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Rate growth offers opportunity, now

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As the dust settles after the debate on the 2012/13 Local Government Settlement and attention is focussed  even more sharply on the changes proposed from 2013/14, I would like to draw attention to an immediate opportunity to use extra business rate growth to help local government now.

The opportunity is the higher level of business rates being collected in 2011/12 and potentially in 2012/13, which should be used to genuinely benefit local government, as opposed to effectively being swept into the Treasury coffers later this year or next.

This potential extra business rates could be used to help fund local government pressures: for example to fund extra grant  to help meet children’s and other social care cost pressures; a reduction/deferral of the proposed cut in Council Tax Benefit in 2013/14; or even an extension to the 2012/13 Council Tax Freeze Grant. It is important that as a sector we press strongly to retain this extra growth now, before it disappears when the NNDR3 returns come in and the current system is replaced with the new funding arrangements.

Turning back the clock to this time last year, Stephen Jones and I had questioned the drop in the ‘Distributable Amount’ of business rates from £21.5bn in 2010/11 to £19.0bn for 2011/12 and highlighted the potential for that figure to be higher (possibly by up to £1bn) to help reduce the frontloading of the grant cut facing local government. Those pleas were ignored. The Distributable Amount for 2012/13 that was announced in December and now agreed bounced back up to £23.119bn. The only surprise was the scale of the increase.

All business rate income is being used to fund local government as required by law, while the extra income results in a saving in other grant funding to the Treasury

This extra £4.119bn enables the Treasury to make a significant saving in revenue support grant. It is higher than previously expected, due in part to the 5.6% RPI uplift of the multiplier (worth an extra £510m compared to the CSR assumption of 3.4%). The increase in business rates meant that RSG would have fallen from £5,771m to minus £175m, hence the ‘transfer’ of the £652.2 Council Tax Freeze Grant into Formula Grant. The cut in the formula grant total and the increase in business rates resulted in a grant saving to Treasury of over £5.9bn.

In a sign of ‘transfers’ to come, this enables ministers to confirm that all business rate income is being used to fund local government as required by law, while the extra income results in a saving in other grant funding to the Treasury.

While this is old news, my latest research indicates that even the higher figure of £23.119bn is likely to understate the actual amount of business rates collected in 2011/12 and 2012/13.  A detailed analysis of the calculation of the distributable amount revealed that DCLG are continuing to assume a large ‘calibration’ reduction in the assumed level of business rates.  knowledge that my NNDR collection performance this year was £5m better than assumed led to me carry out a quick survey of other councils in the North East and other Metropolitan areas.

This survey of a reasonable number of councils showed that there were significantly more ups than downs, with an average increase of over 3% compared to the figures assumed by DCLG.

I reported my findings to the LGA core advisers group in January and this helped shape requests by both the LGA and ANEC to use the potential extra business rates for the good of local government.  Councils have been active for many years in encouraging business growth and this should be recognised now, never mind next year.

Further research by ALATs, London and Unitary Authorities should help firm up the estimate of the potential extra business rate growth.  If for example the average additional amount does turn out to be around 3% higher than estimated by DCLG, this would mean an extra £600m collected in 2011/12, with the potential for more to be collected in 2012/13 as well.

I would urge Treasurers to respond to survey requests and for councils to press ministers to use any extra business rate growth for the genuine additional benefit of local government.   

Paul Woods, city treasurer, Newcastle City Council

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