The Business Rates Delusion                                                 Michael Boon 

From time to time many interested parties argue that the National Non Domestic Rates, (NNDR or Business rates), should be repatriated so that they could be determined by Local Authorities.  On the part of Local Authorities generally, this is probably nothing more than a simple power grab.  There is no doubt that some Local Authorities collect more via Business Rates than they receive back from Central Government after redistribution.  Many of these Local Authorities, (and / or their residents), appear to imagine that if only they retained the Business Rates that they collected, then Council Tax for their residents / electorate could be reduced.  This is almost certainly a delusion.

In principle, the total grant from Central Government to each Local Authority is nothing more than the difference between what Central Government thinks that that Local Authority “ought” to spend and what it “ought” to raise by way of Council Tax.  The Central Government grant is usually shown as being made up of three major components.  These are the Revenues support Grant, (RSG), the redistributed NNDR and the Police Grant.  However, this separation is really just window dressing.  It is almost inevitable that, if Business rates were to be “repatriated”, any winnings would be “taxed away” by a reduction in the RSG and any losses would be made up by similar increases in RSG.  The overall fiscal position of any Local Authority would be essentially unchanged.

There also appears to be considerable misunderstanding as to how the NNDR is redistributed.  Actually, although it may appear rather complicated, every single resident receives, via his Local Authority, exactly the same subsidy from NNDR per head in total.  If we take the fiscal year 2005-06, (i.e. before education spending disappeared from Local Authority “spending” and grants), then we can see that each service received exactly the same amount per head.  Every separate fire and rescue service received a grant labelled as “redistributed NNDR” of £11.55p, (and a few extra decimal places), per head.  Similarly each Police Authority received an NNDR based grant of £16.25p per head, whereas each District Council received a redistributed NNDR amount of £28.88p per head.  The position with County Councils is slightly more complicated.  Some County Councils, (e.g. Surrey), run their own fire services whereas others, (e.g. Hampshire), do not.  Those counties like Hampshire and Durham that do not run their own fire services receive a redistributed NNDR amount of £304.36p per head.  Those that do run their own fire services, like Gloucestershire or Cumbria, received the larger amount of £315.91p per head – which is £11.55p more, (i.e. the same amount as the separate fire service receive).  With two exceptions, Unitary Councils, London Boroughs and Metropolitan Councils, all receive a redistributed NNDR amount of £333.24p per head.  Because, in effect they provide the same services in total as are provided by District and County Councils separately, it is no surprise to discover that this amount is simply the same as the latter receive separately, (i.e. £304.36 plus £28.88).  The two exceptions are The Isle of Wight and the Scilly Isles, which run their own fire services.  Quite naturally, these two Authorities receive and amount via NNDR of £344.78p per head of population.  This consists of the fire services element, (£11.55), plus the usual Unitary Council element, (£333.24).  As a result of these various paths of support, everybody receives an NNDR subsidy of £361.04 per head.