Millions of pounds in unpaid business rates are having to be written off by cash-strapped councils due to a loophole in licensing and business laws being exploited, the Local Government Association said today.
The LGA said some councils individually face business rate debts of nearly £1.5 million, while others have been forced to write off unrecoverable sums of around £300,000 owed by licensed premises including pubs, clubs and off-licences.
It is calling for new powers to allow town halls to suspend the licences of businesses which wilfully or persistently fail to pay their business rates. Licences would only be reinstated when the debt has begun to be paid off.
Under current licensing laws, councils cannot refuse or suspend a premises licence for outstanding business rate debts.
The problem is being exacerbated by the legal practice of companies going bankrupt, only for a second so-called “phoenix company” to start up overnight with the same directors – but without any obligation to pay their old company’s debts.
The LGA, which represents more than 370 councils in England and Wales, is also calling for an urgent change in the law to stop debts being written off so easily and these phoenix companies created.
Council leaders say new licensing powers would also help councils manage business rates more effectively when this is devolved to local government by 2020.
Councils, who are already struggling to protect local services following budget reductions, are faced with millions of pounds of unrecoverable business rate debts run up by licensed premises, with some being forced to write off large sums. For example:
- Newcastle City Council is facing £1.47 million in business rate debts accrued by licensed premises, accumulated over several years
- West Suffolk (Forest Heath District and St Edmundsbury councils) has had to write off almost £300,000 in business rates owed by licensed premises. One nightclub alone owes £97,000
- South Norfolk Council is owed about £190,000 in business rates accrued by licensed premises, of which £115,000 is attributed to one business
Cllr Simon Blackburn, the LGA’s Licensing spokesman, said:
“Councils know that it is a tough business environment out there and are willing to work with businesses struggling to pay their way, but some businesses, including council-licensed pubs, clubs and off-licences are deliberately avoiding paying their rates, knowing they can continue to operate without fear of being stripped of their licence.
“Councils are already struggling to fund vital services amid funding pressures and business rates debt means they are being deprived of large sums of money to be spent on key services, such as roads, schools and caring for the elderly, as well as supporting local business economies.
“It must be particularly galling for law-abiding businesses who pay their rates on time but see competitors go bankrupt owing hundreds of thousands of pounds, only to legally reopen under the same directors scot-free.
“This is clearly unacceptable but councils are powerless to stop vast sums of unrecoverable money from building up or take action if a business closes and reopens under a different name.
“The Government should close the phoenix company loophole by making it a legal requirement for directors of bankrupt companies who start up a new business to pay their old company’s business rate debts.
“Giving council powers to refuse or suspend a premises licence at an earlier stage of the debt recovery process would be a simple way to tackle this problem and protect local services.”