London to retain more business rates income in landmark deal

12 October 2017

London should be able to invest more money in vital infrastructure and public services after the Mayor, Sadiq Khan, and London boroughs took a step closer to a deal that will see London retain more of the money it raises through business rates.

Last Spring, the Government published a devolution deal for London that challenged the Mayor and London boroughs to agree a scheme that would give them greater control of business rates generated in the capital.

The Mayor and the Leaders and elected Mayors of the 32 London boroughs and the City of London have now agreed in principle landmark proposals that will see the capital pilot 100 per cent business rates retention from next April, if agreed by Government.

This could give London more direct control over the business rates receipts that it generates while still continuing to support local services elsewhere in the country at the level it does now.

This is an important step towards bringing London in line with most other global cities by allowing the capital's government control over a much wider range of taxes, in exchange for lower levels of government grant.

Crucially, London will also be able to retain any additional business rate income that is generated next year in the capital - excluding revaluation related growth. This growth is forecast to be in the region of £240 million in 2018/19.

The Mayor of London, Sadiq Khan said: "Today's agreement highlights how London boroughs of different political colours, in both inner and outer London can join forces to act in the best interests of the whole city.

"We will now have more control to spend more money on the things that matter most to Londoners, including social care, affordable housing, infrastructure investment and support for businesses.

"This is an important step in devolving more control over the use of the capital's tax revenues to London government.  But it is only a first step as the Government will still retain control of business rates tax policy, revaluations and the business rates appeals system.

"What we really need is for Government to agree to full devolution of business rates to London, combined with genuine protection for business, so that we, like the devolved administrations of Scotland, Wales and Northern Ireland, can act in the interests of Londoners and their businesses."

Cllr Claire Kober OBE, Chair of London Councils, said: "This is a key moment on our journey towards 100 per cent business rates retention in the capital, one which will bring the boroughs and the Mayor closer to matching the financial independence of other major global cities such as New York.

"Agreeing a business rates pool for London will unlock more business rates revenue and although we have a long way to go to conclude the deal, this decision signals our collective ambition to better serve London's residents and businesses by gaining more control over our city's finances."

In the meantime, the Mayor and London Councils continue to lobby Government for a fairer business rates system, following last April's revaluation.

That revaluation meant that some businesses were hit with rates increases of as much as 45 per cent, with London businesses facing a collective business rate rise of up to £1.2 billion, which will fund an equivalent tax cut for the rest of the country.

ENDS

Notes to editors

  • The total sum collected in business rates in London is more than £8 billion a year following last April's revaluation. London's 33 local authorities and the Greater London Authority currently retain £6 billion of this for investment, of which £4.3 billion is under London's direct control with the remainder being paid back by the Government in grant. £2 billion is paid to the Government to fund local government services in the rest of England.
  • This agreement paves the way for London to collectively retain 100 per cent of the growth in business rates collected in the city from next April - excluding any additional payments ratepayers make as a result of the 2017 revaluation which are retained by the Government.
  • London will still continue to pay around £2 billion in business rates revenues to fund local services elsewhere in England - a figure which increase by inflation next year.
  • The Business Rates revaluation of 2017 was the first time Britain's property had been revalued since 2010. The revaluation was designed to spread the burden of business rates according to economic prosperity.
  • However, the revaluation had a disproportionate impact on London due to large property price increases in the capital. The Mayor has warned that some businesses in London could be forced to close down as a result of their rates increase.
  • This agreement is subject to Government approval.