Council officials have had to write off £1.4 million in debt from unpaid business rates in Northampton over the past three years, due to a legal loophole.
A Freedom of Information request has revealed Northampton Borough Council is having to write off around half a million pounds a year in debt from licensed premises such as shops, pubs and off-licences.
In 2013/14 the authority had to foot the bill for £659,126 in unpaid rates; in 2014/15 there was £430,861 left outstanding and in the 2015/16 year there was £311,576.
The Local Government Association, which represents around 370 councils across England says the figures are “galling” for firms who pay up on time.
Under current licensing laws, councils cannot refuse or suspend a premises licence for having outstanding business rate debts.
The problem is being “exacerbated,” the LGA says, 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.
Now the LGA is calling for new laws to stop debts being written off so easily.
The LGA’s licensing spokesman, Simon Blackburn, said: “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.”
Mr Blackburn added that 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.
However the figures will bolster many long-held beliefs rates in Northampton are too high.
In 2015, the director of Partnerships for Better Business (DFBB), which runs Northampton’s Business Improvement District, Ian Ferguson, said business rates continued to be a big issue for shopping centre traders, as they were often stung with far higher bills than those on the high street.
He said: “Shopping centres across the country have got the highest proportion of vacancies. About 15 per cent of all units in shopping centres are empty. But the current business rates are based on rateable values drawn up in 2008, before the recession hit. “It means the rate bills people are paying are pretty steep in today’s economy, compared to a time of boom. They can be anything up to 40 per cent on your turnover – that’s a huge weight around the necks of retailers generally.”