Audit Commission - £1.2 billion owed to councils in uncollected business rates

News release

29 October 2013

Embargoed until 00:01am Thursday 31 October 2013

£1.2 billion owed to councils in uncollected business rates

The Audit Commission has published a briefing, drawn from its Value for Money (VFM) Profiles Tool, ‘Business rates: using data from the VFM Profiles, October 2013'. The briefing presents the Commission’s analysis of English councils’ collection rates and costs of collecting business rates[1].

The Commission found that in 2012/13, councils collected £21.9 billion in business rates of £22.4 billion due. The amount collected by each council ranged from £1.3 million to £1.6 billion. Councils collect most business rates in the year they fall due, but business rates arrears are substantial and currently stand at £1.2 billion. As this local tax remains to be collected, it cannot currently be used to support the delivery of services. In 2012/13, the uncollected in-year amount was £513 million.

In April 2013, 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 previously - paying it all into a ‘national pool’. So, from 2013/14, a council’s income will be directly affected by the business rates it collects. 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.

Jeremy Newman, Audit Commission chairman 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 median rate of collection varied both between and within different types of council. By council type, shire district councils had the highest median collection rate (98.2 per cent) and metropolitan district councils the lowest (96.7 per cent). Over 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 £90 million collecting business rates. There was no statistically significant relationship between the amount councils spent on collecting business rates and what they collected.

Mr Newman comments: “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. We acknowledge that some councils are doing exceptionally well in collecting business rates, but due to the amounts involved, a modest-sounding 2.3 percent of uncollected in-year business rates equates to £513 million.”

Councils need robust data to help inform their forecasting, planning and decision making. In addition to the data that they collect themselves, which needs to be of increasingly higher quality, the Commission’s VFM Profiles Tool is a valuable resource. It consolidates data from a wide range of sources, making it available in a user-friendly resource. The Commission has produced a number of VFM briefings that address a range of topics, to showcase this rich source of information.

Steps to maximise business rates that councils could take include:

• supporting existing business to do well and attracting new businesses to the area;
• identifying and billing all business properties with a rateable value promptly;
• using discretionary relief in an effective way, targeting businesses most in need;
• preventing and tackling fraudulent claims for relief;
• improving collection rates; and
• reducing collection costs.

-Ends-

Notes to Editors
1)       Business rates, formally known as national non-domestic rates, are a local tax paid by businesses occupying property. The money they raise helps to pay for local council services and they represent a substantial part of councils’ income.

2)       All councils, except county councils, are responsible for business rate billing and have a ‘local list’ of the business properties in their area that have a rateable value. The Valuation Office Agency independently sets a property’s rateable value, based on its annual market rental value.

3)       Councils calculate the business rates due for a property by multiplying its rateable value by a national multiplier provided by central government. The multiplier changes every year to reflect inflation. Councils use a standard multiplier for medium-sized and large organisations, and a lower one for small businesses. The national multipliers for 2013/14 are: 47.1p standard rate and 46.2p for small businesses.

4)       Councils give various types of relief to reduce some business rates bills. Most of this relief is mandatory and includes relief for small businesses, empty or partly-occupied properties, and for example, mandatory relief reduces charities’ business rates bills by 80 per cent. Councils have discretion to give other relief, for example, up to 20 per cent more for charities, or up to 100 per cent for some non-profit organisations and rural businesses.

5)       The data in the VFM Profiles can be used to examine, for individual councils:

1. how much income is due from business rates;
2. how the cost and rate of collection compare to different comparator groups;
3. how collection costs compare with the amount of collection allowance;
4. how changes over time compare to the overall trends described in the Commission’s briefing; and
5. what impact the new business rate retention scheme will have.

6)       In 2012/13, councils granted nearly £2.4 billion of mandatory relief. This included a total of £1.3 billion of mandatory charity relief (13 per cent higher than the previous year) and nearly £1 billion of relief for empty properties (over 11 per cent higher than the previous year).

7)        The Audit Commission
The Audit Commission’s role is to protect the public purse. We do this by appointing auditors to a range of local public bodies in England. We set the standards we expect auditors to meet and oversee their work. Our aim is to secure high-quality audits at the best price possible. We use information from auditors and published data to provide authoritative, evidence-based analysis. This helps local public services to learn from one another and manage the financial challenges they face. We also compare data across the public sector to identify where services could be open to abuse and help organisations fight fraud.

8)       The VFM Profiles
The VFM Profiles are widely used, with 17,000 visits in the last financial year. Now with improved accessibility, they bring together data about the cost, performance and activity of local councils and fire authorities. The Profiles show how organisations are spending resources, what services they perform and how these costs and performance levels compare between organisations, and over time. Auditors use them to draw their VFM conclusions in annual audits, but anyone can use them: from Councillors and local government employees to members of the public. The VFM Profiles are an online tool that can help the public look at their council and how it compares with others, at a time when the transparency of public services is increasingly important.

9)       Previous VFM briefings
Council tax collection – Using data from the Value for Money Profiles (June 2013)
Social Care for older people: Using Data from the Value for Money Profiles (July 2013)
Income from charging: Using data from the VFM Profiles, September 2013 (September 2013)

References
The VFM Profiles use data supplied by English councils and published by a range of government departments and national agencies. The Department for Communities and Local Government collected and published the data used in the VFM briefing on business rates collection rates: The two main sources are:

1). Department for Communities and Local Government, Statistical Release: Collection Rates and Receipts of Council Tax and Non-Domestic Rates in England 2012 – 13, 26 June 2013

2). Department for Communities and Local Government, Local authority revenue expenditure and financing England final outturn: 2011 to 2012 individual local authority data, 27 November 2012

For further information please contact:
Nick Rigg
Communications
Direct line: 0303 444 8284
Mobile: 07970 906 112
Press office: 0303 444 8282
Email: n-rigg@audit-commission.gsi.gov.uk

[1] All councils, except county councils, have a responsibility for collecting business rates. County councils receive a proportion of the rates collected by district councils within their area.