Local government minister Bob Neill has defended Whitehall plans to support councils that are hit by falling business rates once the regime is localised.
Neill was speaking to Public Finance magazine after the Department for Communities and Local Government published a technical consultation on Business Rates Retention.Following the publication of the consultation on July 17, the Local Government Association warned that the decision by the government to set aside £250m for the safety net presented ‘some significant risks for local authorities’.
Cash from the safety net will be paid to authorities at the end of any financial year if business rates income falls by between 7.5% and 10% from their baseline. The baseline will be established from next April when retention starts.
LGA chair Sir Merrick Cockell said that the funding illustrated ‘[the] Treasury’s instinct toward excessive self-preservation’.
The LGA warned that local authorities would not know, at the time they set their budgets, whether they will be able to access any of this safety net money. As a result town halls have to budget as if the money does not exist, which the LGA warned could have an impact on public service delivery.
Neill said that the concerns were ‘an error on the LGA’s part’, adding that it would not be possible to alter the system to allow for in-year payments.
‘It’s important and there needs to be proper accounting procedures for this money. It will all go back to local government [eventually]. It doesn’t seem to me to cause a problem.’
However, the minister urged local authorities to highlight any concerns over ‘cash flow problems’ in the consultation, which will run until September 24.
‘If there are technical issues that are genuinely there, that’s the point of the consultation. We have been working with the sector drawing up these proposals.’
Councils would also be able to flag up any in year concerns once the system was up and running, he added. ‘We will want to talk to them. I firmly believe that we will have that discussion.’
Neill, who described himself as ‘a great believer in incrementalism’, wouldn’t rule out an increase in the number of tax increment finance schemes funded by business rates growth.
The consultation sets out that a total of £120m will be available for so-called Tif 2 projects in Newcastle, Nottingham and Sheffield. The business rates growth in these schemes, which will repay borrowing costs, will be exempt from equalisation of business rates when the framework for retention is reset.
The total amount of non-domestic rates income given to authorities, currently set at 50%, and the baseline funding for each authority will be re-examined every seven years. Similar investment schemes, known as Tif 1, will be reevaluated at the reset period, which could see some business rates growth removed from a council’s baseline funding.
These Tif 2 schemes, now renamed as New Development Deals, will initially concentrate on ‘big core city areas’, Neill told PF. However, he added that ‘the system is capable, for the future, in being expanded’, depending on economic conditions.
