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22.03.16

Clark admits government don't know compensation for business rates cuts

Communities secretary Greg Clark failed to answer questions about the impact of the government’s devolution of business rates to local councils in a House of Commons session.

Clark confirmed that the devolution of business rates will mean £26bn income for councils. But when asked by Clive Betts, Labour MP for Sheffield South East, and chair of the Communities and Local Government Committee, about an Institute for Fiscal Studies prediction that it will be impossible to compensate for changes in small business rate relief once national grants are removed, Clark said that the amount of compensation had not yet been calculated.

In last week’s Budget announcement, chancellor George Osborne promised an increase in the threshold for business rates relief for small businesses.

The Treasury’s figures estimate that the rates cuts could cost local government £5.9bn from smaller businesses by 2021, £460m from the higher rate and £370m from changes which mean that the business rates will follow the consumer price index instead of the retail price index.

Barry Sheerman, Labour MP for Huddersfield, asked why the government was “mucking around with local government finance” while taking away local government power over areas such as education.

Clark said: “For generations, local government has argued that it should be financed from its local revenues. It has taken this government, in devolving powers and finance, to say that every penny of business rates raised by local government should be kept by local government.

“The hon. Gentleman talks about the devolution of powers, but he will know that many members of the Labour party in towns and cities across the country have welcomed the devolution of powers to local government under this government, which is something that I am very proud of.”

Council finance leaders also recently raised concerns about the consequences of the business rates devolution in an appearance before the Communities and Local Government Committee.

When asked by MPs Clive Lewis (Labour, Norwich South), Andy McDonald (Labour, Middlesbrough), Simon Danczuk (Independent, Rochdale), and Liz McInnes (Heywood and Middleton, Labour) if the government was giving less funding to opposition-controlled councils, Clark replied that the areas in question were receiving increased funding as a result of changes in methodology.

(Image c. Dominic Lipinski from PA Wire)

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