Essex leader warns on business rate expectations

8 Mar 16

Government proposals to fully devolve business rates risk creating a “widening chasm” between local service demands and council revenues to pay for them, a senior council leader has warned.

In an appearance before the communities and local government select committee yesterday, David Finch, leader of Essex County Council, urged ministers to take a ‘holistic view’ of business rate reform, including plans for localisation by 2020.

He said that ministers must develop the plans carefully to achieve the right balance between promoting growth, encouraging business and securing adequate funding for public services.

Under the plans, £26bn of business rates revenue will be devolved, while grants from Whitehall to support local government will end, meaning councils will be fully funded from locally raised revenues. There will also be a new assessment of levels of need as part of the reforms.

Finch said he strongly supported the principle of localisation of business rates, as money raised in local areas should be spent there.

However, there was a real risk that demand for services such as adult social care would outstrip growth in rates in the future, he added.

“We know that business rate retention simply offsets grant reductions, while the money we need to spend on services is growing and growing as our population grows older.

“I worry that if the government expects business rates to fully fund services, local areas will face a widening chasm between what councils have to spend and the needs of their residents. Because the truth is that demographic growth will likely outstrip growth in business rates.”

Recent changes to the allocation of Revenue Support Grant – which were announced at the local government settlement and required communities secretary Greg Clark to introduce a transitional grant – highlighted why councils needed to be consulted, Finch added.

He set out key areas that should be part of the discussion on how localisation will work. These includes full control of the rate multiplier for all authorities, and not just the power to cut rates as has been set out by chancellor George Osborne to date. This would allow local government to respond to business needs and revenue requirements.

He also called for consideration of how businesses with no or low property values make a fair contribution to property taxes, and for councils to be given full control of small business rate relief.

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