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

8The business rate retention pilots

121.There are currently two ‘additional business rate retention pilots’ in operation in England: in Cambridgeshire and Peterborough and in Greater Manchester and Cheshire East. These were announced in the March 2015 Budget:

Additional Business Rate retention pilots—The Government will pilot schemes in Cambridgeshire and Peterborough, and, subject to formal approval of Greater Manchester Combined Authority, in Greater Manchester and East Cheshire from 1 April 2015 to retain 100 per cent of any additional growth in business rates above expected forecasts.302

A year later, the 2016 Budget announced the piloting of 100 per cent retention in Greater Manchester and Liverpool City Region, and “any area that has ratified its devolution deal”.303 The Government also said that the share of business rates retained by the Greater London Authority would be increased and, alongside this, responsibility for funding Transport for London’s capital projects would be transferred. In addition, the Government said it would explore options for moving to 100 per cent retention in London ahead of the full roll-out of the business rates reforms in 2020.304

The 2015 pilots

122.We invited witnesses from Cambridgeshire and Greater Manchester to give evidence on how the 2015 pilots were progressing. They told us that progress had been slow and that there had been problems with implementing the scheme, particularly with how to approach appeals.305 In follow-up evidence to the Committee, Sharon Gregory, Group Accountant for Cambridgeshire and Northamptonshire County Councils, who has been overseeing implementation of the Cambridgeshire and Peterborough pilot, said “there has been a significant delay in securing agreement from the DCLG on how the scheme will work in practice. This has also been the case for the Manchester authorities”.306 She went on to say that the latest proposal was issued by the Department on 29 April 2016, over a year after the pilot was first announced.

123.The Government said that the 100 per cent retention pilots would “help to develop the mechanisms that will be needed to manage risk and reward under 100 per cent retention”.307 Given that it has taken over a year to reach agreement on the 2015 pilots, we think it is unlikely that the 100 per cent retention pilots will be operational and producing useful outcomes in time to inform the national roll-out of the reformed system in less than four years. Moreover, additional written evidence from the Greater London Authority (GLA) and London Councils said that 2018–19 was the earliest possible date that the 100 per cent retention pilot could begin in London,308 and the GLA said it was possible the process could be delayed by the review of the needs assessment.309

124.We understand that the main reason for the delay in implementation of the 2015 pilots was reaching a decision on the treatment of appeals, which the Department had agreed could be “disregarded from the growth calculation”.310 As noted in chapter four, we were interested to hear that the appeals will be dealt with separately311 and anticipate that consideration will be given to applying this approach to the reformed system. Indeed, Richard Paver, the Treasurer for Greater Manchester Combined Authority, said that appeals were the “biggest single” lesson which could be taken from the pilot:

We are working in a sense to disregard them and take them out of the calculations so that we can get a true measure of growth. We have accepted that variations in reliefs, collection, academies and things fall within the purview of what the ten authorities are responsible for in terms of business rates calculations, but appeals just swamp those, so the work we are doing at the moment alongside Cambridgeshire is to strip that out so that we do have a measure.312

The 2016 pilots

125.At this early stage, there is very little detail available about how the pilots announced in 2016 will function and the timescales for them. What effect the 100 per cent retention pilots would have on the eventual 100 per cent retention reforms was a cause for concern for some of our witnesses. Sean Nolan, Senior Local Government Advisor at CIPFA, was concerned that the pilots might lead to an incoherent national approach to 100 per cent retention.313 David Magor, the Chief Executive of the Institute of Revenues Rating and Valuation, was concerned about whether areas without pilots would be left behind:

There is a real danger here that you have more and more trial areas and you will end up with rural wasteland areas that are not included in trial areas. There needs to be some clarification about how the trial areas are going to work and what that actually means in the long term.314

126.In contrast, our witnesses from the pilot areas were optimistic. Our London witnesses welcomed the 2016 pilot. The Deputy Mayor of London, Sir Edward Lister, said that it was important because it would ensure the city long-term funding for infrastructure.315 Guy Ware, Director for Finance at London Councils, said that it was also an opportunity for London and other regions to explore the “inevitable trade-offs between investment to keep the place working and to improve its ability to grow and remain liveable, and funding for the day-to-day services for people”.316 In their follow-up evidence to the committee, the GLA also pointed out that the pilot in the capital would have implications for local authorities in the rest of England.317

127.The Mayor of Liverpool’s reason for welcoming the pilot was, however, quite different. He said that he was “delighted”318 to participate because it was an opportunity for Liverpool City Region to demonstrate “what support needs to be given to us for us to be able to sustain ourselves”.319 He explained the city region’s position further:

There is a clear difference between Kensington in Liverpool and Kensington in London. If we had the business rates of Kensington in London, I would not be sitting here talking to you; I would be creating new business in Liverpool. The argument for participating in the pilot is to show that unfairness.320

Issues for consideration:

302 HM Treasury, Budget 2015 (March 2015), p38

303 HM Treasury, Budget 2016 (March 2016), p70

304 HM Treasury, Budget 2016 (March 2016), p81

305 Q192

306 Letter from Sharon Gregory to Committee Chair (6 May 2016).

307 HM Treasury, Budget 2016 (March 2016), p70

308 Letter from Sir Edward Lister to Committee Chair (28 April 2016); Letter from Mayor Jules Pipe to Committee Chair (4 May 2016)

309 Letter from Sir Edward Lister to Committee Chair (28 April 2016)

310 Q192

311 Q192 and Q200

312 Q200

313 Q153

314 Q122

315 Q246

316 Q246

317 Letter from Sir Edward Lister to Committee Chair (28 April 2016)

318 Q207

319 Q211

320 Q207

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9 June 2016