UK Business Rate Changes: What Do They Mean for Councils and Inward Investment Attraction?

Tuesday, 6 October 2015
We've seen some pretty excitable comments on social media regarding George Osborne's business rate changes and how they'll affect local authorities' ability to attract inward investment. You'd almost be forgiven for thinking that it's a simple as this: local authorities are going to reap a £26 billion bonanza, and they'll be set free to use business rates to incentivise investing businesses...

Unsurprisingly, it's not so simple. So let's consider what the changes are, and the likely consequences for regional inward investment attraction...


Business rates are a commercial property tax collected by local authorities and used to fund council services. Since 2013, 50% have been retained by the authorities that collected them. The other 50% have been pooled centrally and redistributed back to councils. In simple terms, councils that collected more than they needed to fund local services (because they had a large business base and/or lower costs) got less back, and those that needed more (because they had a small business base and/or higher costs) got more back.

Under the new system, councils will keep all the money they raise, rather than 50% being pooled central and redistributed. They'll also be allowed to reduce business rates to attract inward investment (although most won't be allowed to raise them).

What do the changes mean for local authorities?

Firstly, there is no £26 billion bonanza. What's changed is the 'pooling and redistributing' part of the system. This inevitably means that wealthier authorities will keep more (because they raise more) and less wealthy authorities will keep less (because they raise less).

But local authority areas can now reduce business rates to attract new inward investment, can't they? 

Yes, they can. And this will undoubtedly benefit areas that can fund their services with lower business rates (generally the wealthier areas with the largest business bases).

On the other hand, less wealthy areas with smaller business bases are likely to find it difficult to cut business rates to attract new investment (because they're collecting less money to fund their services in the first place).

In other words, the changes are most definitely a double-edge sword. There will be winners and losers, and the losers are likely to be the areas that have traditionally received the highest levels of support for economic development and inward investment attraction.

What do the changes mean for inward investment attraction?

1. Firstly, they will create a more competitive environment for inward investment attraction, with business rate levels becoming an important differentiator between regions.

2. Secondly, many local authorities are likely to find themselves having to do more to attract inward investment, with limited funding and without the advantage of reduced business rates.

Conclusions...

My conclusion from all this is that it's going to be a tough, competitive inward investment environment, especially for the local authority areas that don't benefit from these changes. But that doesn't mean they can't still be winners in the investment attraction stakes.

Business rates will continue to be just one indicator of an areas attractiveness to businesses. There are many others, including property costs and availability, workforce profiles and transport connectivity. Areas that can't offer the lowest business rates should still be able to present compelling location propositions based on these and other criteria.

However, for Investment Promotion Agencies, effectively identifying and communicating their locations' value propositions for businesses will be more important than ever before. Creative, innovative, targeted and cost-effective inward investment marketing strategies will, inevitably, be the key to success.

Work with Clarity to develop your winning Inward Investment Strategy


Author:
Nick Smillie
MD, Clarity, Inward Investment Marketing

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