Last month’s local government resource review consultation paper had been a long time coming.
More from: Waiting for the devil in the detail
Communities secretary Eric Pickles said the focus on business rates retention would encourage councils to work in tandem with local industry and that any council that grows its economy would be better off as a result.
Building on proposals, revealed exclusively by LGC earlier this year, the paper outlines plans for a system that will set a ‘baseline’ for business rates using the allocations from next year’s formula grant settlement.
Councils will then either be classed as in ‘deficit’ or in ‘surplus’ for the first year of the new scheme, according to whether they raise more in rates than they spend on services. A tariff will be collected from those that generate a surplus and a top-up paid to those with a deficit.
So was the paper worth the wait? It sparked a predictable row over the potential risks and incentives. Broadly speaking, more prosperous areas worry about the lack of reward while the more deprived ones worry about the increased risks.
However, having digested the 46-page document, most local government finance experts are reserving judgment, pointing out that while the paper is welcome, it is thin on detail.
Chartered Institute of Public Finance & Accountancy chief executive Steve Freer, left, says the detailed mechanics will “be critically important in relation to perceptions of fairness”.
London Councils, meanwhile, wonders whether ministers will get the right balance between rewarding local authorities for growing their business rate base and ensuring that all councils have enough resources to fund their services. Details are, however, promised in eight ‘technical’ papers to be published this month.
These will address a series of crucial issues, including how the top-up and tariffs will be calculated and what will be done when authorities suffer significant volatility in the amount of rates they are able to collect (if, for example, a dominant local business goes bust).
Logistical issues around pooling arrangements, designed to help councils to manage volatility, are raised by one county council finance director. A district council chief executive raises concerns about the incentives for districts from a retained model, because only a small proportion of business rates are returned to the billing authorities.
Senior figures expressed frustration, privately at least, that documents of such potentially crucial magnitude were being published during the holiday season when many key decision makers are more likely to be reading paperbacks in the Dordogne than trawling through spreadsheets.
Despite the whingeing, for local government at least, a rather damp summer might be about to hot up.
Business rates - in summary
Some 1.8m non-domestic properties in England and Wales generate about £25bn in business rates, according to the Valuation Office Agency. In recent years this cash has provided the bulk of local government formula grant. Each non-domestic property, apart from those with an exemption, has a rateable value based on the annual rent the property could generate. Current values, which came into effect on 1 April, 2010, represent rental values as at 1 April, 2008. The next revaluation is planned for 1 April, 2015.
A multiplier (a rate in the pound), which is set by the Department for Communities & Local Government in England and the Welsh Assembly in Wales, is then applied to the rateable value and any reliefs that are applicable are deducted. The multiplier in England for 2011-12 is 43.3p in the pound, although this is marginally less for small businesses and those in Wales.
Under the current system, councils are responsible for calculating bills and collecting rates, which are then sent back to the Treasury and redistributed according to a needs-based formula - the much-maligned four-block model. The new system will see rates retained locally but ministers will continue to set the multiplier.