Academy school policy to cost hundreds of millions in lost business rates
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Local authorities stand to lose hundreds of millions in business rates revenue as a result of the government’s decision to force all schools to become academies.
In March’s Budget announcement, chancellor George Osborne announced that schools currently run by councils will be required to become academies by 2022 or face forced conversion.
Unlike local education authority schools, academies receive 80% rates relief, leaving local government facing a potential revenue black hole which some experts have estimated at £750m a year.
One source, who did not wish to be named, said: “This will lead to another large shrinkage in the overall business rates pool and the sector needs to factor that into its conversations with government when it is calculating what the rates pool will be after 2020.”
Local education authorities currently pay for business rates on their schools out of the dedicated schools grant, which is currently the largest central government grant to councils.
Richard Harbord, consultant and former chief executive of Boston Borough Council, said: “The announcement means that districts as billing authorities will have to give 80% mandatory relief to academies.
“At present the Government Funding Agency pays the other 20% for them. So both Counties and districts lose their share of the business rate.
“In the budget announcing 100% academies there was no mention of the effect this would have on business rates. Did the Treasury take into account the business rates position in making the decision?”
The news comes as a number of NHS trusts are bidding for charitable relief from business rates which the Local Government Association has estimated could cost the sector another £750m.
A spokesman for CIPFA said it was important for local authorities to understand the full implications of rates retention.
“Rate payers, whoever they may be, will at times act to reduce their tax liability, however, with 100% business rates retention this will have an increased impact on local government’s ability to fund services.
“The whole local authority funding system must be sustainable and not consistently eroded by other cross-cutting Government policies. CIPFA is already in discussion with DCLG regarding the broader implications of rate retention.”
A spokesman for the Department for Communities and Local Government said: “We are allowing councils to retain 100% of business rates by end of the parliament. This is giving town halls greater flexibility to take control of their finances while protecting public services.
“We are taking into account recent changes to business rates when forecasting future income as part of our reforms.
“Any loss to income before 2020 to local government because of academies is being reviewed under the new burdens doctrine.”
Photo (cropped): Rob Enslin, Flickr.
