NAO investigates business rates retention plan
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The National Audit Office has launched a value-for-money probe into government plans to design and implement 100% business rates retention for local authorities.
Former chancellor George Osborne announced the proposal — planned to be introduced by the end of this Parliament — at the Conservative Party conference in October 2015.
And now, after prompting from senior MPs, the NAO is assessing progress by interviewing experts and stakeholders, including officials from the Department for Communities and Local Government (DCLG).
Aileen Murphy, director for DCLG and local government value for money at the National Audit Office, told Room151: “We have recently produced reports on the sustainability of local government finance and this investigation is firmly within that area.
“This is the biggest change to local authority finance for some time so it makes sense to look at it.
“The chairs of the parliamentary communities and local government committee, and public accounts committee, are keen we don’t wait to the end before reporting, so that Parliament is able to scrutinise the process.”
She said that the report, due to be published at the end of March, will not comment on the design of the new rates retention regime, but will instead focus on the planning that has so far taken place.
The NAO is currently interviewing experts in local government finance, including treasurers’ societies, individual local authorities, relevant professional bodies, officials with working on the current reforms and those with experience of the 50% retention scheme introduced in 2013.
Last week, Stuart Hoggan, deputy director of local government finance reform & settlement at DCLG, said the government is committed to its current timetable for the reforms.
He said legislation will be introduced to provide the framework for the reforms early this year, with technical consultation on the specific workings of the scheme continuing during 2017.
Hoggan said that the government proposes to have fixed “reset” periods to protect local authorities with high needs and low income, although the frequency and extent of the resets are still to be decided.
He said: “The new system will need to continue to help insulate local authorities against significant shocks: a safety net arrangement will still be required.”
The needs and distribution working group helping shape the new system was this week presented with a paper proposing thresholds for need set at a service level.
This would abolish the current four-block system which calculates needs allocation at local authority tier level.
The paper, produced by Geoff Winterbottom, principal research officer at the Special Interest Group of Municipal Authorities (SIGOMA), said current arrangements, despite some advantages, obscure the connection between the services an authority provides and the funding it receives.
Winterbottom told Room151: “What happens currently is that the scores of similar ‘tiers’ are aggregated and an authority receives an allocation based on its summarised tier scores.
“This make it very difficult to track allocations back to the individual service areas – it becomes obscured in the mix.
“My proposal is to remove the intermediate tier aggregation and set funding at service level. Thus an authority would be able to calculate roughly how much of its funding has derived from its needs for, say, children’s services, see how this compares to other councils and evaluate it against spend.”
Paul Woods, chief finance officer at the North East Combined Authority, who also sits on the working group, said: “That there needs to be a change is generally accepted, but there isn’t an obvious answer.
“We have to work through various options and come with something simpler but fair. To some extent to be fair it needs to be a bit complex. It is a difficult balancing act to strike.”
