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‘More options needed’ as rates retention to leave counties worse off

Business rates retention could leave counties worse off rather than make them more financially self-sufficient, with the funding gap widening over time and threatening to reach £700m by 2029 – on top of any existing gap at that point.

The findings come as part of independent analysis commissioned by the County Councils Network (CCN), which modelled the impact of 100% rates retention in England as promised by central government.

While future proposals on where to take the policy are currently in doubt after relevant legislation was dropped from the Parliamentary calendar, DCLG has recently invited bids from all parts of the country to pilot full retention during the next financial year.

But county books could take a hit if they decide to join the scheme as it stands. The analysis uncovered a potential diverge between what counties would retain in rates and their cost pressures, with business rates growth failing to keep up with “acute demographic and service pressures.”

In contrast, other parts of the country, such as London boroughs and district councils, could “disproportionately benefit” from the pilot.

The CCN’s finance spokesman and leader of Leicestershire County Council, Cllr Nick Rushton, said his organisation is publishing the analysis in the hopes of setting the pace in discussions over how local government could be funded “during this reflective period.”

“Our research does not aim to dissuade counties from taking part in the pilots, but as a supporting body of evidence to inform their decisions,” he explained. “The modelling we have released shows the unique challenges facing county authorities in implementing 100% business rates retention.

“CCN is supportive of moves towards greater local retention, alongside wider fiscal devolution, but we must ensure the system provides sustainable long-term funding and a platform to truly incentivise growth and self-sufficiency.”

As a result, the organisation believes more options should be on the table – something which ministers “have indicated is the case in halting the legislation.”

Since the government published its pilot prospectus, the CCN has been raising concerns that the DCLG has not included a ‘no detriment’ cause in plans, in contrast to the previous round of pilots. As a result, some counties believe the lack of this clause – alongside just a year to pilot the policy – could deter potential bids and may result in only ‘high growth’ county authorities coming forward.

Although the research undertaken considers the impact of the retention scheme beyond just a year’s pilot, looking instead at a whole decade, the CCN questioned whether “it is equitable that the 2018-19 pilots are treated differently to the first round.”

“These findings clearly demonstrate the need for a fairer funding formula as part of wider reforms to local government finance. These reforms must stay on track and government should not shy away from adopting a new approach to measuring relative need; one based on real cost-drivers, not past spend,” argued Cllr Rushton.

“The current the system is completely unfair on county authorities. If government provides full funding for unfunded pressures through a transparent and fair funding formula it should feel confident it can win the support of the sector, and importantly, MPs.”

(Top image c. Alphotographic)


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