Quite a way with words that Shakespeare. Just as another Local Government Association Executive meeting appeared to be drifting uneventfully to its conclusion, the voice of Conservatives in local government popped up to write-off half the country to careers in the fruit-picking industry.
David Shakespeare’s line about northerners potentially “replacing the Romanians in the cherry orchards” served to act as a fruity entrée ahead of the fish dish and main course of Monday’s announcements on the Localism Bill and councils’ individual allocations in the settlement. But the debate will soon turn to the resource review being conducted by the Department for Communities & Local Government, due to report next summer.
Following the local growth white paper, part of the review’s remit will involve investigating ways of allowing councils to retain the business rates they collect locally.
As communities secretary Eric Pickles told BBC4’s Today programme this morning: “There are clearly going to be a number of authorities who won’t require any funding from central government [once business rates are localised]… I think we can achieve quite a lot through repatriation of the business rates.”
It was a discussion of this issue that prompted Cllr Shakespeare’s comments last Thursday, and they highlight the size of the task the LGA will have in this endeavour.
Currently, of the roughly £24bn that central government sends local government’s way, around £4bn comes through revenue support grant while about £20bn is actually the business rates that billing authorities (district, unitary and metropolitan councils) collect gathered together and redistributed between all authorities.
There is, at the moment, no link between what councils collect in business rates and what they ultimately receive from the business rate pool. Last year, out of the 326 billing authorities, 254 paid in more than they received and 72 got back more than they paid in (see the attached file for full details for each billing authority).
The biggest net contributor was Westminster City Council which got back just £145.2m from the £1.09bn it contributed, a net contribution of £950.4m. (It is this fact that underpins the borough’s current bid to become a “self-financing authority”, a goal that would be attained at the cost of a twentieth of the resource currently shared between all councils). The biggest net recipient was Birmingham City Council which paid in £361.2m but got back £536.3m, a net receipt of £175.1m.
Top 10 biggest net contributors (£k)
City of London
Kensington & Chelsea
Milton Keynes UA
Top 10 biggest net beneficiaries (£k)
County Durham UA
So if business rates were retained locally, there would be some awfully big winners and some awfully big losers. Lewisham LBC would stand to lose 57% of its formula grant allocation; South Tyneside 52%. Could those councils deliver the services their residents need following losses of that magnitude? Of course not. Off to the cherry orchards with the lot of them.
This is why even in a system of localised business rates, some mechanism must be put in place to equalise on the basis of need. As Barnsley MBC leader Steve Houghton put it in the LGA debate: “No localisation without equalisation”.
The upshot of Thursday’s debate is that the LGA has set itself (or, more precisely, director of finance and performance Stephen Jones) the unenviable task of coming up with ways in which a system could operate that gives councils an incentive to grow their business taxbases whilst councils that “raise very large amounts of business rates might contribute to the needs of authorities where business rates and council tax income is currently insufficient to fund spending”.
One option raised in the local growth white paper would be for councils that raised significantly more in the way of business rates and council tax than they spent to hand over the excess business rates to some general pool. This would appear to take us back in the direction of the standard spending assessments that used to operate, where clever civil servants would calculate precisely how much needed to be spent on a range of services in each council area.
For now, it is all eyes on Pickles for the details of the bill and the settlement. But get ready for some serious lobbying over business rates once the New Year hangovers have cleared.
UPDATE: Michael Dugher, (Lab) MP for Barnsley East wrote to David Cameron calling on him to disassociate himself from “these outrageous remarks”. I understand the issue was also raised at the daily lobby briefing at Number 10 this morning.
FURTHER UPDATE: Asked about the comments during the debate on the local government finance settlement, communities secretary Eric Pickles said he “wasn’t aware of Cllr Shakespeare’s remarks until the honourable gentlemen mentioned it. But I will be seeing Cllr Shakespeare on Wednesday morning will be asking him precisely what he meant by it”.