A review of the current business rates scheme in Wales and the effects of a potential local retention

Abstract

The shape of local government finance in the United Kingdom is changing. The UK Government has been promoting fiscal devolution in the context of austerity following the 2007 global economic crisis. Consequently, local government finance is becoming an increasingly important issue. According to the current regulation, the revenues from business rates, a local tax on non-domestic properties, are pooled to the Welsh Government and then redistributed to the councils, based on their adult population. In the context of fiscal devolution, and following England and Scotland, which adopted retention of business rates income, the discussion for the local retention of business rates revenues in Wales is topical. This paper looks at the organisation of the current business rates system in Wales and the impacts of a potential local retention. It provides a rigorous review of the current state of business rates scheme and the features of the councils according to the net difference between business rates, settlements and contributions. The findings suggest that the current system financially backs the economically disadvantaged Welsh councils, whereas a local retention of business rates income would possibly polarise the uneven allocation of local funding.