Business Rates for Onshore Renewables – the argument for local retention

Onshore wind farms in Scotland could soon be paying over £200 million each year in Business Rates and around £78 million each year in Wales. This is more than double the amount of money that will be paid locally in Community Benefit Funding. While most people will assume that these taxes are retained by the local authority that collects them, they are actually pooled nationally and then redistributed across the country based on population (Wales) or weighted population (Scotland).

Case for Change

There is a strong argument for retaining the Business Rates of onshore renewables within the host local authority.

The argument for redistributing Business Rates for most industries is based on two points:

Economic activity is not equally distributed geographically, as urban areas are clusters of economic activity. This is because they are larger centres of demand for goods and services and are more likely to benefit from access to a larger pool of workers and knowledge. Many people travel from surrounding towns and rural areas into cities for work. If money from business rates were kept only by the council where a business is physically located (often a city), it wouldn’t reflect the fact that workers live elsewhere and return to their home communities.
Business Rates can be volatile and local authorities could face additional budget uncertainty if revaluations result in significant decreases in rateable value locally; and

These points do not apply to onshore renewables.

The location of onshore renewables depends on where the natural resources are and where there is space to host them; typically, these are in rural areas, rather than urban areas. Therefore, rather than distributing away from urban to rural and suburban communities, the current set-up is doing the exact opposite of what it intended.
The rateable value of onshore renewables is dependent on the anticipated value generated by the project. The vast majority of new onshore renewable energy generation is developed under the Contracts for Difference scheme, which ensures a stable, index-linked revenue stream for these projects over a period of 20 years. The Business Rates for onshore renewables should therefore, at least in theory, be more stable and predictable.

The communities hosting these projects have a stake in the natural capital and physical infrastructure that make them possible. Once generating green energy, this flows across the national grid and benefits households and businesses across the country. Given that the benefits of clean energy are widely distributed across the country, there is a strong argument for retaining the revenue from business rates locally to account for the use of local infrastructure and resources.

Local Outcomes and Agency

Retaining Business Rates in the Local Area would have better outcomes for key local authorities that are advocating for change

The development of onshore renewable energy is often focused in areas that have the required Natural Capital. In both Wales and Scotland, councils with a high level of onshore renewable activity have put forward proposals to try and retain a greater share of the value of these projects. Highland Council in Scotland have proposed an additional payment of £7,500 per MW per year as part of its Social Value Charter and Powys Council in Wales has proposed retaining 5% of profits. Both of these proposals have the potential to reduce the financial viability of projects in these areas.

The retention of 100% of Business Rates would result in more money being retained locally than either of those proposals, without any additional risk to project viability. The additional funding from a single typical turbine in Wales, for example, could provide enough money to cover the full cost of a full-time teacher in the host local authority.

England is already doing this

This is not a new idea. England introduced the retention of Business Rates locally for onshore renewables in 2012. This was shortly followed by the de facto onshore wind ban in England, and so the local benefits of this change have been muted. However, as onshore wind picks up again in England, this disparity is likely to become more pronounced.

Next Steps

Both the Scottish and Welsh elections are due to be held in the coming months. The administration of Business Rates is an entirely devolved matter, and therefore we would hope to see this topic discussed.