How local business rate retention could influence planning authorities

The chancellor's plans to allow councils to retain locally collected business rates could lead planning officers to prioritise commercial development over housing, experts have warned.

New homes: warning over business rates impact
New homes: warning over business rates impact

Chancellor George Osborne's proposal to allow local authorities to retain 100 per cent of their business rates so as to better "promote growth and prosperity", announced at last month's Conservative Party conference, could have implications for spatial planning, according to commentators.

Currently, business rates are set nationally but collected by local authorities, who retain half of the funds and pass the rest to central government for pooling and redistribution. Osborne's proposals would also allow town halls to cut business rates by as much as they like, and in some cases charge a premium to fund new infrastructure.

Commentators told Planning that the new model is likely to place more pressure on encouraging commercial development. Harvey Emms, senior director at consultancy Nathaniel Lichfield & Partners, said England's biggest cities could realise the biggest potential from the new regime. "Long-term certainty of receipts is a big win for councils given the austerity measures," he said. "It may spur on local authorities to deliver positively framed area action plans or supplementary policy documents for town centres and other areas to stimulate investment. They might also look to simplify planning measures to attract inward investment and meet their economic growth aspirations."

Emms said it is possible that councils could seek to prioritise commercial development over housing in urban areas, and that the changes might make some authorities more resistant to changing the use of vacant offices into residential or student accommodation. He added that it is also possible that councils could become more inclined to hang on to sites long earmarked for job creation, even if those sites could be better used for homes.

Cristina Howick, partner at consultancy Peter Brett Associates, said a potential down side to the plan could be increased levels of "territorial competition" between councils. She said: "This means that local authorities would compete with each other to attract and retain businesses - not just foreign inward investment, but existing businesses as well. The result would be that there are no more jobs in total, but businesses would get more benefits courtesy of the taxpayer, which may include incentives, publicly financed infrastructure or favourable land deals." Howick said that the end to the national pooling of business rates could also lead to a greater polarisation between richer and poorer areas, further fuelling job creation and housing demand in the South East.

Geoff Winterbottom, principal research officer at the Special Interest Group of Municipal Authorities, which represents more than 40 urban authorities, said not all are capable of getting the same "bang for their planning buck" and would have to be realistic about the kind of new businesses they would attract. He added that rates relief currently enjoyed by charities and small businesses could also create tensions. "I don't see the rates issue overriding all other considerations, but authorities will gain more from a larger enterprise than they will from a small one or charity," he said.

This month's Institute for Economic Development Annual Conference includes a session on supporting local economic growth. For more details, visit

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