Blackpool, and Northumberland and risked privileging urban growth centers like Bristol and Leeds over rural districts like Cornwall and North Yorkshire. Controversies involved disputes over revaluation timing, appeals managed through the Valuation Tribunal Service, and the allocation of reliefs, with tensions between Local Government Association and HM Treasury over risk sharing and grant reductions. High-profile legal and political debates touched Prime Minister's Office decisions, scrutiny by the Public Accounts Committee, and commentary from figures such as Theresa May and Rishi Sunak in broader fiscal policy contexts.
Reform proposals include full retention models, more frequent resets, pooled regional approaches championed by Greater Manchester Combined Authority and West Midlands Combined Authority, and integration with growth strategies in Northern Powerhouse and Midlands Engine initiatives. Ongoing reviews consider links to business rate reliefs, digitalisation of valuation processes with Valuation Office Agency modernization, and fiscal devolution negotiated under future devolution deals brokered by Cabinet Office and assessed by Institute for Government. Legislative change may appear via future Finance Acts or secondary legislation steered by HM Treasury and Department for Levelling Up, Housing and Communities ministers, and will be monitored by oversight bodies including the National Audit Office and select committees in the House of Commons and House of Lords.
Category:Local taxation in the United Kingdom