APSE Energy has just prepared a note to its local authority members on business rates and the impending changes. Much has been reported recently about this subject and the potential impact of the current revaluation on those with solar farms or building related schemes.
In local government, business rates have been a battleground with the government for decades. Any sensible person who examined the basic system would think it a complete nonsense. I mean, central government sets a tax, gets local government to collect it and then pay it to central government, whereupon it applies a horribly complex formula to the fund and then gives most of the money back to fund public services! So the reform to allow local authorities to keep business rates is essentially a good one.
But the current grief is not being caused by the system itself, so much as a particular element of statutory drafting. The language that effectively says if you fit and use equipment on site that gives the business a benefit then it should be rateable, was not written with solar PV in mind. Of more concern is what it will take to change it. If primary legislation is required, there seems little hope that this will be forthcoming, such is the pressure on bills in the parliamentary timetable.
Local authorities find themselves in an interesting position. This is because they wear more than one hat in this scenario. The local authority is the agency to which business rates are actually paid. They are also the body charged with stimulating economic growth in their area. Finally, they may be a developer of renewable energy projects themselves. It is important to note that the implications for each role are different.
Looking at the first of those three roles, local authorities will benefit from an increase in income from business rates as a result of these changes. However, as indicated above, the national system of local government financing is also very complex but has seen the income available to local councils reduce by something like 40% over the past few years. So, the difference here is a drop in the ocean and public services at local level will still be underfunded.
Turning to the role to stimulate economic development, any council will be grateful for commercial development within its area, as this usually means jobs and growth, which are in short supply. Every authority wants to try and improve its local economy, as this is so important to the wider health and prosperity of its area. So extra income here will of course be welcome, but those who think that it will change the view of any authority about the type of development that it wants or doesn’t want in its area are likely to be mistaken. In short, will the suggestion of more business rates income change the view of most authorities on solar or wind projects being encouraged in their area? Unlikely in my view.
Finally, local authorities are increasingly developers of renewable energy projects themselves. Here there is a double-edged sword. On the one hand, a council that develops and owns solar PV on its civic centre roof will have to pay more business rates in respect of it; on the other hand the rates effectively have to be paid to itself!
But there is an internal angle to this that those outside of local government are unlikely to appreciate. That is that the director of finance will consider business rates income to be part of the general income flow into the authority, with those funds already having been earmarked for funding Council services against a background of austerity. It is unlikely in my experience that any director of finance would easily allow a project to count that income as part of its business case and rationale for undertaking the development in the first place. A simple way of saying that is that the rates money will disappear into the Treasury and is unlikely to come back to the project that generated it.
The current problems are equally as frustrating for local authorities as they are for everyone else. Let’s hope that a solution can be found which softens the blow of the changes.