LGA: Councils should use business rates retention to prop up struggling services

Councils should be able to use extra cash raised from the change to 100% business rates retention to prop up underfunded local services, the LGA has today told central government.

The announcement was in response to a National Audit Office’s (NAO’s) report on business rates that underlined a number of “clear risks” that Whitehall needed to identify to make the scheme a success.

The report said that the ‘key question’ over business rates should be whether there was enough money in the system for councils to be able to deliver services efficiently and effectively.

The NAO also argued that while the department was making good progress, there was still a considerable amount of work to do to ensure that plans are delivered properly.

There were also concerns raised that DCLG needed a good understanding of the link between business rates and economic growth to ensure the scheme maximises economic growth, rather than simply growth in the tax base.

Cllr Claire Kober, chair of the LGA’s Resources Board, said that it was vital that councils maximise the potential that further localisation of business rates offers to communities and businesses.

"While it won't in itself solve the long-term funding challenges facing councils, it is absolutely critical to ensure any new system works effectively,” she added.

“As the NAO has rightly recognised, it has to fundamentally be underpinned by a proper needs assessment implemented in a way which balances rewarding councils for growing their local economies, but avoids areas less able to generate business rates income from suffering as a result.

“Decisions over which grants and responsibilities councils will have to pay for from any extra business rates income are crucial.”

But Cllr Kober also pointed out that councils will continue to face funding pressures over the next few years, and that the LGA remains clear that authorities must first and foremost be able to use extra business rates income to plug this growing gap before any extra responsibilities are considered.

“Local authorities should then be able to invest the rest into services which support local economies and drive local growth, such as closing skills gaps and improving public transport,” she argued. “Provisions for business rates appeals to be managed centrally represent a significant step in the right direction towards protecting councils from the growing and costly risk of appeals.

“Councils have been forced to divert £2.5bn away from stretched local services over the past five years to cover the risk of business rates appeals, as they have to fund half the cost of any backdated refunds and could become liable for 100% of refunds.

“The LGA continues to work alongside government and councils on how the new business rates system should work.”

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