Growing the Business Base Inward Investment Rates Relief

MIDDLESBROUGH COUNCIL

Growing the Business Base – Inward Investment Rates Relief

Deputy Mayor and Executive Member forCity Centre Strategy - Cllr. Charles Rooney.

Executive Member for Finance and Governance – Cllr. N. J. Walker.

Executive Director – Economic Development and Communities: Kevin Parkes

Strategic Director, Finance, Governance and Support – James Bromiley

30October 2017

PURPOSE OF THE REPORT

This report outlines a proposal for a discretionary business rates support programme designed to incentivise both new businesses either starting up or relocating to Middlesbrough and the expansion of current businesses to larger premises, with a view to expanding Middlesbrough’s National Non-Domestic Rates (NNDR) ‘Business Rates’, collection base.

SUMMARY OF RECOMMENDATIONS

It is recommended that Executive approves:

a)The implementation of a discretionary Inward Investment Rates Relief, commencing 1 April 2018, as set out in this report;

b)The establishment of an appropriate governance structure to determine applications, monitor impacts and refine criteria as appropriate; as set out in paras 11 (q), 13 and 14.

IF THIS IS A KEY DECISION WHICH KEY DECISION TEST APPLIES?

It is over the financial threshold (£150,000) / X
It has a significant impact on 2 or more wards
Non Key

DECISION IMPLEMENTATION DEADLINE

For the purposes of the scrutiny call in procedure this report is

Non-urgent / x
Urgent report

If urgent please give full reasons

BACKGROUND AND EXTERNAL CONSULTATION

As Middlesbrough Council works towards relative financial self-sufficiency, it is important that new opportunities are exploited in terms of growing the income base for the Council. The live Investment Prospectus provides a strong foundation for this but additional financial support would be useful in some specific instances where major opportunities slip through the net of mainstream support mechanisms.

In offering short-term financial incentives, by way of business rates relief, for select inward investment and incumbent expansion, the Council can realise a long-term financial benefit by ensuring that each business‘puts in more than it takes out’ in financial support; providing additional economic benefits such as meaningful employment opportunities and supporting the regeneration of the town’s older areas and heritage properties. For a relatively modest investment, the Council will aim to secure additional employment opportunities, new sources of business rates (providing a sustainable income), increased economic output, increased private sector investment in the townand reoccupation of older / heritage / vacant premises; which may provide a catalytic effect in key development areas.

As a mechanism to support the growth of Middlesbrough’s Business Rates (NNDR) base, the Economic Development service has been asked to utilise market intelligence to investigate an appropriate suite of criteria with which to apply aStrategicBusiness Rates Relief Scheme.

Targeted towards projects with development potential, new incumbents to Middlesbrough’s market, step-change developments and the reoccupation of vacant premises (where rates are not currently payable); the scheme aims to incentivise inward investment in key sectors/areas, as a way to generate new business rates and support the delivery of the objects of the Investment Prospectus.

In determining the criteria for strategic discretionary rate relief, Middlesbrough Council essentially has two implementation options. That is to (a) provide the support equitably; or, (b) provide the support strategically. By taking a strategic approach, the Council can deploy a package of support targeting businesses, growth sectors and geographic locations; which are particularly fragile, or offer the largest scope for growth (and long term yield to Middlesbrough Council).

Broadly, the scheme will incentivise two key areas of investment. The first will allow business rates flexibility for new occupants to Middlesbrough’s market, which bring with them significant inward investment. The second with recognise significant investment and growth for Middlesbrough’s incumbent businesses as they expand into larger premises. The proposed relief will not duplicate existing business rates relief packages such as hardship relief or transitional relief following the 2017 revaluation exercise. Instead, it allows Middlesbrough Council to invest its own resources, on a discretionary basis, in those investment propositions which have a higher propensity to make a significant contribution to employment and long term business rates yields.

Key Assumptions

The following assumptions have been made in refining the design of the Strategic Business Rates Relief Scheme. They are:

In the first instance, businesses and premises should sequentially discount all existing business rate relief mechanisms and, by exception, access this new discretionary support as a mechanism of last resort.

It is understood that any programme would commence as of 1 April 2018.

An indicative allowanceof £200,000 per annum has been provisionally identified (£100,000 of which is Middlesbrough Council, with the remainder government contribution) and it has been assumed that this could be extended indefinitely, if successfully piloted.

It is assumed that a view will be taken on the maximum level of support which is commensurate with the long term income and employment opportunities which each applicant can potentially bring. This will be reviewed on a case-by-case basis to maximise the impact of the finite resources. For example it may have a greater impact to support fewer, larger investments, rather than a larger number of smaller investments. For example, a major new retail premises can bring in up to £500,000 rates payable per annum; in addition to new employment opportunities. Similarly, 50,000 sqft of new office space can generate C. £250,000 in rates payable.

