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Finance chiefs prepare for a busy August

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21 July, 2011

Local government types, by and large, intuitively welcome business rates re-localisation.

But the ‘welcome’, naturally, comes with caveats. Mostly along the lines that rates localisation is A Good Thing…providing the system is fair; balances risk and reward; and takes into account the vast disparities in growth potential between different areas.  

Unsurprisingly, communities secretary Eric Pickles’ consultation, Local government resource review: proposals for business rates localisation, pledges to achieve precisely that.

Mr Pickles says: “We are determined that the repatriation of rates should happen in a fair and effective way. Those places with greatest dependency should, and will, continue to receive support, while being allowed to keep the products of enterprise.

“Those places which raise the greatest sums through business rates should expect to make a contribution. And businesses, which need stability throughout this process, will see no difference in the way they pay tax or the way the tax is set.”

The document builds on proposals, revealed exclusively by LGC earlier this year (19 May, lgcplus.com/5029948.article), for a system which will set a ‘baseline’ for business rates using the allocations from next year’s formula grant settlement.

Councils will then either be classed as in ‘deficit’ or in ‘surplus’ for the first year of the new scheme, according to whether they raise more in rates than they spend. A ‘tariff’ will be collected from those that generate a surplus and a ‘top-up’ paid to those that have a deficit.

As detailed in today’s LGC, the debate around the risks and incentives potentially on offer and fairness is already heating up but much of these tensions are largely based on pre-rehearsed arguments.

Finance chiefs say the 46-page consultation document left them little wiser as to whether or not Mr Pickles’ stated aim for a “fair and effective” model was achievable.   

They argue the devil will (as ever) be in the detail – of which this document contains precious little.

The document does however reveal a series of eight technical papers, due to be published in August, will flesh out said detail.   

Senior figures expressed frustration, privately at least, that documents of such potentially crucial magnitude were being published during the holiday season.

Some joked that the timing of the documents’ publication had scuppered their own vacation plans while others said they might not get sufficient attention with many key decision-makers likely be reading paperbacks in the Dordogne rather than trawling excel spreadsheets in the office.    

Regardless of the (perhaps justifiable) whingeing around the August publication date, the consensus was clear: once these papers are on the table, the real debate can begin.   

For local government at least, a disappointingly damp summer might be about to get a lot hotter.

The eight papers are:

  • Establishing the baseline: How, technically, we establish the baselines and the implications of fixing them for a number of years between resets.
  • Measuring business rates: The issues associated with measuring business rates and options for doing so.
  • Dealing with non-billing authorities: The basis for funding police and fire authorities in 2013-14 and 2014-15 and, more widely, that for apportioning rates between authorities.
  • Business rates administration: The consequences for business rates administration of the scheme outlined in the consultation paper.
  • Tariff, top up and levy options: Options for the design of tariffs, top ups, the levy and the use of levy income.
  • Volatility Causes and the options for dealing with it.
  • Revaluation and transition: The practicalities of assessing business rate income following a revaluation. It will also consider the implications of the transition scheme – and in particular, how this affects business rate administration and the payments made between authorities.
  • Renewable energy: Definitions of renewable energy, the treatment of rates from renewable sources for the purposes of tariffs, top ups and levies, and their distribution between the tiers.

Reaction: “Show us the small print”   

The Chartered Institute for Finance & Accountancy

“The detailed mechanics of the proposed scheme will be critically important in relation to perceptions of fairness. We await with interest further announcements on the arrangements for ‘tariffs and top ups’, the proposed ‘levy on disproportionate gains’ and ‘reset button’ which will clarify exactly how these tensions are to be reconciled.”

The Local Government Association

“The choices offered in the consultation, to be supplemented by more detailed technical material to be published shortly, cover the key issues in an appropriately open manner, and will encourage thoughtful debate. The LGA and its member authorities look forward to participating in that debate.”

London Councils

“Developing a closer working relationship between local government and local business should help drive forward the capital’s economy to everyone’s benefit.

“But there is an important balance to be struck between rewarding local authorities for growing their business rate base and ensuring that all local authorities have sufficient resources to deliver vital services for residents. We will be closely examining the technical detail to make sure this balance has been achieved in a manner that will allow councils to improve their financial position.”

New Local Government Network

“The publication of the first phase of the Local Government Finance Review marks a significant step forward in the Government’s efforts to provide greater autonomy to local government. While the broad detail of the review might have been well anticipated, Eric Pickles’ statement left unanswered several questions regarding the detailed functioning of the reformed system as CLG battles to find an acceptable political balance between growth, independence and social justice.”

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From Risk and reward

LGC’s finance reporter James Illman blogs on all matters local government, with a particular focus on finance matters   

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