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London to pursue business rates pilot

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London is still hoping to pilot 100% business rates retention in 2018-19 – but the timing is tight and there are uncertainties as to whether the government is keen to instigate another pilot.

A draft prospectus outlining how it will work, would be administered and governed, and how any financial benefits will be distributed, will be circulated among the 33 boroughs and London’s mayor this summer with a view to negotiating an agreement in time for the autumn budget.

Even then the finer details would need to be negotiated with the Department for Communities & Local Government before the pilot is implemented, said a report which went before London Councils’ leaders’ committee last week.

Written by London Councils’ director of finance, performance and procurement Guy Ware the report said: “Respecting the tight timeframes for the pilot’s commencement in April 2018 and the likelihood that an agreement would need to be reached with the government in the autumn, it is probable that further local decisions required from the 34 prospective pooling authorities relating to the legal framework to be implemented could follow in the intervening period but all these matters would need to be resolved in a timely manner prior to April 2018 to allow for implementation.”

Plans for a London business rates retention pilot were first announced in March 2016’s Budget when the government announced a commitment to transfer around £1bn of business rates to the Greater London Authority to fund Transport for London’s capital projects from April 2017. Mr Ware has previously called for London to retain all £6.6bn of business rates raised in the capital.

A Memorandum of Understanding in relation to further devolution to London, announced in the most recent March Budget, committed “to explore options for granting London Government greater powers and flexibilities over the administration of business rates. This includes supporting the voluntary pooling of business rates within London, subject to appropriate governance structures being agreed”, Mr Ware’s report said.

He added that before the general election “further discussions with civil servants… suggested the government was keen to explore a significantly expanded London pilot from April 2018, based on a voluntary pool, that would receive the same kind of benefits as the existing pilots” in Greater Manchester, Liverpool City Region, the West Midlands, West of England, and Cornwall.

Mr Ware said: “A pilot on the lines of those currently operating in other areas would not in itself address the full range of powers outlined in London’s joint business rates proposition to government, but participating in a pilot could also enhance government’s view of London’s willingness and capacity to take on broader devolution of fiscal and service responsibilities.”

London wants to gain greater powers including granting the mayor greater flexibility to use “new supplementary levy powers for housing purposes”, transferring some central list assessments to a regional “London list”, gaining “greater flexibility around mandatory reliefs”, and powers to agree local growth zones.

How benefits from business rates growth would be distributed among the boroughs and mayor will require unanimous agreement from all participants to go ahead. Mr Ware’s report proposed developing a needs assessment formula, allowing boroughs to retain a proportion of the growth in their areas, and creating a collective investment pot which would be used to “lever additional investment funding from other sources”.

A national rollout of 100% business rates retention in 2019-20, as had previously been planned, “is now unrealistic” due to the absence of a revived Local Government Finance Bill in the Queen’s Speech, said Mr Ware but added “piloting and significant changes to the national level of retention could potentially be achieved through secondary legislation”.

Should there be a London pilot, Mr Ware said it would “not affect” the capital’s ability to contribute to the government’s proposed fair funding review.

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