Business rates devolution will fail counties without ‘critical’ redesign, CCN says
The design of the new business rates regime – with particular consideration to the retention system in two-tier areas – is “absolutely critical” to its success, the County Councils Network (CCN) has said as research revealed business rates income in urban areas “far outstrips” the amounts raised in rural regions.
The study, commissioned by the CCN, showed that despite shire counties producing 41% of GVA in England, they have much larger numbers of business ratepayers claiming reliefs. As a result, they receive “dramatically less” business rate income per head compared to urban areas. In London, for example, this translated to £3,700 per head compared to £851 in county areas.
Research also uncovered wide variation in business rates across county areas themselves, with individual districts within a single county seeking “markedly different” income from business rates in the last six years.
In contrast, spending pressures on vital services such as social care are set to increase most in shire counties, the CCN said – making income from business rates unlikely to keep up with cash demands.
The CCN said the marked difference within individual counties proved that two-tier areas need to put forward a “viable option” for business rates retention that ensures all areas benefit from the devolved system equally. County representatives are currently working closely with the District Councils Network on this issue.
But more broadly, the proper design of the devolved business rates model itself is fundamental to its success, with safety nets and frequent ‘resets’ needed to ensure urban areas don’t receive disproportionate amounts of funding.
Counties also called for the fiscal freedom to increase business rates without an elected mayor, helped by a national infrastructure investment strategy targeted at rural regions.
Cllr David Borrow, CCN’s vice-chairman and finance spokesman, also emphasised the priority of getting the needs-based review of funding right, which would then “set a template” for a sustainable and fair rates retention system.
He commented: “We welcome the move towards financial self-sufficiency. But we urge Whitehall to work with county and district authorities to ensure that growth is not concentrated in small pockets of the country.
“This study shines the spotlight on just how complex the system is to create a scheme that delivers for local authorities, businesses and residents, particularly in two-tier areas. The rate retention is system needs to be designed in a carefully considered in an open, transparent and fair manner.
“But before that, we must get the needs-based review of funding right, to set a baseline that properly assesses what counties need to fund an acceptable level of services, both in the present, and future. Then we can look at setting a sustainable rates retention system that does not simply deliver for small pockets of the country.”
Albeit largely welcome, the devolved scheme has been harshly criticised since its creation, with several bodies arguing it will create unequal fiscal incentives depending on the wealth of each authority. Most recently, the IPPR predicted the scheme would “fail on the government’s own terms” without sizeable reforms.
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