Local government spending

Supporting detail:

Business rates retention

A business rates retention scheme was introduced in April 2013. It will provide a direct link between business rates growth and the amount of money councils have to spend on local people and local services. Councils will be able to keep a proportion of the business rates revenue as well as growth on the revenue that is generated in their area. This will provide a strong financial incentive for councils to promote economic growth. Business rates retention is at the heart of the government’s reform agenda and will help achieve 2 priorities: economic growth and localism.

At the beginning of the scheme, the government will carry out calculations to ensure that councils with more business rates than their current spending will make a tariff payment to government. Similarly, where councils have greater needs than their business rates income, they will receive a top-up payment from the government. The total sums of these payments will equal each other.

The levels of tariff and top-up payments will remain fixed each year, but will increase in line with the Retail Price Index.

They will not change until the system is reset. The government has said that this will not occur before 2020 at the earliest. This will provide councils with the certainty they need to plan and budget.

In addition, safety net payments will be available if a council’s business rates income falls by a certain amount. This will provide support if, for example, a major local employer closes.

This safety net will be funded by a levy paid by those councils whose business rates revenue increases by a disproportionate amount compared to their needs. The levy is designed to ensure that the more councils grow their business rates, the more they benefit.

Map of local authority spending power per dwelling 2013 to 2014

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