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Hope remains business rates reforms will be revived

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If a revived Local Government Finance Bill is not included in the Queen’s Speech business rates reforms are unlikely to go ahead as previously planned, according to finance experts.

When the general election was called, forcing the dropping of the bill due to a lack of parliamentary time, there was speculation plans to rollout 100% rates retention in 2019-20 would be delayed but not ditched. The Tory manifesto did little to ease fears the policy was being put on the backburner.

With speculation mounting over the future of Theresa May after the Conservatives returned a reduced majority, and looming Brexit negotiations set to dominate the political agenda, business rates reform will undoubtedly not be at the forefront of the prime minister’s mind.

Speculation has mounted this morning the Queen’s Speech will not go ahead next Monday as had been planned, due to the lack of an agreement between the government and Democratic Unionist Party leading to uncertainty about the legislative programme.

“If [a revived Local Government Finance Bill] is not in the Queen’s Speech when it does take place then that would send a very, very clear signal,” one finance chief involved in rates reforms discussions, who did not want to be named, told LGC. “I would expect it will be in there though as my expectation is that the government is going to want to keep moving and say ‘nothing has changed’.”

The fact a largely uncontentious bill (see box below) is waiting to be pulled off the shelf also helps.

Changes to the business rates retention system have so far survived, and indeed evolved, under three communities secretaries, two chancellors, and a change of prime minister. The reappointment of Sajid Javid as communities secretary means reviving the reforms could be more straight-forward than if someone without prior knowledge of the proposals and the work done to date had been put into the role.

Just after the election was called, Mr Javid acknowledged there would be a “delay to the new pilots” but he also said it “doesn’t mean to say the pilots cannot take place as long as the new government makes it a priority following the next general election”.

However, with Ms May’s authority in question there is a feeling in the sector there could be delays if her cabinet colleagues, now carrying more clout, decide to take a keen interest in the reforms and seek to have their say.

A fair funding review, designed to settle the thorny question of ensuring a fair allocation of resources between authorities, is also due.

Geoff Winterbottom, principal research officer at the Special Interest Group of Municipal Authorities, said: “I don’t see why what’s happening should put a stop to that as there are no regulatory implications on that consultation.

“If nothing else we would like assurances as early as possible that that review is going to continue. We need that whether we have 100% or 50% business rates retention.”

However, the fair funding review is not going to be uncontentious. Rows with MPs upset about their areas losing out financially will be last thing Ms May will want.

Policy survival rating:

Business rates reforms: 5/10

fifty fifty

fifty fifty

 

 

 

 

Fair funding review: 4/10

thumbs down

thumbs down

The Local Government Finance Bill, published in January, heralded the biggest reforms to the way the sector is financed in a generation.

By seeking to “omit” provisions for revenue support grant payments in the Local Government Finance Act 1988, the government subsequently reinforced its intention to move towards 100% business rates retention.

The bill itself was enabling so it did not contain any specifics as to how 100% rates retention would work – that was due to be outlined in subsequent regulations.

One aspect of the bill local government will not be too disappointed to be delayed, if not completely derailed, are planned changes to the measure of inflation for calculating business rates from the higher RPI to the lower CPI from 2020 as it would reduce the sector’s income.

On the downside, plans to pool appeals risk nationally will have to wait.

As it is, until the bill becomes law – if indeed it ever does – the current system will not change.

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