It is assumed that the relief will lie within the de-minimus threshold for state aid considerations, although this would need to be certified by each applicant.Assuming no other state aid support from elsewhere, this would place a nominal state aid cap of 200,000 euros, in any rolling three year period.

It is not anticipated that this support would be widely marketed or advertised, rather it would be used on a case by case basis where there is a strategic case for intervention. As a finite funding resource it should be managed discreetly.

Any support would be tapered over a three year period to allow for business growth and stabilisation. The support is designed so that the relief package can break-even (i.e. business rates paid over the period should exceed the amount of support awarded), as a minimum, throughout the lifetime of a tenancy.

New businesses entering Middlesbrough’s market will be prioritised, although support may be available for incumbent businesses with significant growth plans or expansions (for both business turnover and business rates yield).

The proposal outlined is live to ongoing refinement and efficacy reviews at six and 12 months following first implementation.

Eligibility

Any business applying for the ‘Strategic Business Rates Relief Scheme’ will be tested against the following criteria:

a)the business must be new to Middlesbrough (businesses relocating from another Middlesbrough (or Tees Valley) location will not be eligible unless they can demonstrate significant growth);

b)the business should apply for the relief prior to occupation or can be backdated to no longer than the last three months of trading/occupation in Middlesbrough (subject to turnaround of approvals and administration);

c)for simplicity, the same support will be applied for genuine inward investment versus internal company relocation / growth (applied only if the new rates payable bill is set to increase or is a new source of rates on a newly developed site / accommodation);

d)the business should sign a lease for a minimum of 5 years or, in exceptional circumstances take a lease which meets the minimum break-even duration – this allows Middlesbrough Council to recover an amount of rates equivalent to the support relief provided;

e)the business can be in any employment sector with weight given to the business’ contribution to the objects of the Investment Prospectus and Tees Valley Strategic Economic Plan (SEP);

f)all areas of Middlesbrough will be eligible with the exception of the TAMP Enterprise Zone (100% rates uplift is retained by TVCA so there is no benefit to Middlesbrough Council);

g)the property must have a rateable value of £15,001 or above, and should sequentially discount all existing business rate relief mechanisms;

h)weight will be given to businesses demonstrating meaningful employment opportunities to residents of Middlesbrough;

i)weight will be given to businesses demonstrating significant investment into the development / renovation of the property;

j)the business must occupy the premises – no relief will be granted for unoccupied properties;

k)betting shops, payday loan shops, pawn brokers, off licenses, take away restaurants and temporary lets are excluded (list is not exhaustive);

l)any previous business rates liability / or any Council debt account must be paid up-to-date and not in arrears;

m)access to multiple business rates relief schemes is not permitted ‘double-dipping’ and the applicant should be afforded the opportunity to select the most financially advantageous option for their business (assuming eligibility);

n)the relief is only available to businesses and not the landlord;

o)company checks will be carried out on all applicants;

p)incentives may be offered to incentivise start-ups and new inward investment;

q)in exceptional circumstances, when an application departs from the prescribed criteria, a case will be made to the relevant Executive Member(s); and,

r)the Council would reserve the right to reject any application, regardless of it meeting the eligibility criteria.

Suggested Support Available

Year 1 / Year 2 / Year 3 / Year 4 (onwards) / Break Even
Inward Investment Relief (state aid cap) / 75% / 50% / 25% / 0% / 2.4 Years

Applications

A Strategic Business Rates Relief application form must be completed and submitted along with:

a)a supporting business plan (with designs where appropriate); and,

b)a valid copy of the company’s lease/agreement

Approvals

When forthcoming, the Head of Financial Governance & Revenues and the Head of Development will assess applications and the applicant will be notified within one working week of the decision.In the absence of one of the above officers, their approved nominee will be delegated the decision making approvals.

Applicants will be notified in writing of any decision. A revised Business Rates bill will be issued, as required.

Scoring Methodology

Of course, multiple considerations should inform how the relief is approached. As a finite resource, there is a requirement to maximize new sources of business rates and consideration should be given to whether the relief should target many small opportunities, or fewer large opportunities.

As a basis on which to consider these issues a headline scoring matrix has been designed to aid appraisal of each given case. Each application will be weighed in relation to:

links to the Investment Prospectus / SEP objects;
probability of creating high-value employment opportunities;
the level of businesses own investment into the property;
the duration of the lease;
being new inward investment or incumbent growth;
whether new, or increased, business rates will be generated;
local employment benefits; and,
bringing empty property back into economic use.

The Base calculation to reflect the income potential / value of the site will be based on the ‘rates payable per square foot’. This will provide a comparable baseline on other properties and businesses, regardless of use and size.

