Town hall chiefs worry over ‘devil in the detail’ of business rates retention scheme
Senior local government figures have expressed concern about Government plans to allow councils to retain 100 per cent of business rates collected in their area, warning that the idea has not been properly thought through and could hamper rather than boost economic growth.
Central Government rate support grant will be phased out by 2020 and councils will be able to retain all of the business rate income collected in their area. The aim, according to Ministers, is to encourage town halls to concentrate on economic development and inward investment in order to generate funds and create jobs.
Councils will also be able to impose a two per cent business rates infrastructure levy, generating about £35 million a year in Birmingham’s case.
The House of Commons Communities and Local Government Committee heard from council leaders and officials “the devil is in the detail” and that far too many questions about how business rates retention will work remain unanswered.
Issues include the arrangements for levelling out and the top-up payments the Government intends should be given to poorer areas unable to match the strong economic growth in city centres such as Birmingham, Manchester and Leeds.
There are concerns about the number of appeals from businesses over rates bills, the length of time taken to consider the appeals and uncertainty about the outcomes.
Councils have also warned that, unlike rate support grant which is a fixed annual payment, income from business rates relies solely on the strength of the local economy and varies on an almost monthly basis as new firms are created and some existing businesses collapse.
Government calculations about the amount of money that can be raised through business rates in the future have been questioned with councils pointing out that more and more businesses are being run ‘digitally’ from small offices or even from home, severely reducing the potential for business rate income.
There are also uncertainties about the extent to which ‘pooling arrangements’ will occur, where councils in combined authority areas, like the West Midlands, place business rate income in single pot to be spent on new infrastructure projects agreed by council leaders.
The committee heard the proposed business rates retention scheme was unlikely to meet local authorities’ funding requirements, especially in the short term, and there was a significant issue in relation to appeals.
There was limited opportunity for business growth in many areas and regional variations in terms of capacity to drive growth and thereby increase rates revenue would need continuing government support.
Paul Dransfield, strategic director, major programmes, at Birmingham city council, said Birmingham supported devolution and wanted to be involved in the design of the scheme.
Mr Dransfield said the resource base of local government had been declining overall and local authorities needed to be “more intelligent” about understanding the impact population changes would have on spending and revenue generation.
Evidence suggested promoting growth had an impact of demand for services and authorities should work together better to align business and social needs, he said. Growth took time, and it took further time to align growth with the social impact. Local government should undertake more strategic, collaborative planning.
Mr Dransfield said the impact of appeals was currently shared across the country through the national business rates scheme. The most vulnerable councils should be protected when appeals became funded by business rates locally.
Essex county council leader David Finch told MPs it was essential the Government did not implement a top-down approach and devolved functions should be sufficiently and properly funded.
Any calculation on local resources should take into account the issue of need or social care, he said, adding local authorities should have the ability to shape business rates to reflect local needs, and efforts to foster greater local growth should not be hamstrung by restrictions on resources.
Dennis Napier, assistant head of financial resources at Sunderland City Council, said the idea of a 100 per cent business retention scheme was of major concern because the top-up mechanism was unclear.
There had to be fairness in the distribution of business rates and needs to spend had to be taken into account. Those with a low tax base, like Sunderland, would suffer disproportionately.
Andy Hall, business rates assurance manager at Boston Borough Council, said the scheme sounded more attractive than it was. Business rates growth was being eradicated by appeals. There was insufficient detail to know whether the scheme would be good for Boston or not.
Cllr Tim Mitchell, cabinet member for finance and corporate services at Westminster City Council, said the “devil would be in the detail” in relation to the retention of 100 per cent of business rates growth. He thought the appeals system made sustainability very difficult.
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