More councils are being invited to apply for powers to retain the growth in their business rates, under new pilots announced today (24 July 2018) by Secretary of State for Communities, Rt Hon James Brokenshire MP.
The pilots will see councils rewarded for supporting local firms and local jobs and ensure they benefit directly from the proceeds of economic growth.
From April 2019, selected pilot areas will be able to retain 75% of the growth in income raised through business rates, incentivising councils to encourage growth in business and on the high street in their areas and allowing money to stay in communities and be spent on local priorities - including more funding to support frontline services.
This follows the success of previous waves of business rates retention pilots, launched in a wide range of areas across country in 2017 and 2018.
The current 50% business rates retention scheme is yielding strong results and in 2018 to 2019 it is estimated that local authorities will keep around £2.4 billion in business rates growth.
Findings from the new round of pilots will help the government understand how local authorities can smoothly transition into the proposed system in 2020.
Secretary of State for Communities, Rt Hon James Brokenshire MP, said:
I’m pleased to respond to calls from local government and provide further opportunities for councils to control more of the money they raise locally.
I want to encourage councils to work together, with the aim of sharing their business rates income, so they can make better decisions that benefit their wider areas.
Continuing the pilot programme for the second time allows us to look at how the system will work from 2020.
Proposals will need to show how local authorities would ‘pool’ their business rates and work collaboratively to promote financial sustainability, growth or a combination of these.
Alongside the pilots, the government will continue to work with local authorities, the Local Government Association, and others on reform options that give local authorities more control over the money they raise and are sustainable in the long term.
Financial settlement technical consultation
The Secretary of State also today launched the annual technical consultation on the local government finance settlement and is calling for submissions from stakeholders by 18 September 2018.
The technical consultation reiterates this government’s intention for the 2019 to 2020 settlement to confirm the final year of the 2016 to 2017 multi-year settlement, and to implement Council Tax referendum principles as announced last year.
The multi-year settlement offered local authorities greater certainty over elements of their funding across the spending period and was accepted by 97% of local authorities.
The government proposes to allocate funding in 2019 to 2020 in accordance with the agreed methodology announced by the Secretary of State in 2016 to 2017, which ensures that local councils delivering similar services receive a similar percentage change in settlement core funding for those services.
Finally, ministers have noted the strength of feeling in local government around the issue of ‘negative Revenue Support Grant’ and this technical consultation sets out the governments preferred approach to resolving the issue in 2019 to 2020.
The deadline for proposals is 18 September 2018 – see details of the consultation.
It is expected that successful applications will be announced before or alongside the publication of the provisional Local Government Finance Settlement. After the announcement, the department will support successful authorities in preparing for implementation. Pilot local authorities will retain 75% of the growth in their business rates income in the year of the pilot (2019 to 2020), meaning that an additional 25% of the central government share (usually 50% of the growth) will stay in the local area.
The pilot programme will not affect funding to other, non-pilot, local authorities. There is already a system of redistributing funding between councils to ensure that areas with lower business rates income do not lose out.
The preferred method for resolving the issue of ‘negative RSG’ recognises the commitment made by the government during the implementation of the business rate retention scheme in 2013 to 2014, that authorities’ retained business rates baselines, which are used to determine their tariff and top-ups, would be fixed in real terms until the system was reset. This commitment was made so that local authorities would benefit directly from supporting local business growth and the government does not wish to undermine this incentive.
Whilst the number of new pilots has not been confirmed, it is possible that the pilot programme may be smaller than in 2018 to 2019, reflecting the proximity of the proposed reforms in 2020.
Under the plans for the new system, some existing grants to local government would be funded through retained business rates. Based on the current 2019 to 2020 value of these grants, this will be equivalent to 75% business rates retention, up from the current 50% retained by the local government sector as a whole. The actual value of these grants, and so the level of business rates retention that can be achieved, will be determined in the Spending Review.
Devolution deal areas with ongoing pilots will continue to pilot 100% business rates retention in 2019 to 2020, reflecting the government’s ambitions to introduce a national system of 100% business rates retention in the long-term.
The department will continue to have separate discussions with London authorities about the currently ongoing London pilot.