Simone Donaghy on business rate pooling

Room151 sits down with Simone Donaghy, director of finance and procurement at Nuneaton and Bedworth Borough Council to discuss business rate pooling.

Room151: Who are you pooling business rates with?

Simone Donaghy: We are currently in a business pooling arrangement with all of the councils in Coventry and Warwickshire. These councils are all part of the local enterprise partnership covering the area. We began investigating pooling at an early stage following the release of a government consultation on reforming business rates.

R151: What were the reasons for getting involved?

SD: All the district councils faced quite high levy rates because of their predicted business rate growth. This meant that they would have faced repaying about 50% of their growth from rates back to central government. However, because Warwickshire County Council only receives about 10% of the growth from business rates, it would be in line for a top-up payment from government. Pooling meant reducing the payments districts faced to about 16% of growth. A pool only really works if you have high levy, lower tier authorities combining with top-up counties.

R151: What are the figures involved?

SD: We are talking about roughly £1.5 million in retained business rates growth before the levy is taken into consideration. The pooling means we are collectively about £279,000 better off than if we had all gone it alone.

R151: How is business rates growth distributed among the councils?

SD: We drew up a memorandum of understanding which sees 25% of the growth going to the council where it was generated. Then another 25% goes to a safety net fund. Pooled authorities do not qualify for safety net funding from central government, unlike councils going it alone. This means that we have created our own provision. The other 50% is split between the councils in proportion to their spending baseline.

R151: Have you had to dip into the safety net funding?

SD: Yes – two councils have had difficult years and the safety net is now in deficit. However, there are unique circumstances that mean that this should not occur in future years. There are a lot of appeals in the system due to a revaluation in 2010. This number is expected to drop as the Valuation Office Agency gets round to deciding about them, and we are not expecting a large number of new appeals.

R151: Would you consider using the receipts from business rate growth for pooled funding projects?

SD: At the moment, for political reasons, the cash goes back to the authorities. We wanted to see how the first year went. However, in our governance arrangements there is scope to keep the pool and use it for wider funding. One of the possibilities that has been suggested is to provide funding for a “clearing house” that gives advice to businesses wanting to locate in the area. That was set up as part of the Coventry and Warwickshire City Deal, but we could boost that on the basis that it might encourage further business rates growth.

R151: Have the arrangements worked as you expected?

SD: Pretty much – the scheme shows an overall benefit – more money is now being retained locally. The main challenge was in the different way that all the councils treated the accounting. During the year we found we were all monitoring slightly differently which created some issues at the end of the year. Some councils were more prudent with their assumptions relating to the costs of pending business rate appeals than others. However, this was not a major issue.

R151: What other business rates innovations are you involved with?

SD: We have a new policy which allows us to give discounts on business rates to new, expanding and relocating firms. It is available for three years and we negotiate the discount on a case-by-case basis. The discount is available for three years. There is a danger that we provide discounts for firms which might have relocated anyway but we are finding it is a good way to get empty shops to reopen. You have to look at the big picture – another shop will increase footfall to other shops, and could lead to extra car parking revenue and more business expansion.

R151: On to other matters – Have you set up any standalone companies?

SD: We have established a wholly-owned trading arm in an attempt to find more efficiencies. The idea of the company is to buy properties to rent out at market rates. This will provide us with a return of about 5% a year on the investment.  We have already bought four and are looking to increase that to 14 homes. Eventually, we hope the standalone company could provide other council services.

R151: Are you going to invest in or borrow from the municipal bonds agency?

SD: I have had the information and we would consider it as a source of borrowing. Our total debt is about £80m – but most of that is related to the HRA which we are paying off gradually. We don’t have a huge need for more borrowing.

R151: What is your investment strategy?

SD: Investment returns are low. We have had some money with money market funds but even those are now providing small returns. We are now looking at lending to other local authorities. We did our first deal to lend to another council recently – it gets a better rate than an MMF and we are hoping to do more with other councils that have capital borrowing requirements.