Business rates ‘fairness’ criteria to be decided by May

24 Feb 12

Crucial details of the new local business rates system will be published in May, it has emerged.

Simon Ridley, director of local government finance at the Department for Communities and Local Government, told a Westminster Social Policy Forum conference yesterday that the department was working with the sector to flesh out the proposals.

The outstanding areas causing concern are the systems to limit excessive gains and losses in the future: the planned levy on ‘disproportionate’ rate income and the eligibility criteria for councils needing extra funds. The levy is intended to fund a safety net of extra money for councils whose baseline funding falls by a set amount in a single year. As neither level has been confirmed by the DCLG, councils fear it will be impossible to judge whether the system will be fair or not.

Asked when this information would be published, Ridley said: ‘[By] May time there will be detailed information about how the scheme works,’ adding that the department was ‘talking a lot’ with the Local Government Association.

He told the conference that business rate localisation was ‘operating’ across three of the government’s policy areas – deficit reduction, localism and encouraging local growth.

‘Business rates is around £25bn now, and how we can use that to encourage these local growth objectives is key,’ he said.

He admitted that the scheme would have ‘complexities’. Asked by delegates about the workings of localisation, he added: ‘In the detail, local government finance is complex. This scheme will have complexities in it, I’m not going to pretend that it doesn’t. That’s a necessary by-product of dealing with local authorities that are different.’

The conference also heard from Edward Twiddy, deputy director of local government and regions at the Treasury. He dismissed suggestions that the Whitehall could use the cash from business rates to pay down the deficit.

Ministers do not want local government spending to exceed the limits set out in the 2010 Comprehensive Spending Review. As a consequence, councils will share only a portion of total business rates collected. This has prompted speculation that the surplus would be used to pay off government debt.

But Twiddy said that the legal provision that rates are a local tax, to be spent locally, remains in place.

‘The government had the option to break that link, and made a positive choice not to. The money that is [raised] from business rates is bound to public service provision,’ he told the conference.

Speaking ahead of Twiddy, Simon Parker, director of the New Local Government Network, warned that keeping to Spending Review totals was a ‘mistake’, as it meant that councils would not feel the full benefits of localisation.

The plans to give councils control of their business rates will take effect from April 2013. Each authority will be given a ‘fair starting point’ based on their 2012/13 formula grant funding, with a system of top-ups and tariffs put in place to distribute the rates. The main details of the plans are contained in the Local Government Finance Bill, which is at third reading stage in the House of Commons.

Did you enjoy this article?