Over £1bn owed in business rates to councils

The Audit Commission said that in 2012-13 alone, £513m of the £22.4bn owed was not collected in the year it was due.

It represented an in-year shortfall of 2.3 per cent, with metropolitan district councils the biggest losers with an average of 3.3 per cent of rates due going uncollected.

The commission said the failure by councils to collect all the rates owed meant that significant sums were not available to be spent on local services.

“Despite the high rates of in-year collection, business rates arrears are substantial over time and currently stand at £1.2bn,” the commission said in its report.

“This is money that, if collected in-year, would be available to the public purse sooner to support the delivery of services.”

Commission chairman Jeremy Newman said: “We acknowledge that some councils are doing exceptionally well in collecting business rates, but due to the amounts involved, a modest-sounding 2.3 per cent of uncollected in-year business rates equates to £513m.”

The Audit Commission published a briefing today, based on results from its “Value for Money (VFM) Profiles Tool” which assess council performance.

The Commission found that in 2012/13, councils collected £21.9bn in business rates out of £22.4bn due, with the amount collected by each council ranging from £1.3 million to £1.6bn.

In April this year, the Government introduced a business rates retention scheme.

Councils will now be able to keep up to half of the business rates income they collect, rather than – as before – paying it all into a ‘national pool’.

This means that a council’s income will be directly affected by the business rates it collects.

The Audit Commission said these new arrangements mean that it has never been more important for councils to understand their local economy and associated business rates, the timeliness of their collection and outstanding arrears, and whether their approach to collection is cost effective.

Audit Commission chairman Jeremy Newman said: “The latest in the VFM briefing series tackles business rates. Councils, and those that hold them to account, need to understand how the introduction of the business rates retention scheme will affect them.

“Knowing the value of business rates, and the cost of their collection under the old arrangements, will help councils maximise the benefits of the new scheme.

“The briefing can help councils, as they look to improve strategies to support existing business to do well and attract new businesses to the area, improve the timeliness of collection and reduce collection costs and arrears.”

In 2012/13, the overall rate of collection varied both between and within different types of council, the commission has found.

Shire district councils had the highest collection rate at 98.2 per cent and metropolitan district councils the lowest at 96.7 per cent.

More than half (55 per cent) of district councils collected more than 98 per cent of 2012/13 business rates in year; this figure dropped to 17 per cent for metropolitan districts.

In 2011/12, councils spent £90m collecting business rates.

However the commission said there was “no statistically significant relationship” between the amount councils spent on collecting business rates and what they collected.

Mr Newman added: “Councils can use the VFM profiles tool to look at, and compare, their rates of collection against their peers.

The profiles tool will help them to identify their most efficient neighbours, then by observing their approach, seek to emulate them.”

The Audit Commission has also issued advice to local authorities to maximise the business rates they collect from firms in their area.

This includes helping to attract new business to the area; supporting existing business to do well; identifying and billing all business properties with a rateable value “promptly”; using discretionary relief in an effective way, by targeting the businesses most in need.

It also encourages councils to prevent and tackle fraudulent claims for relief; improve collection rates and reduce its own collection costs.