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

7Additional responsibilities

103.The Treasury press release accompanying the Chancellor’s announcement said that local government would have to take on new responsibilities to “ensure that the reforms are fiscally neutral”,258 since permitting local government to retain 100 per cent of business rates will lead to a rise in its funding. The Government has said that the increase would amount to £13 billion.259 David Phillips, Senior Research Economist at the Institute for Fiscal Studies, believed that the actual increase would be lower:

£13 billion is about the amount of business rates that will be devolved. There is then about £2.5 billion of revenue support grant in 2019. In 2019–20, there will be £13 billion of business rates replacing £2.5 billion of revenue support grant, so that is £10.5 billion net transferred and then you need to think what additional things you transfer to use up that £10.5 billion of new money.260

104.In the Spending Review, the Government said that the new responsibilities should be linked to “empowering [local authorities] to drive local economic growth and support their local community”, and gave the following examples: the administration of Housing Benefit for pensioners, Transport for London’s capital projects and public health.261 The Government has also said it will consider giving more responsibility to councils to support older people with care needs, including those who currently receive Attendance Allowance.262

105.We were keen to gather authorities’ views on what new responsibilities they would be prepared to take on with a view to distilling and presenting them to the Department to inform the summer consultation. This chapter draws together the themes that emerged from the evidence and the principles on which our witnesses believed the decision about additional responsibilities should be based.

Themes

106.Themes emerged from the evidence about the nature of additional responsibilities that local government could take on:

107.However, we note that some authorities doubted that they would be in a better position under 100 per cent retention. Andy Hall, Business Rates Assurance Manager at Boston Borough Council, said that, without Revenue Support Grant, the amount available to them in business rates would not cover the costs of the services they presently provide,263 and the Institute of Revenues Rating and Valuation said:

Uncertainties exist around both the funding settlement up to 2020 and the mechanics of the fully devolved business rates retention scheme; thus it is something of a shot in the dark to try to identify at this stage what responsibilities and functions could or should be devolved. Local government is pre-occupied at present about how it can fund its current functions.264

Councils need further confirmation that a redistribution mechanism will be part of the reformed system, and reassurance that, now or in the future, they will not be required to take on new responsibilities that are unaffordable or, over time, become unaffordable.

Economic growth

108.Taking on responsibility for the drivers of economic growth, including skills, transport, business support, infrastructure and employment support, was most popular among local authorities and the business sector. There appeared to be two main reasons for this. The first was articulated by the Chief Economic Development Officers Society (CEDOS):

Government and local government must focus on the fundamental purpose of allowing councils to retain 100 per cent of business rate income, namely to enable local authorities to drive local economic growth. In our view, it is essential that key areas of additional responsibility must provide local authorities/areas throughout the country with the levers for driving business growth and prosperity in relation to, for example, skills development, business support, inward investment and infrastructure provision.265

109.Taking a different approach, Essex County Council thought it was important that businesses should be able to see that the rates they pay are “supporting the infrastructure and skills investment required to foster conditions for further economic growth”.266 Simon Parker, Director of the New Local Government Network, said that otherwise there could be a challenge from businesses “asking why they are funding not so far from half of the revenue, when actually most of that money is going to pay for things that they do not use”.267

110.Representatives of the business sector agreed.268 Chris Richards, Senior Business Environment Policy Advisor at EEF, said that businesses would like to see any surplus in revenue “going back to local business environments”.269 Tom Ironside, Director of Business Regulation at the British Retail Consortium, said this would generate the “right partnership” between businesses and local authorities.270

Skills and transport

111.Taking on responsibility for skills and transport was most popular among local authorities. The Local Government Association said that this would “empower local areas to close skills gaps, boost employment and improve public transport”.271 Dennis Napier, Assistant Head of Financial Resources at Sunderland City Council, said:

The funding of skills is essential. We promote manufacturing within the area, and we need to make sure that our young people are fully trained and able to take advantage of that particular set of skills. It is the skills issue, definitely, and investment in infrastructure.272

112.Sir Edward Lister, the Deputy Mayor of London, said that the Greater London Authority’s priorities were transport and skills.273 Colin Stanbridge, the Chief Executive of the London Chamber of Commerce, agreed, saying that skills, along with transport and crime, always came within the top three of their members’ concerns.274 However, the other business representatives we spoke to were more cautious about local authorities taking on responsibility for skills. For example, Tom Ironside of the British Retail Consortium said that localising skills arrangements could make them more complex than they already were275 and Chris Richards of EEF said that authorities may not actually gain as “the more high skilled people get, the more likely they are to be mobile and you lose that local connection”.276 He said that the top issue for EEF’s members was local transport networks.

113.Andy Hall of Boston Borough Council said that the devolution deal currently being pursued by his council was a good guide to the services it was keen to take on: “business support and innovation; skills, education and employment; transport responsibilities; housing; public protection; and water management”.277 In addition, London Councils said that the “areas outlined in the London Proposition (subject to their subsequent development) should be regarded as the ‘first port of call’ for discussions about the transfer of responsibilities”.278 The County Councils Network also suggested that areas’ devolution bids should be taken into account.279

Not demand-led

114.There was concern among councils that the transfer of funding for ‘demand-led’ services, such as Attendance Allowance, would over time leave them facing increasing costs as pressures mounted. Paul Dransfield, Strategic Director of Major Programmes at Birmingham City Council, said he would be very nervous of taking on responsibilities that “we cannot control. One of my fears is around the benefits bill”.280 Essex County Council were concerned that the Government expected business rates to fund demand-led services “despite the fact that demographic growth will likely far outstrip growth in business rates”.281 The County Councils Network wanted to “steer away from the devolution of functions where demand-led pressures are likely to outstrip funding available to local government over time”282 and the District Councils Network said:

