Councils clash over £1bn business rate windfall

1 Feb 07
Central government claims that there is no more money to fund adult social care 'ring hollow' as it is withholding an extra £1bn from the 2007/08 local government grant, councils have said.

02 February 2007

Central government claims that there is no more money to fund adult social care 'ring hollow' as it is withholding an extra £1bn from the 2007/08 local government grant, councils have said.

Local authorities' formula revenue grant is made up of redistributed business rates and a revenue support grant from the Department for Communities and Local Government. Last year the government planned that the 2007/08 grant of £21.6bn would be made up of £17.5bn from business rates and £4.1bn from the RSG.

But in December local government minister Phil Woolas published a new, final breakdown in which the contribution from business rates was £1bn higher. The extra rate revenue was balanced out by a £1bn decrease in the RSG contribution to £3.1bn.

The 'missing £1bn' was identified by the Special Interest Group of Municipal Authorities, which wants a debate over whether such a large withholding of planned funds is appropriate, given the pressures on adult social care and other budgets.

'Every time we talk about cost pressures, the government clamps down on debate by saying there's no more money beyond what has been set aside,' Paul Woods, city treasurer at Newcastle City Council told Public Finance. 'That rings a bit hollow in light of this additional £1bn.'

But Mike Heiser, senior policy consultant at the Local Government Association, said the LGA would not back Sigoma's call. 'Business rate revenue was higher than expected because inflation was high,' he told PF. 'But next year it could come down again, so this £1bn isn't a windfall. It's appropriate the Treasury uses any surplus this year to offset that.'

The LGA is concerned that passing the extra revenue to councils could introduce a dangerous precedent, as councils could then be asked to bear cuts if revenues were ever lower than expected in future.

PFfeb2007

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