Business rates should not be relied upon as a sustainable source of funding for adult social care, the CBI has warned, in its response to the government’s consultation on the move to 100% rates retention.
In the response, shared with LGC, the influential business lobby group also opposes plans for local enterprise partnerships to approve proposed new infrastructure levies and calls for a full system reset to happen only every 20 years.
The CBI says while it supports the principle of giving councils greater responsibilities under the reforms, members are concerned that rates from commercial property will be “insufficient” to fund public services long term.
Under the move from 50% to 100% business rates retention, local government is expected to take on responsibilities equal to the additional income that will become available, currently estimated at around £12.5bn. In its consultation the Department for Communities & Local Government sought views on devolving attendance allowance which is paid to over-65s for help with the care. This has been roundly rejected by the sector.
The CBI notes that the country’s ageing population means spending on adult social care is likely to increase but due to structural changes in the economy, such as the increase in home working, mean commercial property rental values are in decline.
Anna Leach, CBI head of economic analysis, said: “Business rate retention should not be seen as a panacea for funding sustainable public services, given that growth in business rates revenue is not expected to keep pace with healthcare spending demands.”
The CBI also rejects plans to make the introduction of an infrastructure levy on business rates by combined authorities contingent on approval by local LEPs. The response says while members support additional local tax flexibility for councils, LEPs often do not share combined authority boundaries and “do not always effectively represent the diverse range of private sector views”. Instead it calls for a “full business ballot” similar to those used in the creation of business improvement districts.
Councils have also raised similar concerns about the appropriateness of relying on LEPs to approve the levy, despite the DCLG indicating in the consultation it would not be prepared to reconsider this element of the policy.
Ms Leach said: “Ultimately, when considering fiscal devolution firms’ views must be heard and acted upon, not just taken in to account. That’s why the introduction of an infrastructure levy should include consultation that extends beyond LEPs to ensure broad business backing.”
The DCLG consultation also seeks views on how often the new system should be ‘reset’ in order to take account of changing levels of need and prevent the gap between high growth and low growth authorities growing too wide. It proposes a partial reset every five years where councils keep a set proportion of their growth in order to maintain an incentive in the system.
In its response the Local Government Association also suggests five years would be appropriate, while the Special Interest Group of Municipal Authorities has said five years should be a maximum.
However, the CBI argues that due to the time lag between activity designed to encourage growth and the benefits of that activity being felt, partial resets should happen every 10 years as a minimum with full resets no more often than 20 years. It proposes the issue of need be “decoupled” from the reset system.
It says: “If the system is reset too frequently this will weaken the fiscal incentive for local government to enable local private sector growth”.
The DCLG is considering the consultation responses.