The Local Government Association has set out its principal ideas for how a new system of localised business rates might work.
In response to consultation on the local government resource review, the LGA sets out a commitment to ensure that the new system of localising business rates proposed by the government retains an element of redistribution to ensure no council is unfairly penalised.
Currently business rates are pooled centrally and then redistributed to town halls through a complicated formula grant. However, ministers have proposed that this system be reformed to allow councils to retain their business rates and possibly set them at a local level.
But the LGA document said that if business rates were “simply re-localised” some authorities would enjoy a “large surplus of local revenue compared to existing budgeted expenditure, but others a significant shortfall; some would be roughly balanced; and some authorities, of course, do no currently set or collect business rates at all.”
The paper said that any model of re-localisation would “need to ensure that all authorities were adequately resourced”.
“Therefore it is suggested that a process of resource redistribution would still need to take place,” the LGA said, “although the amount to be pooled would be significantly less than the total business rate yield that is currently pooled.”
The LGA said that a new method of assessing need within local authority areas would need to be developed. It said this could include:
- Using the current relative needs formula within formula grant as the basis for a needs assessment, but “calibrated to total budgets in the previous year, as opposed to a proportion, as it is at present”
- Developing a new simplified needs assessment based on relative needs formula service structure, or could be expressed as a weighted per head figure covering all services
- Or the current formula grant system could be used, as a starting point, before developing a new needs assessment over the longer term
The report added that the new needs assessment should either be “owned by councils through the LGA on behalf of local government” or “owned by an independent body acting at arms length from the LGA, but whose membership was appointed by councils through the LGA”.
The LGA also said it supported calls for councils to be able to set their level of business rates, as well retaining the revenue, with a limit of + / - 3%.
“It is primarily up to local authorities, as democratically elected and accountable bodies, to set the balance between taxation from households and taxation from businesses. However, in all cases there should be consultation with business over any proposal to vary the multiplier”.