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Business rates reform will extend the divide between rich and poor authorities

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SIGOMA welcome the acknowledgement by the chancellor that the current system of financing local government is broken, though we may not agree on the ways in which it needs fixing.

The 45 authorities represented by SIGOMA will mostly view the proposal for 100% rate retention with some apprehension, but possibly no more apprehension than they view future settlements under the existing financing structure.

Geoff Winterbottom, principal research officer for Sigoma

Geoff Winterbottom

Geoff Winterbottom, principal research officer for Sigoma

Since 2013 poorer metropolitan authorities have been on the wrong end of the governments financing deal, basically that incentives to grow business rates, build houses  and freeze council tax are paid for out of an ever diminishing needs based formula grant. The table below shows why the settlement deal works to our disadvantage.

So, the opportunity to promote local growth is more of a challenge and will return less dividends for some than for others and extend the growing divide between poor and better off authorities.

Treasury  have made it clear that no additional funding is on offer. Fiscal neutrality is key and further efficiencies will be necessary as well as requiring local government to take on additional (unspecified) burdens.  Therefore the manner in which the reducing total is shared is of primary concern.

The Chancellor has given assurances that the top up and tariff system will be extended. This is essential for us , however the settlements from 2013-14 to 2015-16 have protected the incentive aspects of settlement; business rates, new homes bonus and council tax freeze grant, leaving the needs based Revenue Support Grant to bear the full burden of cuts in settlement funding.

The needs measure itself is now nearly 5 years out of date. The latest (2015)  Index of Multiple Deprivation figures show that SIGOMA authorities have slipped further down the poverty table in the intervening period. Our members now represent the 5 worst off authorities in the country and we have slipped an average 2 places down the deprivation rankings  yet the current trajectory of cuts has seen the biggest cuts being handed down to those authorities facing the biggest challenges.

Will the acceleration of rate retention growth and RSG decline be to the detriment of Sigoma members? Almost certainly. Will it be worse than the established mechanism for reducing funding? More detail would be needed  to say for certain, but we suspect possibly not. The real fix that is needed is to match funding to the cost of providing services fairly across the country.

Geoff Winterbottom, principal research officer, Special Interest Group of Municipal Authorities

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