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Sector's sustainability questioned after suspension of rates retention

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Questions have been raised about how councils will be funded in the future now that plans to nationally rollout 100% business rates retention have been abandoned.

LGC exclusively revealed yesterday how the Department for Communities & Local Government had “effectively suspended” a move towards implementing the reforms by the end of the decade after the Local Government Finance Bill was left out of the Queen’s Speech.

Jo Miller, president of the Society of Local Authority Chief Executives & Senior Managers, told LGC councils were facing a financial “cliff edge” at the end of the decade when four-year funding settlements come to an end.

“The reason why we have managed this period of reductions well is because we have had four year plans, but they were predicated on something happening in 2020,” she said. “Now we don’t know what that is. It is no way to run a business.

“We need clarity and certainty if we are remotely able to serve our people.”

Revenue support grant, which provides central government funding to councils, has been drastically reduced since 2010. In 2019-2020, there will still be about £2.2bn central government funding in the system, down from £7.2bn in 2016-17. However, 169 councils - just under half of all local authorities in England - will no longer receive revenue support grant by that point.

Under the Local Government Finance Bill revenue support grant would have been abolished and local government was to have been funded thtough business rates income. 

Ms Miller said: “Are we to see the return of the revenue support grant? It will have to be something otherwise we won’t be able to look after old people, we won’t be able to look after children, we won’t be able to help grow the economy, and we might struggle to sweep the streets.”

LGC understands the 100% rates retention pilot areas are to remain in place. These have been set up without any legislation.

Solace’s director Graeme McDonald said while it is possible more pilots could be set up, he added: “There have got to be question marks about the capacity in government to be able to manage multiple pilots rather than a single system.”

The DCLG is said to be committed to conducting a fair funding review as that does not require new legislation.

The Local Government Association’s briefing notes on the Queen’s Speech, said the review “will only be effective and truly fair if it is accompanied by appropriate overall funding for local government as a whole”. It added: “The current level of funding is a risk to financial sustainability of local government and the results of the review would only result in a different way to manage decline.”

Duncan Whitfield, president of the Association of Local Authority Treasurers, welcomed the commitment to continue with the fair funding review and said the government “must now tackle the issues of the quantum of funding available and how it’s distributed”. He added: “It’s good that we can go back to that very simple question without confusing it with where the money’s coming from.”

Mr Whitfield, director of finance and corporate services at Southwark LBC, said while colleagues at some councils would be disappointed that 100% business rates retention had been abandoned, others, particularly those with low business rates bases would not be too concerned.

“From my perspective it doesn’t matter if you call it business rates retention, revenue support grant or fair funding, it amounts to the same thing,” he said.

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