Councils face a funding black hole even if central government accedes to their demand for 100% business rates retention free of additional service responsibilities, according to the Local Government Association (LGA).
The LGA’s Autumn 2017 Budget Submission this week outlined how councils should be allowed to spend the £13bn extra they expect to receive under retention proposals.
“We are clear that further business rates retention may not be sufficient as the only measure to achieve sustainable funding for local services,” the LGA said.
“Growth in business rates is unlikely to be enough to meet future inflation and demand pressures, in particular in demand-driven services such as social care and homelessness; this will continue to need to be addressed going forward.”
Richard Harbord, former chief executive of Boston Borough Council, told Room151: “It was always widely acknowledged that there would need to be a green paper on social care finance and additional ways of funding that which could never come from business rates growth; and the Department for Communities and Local Government did undertake to provide new money for any new initiatives imposed on local government.
“This is the LGA politically warning government that they have to stick to their side of the discussions.”
In June, Room151 reported that the LGA was dropping its original position of assisting the government to identify additional service responsibilities to accompany rates retention.
The association’s 2017 Budget submission firms up this position, with a menu of areas where it says the retained income should be spent.
It called for £1.3bn of the cash to stabilise the adult social care market.
Cash proposals
However, the LGA also said the rest of the cash should be spent on:
- ensuring no authority will be worse off under a new fair funding formula,
- funding future budget pressures from increased service demand
- Replacing some current grants.
“Taking all of this into account would preclude any new or additional responsibilities being transferred to local government as part of the move to greater business rates retention,” the LGA said.
It added that previous decisions about funding some existing grants through greater business rates retention “need to be reconsidered given the other demands on the newly retained business rates”.
The LGA said it was committed to working with the government on proposals to deliver further business rates retention.
Some in the sector had feared that the project had been dropped when the government announced, following the general election, that it was abandoning the Local Government Finance Bill.
However, the LGA said in its submission: “Our analysis suggests that most of the core components of reform can be achieved using existing primary legislation.”
Concerns about the impact of appeals under the current and future system of business rates retention were also raised.
“The Local Government Finance Bill would have dealt with this issue,” the LGA said, “as it introduced a power for central government to compensate councils for losses due to appeals.
“This power should be implemented and funded from the business rate income from properties on the central list.”
Local government pay spine
Elsewhere in its submission, the LGA said that the current local government pay spine will become “no longer sustainable” due to the government’s introduction of the National Living Wage (NLW).
It claimed that a proposed new pay spine would require additional resources from central government.
“The precise costs of assimilation to the new pay spine cannot be determined in advance of negotiations but there are no cost-neutral options,” the document said.
“For example, if the sector did nothing other than apply a 1% pay increase up to 2020 and the NLW reached the current estimated rate of £8.75 per hour, then some 30,000 staff would be paid below the NLW rate.
“This pressure is disproportionate to local government (including school support staff) when compared to other areas of the public sector, such as hospitals.”
