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Business rate pooling - scale of interest becomes clear

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Fewer than 30 groups of councils have expressed an interest in pooling their business rates as part of the new funding arrangements due to come into force in April.

LGC understands that 27 ‘pools’ of authorities are working to finalise proposals, which have to be submitted to the Department for Communities & Local Government by mid October.

To see the list of all known pooling bids, click here

However, the tight time frame combined with the complicated forecasting and negotiations involved in the process meant many authorities chose not to submit even initial expressions of interest despite the potentially sizeable financial benefits on offer.

LGC research has also established that two areas - Greater London and Essex - which had expressed an interest in pooling have withdrawn from the process after the department introduced a new deadline which required pools to finalise membership lists by 10 September.

DCLG invited areas to submit bids to be treated as a single area for the purposes of calculating their funding under a system of retained business rates (see pooling mechanics box, below).

As previously reported by LGC, council chief executives had appealed for more time to assess the benefits of forming a pool and deciding on which to join in areas with more than one option.

Although DCLG has refused to identify which areas submitted expressions of interest in July, it did release the total number of prospective pools - 28 - following a Freedom of Information request by LGC.

Since then council leaders in Lincolnshire have indicated they will submit a late expression of interest this month reversing an earlier assessment by finance officers that pooling should not be pursued. This brought the total to 29, before the cancellation of the Essex and London bids brought the figure to 27.

Ongoing research by LGC has established the identity of 24 pools, including 18 involving county councils.

However, eight counties are known to have no plans to pool. This is despite modelling published by the County Councils Network showing county-wide pools would enable districts to significantly reduce the ‘tariff’ they would pay as standalone units, with some even receiving a ‘top-up’ payment.

To see the potential benefits of pooling to county areas, click here

They include Nottinghamshire, Derbyshire and East Sussex CCs, which would all have eliminated the need to pay a tariff. Nottinghamshire’s finance and property committee chair Reg Adair (Con) said the advantages of pooling had not been clear at the time of the July deadline, a situation he described as “disappointing”.

The council is now investigating the possibility of joining a pool proposed by Mansfield and Ashfield DCs.

London Councils, which had submitted an expression of interest on behalf of London’s 33 boroughs and the Greater London Authority, abandoned plans for a pool in 2013-14 because of the “extremely difficult” September deadline and doubts about the financial benefits.

Essex CC also blamed DCLG’s new deadline. “The lack of financial information and deadline of 10 September for a firm list of the pool members to be confirmed did not allow for proper governance processes to be undertaken to enable a decision to be reached,” a spokesman said.

Some pools adjusted their make-up between submitting expressions of interest and confirming their final line-up. The bid submitted by Stoke-on-Trent & Staffordshire LEP lost three councils – Lichfield DC, Cannock Chase DC and Tamworth BC – after they decided to pursue a pool with the Greater Birmingham & Solihull LEP.

Lichfield chief executive Nina Dawes had previously appealed to DCLG for more time to assess the benefits of each pool, and cabinet members had to make the “difficult decision” on the morning of 10 September, she said.

Two of the counties that rejected even submitting an expression of interest despite the prospect of the whole county areas becoming top-up areas also explained their reasons for doing so.

Derbyshire said its own modelling “didn’t forecast savings” while East Sussex described the financial risks and benefits of pooling as “unquantified”. Both said they would watch others’ progress.

Pooling mechanics

Under the business rate retention scheme councils with more business rate income than funding requirement pay a ‘tariff’ to settle the difference, while councils with less business rate income than funding needs receive a ‘top-up’ payment. By forming a pool with a combination of top-up and tariff authorities, an area could find itself in a better financial position. However, there are also risks as access to the national safety net available for fluctuations in business rate income could be limited.

Pooling timetable

  • 27 July: DCLG initially wanted councils to submit developed proposals by 27 July, but this was changed to ‘expressions of interest’ after the sector warned the deadline would be difficult to meet
  • 10 September: DCLG sent a letter, dated 13 August, to authorities leading pooling bids, introducing a new deadline of 10 September by which point pool membership had to be finalised
  • 19 October: Final deadline when final pooling proposals signed by chief executives and section 151 officers of all member councils must be submitted
  • November: DCLG will designate pools, ahead of local government settlement
  • December/January: Cooling off period between settlement publication and close of settlement consultation during which councils can reconsider pooling plans
  • April: Business rate pools come into force with introduction of business rate retention funding system
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