MPs: Councils need grants as well as increased business rates

25 Apr 18

Councils should be allowed to keep cash from business rates increases as well as existing grants, a group of MPs has demanded.

The housing, communities and local government select committee estimated £6bn extra will be raised from business rates when councils will be able to keep 75% of the revenue they raise in 2020-21, up from the current 50% retention rate.

The government’s plan is this extra revenue will replace current funds from the revenue support, rural services delivery, Greater London Authority transport and public health grants.

But Clive Betts, Labour MP and chair of the committee, said: “Many councils across the country are in a difficult financial position, with huge pressures on a whole range of provisions from children’s services through to road repairs.

“After many years of financial constraints, the government now has an opportunity to go some way towards protecting vital services for taxpayers by ensuring that any extra revenue from the retention of business rates can be kept by councils on top of current funding.”

The committee conducted an inquiry into how councils had been affected by the longer than planned implementation of local government finance reforms, including the increased business rates retention and the ‘Fair Funding Review’.

From the inquiry - which ran from February to April 2016 - the committee found that uncertainty over the reforms was affecting councils’ financial planning strategy.

The committee, therefore, recommended that the government publish a timeline for the forthcoming consultations and key milestones to implementation of 75% retention and the outcome of the Fair Funding Review.

Local Government Association Chairman Lord Porter said: “Local government in England is facing an overall funding gap that will exceed £5bn by 2020.

“Introducing a fairer funding system and allowing local government to keep every penny of business rates collected to plug funding gaps is now the only way the government can ensure local authorities are able to protect the services communities rely on into the next decade and beyond.”

Paul Carter, chairman of the County Councils Network, said: “This report clearly illustrates that increased business rate retention will not be the saviour for local government alone.

“CCN has long argued that the ‘additional quantum’ from increased retention should be used to alleviate the significant demand-led pressures the sector faces rather than going on existing grants or new burdens.”

Carter added that setting out a timetable for the Fair Funding Review would provide councils with clarity and allow them to plan effectively.

Read an Institute for Fiscal studies blog for PF on the financial implications of 100% business rates retention.

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