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Councils told to raise game on business rates collection as arrears top £1.2bn

Local authorities have been told to ensure that their approach to collecting business rates is cost effective after it emerged that arrears currently stand at £1.2bn.

In its latest value for money briefing, the Audit Commission said: “As this local tax remains to be collected, it cannot currently be used to support the delivery of services.”

The watchdog also found that:

  • Councils collected £21.9bn in business rates of £22.4bn due in 2012/13;
  • The amount collected by each council ranged from £1.3m to £1.6bn;
  • The uncollected in-year amount in 2012/13 was £513m;
  • The overall median rate of collection in 2012/13 varied both between and within different types of council. “By council type, shire district councils had the highest median collection rate (98.2%) and metropolitan district councils the lowest (96.7%). Over half (55%) of district councils collected more than 98% of 2012/13 business rates in year; this figure dropped to 17% for metropolitan districts”;
  • In 2011/12, councils spent £90m collecting business rates. “There was no statistically significant relationship between the amount councils spent on collecting business rates and what they collected.”

The research comes after the Government earlier this year (April) introduced a business rates retention scheme allowing councils to keep up to half of the business rates income they collect, rather than - as previously - paying it all into a ‘national pool’.

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This means that, from 2013/14, a council’s income is 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,” the Audit Commission said.

The watchdog identified a number of steps councils can take to maximise business rates:

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

The watchdog’s chairman, Jeremy Newman, said: “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.”

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.

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

See also: Business rates, Booth and the fairness of costs by Anthony Jones of Camden Council

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