The Government must address a ‘host of issues’, including problems with appeals and plans to withdraw Revenue Support Grant (RSG), before bringing in 100% business rates retention for councils, committee urges.

The Communities and Local Government (CLG) Committee has published a report urging Whitehall to address problems with the chancellor’s plans to replace central government grants with 100% rention of locally raised business rates by 2020.

The Committee found the impact of appeals by ratepayers is ‘dwarfing’ increases in business rates revenue. This, they argue, is affecting growth incentives, with local authorities setting aside substantial sums of money in case an appeal is successful.

The committee’s report criticised the Government for ‘repeatedly’ ignoring evidence of what they describe as the ‘massive problem’ with appeals, and recommended they should be dealt with outside the business rates retention system.

The report also warned that without RSG it will be difficult to incentivise growth and redistribute business rates to support councils with particular needs. To address this, the committee recommends local authorities be handed the power to increase their business rates multiplier and vary it according to business type.

Committee chair Clive Betts said: ‘Our interim report has highlighted a host of issues regarding the reformed business rates system and we are calling on the Government to take these on board and work closely with local government to find the necessary solutions.’

Responding to the report, Cllr Claire Kober, resources portfolio holder at the Local Government Association (LGA), said: ‘Almost 900,000 businesses have challenged their business rates bill since 2010 and the committee is right to highlight the need to tackle this growing problem before any new system is introduced.

‘Councils have been forced to divert at least £1.75bn from stretched local services in the past three years to cover the risk of backdated appeals – of which they have to cover half the cost at present.

‘Under localised business rates, local government could be liable for 100 per cent of the cost of successful appeals. Improvements to the appeals system are essential to avoid the need for them to divert significant sums of money that could otherwise be invested into local services.’

The Government, Cllr Kober said, wants councils to use the increased business rates income to fund new responsibilities that are yet to be decided. It is crucial, the councillor warned, to ensure the extra cash matches the responsibilites.

‘No matter which new services councils agree to take on, it is absolutely crucial that the amount of extra business rates income kept by councils matches the cost of them now and in the future,’ she said.

Alexandra Jones, chief executive of Centre for Cities, also responded to the report’s analysis of the Government’s plans to withdraw RSG.

‘The other big question raised by the Committee is the trade-off between offering places incentives to boost their tax base and retaining some redistribution,’ Ms Jones said.

‘Our analysis shows that the best way to grow the overall local government funding pot is if Government prioritises giving places sharp incentives to grow, rewarding them for taking difficult political decisions by allowing them to retain more of the tax proceeds from doing so.

‘That would encourage places to grow their economies, while also increasing the money for much-needed redistribution to places with weaker economies.’