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Five things you need to know about 100% business rates retention bill

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LGC’s essential daily briefing on the Local Government Finance Bill

It’s happening. The legislation that will pave the way for local government to retain 100% of business rates was published by the Department for Communities & Local Government today.

With a new prime minister and chancellor in place since the policy was first announced in October 2015, and little indication of the new communities secretary’s level of support or enthusiasm for the biggest upheaval of local government finance in a generation, a slight nervousness was beginning to build that ministers might decide it was just too difficult. Given the tight grip Number 10 reportedly has on all policy matters, the publication of the bill suggests, in principle at least, backing for the move goes right to the top.

The biggest surprise, and a nice one at that, is that the bill states councils will be reimbursed by government for any income lost to business rates appeals. These will be known as ‘loss payments’. As LGC reported last week, the DCLG has indicated that business rates income will be top-sliced to fund these payments, but plenty of questions remain about how the system will work that are not answered by the bill. Will all authorities be top sliced and by the same amount? How long will payments take to come through? Will councils still end up having to make provisions in the short-term?

As an enabling piece of legislation, much of the detail will be left for secondary legislation.

The business of abolishing revenue support grant and ending the requirement for councils to send a share of business rates to the communities secretary is dealt with swiftly in the first clause. But the new system will not be simple; the bill contains a further 41 clauses.

Another piece of good news for the sector is the ditching of plans to require local enterprise partnerships to approve use of the new infrastructure levy that will be available to combined authorities with mayors and the Greater London Authority. This idea was roundly rejected by local government while it was not particularly popular among the business community, including the CBI.

However, there are a couple of clauses that may spell trouble further down the line. Clause 5 hands the Treasury power to alter the measure of inflation used to calculate the business rates multiplier. This is necessary to effect the shift from RPI to CPI, announced in last March’s Budget, but by not placing CPI on the face of the bill the Treasury leaves itself with plenty of room for manoeuvre in future. Given the shift to CPI will cost local government £370m in 2020-21 and rising every year after that, this still leaves the chancellor with power over the funding available to councils.

The communities secretary will also get the power to determine which properties sit on the central list and which are on the local list, something currently determined by the Valuation Office Agency. What procedure will be put in place around this to prevent undue manipulation of the list remains to be seen.

The bill also abolishes the annual local government finance settlement in favour of multi-year settlements, although it does not specify a frequency going forward. The move away from the yearly local government finance settlement also means an end to annual council tax referendum limits. Explanatory notes published alongside the bill say the communities secretary will instead “make a statement of principles for determining whether council tax is excessive covering a number of years”.

Lawyers and finance professionals LGC spoke to today were for the most part still digesting the detail of the bill and how it interacts with existing local government finance legislation. LGCplus.com will bring you full analysis and reaction next week.

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