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Councils will need income ‘safety net’ under business rates devolution

Business rates devolution risks leading to “instability” for local authority incomes, according to a group set up to look at the proposals.

Papers from the first meeting of the Local Government Association (LGA) and Department for Communities and Local Government (DCLG) joint steering committee, established to provide information and expert advice on the new scheme, echoes existing warnings that the proposals could leave councils worse off by putting them at the mercy of changing local business incomes.

The paper says that instead of full financial devolution, councils will still need a ‘safety net’ to protect their incomes under the scheme.

It says: “Under 100% rates retention the potential instability of rates income becomes even more critical to authorities, since a larger proportion of their service funding is dependent on their rates income – and this is particularly true for authorities who are heavily dependent on their assigned share of business rates, rather than top-up funding.

“Notwithstanding any measures under 100% rates retention to reduce volatility, it is likely that some form of “safety net” will still be needed to provide for authorities in the event that the loss of business rates income is too great for them to continue to deliver appropriate services. For example, where a council is faced with a significant loss of income following the closure of a major ratepayer. This situation will not (and cannot) be anticipated through an accounting provision.”

The paper suggests that part of implementing the scheme involves finding ways to minimise the impact of volatility on individual councils, or finding ways to calculate the provision councils need to ensure they don’t suffer a loss of income, and more systematic pooling of risk between local councils.

It also says that the scheme will make it unclear whether properties should be placed on the local or central list for business rates.

The group are also calling for local councils to submit their views on which powers should be devolved to local government, including administration of housing benefit for pensioners, public health funding, skills, employment and transport funding.

Issues they are considering include the extent to which the devolution of responsibilities could support economic growth, whether there is a case for ‘bespoke devolution’ where certain responsibilities are devolved in some areas but not others, the cost of devolution and existing pressures on services.

Council leaders in areas such as Liverpool, Cambridgeshire and Greater Manchester, where business rates devolution is already being piloted, warned the Communities and Local Government Committee last week that there are a number of inequalities with the scheme, which could be made worse by the business rates cuts announced in the March Budget.


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