CIPFA Penna Associate Event Highlights - Business Rate Retention

Back

24 Jan 2018

CIPFA Penna Associate Event Highlights Business Rate Retention

CIPFA Penna hosted our first Continued Professional Development (CPD) event of 2018 last Thursday, 18th January. We welcomed a number of our interims and clients into Fleet Place for an evening presentation on the Local Retention of Business Rates, by Clive Heaphy who is currently (thanks to Penna!)  Corporate Director Finance & Governance for Birmingham City Council.

What is Business Rate Retention?

Prior to April 2013, government collected business rates from local businesses which went into a centralised pot which was then redistributed amongst government (central and local).  Local government was given the power, through the Local Government Finance Act 2012, to keep half of the income from business rates by splitting it into two shares, local and central. The central share is collected and then redistributed to councils based on another formula, and in the form of a revenue support grant, and the local share is retained by local authorities. 

In 2015, The Chancellor announced that Local Authorities are to keep 100% of business rates that are raised locally with  100% retention being in place by 2020, meaning that local government funding will come wholly from business rates and council tax.

There are two sides to this coin; one is that the change is clearly there to incentivise economic growth in their area, but then on the flip side is creating uncertainty on the local government purse.

Local Government View

There are a number of complexities involved and not a one size fits all in terms of funding received for local councils. For example, some authority’s pay a tariff, while some receive a top up. One key point was also raised in that local authorities keep 50% of any growth in local rate income.  but they also suffer from 50% of any reduction.  It doesn’t sound like a win/win for all, but what is the alternative?

The LGA (Local Government Association) surveyed local authorities and found that overall, “respondents tend to agree that the retention scheme created a strong incentive to grow the business rate tax base. More than two thirds agreed, and 58 per cent said that this was the single best outcome of the reform”[1]. However, 74 per cent expressed concerns of their risks from appeals and 66 per cent were too dependent on fewer large businesses...

There will no doubt be risks as well as opportunities – and this is something you can explore further from the LGA report which the aforementioned survey results derived.  The full report, Business rate retention: the story continues can be found here:

[1] https://www.local.gov.uk/sites/default/files/documents/business-rate-retention-s-96f.pdf.

Food for Thought

It was insightful to hear Finance Directors and their peers discuss how business rate retention has been for them individually. For example, a member of staff from one council felt that regeneration and economic growth was already a priority prior to business rate retention, and therefore wasn’t really stimulating growth per se. Some thought provoking questions were asked and discussed amongst the room, which I share with you below to stimulate thoughts.

Did the system have any negative effects or did any risks materialise?

Is Business Rates just a side show/distraction - the real issues are about grant reductions and the fair funding review?

Is the potential for catastrophic losses in some places (e.g. where there is a relatively small number of major employers) such that those authorities are even more cautious than might have otherwise been the case?

Is there a better alternative?

 

Gemma Matin

Senior Consultant, Local Government
Executive Interim