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Settlement: extra 1% on council tax and 75% business rates retention


Councils will be able to raise council tax by a further 1% next year while the sector will retain 75% of business rates by 2020-21, the communities secretary has announced.

Delivering the Provisional Local Government Financial Settlement today, Sajid Javid said the increase meant councils would be able to increase general council tax in line with current levels of inflation without the need for a referendum.

Acknowledging the pressures on adults and children’s social care Mr Javid said he was “conscious of calls for further flexibility in the setting of council tax.”

He added: “While we all want to ease growing pressure on local government services I’m sure none of us want to see hard-working taxpayers saddled with ever higher bills. So this settlement needs to strike a balance between those two aims, giving councils the ability to increase their core council tax requirement by an additional 1% without a referendum.”

Mr Javid also announced ministers had decided not impose a referendum limit on the precepts that can be set by combined authority mayors for the first time next year.

“Directly elected mayors will decide the required level of precept for agreement with combined authorities. I’m sure voters will be watching closely to make sure this freedom isn’t abused, as I will,” he said.

Mr Javid also said the government would today publish a consultation on the future distribution of funding in local government and introduce a new methodology in 2020.

He said: “Local government operates in a society that’s constantly changing… To meet the challenges of the future we need an updated and more responsive distribution methodology – one that gives councils confidence to face the challenges of the future.”

In the same year local government will also retain 75% of business rates, Mr Javid said, by using the pot to fund existing grants received by councils, such as public health and revenue support grant.

As LGC has previously reported this would avoid the need for primary legislation which would be required if government wanted to devolve additional responsibilities to local government, as was planned under the original policy of 100% rates retention.

The communities secretary also announced the 10 areas that will take part in 100% business rates retention pilots in 2018-19.

The areas are: Berkshire, Derbyshire, Devon, Gloucestershire, Kent and Medway, Leeds, Lincolnshire, Solent, Suffolk and Surrey.

Mr Javid also announced there would be no changes to the new homes bonus arrangements to provide “continuity”, with the baseline of housing growth councils must achieve in order to receive the payment maintained at 0.4%. This follows consultation on withholding or reducing the payments from councils that were “not planning effectively for new homes” or that lost planning appeals.

This story has been updated. It originally said the new funding methodology would be introduced in 2021.


Readers' comments (3)

  • Cllr Neil Blake

    When Sajid Javid refers to 75% retention of business rates, does he mean 75% of the growth in business rates?

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  • So inflation is now 1%? Ridiculous really.

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  • Hi Cllr Blake, my understanding is he means both. However, as in future public health grant, what's left of RSG and rural services grant will be funded from business rates, and top-ups and tariffs will continue, only the growth element has the potential to provide councils with additional funding.

    With regards to 1%, the SoS meant that councils will now be able to increase council tax by 3% (2.99% technically), which is what inflation currently is. Although as others have pointed out this does not take account of the inflationary impact of the national living wage on council budgets.

    Hope that helps,


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