Javid unveils 3% tax ceiling but drops 2020 business rates target

In a major overhaul of funding, communities secretary Sajid Javid announced today that local authorities will now be able to increase council tax by 3% each year without a referendum.

Javid also said plans to scrap the revenue support grant (RSG) and raise business rate retention to 100% by 2020 would be put on hold, instead opting to target for 75% retention by 2020-21.

“The government wants local authorities to retain 75% of business rates from 2020 to 2021. This will be through incorporating existing grants into business rate retention including RSG and the public health grant,” the DCLG said in a statement, adding: “Having considered responses to the technical consultation in the summer around the issue of ‘negative RSG’ in 2018 to 2019, following the delay in implementing full business rates retention after the election, Mr Javid confirmed that the government will be looking at fair and affordable options for dealing with this ahead of consulting on proposals before next year’s settlement.”

Today’s provisional local government finance settlement for 2018 to 2019 – the third year of the four-year offer accepted by councils in 2016 – also includes measures aimed at making it easier for police and crime commissioners to meet local demands, with a new £12 council tax flexibility added for public services.

Following the announcement, LGA chairman Lord Porter, who will be writing about the settlement in the Feb/March edition of PSE, commented: “Greater flexibility for local authorities in setting council tax levels will give some councils the option of raising extra money to offset some of the financial pressures they face next year.

“With no other national tax subject to referenda, the council tax referendum limit needs to be abolished so councils and their communities can decide how under-pressure local services are paid for, with residents able to democratically hold their council to account through the ballot box.”

Javid also used the opportunity to announce a New Homes Bonus baseline – which will be maintained at 0.4%, despite calls last year for a reduction – and increase the rural services delivery grant by £15m in 2018 and 2019.

In addition, he revealed that the government will continue the capital receipts flexibility programme for a further three years, allowing councils to use sales of their assets flexibly.

Funding fears not sufficiently addressed

Cllr Paul Carter, chairman of the County Councils Network (CCN), said county councils were disappointed that the government had not paid heed to calls for the extension of the transitional grants introduced in 2016.

“Increasing council tax by an additional 1% could allow areas to raise some limited additional resource, but this is not a substitute for genuinely new funding and will further increase council tax burdens faced by county residents who already pay significantly more than other parts of the country,” he continued.

“We welcome a consultation on removing negative RSG and a small £15m increase in the Rural Services Delivery Grant, but this will do little to ease the financial challenge next year.

“We hope the government will look again at their decision not to extend transitional grants. CCN will be working with member councils and local MPs in the lead-up to the final settlement to highlight this critical issue.”

Cllr John Fuller, chairman of the District Councils’ Network, echoed some of Carter’s fears and added that, although some of the announcements were positive, the government had not fully dealt with funding concerns.

“Whilst simplification of the current system is necessary, simplicity should not be an end in itself, if it results in the fine texture of local districts with their special requirements being ignored,” he stated.

“We will now consider in detail the consultation on the new distribution methodology, in order to ensure that the vital services delivered by districts continue to be properly funded and that growth is both incentivised and rewarded.”

Labour’s Andrew Gwynne, shadow communities secretary, also criticised Javid’s announcements.

“Local government is under enormous pressure because of politically motivated Tory cuts that have hit the poorest areas hardest since 2010. Local councils have seen their budgets slashed by 40% since the Tories came to power,” he argued.

“The council tax precept has already proven to be an inadequate and short-term sticking plaster for a problem which needs long-term answers. Shifting the burden on to council tax payers creates a postcode lottery in services with the most deprived authorities suffering most.”

Pilot schemes for 100% business rate retention have been taking place in a number of different areas already, and Javid revealed plans for a further five councils to be added to the scheme, on top of the five initially planned to join between 2018-19.

The new pilots will take place in:

  • Berkshire
  • Derbyshire
  • Devon
  • Gloucestershire
  • Kent & Medway
  • Leeds
  • Lincolnshire
  • Solent
  • Suffolk
  • and Surrey

Top image: Foreign Office

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