4 May 2011
The local government grants system will need to be reformed if councils are given back control of local business rates, the Local Government Association says.
In a consultation paper on the government’s Local Government Resources Review, the LGA calls on ministers to look at the formula grant model as well as the business rate system.
The paper sets out difficulties that will need to be resolved before local government finance can be successfully reformed.
It says that the government must decide how, in a relocalised system, to manage any mismatches between business rate income and the council spending it needs to finance in different parts of the country.
The consultation paper also warns that there must be a ‘clear mechanism for ensuring that resources available to each council keep pace with the costs it incurs in providing services’.
It adds that ‘a process of resource distribution would still need to take place’ to ensure that all local authorities were adequately funded to meet the needs of their local population.
The government launched the resources review in March to examine the best way to allow councils to repatriate their business rates and the extent to which local authorities should rely on central government grants. It could pave the way for ‘free councils’, entirely independent of Whitehall purse strings.
Currently, councils across England collect £20bn of business rates, which is then redistributed by central government through grants.
