Business rate reform will usher in council finance shake up

16 Oct 15

The government’s plan to let councils in England keep 100% of business rates is set to herald a wide-ranging re-examination of Whitehall support to town halls, the local government minister has indicated.

Marcus Jones said the announcement by Chancellor George Osborne that the revenue from the tax on business properties would be fully devolved by the end of the decade represented a historic opportunity for authorities.

Under the plan, revenue support grant will be phased out completely, although the system of top ups and tariffs, which operates under the existing system of local retention of half of rate growth, will be extended. The current safety net, which protects authorities against big drops in revenue, will also remain in place, but the current levy on disproportionate gains will end.

It is also proposed that the uniform national business rate will be abolished – although only to give all authorities the power to cut rates. Cities that create combined authorities with directly elected city-wide mayors will be able to increase rates for specific infrastructure projects, up to a cap that is likely to be set at 2p on the rate.

In a speech to the District Council Network’s assembly on Wednesday, Jones said the reform would be fiscally neutral.

As well as seeing revenue support grant end, Jones said councils would be expected to take on additional responsibilities in return for the fiscal powers, with more details to be set out in the spending review on November 25.

“We have to work together to understand how you can meet that challenge, and we will look closely at opportunities for refocusing other central government grants,” Jones added.

“There will be practical issues to consider, such as how business rates are divided between districts and counties – I can assure you that we will work with you to make sure that this new system is fit for purpose.”

Other grants paid to local authorities include the new homes bonus, government funding to freeze council tax, and money for the Troubled Families programme.

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