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Promise broken to compensate councils for business rate changes

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Concerns have been raised the government is backtracking on a promise to compensate councils for changes to business rates.

In the autumn Budget the Treasury said “local government will be fully compensated for the loss of income” as a result of introducing measures including switching from the retail price index to the consumer price index, and addressing the so-called staircase tax following a Supreme Court ruling.

However, it has emerged the Ministry for Housing, Communities & Local Government wrote to councils two days after the Budget to clarify that while it would compensate for any lost income from the CPI switch, and rates relief for pubs, it did “not plan to compensate local authorities in relation to any income lost” as a result of reinstating previous Valuation Office Agency practice in relation to properties located in multi-occupancy buildings. That point was also subsequently made by the ministry in a consultation on the matter.

The Non-Domestic Rating (Property in Common Occupation) Bill, which will enable the reversal of the staircase tax, is due to be laid in parliament on Monday.

But in its pre-legislative scrutiny report, the housing, communities and local government committee said “the government told us in correspondence and in response to its consultation on the draft bill that ‘no compensation will be payable to local government’ because the Supreme Court judgment created an unexpected ‘windfall’ - an interpretation we questioned in our correspondence - for some local authorities.”

The responses to the committee were made by local government minister Rishi Sunak.

The committee added: “The government made clear in its correspondence with us that it did not believe it was possible to isolate the effect of the draft bill from ’the many other changes that happen to properties on the rating list’.

“Despite assurance in the consultation paper that under the rates retention scheme ‘the overall impact on rates income will be nil’ the government did acknowledge that some local authorities may see an ‘overall financial consequence’, likely to be ‘small overall’.”

The Local Government Association has expressed concern about this.

In its briefing to MPs, it said: “We are seeking assurances from the government that this bill will have no detrimental impact on local government. We therefore welcome the recommendation of the housing, communities and local government committee that the government should take steps to quantify the potential effect on individual local authorities of the provisions of the bill.”

The LGA’s briefing said it was particularly seeking to “engage with the government to explore the financial impact on councils” in relation to the staircase tax.

“The chancellor confirmed at the autumn Budget 2017 that local government would be fully compensated for the loss of income as a result of this announced measure,” the LGA said. “It is therefore disappointing that the government announced this month that no compensation will be payable to local government.”

The LGA said it supported the committee’s recommendation that the government should “reassure councils that they are not going to be worse off financially because of this legislation, and that the Government should bear the associated costs as a result of the reforms”.

“The new burdens principle should apply to this retrospective change, in order to fully fund councils for any losses to their income,” the LGA said.

This story was updated at 14.17 on 20 April to include references to the Ministry for Housing, Communities & Local Government’s letter to councils and consultation response.

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