Levelling up secretary Michael Gove has indicated moves to 75% retention of business rates have been abandoned as government seeks other ways to redistribute income. Richard Harbord attempts to steer through recent developments.
A number of us thought that the distribution of business rates and the way it fitted into a stable way of financing local government had been resolved. The various working parties set up to deal with business rates and the fair funding review appeared to be a productive exercise, and we even saw draft legislation and the setting up of 75% and 100% pilots.
Then suddenly Brexit overshadowed the whole process. Capable civil servants disappeared to work on Brexit planning, Parliamentary time became scarcer than the dodo and then came the greatest blow of all, a general election.
The pilots continued but I suspect most of us on the various working parties knew that the moment had passed. The fair funding review has disappeared and now the great uncertainty is what the future system will be for the distribution of business rates.
There has been an uneasy silence while we approach the other event agreed at that time: The need for a business rate reset.
Quantum
A number of interesting things came out of the work at that time. Many of us believed that the original allocation of business rates in some kind of equalisation was the allocation of the total quantum of business rates, but that was not so. We also considered the central list and could see no reason why most of the entries there could not be dealt with locally.
Originally, the retention of 50% of growth over and above the original target figures led to the remaining 50% kept by the centre and used to finance council tax reduction schemes.
The question that faces us now is, what exactly is Michael Gove saying? When he gave evidence to the select committee, he suggested that councils may not retain 75% of business rates. He suggested that caution was needed in moving forward on this because “it was against the broader principle of levelling up”.
At the time it was apparent that the quantum of business rates was very large. The proposals put forward were stipulated by the Treasury to be fiscally neutral and that meant changes to the structure of local government financing generally.
The quantum was enough to cover the cost of revenue support grant and 12 direct grants to local authorities (although it is difficult to be precise about that as some grants came and went from the list).
The whole system of business rate retention was to be underpinned by the Fair Funding Review which would allow for equalisation in some way or other. Michael Gove went on to say: “It’s not as crude as seeking to help local authorities in the North more than we help other authorities but if it had to be boiled down to a single sentence then that is very much in my mind.”
Well, in fact, that is what the Fair Funding Review was set up to do—equalise resources. But, in the case of business rates, it is not a simple split between south and north because there are many local authorities who have small amounts of business rates who would also need help.
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Other concerns
Actually, what I find rather more interesting is whether the whole of business rates will come to the local authorities, who currently levy and collect it, or whether the government has proposals for using the balance in other areas of levelling up than that involving local authorities.
There are, of course, other concerns here. The government has proposed a structural review of business rates (although the current proposals show no indication of this) but there are signs in the statements made by the Treasury that they might be thinking of moving to the system used in Northern Ireland of central collection and billing of businesses, not involving local authorities at all.
The other area much discussed in those original working parties were the delays in dealing with appeals and the need to maintain a provision for cases going against the local authority.
Those provisions are still high and indicate that this part of the problem has not gone away even with the changes to the appeals system.
Richard Harbord is former chief executive at Boston Borough Council.
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