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Business rate retention

Emma Maier
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The presence of districts at both ends of the spectrum illustrates their considerably varying position

The Department for Communities & Local Government’s technical consultation on business rate retention, published as LGC went to press, gives a first hint of how the new funding system could affect individual councils.

The consultation and supporting documents set out the government’s provisional plans for calculating the baseline funding levels when the new system comes into effect in April 2013. The example provided simulates how the calculations could work by rerunning the 2012-13 Local Government Finance Settlement as if key elements of the system were in place.

The exercise shows districts gaining by 3% compared with the 2012-13 settlement, while counties are unaffected and other council types see a reduction of up to 0.6%. The regional distribution is more even, varying from a 0.5% increase for East Midland councils to a 0.4% reduction for London councils.  

The impact on individual councils is more pronounced. Five gain by 10% or more, with Eden DC up by 13%, and nine lose out by 1% or more, including worst hit Christchurch BC losing 2.7%. The presence of districts at both ends of the spectrum illustrates their considerably varying position.

The consultation document, seemingly without irony, contrasts the current highly centralised funding system with the new “simple, transparent incentive” where local authorities’ income will change with business rates growth, “rather than being determined by complex formulae”.

Now will follow a flurry of activity to analyse the impact of the proposals.

The document says the provisional local government finance settlement for 2013-14 will be consulted on in the usual manner this autumn. Yet with the technical consultation open until 24 September, delays seem likely - in 2010 without the transition to a new system the settlement was published in December.

Details are needed at the earliest opportunity so that councils can plan. Latest expenditure figures from DCLG show two-fifths of councils seeking to build their reserves to create a cushion for the future. But with the value of reserves set to grow by a tiny amount, the cushion may be somewhat deflated, particularly against the backdrop of falling reserves generally. LGC research in 2011 showed a third of councils on the edge or below their minimum agreed level.

Attempts to build reserves show prudence. But Chartered Institute of Pulbic Finance & Accountancy analysis of the DCLG figures illustrates the size of the challenge. Spending has fallen below 2007-8 levels, and the only area to see an increase will be social care, reflecting the growing demands of an ageing population.

Those demands will not be met by efficiency savings, despite the wishful thinking of health secretary Andrew Lansley, who this week dismissed the LGA’s recent detailed funding projection.

If local public services are to continue, as the government has been clear it wants them to, government must have the confidence and courage to acknowledge and tackle the issue.

To take part in the technical consultation, see links to full documentation at LGCplus.com/NDBRtech and respond by email to:brrtechnicalconsultation@communities.gsi.gov.uk.
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