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Councils warn ‘one size fits all’ approach won’t work for business rates devolution

Problems with ensuring fair funding through the business rates system have been pointed out by councils following an interim report from the Communities and Local Government Committee.

The report warned that many councils had raised concerns about losses they could suffer through appeals once they are wholly responsible for business rates.

Mayor Jules Pipe, chair of London Councils, welcomed the report and said that London Councils would work with the government to find a solution.

“It is vital that government gets this right to avoid creating significant knock-on effects as further responsibilities are devolved, and local authorities rely evermore on business rates income to fund the services they provide,” he said.

Mayor Pipe added that “one size fits all” approach would not be suitable because of the different types of local authority across the country.

He said that some London boroughs have as much as 40% of their income tied up in the appeals process and there was a risk that services would not be funded under the new system.

Cllr David Borrow, finance spokesperson for the County Councils Network (CCN), also praised the report for highlighting unfairness in how business rates income is currently distributed in two-tier councils.

He said county and district councils and national government must work together to ensure a fairer distribution of resources before the new system was introduced.

“In a new world of financial self-sufficiency, it is critical that funding follows needs and provides a sustainable financial footing for the continuing provision of life critical services such as adult and children’s social care,” he said. “It must also enable and reward upper-tier councils for delivering the vital infrastructure and investment in local economies that allows private enterprise to thrive.”

Alexandra Jones, chief executive of think tank Centre for Cities, said that in addition to addressing the issue of backdated appeals, the system should be changed to allow for more frequent valuations of properties and to replace the requirement for business rates to generate a fixed yield with a fixed rate system.

The report also warned that areas with lower business rates income could suffer funding shortfalls under the new system.

Jones said this should be addressed by giving places “sharp incentives” to grow.

“That would encourage places to grow their economies, while also increasing the money for much-needed redistribution to places with weaker economies,” she said.

(Image c. Images of Money)

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