Counties and districts set for business rate split discussion

1 Nov 16

County and district finance chiefs are to meet later this month to consider a potential change to the split in business rates revenue once the tax is fully localised to local government.

Speaking at the Institute for Fiscal Studies’ Local Government Finance and Devolution event on 26 October, Margaret Lee, executive director for finance at Essex County Council, said the Society of County Treasurers and the Society of District Council Treasurers would meet to discuss the potential split in rates.

Currently, districts retain 80% of the half of business rate growth that is devolved to local government, with counties retaining 20%.

Lee told PF that the Department for Communities and Local Government had encouraged the societies to consider the potential split once rates are fully devolved, which is set to be introduced in 2019-20.

“The two-tier areas have a meeting in November just to begin to talk about this,” she said.

“The 80-20 split, people think that we only get 20% of business rates as a county, we don’t. Because we get a top up, when I’ve calculated it locally, it actually means we end up as the county council with 75% of business rates, by the time you work the top up through,” she said.

This had given Essex certainty of funding, Lee stated, which was vital for the provision of statutory services. “But we will be looking at whether there are changes that could take place between that split.”

She added that counties had a major role in helping development, including building roads and providing schools, so considering the factors for a split was complex.

At the event, the IFS published research showing county and metropolitan councils have been the biggest losers from the switch away from grants to 50% local business rates retention, while some districts, expected to benefit from the change with funding increasing by 5% or more.

Asked by PF if this showed the level of the split needed to be reviewed, IFS senior research economist David Phillips said it depended on who the government wanted to give the incentive to.

“The reason that it has been chosen to give a bigger share to districts and then tariff them to give top up to counties who have a lower share of the rates, was that the feeling was that the strongest incentive should be with district, because they take the most important direct decisions around development, with the planning system.”

One possible option to alter the split would be to change the way that tariffs and top ups in the system are indexed over time, Phillips suggested. Currently, they are indexed to inflation, but if they were instead pegged to the overall business rate growth, there wouldn’t have been such a clear difference between districts and counties, he added.

 

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