The Ministry of Housing, Communities & Local Government is preparing to make £15m of “goodwill” payments to councils involved in new business rates pilots after publishing incorrect guidance for the second year running.
Last year, then communities secretary Sajid Javid decided not to recover £36m wrongly paid to the 27 councils and the Greater London Authority involved in the 2017-18 business rate pilots due to an error in the MHCLG’s formula.
In a letter to outgoing auditor general Sir Amyas Morse, published on Saturday, MHCLG permanent secretary Melanie Dawes says while there has been “no mistake in any of the calculations” for the 2019-20 pilots, officials had failed to correct the original guidance before issuing it again in December.
She said as a result when the ministry issued the correct figures to pilot local authorities in late April and early May, some councils noticed a discrepancy between these figures and those they had calculated using the guidance note.
LGC understand affected authorities are mainly those in the 15 areas taking part in pilots for the first time this year. They will pilot retention of 75% of growth in business rates.
Ms Dawes said: “The incorrect formula has the impact of exaggerating the forecast benefit of participating in a pilot. Overall, we do not assess that the mistake will have a significant impact on most local authorities. It represents the equivalent of less than 0.2% of core spending power.”
The letter says that as the financial year has already started, housing and communities secretary James Brokenshire has “exceptionally decided to offer a goodwill payment to those councils who used the incorrect guidance for their financial planning in 2019-20, and where the consequences of doing so could be more difficult to mitigate”.
Councils have been invited to make their case to the ministry. Ms Dawes says these payments are not expected to exceed a total of £15m and will be paid from the ministry’s “small provision” for in-year pressures.
The mistake with the 2017-18 pilots prompted Mr Javid to commission a review of the ministry’s internal processes and systems. This found that while the ministry had “responded well to the challenges” of managing business rates retention system it had “relied very heavily on the efforts of the people in the teams, rather than on established structures and processes”.
Ms Dawes says the ministry is “looking into the precise circumstances” of how the guidance failed to be updated but stated that “because of the comprehensive nature of the work that we have done since Andrew Hudson’s report, I do not believe that it indicates further underlying weaknesses to our systems”.
She said a planned review of the work implemented as a result of the Hudson report would now be accelerated and external advisors appointed to conduct a further review.
Rob Whiteman, chief executive of the Chartered Institute of Public Finance & Accountancy, told LGC whilst there were “lessons to learn for MHCLG”, this was a “minor mistake”.
He said: “Government has done the right thing in making this public and giving any council the opportunity to discuss if they had made assumptions based on guidance that was not borne out by the actual numbers. In these cases, the special payments to be made will be welcome.”