Councils will be expected to fund a wide range of additional responsibilities when allowed to keep hold of their business rates income in 2020, communities secretary Greg Clark has suggested.
Speaking exclusively to LGC in the wake of the chancellor’s announcement on Monday, Mr Clark described the move as a “historic” change in the relationship between local and central government.
Under the plans announced by the George Osborne, revenue support grant will be phased out as local government is allowed to retain 100% of its business rates within five years.
The uniform business rate will also be abolished, freeing authorities to reduce business rates paid in their areas.
Mr Clark described the move “as one of the substantial devolution reforms”.
“The spending review will set out, in consultation with local government, the details,” he added, “It’s such a transformation to have that commitment.”
The reform, which has been advocated by the Local Government Association, will give councils’ greater freedom over the level of business rates in their areas.
In 2015-16, councils expect to collect around £2.4bn more in business rates than they received back through the local share of business rates and government grant.
The gap between the sum they collect and the income they get back is expected to grow significantly by the end of the decade, as revenue support grant is further cut back.
However, Mr Clark told LGC that full retention of business rates would not mean extra money for councils but would be accompanied by additional powers and responsibilities.
Mr Clark added: “This is an opportunity for local government to take on some of the responsibilities for things that are currently financed nationally. It’s designed to be a reform.”
He said it was too early to speculate on what responsibilities might be transferred. It is widely expected that this will mean existing grants to local government will in future be funded through business rates, such as public health budgets.
Mr Clark said: “As part of the spending review we want to address what powers will come with funding. What today was about was a historic change in the relationship between central and local government and local government and business.”
According to a briefing paper released this week by the Conservative party, the reform will include an extension of the “top ups and tariffs” system, which redistributes business rates income between authorities.
Mr Clark, said full business rates retention would make an “enormous difference” to local authorities, even once this equalisation had taken place.
“This is a big endorsement of confidence in [local government]; this is a moment for the momentum that’s with local government.
“It will give them the tools to work with business and know they can retain the benefits of that; the ability to have your finances in your own hands rather than to rely on central government; the ability to plan ahead.”