Business rates retention to take over funding of three existing grants
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Councils will be handed funding responsibility for services currently paid for through three separate central government grants under 100% business rates retention, it has been announced.
Whitehall is still considering which other grant-funded services should also be financed through retained rates.
Services covered by revenue support grant, rural services grant and the public health grant will be funded through retention of business rates in future, according to the Department of Communities and Local Government in its most recent statement on the new business rates regime.
But the three grants only equate to around half the additional retained business rates local government can expect to receive. Whitehall is therefore still considering other grant funding that could be paid for using devolved rates. Among those are the Improved Better Care Fund and grant funding for early years.
In good news for local government DCLG said devolution of attendance allowance funding is no longer being considered as part of the business rates reforms, the department confirmed.
Claire Kober, chair of the Local Government Association’s resources board, said: “With local government facing an overall £5.8bn funding gap by 2020, we remain clear that councils must first and foremost be able to use extra business rates income to plug this growing gap before any extra responsibilities are considered.
“Local authorities should then be able to invest the rest into services which support local economies and drive local growth, such as closing skills gaps and improving public transport.”
Kober welcomed the announcement on attendance allowance, devolution of which the LGA vigorously opposed. She said: “It would have accounted for the majority of the extra business rates income kept by local government, leaving little left to fund the transfer of other services, and created a significant cost pressure for councils.”
However, worries remain among some health organisations about the devolution of the public health grant.
The Kings Fund, a health policy think tank, said: “One of the obvious fears over a switch to business rates is that public health funding (and therefore services, population health outcomes and inequalities in health) could become increasingly inequitable, as areas with stronger business communities can raise higher levels of business rates, and these areas also tend to be the ones with better health in general.”
A decision on the remaining grants and responsibilities to be funded from retained business rates will be made by Spring 2018 for potential implementation in April 2019, the government said.
Elsewhere in its response, the government said it was minded to ignore the opposition of 74% of respondents to funding devolution deals through retained business rates.
It said: “The government remains open to the possibility that some grants devolved through devolution deals could be funded from retained business rates in future.”
It said it will test the approach by devolving transport grants to the early implementation pilots in Greater Manchester, West of England and Cornwall.
The government has also proposed a partial reset of business rates baseline allocations every five years, with options explored in a separate, new consultation.
At the point of a reset, business rates baselines will be recalculated, allowing a proportion of growth achieved by an authority to be retained. The other portion of growth will go back into the pot to be redistributed as required.
“In other words, whilst at a reset, authorities will be allowed to retain a proportion of growth achieved in the previous period, they will not be expected to continue to bear a proportion of any loss,” the government said.
Each reset would be accompanied by an update of the relative needs and resources formula every five years.
“Local government has been clear that they feel the balance of needs between authorities is changing quickly, and that there should be a reassessment of needs relatively frequently to respond to these changes,” the government said.
A new round of pilots will also be created to test the system from April 2018, with all councils invited to apply for inclusion.
Kobe said there are “clear signs the government is listening to the views of councils in determining how the new business rates system should work.
“It is important there will continue to be opportunity for further joint working between councils and government before any fundamental decisions are made.”
But a briefing from the Local Government Information Unit released this week warned that the complexity of designing the new system was likely to prevent early implementation.
It said: “While DCLG is sensibly trying to keep to a timetable to allow 100% business rates retention to be implemented in either 2019-20 or 2020-21, this one-year margin is looking in increasing danger of being used up.
“All the signs seem to be that implementation will, in the end, occur in the 2020-21 settlement, or at least start then – it is quite possible that some aspects could be phased in over a few years.”
The LGIU said that greater engagement would be needed from central government departments, for example on changes to the skills employment system being sought by local government “if they are to be implemented by 2020-21, or perhaps at all”.
