Business rates consultation a "historic opportunity", says Clark

6 Jul 16

Locals councils have a “historic opportunity” to shape their financial futures by contributing to a funding review as part of business rates localisation, the communities secretary Greg Clark said yesterday.

Clark was speaking at the annual LGA conference in Bournemouth where he set out the details of a consultation document outlining the government’s plans to fully devolve business rates revenue by 2020.

He indicated further areas where responsibility for funding services would be devolved in order to make the plan initially fiscally neutral. The areas include public health, early years, youth justice and the attendance allowance paid to help meet care costs.

The consultation document also refers to the Revenue Support Grant as being among the areas devolved to local authorities, as opposed to being abolished, although it will stop being paid to local authorities as part of the reform.

The Fair Funding Review will inform the setting of the baseline funding level in 2020, which will then be met by either topping up or top-slicing each local authority's business rate income. Authorities will then retain all local revenue growth.

Councils and others are invited to submit views on the basis for the review, including the approach and indicators to be used. Ministers then plan to consult on the principles for the needs assessment in the autumn, with a final consultation on the formulae in the summer of 2018.

Under full localisation, elements of the current 50% retention system will be retained, according to the consultation, such as protection for significant income reductions through shocks or significant local employers closing. In addition, the New Burdens Doctrine, which ensures that departments assess and adequately fund the impact on councils of any new policies, will remain in place.

Clark said the government had heeded long-standing calls for greater powers for local government to retain local taxes.

“Today, we set out the first steps toward making that ambition a reality, transforming the relationship between Whitehall and town halls and putting local government at the heart of delivering strong economic growth for their communities,” he said. "These next few weeks offer councils an historic opportunity to play their part in these radical reforms and to shape their financial futures for decades to come."

The consultation will close on 26 September.

CIPFA’s head of local government Sean Nolan said the institute fully supported the greater financial autonomy for councils that comes with 100% business rates retention.

“However, the long term opportunities do come with significant short term challenges. It’s important therefore that decisions are made inclusively, collaboratively and across the whole of the sector,” he stated.

“Turning to the public consultation, we welcome the government’s openness to tailoring the new system to local needs. Councils that currently have high net reliance on central government support must not be left to sink or swim. But it is crucial to find the right balance between needs, resources, incentives, and risks. The government must also be clear about which new responsibilities the sector will become responsible for as part of the process.”

Nick Forbes, the senior vice chair of the Local Government Association, said the consultation was a key step on the road toward further retention of business rates.

“It is important for the new system to be implemented in a way which balances rewarding councils for growing their local economies but avoids areas less able to generate business rates income suffering as a result,” he added.

Decisions over which grants and responsibilities councils will have to pay for from extra business rates income are also crucial. This should concentrate on areas that can boost economic growth, and councils do not want responsibility for administering the Attendance Allowance. This would create significant cost pressures for councils whose budgets are already under significant strain, Forbes added.

“That is because cost pressures and applications for demand-led services like Attendance Allowance can go up very quickly whereas it can take much longer for local areas to generate business rates income.”

Additional revenue through business rates should be used to meet existing gaps in funding, he added, while all authorities should have the power to increase the levy, not just those with metro mayors as currently planned.

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