THIS April marked an important, but under-publicised, change in the business rate regime. For more than two decades, rates have been levied on commercial property throughout the country, collected by local authorities and handed over to the Treasury.
In contrast to council tax, which is raised, controlled and spent locally, there is no connection between the rates that are levied locally and the proceeds that are spent locally.
Rather than keep business rates, councils received annual grants from central government, calculated using complicated formulas.
And unlike council tax, the amount levied is not set locally but centrally – the Valuation Office sets rateable values every five years – and central government sets the percentage of this to be paid annually.
The introduction of the business rates in the 1980s cut off the link between local economic success – rising property and, therefore, rateable value and funding to invest in driving it. Ever since, business has complained that its interests are marginalised by councils who are far more concerned with the votes of council tax-payers.
UK government is accused of being the most centralised in the western world. The recent political momentum has been toward addressing this accusation and giving more power – crucially to raise revenue and spend – to local agencies and councils in particular. From April, this connection between what councils raise in business rates and what they "bank" will be restored.
For the first time in a long time there is now an incentive for councils to see investment that leads to growth in property and, therefore, rateable value; equally, they now have a huge incentive to be much more aggressive and thorough in collecting rates.
How will councils behave?
There are huge concerns that business rate collection will be treated in the same way as parking charges have been: a tax to fund budget holes irrespective of the damage to the local economy.
The business rates regime has come in for a lot of criticism since the economic downturn of 2007: relief on empty property has been abolished and rateable values have not dropped in line with rents.
In many cases, rates payable now exceed rents.
The system as it stands contributes to, rather than counters, the vacancy on high streets; and, it is proving to be a huge disincentive to investment in property, investment which would help to upgrade and adapt property for modern demands.
With new power, councils have the scope to shape business rates to encourage that right sort of commercial behaviour: to encourage investment in property locally so that local demands are better met and to address long-terms vacancy.
It remains to be seen whether they take such an enlightened approach or not.
Sean Akins is managing director of Nottingham property company Bildurn.