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More than a third of extra business rates should go on unfunded pressures, LGA says

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At least £5.3bn of the extra cash available under the move to 100% business rates retention should go to funding existing pressures, the Local Government Association has said.

In its draft response to the Department for Communities & Local Government’s consultation on the reforms, the association stressed the financial “gap” facing local government should be the first call on the additional £12.5bn government officials estimate will be available.

Additional responsibilities are expected to be devolved to local government to comply with former chancellor George Osborne’s stipulation that the reform must be “fiscally neutral”.

The LGA’s response said: “At the outset, it is important to emphasise that newly retained business rates must be used to address the projected funding gap facing local government by 2020, before any further responsibilities are considered.

“Our estimate of this gap amounts to at least £5.3bn in 2019-20, including a shortfall for adult social care alone of £1.3bn.”

The response also rejected a suggestion that devolution deals could be funded out of the £12.5bn or that new responsibilities could be devolved to combined authorities in some places but not in others.

“The default position should be devolution to individual council level unless agreed otherwise locally,” it said.

London, Greater Manchester, and the Liverpool City Region are all to pilot 100% rates retention from 2017-18. London Councils has previously mooted that it could retain all of its additional business rates in return for taking on responsibility a greater range of services.

However, the LGA response said: “The effect of funding differential devolution through retained business rates would be to create additional complexities, reduced transparency, and an inequality of funding and opportunity between authority areas, and may reduce the potential of authorities that are not in combined authority areas to develop their business rate base.”

The consultation response, which was approved by members of the LGA executive at a meeting yesterday, also called for greater flexibility on business rate reliefs which it said could “distort” local markets and had been “subject to abuse… as a device for business rates avoidance”. Echoing arguments made by the County Councils Network recently, the document highlighted charitable relief as a particular problem.

The LGA also called for a national provision for business rates appeals, funded from the central list of properties. This list includes hereditaments such as telecoms networks that do not have a clear link with one local area. The association also suggested the government should “devote resources” to ensuring the Valuation Office Agency can resolve all outstanding appeals ahead of the introduction of the new system by the end of the parliament.

The consultation closes on 26 September.

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