A key issue in the long run is the extent to which the new burdens (as yet unspecified or costed) placed on local government are commensurate to the additional funding which may arise from changes to the business rates scheme.283

David Phillips, Senior Research Economist at the Institute for Fiscal Studies, echoed this, saying that “thinking about whether the projections of spending match the projections for revenue is a very important thing”.284 He continued:

There may be good reasons to devolve Attendance Allowance because of its integration with social care. I am not an expert to judge that matter but, as an economist, I would be wary about the negative correlation between demand for spending on this and business rate revenues.285

Simon Parker of the New Local Government Network recommended that, if councils were expected to take on additional responsibilities that were demand-led, they would have to be given “the ability to manage that risk and that means deregulating and giving them more responsibility over how they administer that”.286

Principles

115.Rather than specifying the responsibilities they would be prepared to take on, authorities often preferred to articulate principles which they believed should guide decision-making.287 From this, we have distilled a set of principles, which, broadly speaking, would ensure that new responsibilities are within local government’s control, fit with its role and wider responsibilities, and promote local growth and the wellbeing of residents.

116.Birmingham City Council said that new responsibilities should “support public sector reform”.288 Similarly, Sheffield City Region said the reforms to business rates should be a “mechanism to facilitate local public service reform.289 Birmingham went on to say that new responsibilities should have “a logical place within local government and not solely have been transferred because it works mathematically”.290 Leeds City Council said that they should “complement existing services” and fit in with the “development of the localism agenda”.291 Andy Hall of Boston Borough Council said that there needed to be synergy between what the authority is currently doing and the responsibility to be transferred.292

117.We also heard that new responsibilities should be directly linked to residents. The New Local Government Network said they should “improve social wellbeing”293 and Leeds City Region suggested they should “help residents to improve their options and personal circumstances and be less dependent”.294 Sheffield City Region said they could:

Address the socioeconomic causes of low productivity and dependency. This could include elements of spend that are associated with upskilling the current or potential labour force (ie. getting those out of work the training they need to find local jobs; or enabling employees to enhance their skills, progress their careers and potentially increase their incomes).295

118.Sheffield City Region also suggested that new services should be linked to forms of preventative action. They gave the examples of services associated with early years, such as those relating to child wellbeing, or adult social care, such as interventions to support independent living and reduce higher care costs.296 We note that, although aimed at preventing demand, services of this kind are, to an extent, demand-led.

119.An important factor was how the new responsibilities would be managed: we were told that, in order to make a real difference, authorities needed to be given genuine discretion and not just be “used to passport existing services or to administer payments”.297 Greater Manchester Combined Authority said that a “one-size-fits-all approach that simply devolves responsibility for national programmes would not be appropriate”.298

120.The County Councils Network and the Local Government Association called for each new responsibility to be accompanied by a new burdens assessment and be appropriately funded.299 Westminster City Council wanted the Government to ensure that, at the outset, funding was adequate and that it was “flexible enough to accommodate future changes in service demands and demographics”.300 To this end, Sheffield City Region wanted authorities to be given “freedom to manage resources”.301

Issues for consideration:

Themes

Principles


258Chancellor unveils ‘devolution revolution’”, HM Treasury press release, 5 October 2015

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

260 Q25

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

263 Q81. See also Cornwall Council (BUR33) and Sunderland City Council (BUR29)

264 Institute of Revenues, Rating and Valuations (BUR47) para 10

265 Chief Economic Development Officers Society (BUR15) para 10

266 Essex County Council (BUR19) para 7

267 Q11

268 Q175

269 Q174

270 Q175

271 Local Government Association (BUR14) para 4.4. See also Greater Manchester Combined Authority (BUR55) and Essex County Council (BUR19) para 12-13

272 Q88

273 Q248. See also Tim Mitchell at Q115

274 Q248

275 Q176

276 Q176

277 Q81

278 London Councils (BUR07) para 36. The London Proposition is a draft devolution and public service reform proposal for London.

279 County Councils Network (BUR60) para 30

280 Q118

281 Essex County Council (BUR19) para 10

282 County Councils Network (BUR60) para 29

283 District Councils Network (BUR18) para 9

284 Q31

285 Q31

286 Q30

287 See, for example, Birmingham City Council (BUR27) para 3.2.2; Leeds City Council (BUR12) para 3.1.1; London Councils (BUR07) para 39; Sheffield City Region (BUR23) para 51; County Councils Network (BUR60) para 30; Greater Manchester Combined Authority (BUR55); Andy Hall at Q80 and Sean Nolan at Q129

288 Birmingham City Council (BUR27) para 3.2.2

289 Sheffield City Council (BUR23) para 49

290 Birmingham City Council (BUR27) para 3.2.2

291 Leeds City Council (BUR12) para 3.1.1

292 Q80

293 New Local Government Network (BUR22) para 2

294 Leeds City Region (BUR12) para 3.1.1

295 Sheffield City Region (BUR23) para 51

296 Sheffield City Region (BUR23) para 51

297 Sheffield City Region (BUR23) para 51

298 Greater Manchester Combined Authority (BUR55)

299 County Councils Network (BUR60) para 30; Local Government Association (BUR14) para 4.6. See also Essex County Council (BUR19) para 15

300 Westminster City Council (BUR54)

301 Sheffield City Region (BUR23) para 51




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9 June 2016