Uncertainty over business rates retention reforms “has negatively affected councils’ financial planning” while local government as a whole should be given more money, according to MPs.
The government should compensate councils for the loss of any business rates revenue as a result of decisions taken nationally, while ministers should also consider providing extra funding to compensate councils for any significant losses from appeals, the Commons’ housing, communities and local government committee has stated.
A report from the committee published today also raised questions about whether local government finance reforms are being closely considered in conjunction with the green paper on the future sustainability of social care services, stating MPs have not been “persuaded that the necessary connections are being made” between the two.
“We believe that uncertainty about whether 100% would proceed following the 2017 general election and the lapse of the Local Government Finance Bill has negatively affected councils’ financial planning.” the business rates retention report says.
“Councils have been either unable to make financial plans for 2020–21 or have understandably made pessimistic budget assumptions that could unnecessarily impact on service levels. They have also taken a cautious approach to investment decisions which potentially has implications for their ability to generate additional business growth and make gains under further business rates retention.”
The committee has called on the government to provide a clear timetable for moving to 75% rates retention and has recommended councils receive indicative figures for the impact of introducing this “by spring 2019 and final figures by summer 2019 at the latest”.
Ministers should provide quarterly updates to the sector until the reforms are introduced, it said.
MPs said the additional revenue gained from 75% rates retention should be used to “fund existing cost pressures and not” replace rural support and public health grants, among others.
Looking to the future councils should also be “empowered” by getting control over “other property taxes” as well as “larger-scale, more comprehensive fiscal powers to groups of local authorities”.
Local Government Association chairman Lord Porter (Con) said: “The money local government has to maintain vital services is running out fast.” He added: “Introducing a fairer funding system and allowing local government to keep every penny of business rates collected to plug funding gaps is now the only way the government can ensure local authorities are able to protect the services communities rely on into the next decade and beyond.”
Paul Carter, County Councils Network chair and Kent CC leader, said the report “clearly illustrates that increased business rate retention will not be the saviour for local government” on its own, and added CCN had “long argued” for more funding for councils.
Sharon Taylor (Lab), finance lead for the District Councils’ Network, supported the report’s recommendations, “particularly in providing greater clarity on the timetable to implement 100% retention”.
A Ministry for Housing, Communities & Local Government spokesman said: “We’ve always been clear that reforms to business rates retention will be fiscally neutral. We are working closely with the sector on our review of needs and resources to ensure we introduce a robust and effective new funding formula. As work progresses towards implementation in 2020-21, we aim to provide councils with further certainty about the likely outcome of the review. We will respond to the select committee’s report in due course.”