100 per cent retention of business rates: issues for consideration Contents

2Moving to 100 per cent retention

12.The Government has so far announced that:

13.Since the announcement in October 2015, few details of the reform programme and how the new system will work have emerged. A written statement from the Department indicated that redistribution will be maintained under 100 per cent rate retention.15 The Spending Review and Autumn Statement 2015 confirmed that “The system of top ups and tariffs which redistributes revenues between local authorities will be retained”.16 The Government has not confirmed whether the ‘safety net’ and ‘levies’ will be retained, although a source has claimed that they will:

The safety net regime which protects councils against large year to year drops in business rates will remain but the growth levy—which claws money back from areas that see high annual rates of growth for use in other places—will be abolished.17

14.The Spending Review and Autumn Statement also said that, as a result of the reform, by 2020 local government will have control of £13 billion of additional local tax revenues, but, to ensure the reforms are fiscally neutral, it would have to take on “new responsibilities” to match the rise in funding.18 It has since been reported that the amount of additional funding available could range from £4 billion to £13 billion19 and, during our inquiry, David Phillips, Senior Research Economist at the Institute for Fiscal Studies, suggested it could be £10.5 billion.20 Furthermore, measures introduced in the 2016 Budget, including the extension of Small Business Rates Relief, will affect the amount available.21 The Spending Review said that the Department would “shortly consult” on the reforms and on the new responsibilities, but suggested they might include funding the administration of housing benefit for pensioners and public health, and the provisional Local Government Finance Settlement 2016–17 suggested transferring Attendance Allowance.22

15.In February 2016, the Secretary of State made a commitment to revising the “underlying assessment of needs” on the basis of which local authority funding is allocated and the current business rate retention system is set.23 Specifically, he committed to “go back to the drawing board and look at the needs and the resources available to each county”.

16.The Queen’s Speech 2016 announced a Local Growth and Jobs Bill to “allow local authorities to retain business rates, giving them more freedom to invest in local communities”.24 The accompanying background briefing notes said that the Bill would put in place the framework of the 100 per cent business rate retention scheme, legislate for the devolution of additional responsibilities to local authorities, give local areas the ability to reduce rates and give directly elected mayors the ability to levy a supplement on business rates bills to fund new infrastructure projects.25 It has since been reported that the Bill will not be introduced until much later this year, once the summer consultation is complete.26

17.We heard very few expressions of unqualified support for the reforms.27 Some expressed very strong concerns, such as the Industrial Communities Alliance, which represents sixty authorities in industrial areas, which said:

It doesn’t require a degree in economics to recognise that the full retention of business rates, without any redistribution via central government, runs major risks for areas where the business rate base is weak. Most of England’s older industrial areas, where there have been substantial job losses over many years, fall into this category.28

Others were more focused on the practical challenges posed by the reforms. Cllr Mitchell, Cabinet Member for Finance and Corporate Services at Westminster City Council, said that “the devil will be in the detail”29 and Paul Dransfield, Strategic Director of Major Programmes at Birmingham City Council, said “it is about having the right systems, checks and balances, like all forms of funding in government to protect those who are most vulnerable”.30 The following chapters bring together the various practical concerns and issues raised by authorities in considering the move to 100 per cent retention.


18.The Government has announced that there will be a consultation this summer but has not yet indicated how the reforms will be implemented and the timeframe between now and 2020 for doing so. In January 2016, the Municipal Journal reported that the Secretary of State had “urged the sector to strike an agreement on how business rates retention could work—or he could impose a plan”.31 We agree that is it essential that the sector is involved throughout the process, however lengthy. Paul Dransfield of Birmingham City Council, who had been involved in the design of the 50 per cent system along with other authorities, told us:

You cannot just do it; it needs that period of 12 to 24 months to seriously look at some of the detailed design and risk management issues that a new system will throw up, and to make sure we have solutions for them.32

19.In April 2016, a joint DCLG and Local Government Association (LGA) steering group, consisting of representatives from local government and other interested bodies,33 was established to “provide information and expert advice to support the LGA and Department of Communities and Local Government in advising Ministers on the implementation of the reforms”.34 Five technical working groups have also been established to discuss the design of the retention system, needs and distribution, new responsibilities and accountability. The groups have been meeting regularly, and liaising with local authorities, and will continue to do so until implementation. We understand that their work will play a key role in the implementation of the reforms, from informing the contents of the summer consultation to final implementation by 2020.

14 This refers to the ‘multiplier’, set each year by the Government. A property’s basic business rate bill is obtained by multiplying its rateable value by the multiplier.

15 HC Deb, 12 October 2015, col 221WS [Commons written ministerial statement]

16 HM Treasury, Spending Review and Autumn Statement, November 2015, p58

17 “Set your own business rates, Osborne tells sector”, LGC Plus, 5 October 2015

18 HM Treasury, Spending Review and Autumn Statement, November 2015, p58

19 “Extra business rates cash could be as little as £4bn”, LGC Plus, 17 May 2016

20 Q25

21 HM Treasury, Budget 2016, March 2016, p46

23 HC Deb, 10 February 2016, col 1642 [Commons Chamber]

24 Queen’s Speech 2016, Cabinet Office, 18 May 2016

25 Cabinet Office, Queen’s Speech 2016: Background briefing notes, May 2016, p22

26 “Business rates bill will be late in the year”, LGC Plus, 18 May 2016

27 See, for example, Q90

28 Industrial Communities Alliance (BUR49)

29 Q90

30 Q91

31’Agree, or I’ll set a plan,’ says Clark”, The MJ, 28 January 2016

32 Q91

33 County Councils Network, District Councils Network, Special Interest Group of Municipal Authorities, Society of Local Authority Chief Executives, Society of London Treasurers, Society of Municipal Treasurers, Society of County Treasurers, Society of District Treasurers, Society of Unitary Treasurers, CIPFA, Valuation Office Agency, Institute of Revenues Rating and Valuation, Greater London Authority and London Councils.

34 Local Government Association, Business Rates Retention Steering Group: Terms of Reference, April 2016

© Parliamentary copyright 2015

9 June 2016