Budget 2016: Services at risk as business rate cut reduces town hall revenue

Local authority leaders and charities warn initiative could result in further public-sector spending cuts

George Osborne announced that 600,000 small firms would be exempt from local taxes (Reuters)

Hundreds of thousands of small shops and firms will no longer have to pay business rates from April next year in a move that critics warn could lead to further cuts in local council services.

In a surprise move George Osborne announced that around 600,000 small firms will become exempt for local taxes altogether saving them each around £6,000 a year.

The decision delighted business groups such as the British Chambers of Commerce who said the Chancellor had “finally listened”.

But with the £6.7bn revenues from such taxes now being devolved to councils some local authority leaders and charities warned the initiative could result in further public-sector spending cuts.

“The reduction in business rates will further reduce the ability of already cash-strapped local councils to pay for the social care that people with a learning disability desperately need,” said Jan Tregelles, the chief executive of the disability charity Mencap.

Announcing the plan, Mr Osborne said that business rates were “the fixed cost that weigh down on many small enterprises”.

“In total, half of all British properties will see their business rates fall or be abolished,” he pledged. “A typical corner shop in Barnstaple will pay no business rates. A typical hairdressers in Leeds will pay no business rates. A typical newsagents in Nuneaton will pay no business rates.”

But Dave Innes, policy and research manager at the Joseph Rowntree Foundation said councils face losing extra revenue. “While this may provide a boost for small businesses, it could hit local councils’ budgets as business rates are being fully devolved to them in 2020,” he said. “The Government has announced some protection for councils in the short run, but if this isn’t extended until after business rates have been devolved, they stand to lose £1.4bn a year, or 3.5 per cent of their total revenues. “

Labour’s shadow minister for civil society, Anna Turley, said: “Given the Government’s policy to allow local authorities to retain business rate revenue in return for reductions in grant funding, local councils will bear the cost of this policy which could put further financial pressure on councils and ultimately the charities who are involved with delivering local services.”

Lord Porter, the Tory chairman of the Local Government Association, said: “Councils now need a period of financial stability and consistency to plan for the pressures which lie ahead over the next few years and need to be protected from any more funding cuts during this Parliament.”