A few weeks ago Andrew Hetherton at GL Hearn wrote a guest post claiming the proposed Welsh business rates review could undermine development and growth. It has proved to be quite the hornet's nest.
Cardiff and Co, the city's marketing company, strongly disagree. Managing director Richard Thomas, says the claims are misleading. Here's what he thinks:
"It is unfortunate that Andrew Hetherton started scaremongering about possible negative effects on businesses from the Welsh Government review of business rates relief chaired by Professor Brian Morgan.
The minister has set no specific requirements for the review being conducted but it is unreasonable to tag the review as a danger to business. Andrew Hetherton's comments appear to assume that the Welsh Government has tax raising powers that it does not have when he expresses his concerns.
The devolution of business rates is complex and is different in Scotland, Northern Ireland and Wales, so it is unhelpful to try to make comparisons between any reviews that may be under way in Scotland and that announced for Wales. Wales cannot decide what to do with money raised through business rates and it is restricted on how much can be raised from businesses.
At the moment, the Welsh Government has the power to set the 'multiplier' for business rates (the actual tax rate) but the maximum it can increase in any year is by the rate of RPI from the previous September.
While the Welsh Government can set the rate, it does not have the power to take any of the money raised and use it for its own purposes. The tax is collected by local councils, then handed over to the Welsh Government, who distribute it back to local authorities based on the adult population in each area.
At the moment, the Welsh Government funds the cost of a business rate relief scheme for small businesses. From October 2010, business premises with a rateable value up to £6,000 receive 100% relief and those with a rateable value between £6,001 and £12,000 receive relief that reduces on a tapered basis from 100% to zero. This currently costs around £40 million, so represents £40 million worth of Welsh Government support for small businesses.
As things stand, relief on business rates is due to revert to its September 2010 position from the end of September 2012. This information is in the public domain and is widely known.
Since the Welsh Government cannot increase business rates over and above the rate of RPI, the effect of its policies on the business rates of the larger companies who would be expected to move into Cardiff's Central Business District is extremely limited. Prof Morgan's review can only really consider the relief offered to small businesses or even to extend it to other larger businesses. I wouldn't like to second guess what conclusions he might reach. What is absolutely clear, is that he cannot recommend increasing business rates because the Welsh Government does not have that power.
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