Innovation in business rates collection

With no end in sight for spending cuts to local government, local authorities are increasingly uncertain about their future financing and urgently need to generate as much certain income as possible from other sources in order to protect key services and to plan effectively for the future. As a result, income streams outside of council tax and direct government support have become increasingly important. Nowhere is this more true than with business rates.

In the UK business rates raise over £22 billion a year for local authorities, and have come to be seen as a key metric of economic performance in a local area. For many local authorities, reliance on business rates has been increasing – but at the same time, uncertainty about the future of their reliability has grown. In order to understand what can be done to improve this situation, I hosted a workshop for local authority teams with Capita last year, which saw presentations from – amongst others – the Local Government Association and the Greater London Authority on the subject of the future of business rates.

Many of the attendees felt that the current business rates system suffered from a number of key issues, including the lack of predictability and reliability of income, the growth in complexity of different schemes and exceptions, and that there was too much reliability on a small number of larger ratepayers – which meant single delays could have significant impact on receipts. They also felt that a lack of good data meant that it was too difficult to forecast the impact of successful appeals and local authorities didn’t have any insight into the impact of new properties or changes to property status.

There were many good lessons and forward looking ideas that came out of the workshop session. However, the clearest message was that closer collaboration between local authorities and the Valuation Office Agency (VOA) was absolutely crucial to ensure that business rates continued to be a viable source of revenue for councils. Higher quality data sharing with the VOA was seen as crucial to opening up better forecasting opportunities, ensuring that councils were able to track their predicted revenues.

Other potential solutions included moves to limit the number of appeals, particularly those with little merit – both achieved by capping the amount that solicitors could charge for appeals through legislation and by introducing a charging system for businesses to prevent ‘fishing’ appeals. Overall, it was felt that collective working between the VOA, stakeholders like the LGA and local authorities should be able to develop better processes that ensure valuations are ‘right first time’, significantly reducing the number of appeals and the demand on local authority officers.

The workshop also saw a number of best practice examples given where local authorities – like my own, Southwark, supported by Capita’s revenues and benefits team – have adopted approaches that had improved their business rate collection.

These included the use of multi-channel communications on business rates, using text messages, email and even social media to prompt quicker responses and payments from businesses. Building these into other council communications – taking a holistic approach – could also be effective.

Use of insight and analytics was also suggested, reviewing tenancy trends to target repeat offenders and allowing resources to be directed more effectively. Specific recovery approaches for SMEs were considered a good way to ensure that rate collection worked without damaging an SME economy that many councils are working hard to protect and encourage. All these options can be combined with the use of the ‘nudge’ theory, using behavioural science to iteratively test changes in the approach to rate collection to establish the most effective method.

Although many of the innovations described have been successfully introduced in other areas of local authority work, business rate collection has historically not changed much and has not been the subject of this kind of innovative thinking. I firmly believe that adoption of some of these practices could make a real difference. Many of them also have the benefit of only requiring unilateral local authority policy change, rather than sector-wide collaboration.

This article was originally published in IRRV Insight magazine.

Dominic Cain MBA IRRV (Hons) is assistant director (revenues, benefits and financial transactions) with the London Borough of Southwark and President of the Institute of Revenues Rating and Valuation's London and Home Counties Association

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