The government is set to next year cover the £153m cost to councils experiencing negative revenue support grant.
Meanwhile, major changes to new homes bonus payments are being mooted and local authorities are set to be allowed to raise council tax by up to 3% again in 2019-20.
Applications for the next round of business rates pilots are also open, although these will only qualify to retain 75% business rates as opposed to 100% in previous pilot areas.
In announcement this afternoon, the Ministry of Housing, Communities & Local Government said it would forgo some of its share of business rates in order to cover the costs of negative revenue support grant which is expected to affect 168 councils in 2019-20. Negative revenue support grant is where councils have to pay, as part of the business rates top up and tariff system, some of their income back to government as a result of reductions to other local authorities’ funding exceeding the amount they receive in central grants.
In a technical consultation on the 2019-20 local government finance settlement, published today, the ministry said it had “explored a number of possible options for addressing the issue… and has formed an initial preference to eliminate the issue via forgone business rate receipts as the alternative options are either unaffordable or fail to resolve the issue”.
Using some of the government’s share of business rates income “represents the most direct and simple solution to the problem”, it said.
Altering the funding allocation methodology was “discounted” for a variety of reasons while providing extra core funding was considered to be “not affordable” as “the quantum of funding needed to completely eliminate negative RSG through this methodology is excessive totalling over £2bn.”
Richard Watts (Lab), chair of the Local Government Association’s resources board, said: “Many councils have been hugely concerned about the end of core central government funding next year and having to pay vital business rates income to the government as a result of negative revenue support grant in 2019-20.
“Those affected will be pleased that the government is taking steps to address this issue next year.”
Cllr Watts expressed concern, however, at government plans to again increase the threshold by which councils will receive new homes bonus payments.
“This would risk putting the brakes on housebuilding schemes and growth-boosting projects at a time when our housing shortage is one of the biggest challenges facing the nation and further exacerbate the financial challenges facing some councils,” he said.
There is currently a baseline level whereby if areas fail to exceed 0.4% growth on top of their targets they do not receive any financial reward for the new homes built in their areas.
“Due to the continued upward trend for house building, the government expects to increase the baseline in 2019-20,” the technical consultation said and added this will be outlined when the provisional finance settlement is published later in the year. It also said the government is exploring “how to incentivise housing growth most effectively, for example by using the housing delivery test results to reward delivery or incentivising plans that meet or exceed local housing need”. Housing delivery tests have been mooted in the revised national planning policy framework, published today.
On council tax, the government is “minded to” continue to let local authorities increase core council tax by up to 3% in 2019-20, with top-tier councils retaining the ability to raise a social care precept provided the total does not exceed 6% between 2017-18 and 2019-20.
No referendum thresholds will be applied to mayoral combined authorities or parish councils next year.