Business Rates Retention Scheme

Business Rates Retention Scheme
Name	Business Rates Retention Scheme
Type	Fiscal decentralisation mechanism
Country	United Kingdom
Introduced	2013 (pilot/implementation phases)
Status	Active (with reforms and reviews)

Business Rates Retention Scheme The Business Rates Retention Scheme allocates locally collected non-domestic rates to subnational authorities, seeking to align local fiscal incentives with local government service decisions. It intersects with taxation design debates involving HM Treasury, Ministry of Housing, Communities and Local Government, devolution settlements, and authorities such as London Borough of Camden, Greater Manchester Combined Authority, and Cornwall Council. The scheme has influenced and been influenced by fiscal arrangements across the United Kingdom, prompting comparative attention from jurisdictions including Scotland, Wales, and Northern Ireland.

Overview

The scheme redirects proportions of revenue from statutory non-domestic rates to billing and precepting authorities including county councils, unitary authorities, district councils, metropolitan boroughs, combined authorities, and London boroughs. Designed to replace centralised grant dependence under arrangements codified after reviews by entities such as the Institute for Fiscal Studies and the National Audit Office, it establishes local retention bands, baseline funding levels, and tariff and top-up adjustments determined by the Treasury and Department for Levelling Up, Housing and Communities. It operates alongside mechanisms such as the New Homes Bonus, Revenue Support Grant, and partnership agreements used by city-regions like Tees Valley Combined Authority.

History and development

Origins trace to proposals in white papers and consultations following fiscal debates involving actors like Gordon Brown, George Osborne, and advisory work by the Local Government Association and think tanks such as the Resolution Foundation, Centre for Cities, and Institute for Government. Pilot approaches were tested amid wider public finance reforms including the Local Government Finance Act 2012 and subsequent modifications after reviews by the House of Commons Treasury Committee and the Public Accounts Committee. Devolution deals negotiated with devolved executives such as Scottish Government, Welsh Government, and the Northern Ireland Executive shaped divergent implementations and led to variants during the administrations of Theresa May, Boris Johnson, and Rishi Sunak.

Framework and mechanics

Administratively the scheme relies on valuation data maintained by the Valuation Office Agency using rating lists and revaluations tied to statutory instruments overseen by the Supreme Court only in disputes over statutory interpretation. Baselines are set using historical spending patterns and comparator data often referenced by analytical units like the Office for Budget Responsibility and the Institute for Fiscal Studies. Tariffs and top-ups reconcile disparities among authorities—concepts informed by fiscal federalism literature cited by scholars affiliated with London School of Economics, University of Cambridge, and University of Oxford. Pooling arrangements between authorities—seen in Greater Manchester Combined Authority and West Midlands Combined Authority—use joint governance protocols similar to those in devolution agreements that reference institutions such as the Home Office and Cabinet Office.

Funding, incentives and risk-sharing

The scheme creates incentives for local economic development interventions pursued by bodies like Manchester City Council, Birmingham City Council, and Cornwall Council which may use business rates increment financing, enterprise zones modeled after Enterprise Zone policy, or targeted regeneration akin to London Docklands Development Corporation initiatives. Risk-sharing mechanisms include safety nets and levy rates administered by the Treasury; local authorities face exposure to valuation appeals and business failures exemplified by cases involving retailers such as BHS and Debenhams that affected rateable values. The fiscal interplay has been examined by organisations like the Chartered Institute of Public Finance and Accountancy and international observers from bodies such as the Organisation for Economic Co-operation and Development.

Impacts and evaluations

Empirical assessments by the National Audit Office, Institute for Fiscal Studies, and academic teams at University College London show mixed effects on local revenue volatility, investment incentives, and spatial inequalities highlighted in city-case studies including Leeds, Liverpool, Glasgow, and Cardiff. Analyses reference metrics deployed in reports by the Joseph Rowntree Foundation and the Federation of Small Businesses, and they draw comparisons with municipal finance models in Germany, France, and United States metropolises such as New York City and Los Angeles County. Research on behavioral response and economic incidence cites work from London School of Economics, Imperial College London, and the University of Manchester.

Controversies and reforms

Critiques have come from parliamentary committees, trade unions including Unison, and policy centres like the Joseph Rowntree Foundation and Centre for Cities, focusing on redistributional impacts, complexity, and exposure to appeals like those following the Valuation Office Agency revaluations. Reforms debated include full baseline resets, alternative equalisation formulas, and integration with business taxation changes advocated by commentators such as Tony Travers and academics like Paul Johnson. Political tension emerged in devolution negotiations involving leaders such as Andy Burnham and Sadiq Khan about pooling arrangements and growth incentive structures.

Implementation by country/region

England: The principal implementation area with pilots and pools in city-regions including Greater Manchester Combined Authority, West Midlands Combined Authority, Liverpool City Region Combined Authority, Tees Valley Combined Authority, and London boroughs. Scotland: Distinct arrangements coordinated by the Scottish Government with devolved rating powers differing from English frameworks. Wales: Administered under powers of the Welsh Government with Assembly-specific adjustments following discussions in the Senedd Cymru. Northern Ireland: Operates within the context of the Northern Ireland Executive and existing local government finance structures, influenced by cross-border considerations with Republic of Ireland policy analysis.

Category:Local taxation in the United Kingdom