Local government could be sitting on a £600m windfall and should be allowed to keep it to fill budget gaps, a leading finance director has said.
Paul Woods, treasurer at Newcastle City Council and an adviser to the LGA on finance issues, identified the sum and said an even larger bonus could be expected in 2012-13.
Mr Woods based his calculation on a survey of councils he carried out after noticing that Newcastle’s business rate income was running £5m higher than had been assumed.
The Treasury has capped Whitehall’s total contribution to local government spending for the period of the spending review to 2014. This means that it would normally deduct any business rate windfall from local government’s overall funding.
I would urge councils to press ministers to use any extra business rate growth for the genuine additional benefit of local government
Mr Woods said: “Here is an opportunity for the Department for Communities & Local Government to say: ‘There is more money on the table than we thought, so it could be used for these purposes.’”
These could include particularly difficult cost pressures such as children’s services or the council tax benefit cut, or possibly a continuation of the council tax freeze, he suggested.
Mr Woods said he had lobbied local government minister Bob Neill on the issue but had been told that the sector must keep within the spending review limits.
The increase has arisen from a combination of a better economic performance by business than expected and from DCLG having been excessively cautious in its predictions of income, Mr Woods explained.
He based his figures on returns from some 40 councils, most of them metropolitan, and said he hoped further research would firm them up.
“I would urge treasurers to respond to survey requests and for councils to press ministers to use any extra business rate growth for the genuine additional benefit of local government,” he said.
Stephen Jones, director of finance and resources at the LGA, said the true extent of business rate collections would be known once returns were published for 2011-12 later this year.
“What we do know is that, historically, government has not been able to forecast business rates yield in England accurately,” Mr Jones said.
“Local government should be allowed to retain extra business rates. The LGA’s position on this is very clear.
“The present rules could certainly allow this - what is stopping it is not technicalities but the government’s decisions in the 2010 spending review, which have set out the total amounts of central government funding for local government.”
Hugh Grover, director of fair funding, performance and procurement at London Councils, said the government could agree to Mr Woods’ idea of the sector keeping the extra money, but was more likely to see it as a windfall for the Treasury.
“Apart from highlighting the unpredictable and volatile nature of business rates, which is a worry as we head towards implementation of the government’s rates retention scheme, Paul makes an extremely important case for the sector,” he said.
“The government has two options, it can either feed this windfall growth in business rates back to the vulnerable of society through local government, where it will make a real difference to people’s lives, or it can keep it to itself to bolster its own Whitehall coffers. I know which I’ll be arguing for.”
Localisation of business rates starts in 2013-14, when councils will be allowed part of any increase as an incentive to support economic growth.