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‘Missing’ business rates plot thickens

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The mysterious £2bn black hole in the business rates funding being handed to councils resulted from ministers distributing too much money to councils this financial year, according to the Local Government Association.  

Documents published alongside the local government finance settlement said too much funding from the business rates pool was distributed to councils and would need to be clawed back, meaning rates funding falling from £21bn this year to just £19bn next year, the LGA said.

LGA finance chief Stephen Jones, said the Department for Communities & Local Government (DCLG) had some “very tough” questions to answer about the management of business rates and that it was “one of the biggest issues of the settlement that needs to be pursued”

Addressing a Chartered Institute for Public Finance & Accountancy conference, he said: “The question I have raised to DCLG is the following: if you can get it this wrong for 2010-11, you can probably get it this wrong for 2011-12 and it would be an absolutely appalling situation if, having over estimated the rates for 2010-11, DCLG then underestimated for 2011-12.

“That is grant that is sitting in the pool that could have gone to [councils] to make things a whole lot easier for [the coming year]. I find [DCLG’s] explanation raises a whole lot more questions than it answers.”  

Mr Jones added that it was “peculiar” that DCLG said that the pool was in deficit as of March 2010 when the published accounts say it was £200m in surplus.

The news follows council chiefs raising fears in October that ministers could be gearing up for a raid on business rates following projections outlined in the spending review document.

More to follow.  

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Readers' comments (1)

  • I read with interest your story ‘Missing business rates plot thickens’.

    I am afraid the only mystery is that there ain’t no black hole. As the Local Government Association will know, the government decided how much formula grant my department would give to local government for the next four years in the spending review, published in October.

    That formula grant amount is made up of redistributed nondomestic rates and Revenue Support Grant.

    If the amount of redistributed non-domestic rates goes up one year, the amount of Revenue Support Grant goes down, and vice versa. This does not affect the amount of grant going to local government at all.

    In any case, I do not expect the government to run the current system where business rates are collected locally, pooled and redistributed to local authorities, for much longer.

    I hope to make rapid progress towards localising business rates with the intention that from 2013, local government will keep what it collects. I will commence a Local Government Resource Review this month to look at this.

    Bob Neill MP (Con), communities minister

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