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Business rates devolution must be ‘fiscally neutral’ for councils in long term

Plans to devolve business rates must be fiscally neutral in the medium and long term, district and county councils have said in their responses to the DCLG’s consultation ‘Self-sufficient local government: 100% business rates retention’ .

The proposals have raised concerns among councils about risks, such as the possibility of councils in areas with less business activity receiving less money.

Former chancellor George Osborne announced increased business rates relief for small businesses in the March Budget, again raising concerns about a loss of funds.

In its consultation response, the District Councils’ Network (DCN) said: “The DCN, together with the rest of the local government community, would like to make the point in the strongest possible terms that the transfer of any new responsibilities must not only be fiscally neutral to each local authority at the point of transfer, it must remain fiscally neutral in the medium to long term.”

Similarly, the County Councils Network (CCN) said it welcomed the “significant opportunities” presented by business rates retention, but that the system must be “designed with rigour”.

In particular, it said the government should provide councils with funding to compensate for mandatory business rates relief.

The CCN has previously called for safety nets and resets to ensure that county councils, which have less business rates income because they have much larger numbers of business ratepayers claiming reliefs, don’t lose out under the proposals.

When asked which responsibilities should be devolved along with business rates, the DCN said it was difficult to answer “without having more specific information about the overall quantum of business rates funding, particularly post-Brexit”.

However, it said it was “completely opposed” to the idea of devolving the Attendance Allowance for personal care, which “could possibly unhinge the new system before it starts”.

It conditionally supported devolving a number of other responsibilities, including local council tax support administration, the rural services delivery grant, and economic growth and skills.

However, it added: “Local government already faces significant budgetary pressures over the coming years, therefore any new responsibilities must be adequately and properly funded.”

The DCN added that before any agreement on which responsibilities are devolved, the government should clarify how it is going to address existing “unfunded pressures”, such as the cost of the National Living Wage.

The CCN also said that the first call on the new funding “must be unfunded and underfunded statutory, demand-led pressures before additional responsibilities are agreed”.

The LGA has also responded to the consultation, saying that the rates must be used to compensate for spending cuts that will need to be delivered between now and 2020.

Government should ‘broaden and deepen the devolution agenda’

In addition, the DCN urged the government to “reconsider whether pooled budgets should only be available for combined authorities”.

It added: “If there are groups or clusters of district councils that wish to come together for common purpose then they should also be allowed a similar mechanism in relation to pooled budgets. The opportunities that may exist for combined authorities should not be at the expense of funding or opportunities for areas that don’t have combined authorities.”

The CCN said councils should have the power to raise a strategic infrastructure levy in addition to business rates and urged the government to “take fast action now to broaden and deepen the devolution agenda”. In addition, it said it supported the “emerging consensus” that “regular, fixed, partial resets” of business rates will be needed.

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