Business rates pilot pooling to drive further devolution in capital

‘Pooling’ of local authority resources in London for piloting the 100% business rates retention scheme has the potential to yield a number of key benefits, including unlocking access to further devolution in the capital, a London councils report has revealed.

The report, which looked into the Spring Budget and 100% business rate retention, stated that a ‘pooling’ – which sees local authorities come together under the business rates retention scheme to aggregate their resources and be treated as a single entity for the purposes of calculating tariffs, top-ups, and levies – was a “precondition” to 100% business rates retention being trialled in London over 2018-19.

In particular, the report highlighted that pooling had the potential to allow for further devolution of responsibilities to local councils, something that would benefit London government, who, it says have the capacity to take on devolution due to the size of its tariff.

A successful delivery of 100% retention of business rates pilots in London pools is also something that has the potential to improve trust between London councils and central government, potentially opening the door for further devolution of powers to local authorities.

The report, authored by Paul Honeyben, acting strategic lead: Finance, Performance & Procurement at London Councils, stated that other benefits could be found from a pooling system which included clear cashable benefits from increased growth retention, savings from removing the Levy as well as access to a share of growth from Central List properties and future retention of growth from local growth zones.

Dialogue with council decision-makers was also seen as a clear benefit from the implementation of pooling, as it was stated: “In negotiating the pilot, it is likely that london government will have greater influence over the elements that are being piloted and what the final 100% system might look like (e.g. the parameters of Local Growth Zones).”

However, London Councils also detailed some areas where pooling may not always bring positive results.

“The current estimates of growth suggest the pool overall would not receive a safety net payment and so consideration must be given to how boroughs, who would be worse off than they otherwise would have been under a 50% retention system, would be compensated under a 100% pool,” the report stated.

Concern was raised that London boroughs could be “locked in” to a business rates arrangement under a new system in 2019/20, but the report stated that one of the key principles would have to be that “London government would reserve the right to dissolve the pool in 2019-20 if final government proposals are not acceptable in individual boroughs”.

London Councils and the GLA have started early discussions with DCLG in relation to a London pilot pool for 2018-19. In addition, the Business Rates Retention Steering Group has set out a clear timeline which has earmarked the “summer” (July-November) to finalise the 2018-19 pilots, with any London pilot pool to be agreed formally in time for the Autumn Budget.

It was noted that government is piloting arrangements for 100% business rates retention ahead of full implementation in 2019-20.

The Local Government Finance Settlement confirmed pilot arrangements in 6 areas for 2017-18, including Greater Manchester, Liverpool city region, the West Midlands, the West of England and Cornwall.

In London, this is limited to the transfer of funding for TfL capital and Revenue Support Grant to the GLA’s retained rates with its share of retained rates increasing from 20% to 37%, while funding for boroughs will be unaffected.

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