Councils in Worcestershire have appealed to the government for help after being forced to refund millions of pounds in business rates to GP practices and the NHS.
The appeal follows a landmark ruling earlier this year by the valuation tribunal that drastically reduced the “rateable value” of purpose-built GP surgeries across the county.
As the ruling alters a rateable value in force since 2005, councils across the region must now pay surgeries £3.5m in backdated payments and reduce their business rates by £600,000 a year.
All the backdated income is expected to be paid to NHS England.
The case is expected to have wider ramifications across the country as some 1,600 appeal cases are still outstanding, according to law firm Eversheds.
The plea for help comes in a joint letter from the five chief executives of councils across Worcestershire to Melanie Dawes, permanent secretary of the Department for Communities & Local Government.
A copy of the letter, seen by LGC, says it is unfair to expect councils to pick up the tab for refunds dating back to 2005 because councils only began sharing the risks of business rate income with the government in 2013.
“There is a sense of unfairness locally should this dramatic and unique financial shock be borne by local councils in Worcestershire without the support of central government,” the letter adds.
“Worcestershire councils, in particular the district councils, are in danger of needing to divert much needed resources away from other services to residents to make good inaccuracies in the 2005 and 2010 valuation lists.
“There needs to be a pragmatic sharing of risk between local government and central government.”
Without help from the government, local authorities would face a “significant reduction in funding for local services for reasons that are outside the councils’ control”, according to the letter.
Lynne Duffy (Con), portfolio holder for resources at Wychavon DC, said she knew of a number of other authorities that would be hit by the ruling.
“[We] expect the issue to eventually have an impact across the country. This [ruling] will place even more strain on our finances.
“We’re hopeful the government will listen carefully to our concerns on this matter. I also sincerely hope that any money retained by the NHS will be spent for the benefit of local patients.”
Steve Atkinson, director at the District Councils’ Network, described the ruling as a “very sudden” change that could have “a very significant impact on a number of councils”.
He added: “We will certainly be asking the government to review the position.”
A spokesman for the DCLG said the department would respond to the letter in “due course”.
He said: “This Government believes local people know what’s best for their area. That’s why we introduced the local retention of business rates, allowing councils to keep half the revenues raised from business rates – equivalent to £11 billion a year.
“When setting up the scheme, the Government made a £1.9 billion adjustment to the expected amount of councils’ business rates to help protect them from the uncertainty of appeals outcomes.”
*This story was updated at 10am on 13 August to include a comment from the DCLG