To provide income potential, this can be multiplied by the net number of years beyond the break-even point (determined by type of support offered).

The scheme will be conscious of the displacement of businesses from within the Tees Valley, unless there is a significant risk that the applicant’s only viable alternative lies without the Tees Valley.

A draft application form has been developed at appendix A.

IMPACT ASSESSMENT (IA)

In consultation with Performance and Partnerships, this proposal is not judged to present any equality and diversity issues to any of the groups with protected characteristics.

OPTION APPRAISAL/RISK ASSESSMENT

Option A – Do Nothing. The Council could opt to utilize the existing business rates relief schemes as currently mandated. The companies / opportunities envisaged to make use of this scheme are unlikely to receive any mandated support and this may have a material bearing on their investment decisions.

Option B – Apply a discretionary Inward Investment Rates Relief programme, selectively directed at the most deserving and compelling cases where major investments may be possible. With appropriate protections and a minimum lease duration, the Council can demonstrate that it is open for business whilst achieving a break-even position, at worst. This may prove to be a valuable tool in securing new major investments within Middlesbrough.

FINANCIAL, LEGAL AND WARD IMPLICATIONS

Financial – A provisional annual allowance of C. £200k has been identified by corporate finance, for the delivery of the proposed scheme, from 1 April 2018. £100k of this amount would be funded by Middlesbrough Council, with the remainder reclaimed through Central Government.As the utilisation of this funding would be demand-led, it is understood that this would be the maximum available amount and would be held as a provision each year (therefore not presenting as an underspend in the event that the full amount was not required in any given year). The programme would be subject to review and refinement in the early stages with updates reported back, as appropriate.

The programme will be monitored and administered by Economic Development services in partnership with Strategic Finance and the Rates Collection team.

Aligned to this proposal are a suite of business rates relief tools which will be considered in parallel with this relief package. Businesses would have sequentially assessed against other relief tools prior to accessing this discretionary relief opportunity.

Legal – Each applicant would be required to certify that they have not exceeded the de minimus state aid threshold for financial support over the last three rolling years.

Ward – Although the programme will largely involve support mechanisms in the Central Ward, this proposal has the potential to provide benefits for businesses based across the whole of Middlesbrough.

RECOMMENDATIONS

It is recommended that Executive approves:

a)the implementation of a discretionary Inward Investment Rates Relief, commencing 1 April 2018, as set out in this report;

b)the establishment of an appropriate governance structure to determine applications, monitor impacts and refine criteria as appropriate; as set out in paras 11(q), 13 and 14.

REASONS

In some strategic instances, where there are strong, demonstrable benefits, the prospect of a ‘soft landing’ in terms of business rates relief may be enough to swing a major investment decision. Offering support in the early period of establishing or expanding gives the business an opportunity to stabilize in its early years and provide a business rates income stream, which may otherwise not have realised.

From 2020, it is understood that the Council is wholly reliant on the Business Rates yield in lieu of any formula grant. As such, any initiative which supports an increase in the business rates base has potentially significant financial benefits for the Council’s revenue position.

BACKGROUND PAPERS

No other papers were used in the development of this report.

CONTACT OFFICER: Sam Gilmore

TEL NO: 01642 729121

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Address:

Website:

APPENDIX A – DRAFT APPLICATION FORM

Strategic Business Rates Relief Scheme

August 2017

Application Form

Full name and address to which the rates bills and letters should be sent:

…………………………………………………………………………………………..

Telephone number: ………………...…………………………………….…………..

Email address: ………………………………………………………………………..

Full name of business and address of the property for which you are claiming relief:

……...…………..………………………………………………………………………

……………………..……………………………………………………………………

…………………………………………………………………………………………..

Do you own the above premises?Yes No 

If you are a tenant, please give the landlord’s name and address:

……...…………..………………………………………………………………………

……………………..……………………………………………………………………

…………………………………………………………………………………………..

If the business is a limited company please give its full registered address:

…………………………………………………………………………………………..

How long as your business been trading? ………………………………………...

What type of business is it?......

How many local jobs will your business create?......

What size is the property?......

What level of investment will you put into the property?......

Has your business benefited from State Aid over the last three years? (amounts and sources – you will be required to certify your state aid declaration) ………………………..

Is your business:

A new start-up

Locating to Middlesbrough

Please tick to confirm you have enclosed all the required information:

Completed and signed application form

Business Plan

Signed Copy of Lease/Agreement

Name (please print): …………………………………………………………………

Position: …………...………………………………………………………………….

Signed: ……………….………………………Date: ….…………………………….

Tel. No: …………….………………………………………………………………….

Please send this form to: Economic Growth Team, Middlesbrough Council, 1st Floor Civic Centre, Middlesbrough, TS1 9FY