County Councils support full baseline reset of business rates

Responding to the Housing, Communities and Local Government’s latest consultation on Business Rate Retention, the County Councils Network (CCN) has called on the government to proceed with a planned full baseline reset in 2020 when it introduces 75% business rate retention.

The CNN said that national ‘default’ tier split between counties and districts was a ‘necessity’. Looking beyond 2020, CNN supports the proposal for a phased reset.

The response also outlined that while they welcomed the reforms, there was a need to acknowledge concerns with the overall sustainability of the business rates system; with suitable taxation of large online retailers considered and further fiscal devolution as part of the long-term funding of local government in the Spending Review.

Since its introduction, counties have not benefitted from the move towards 50% retention of business rates as much as other classes of authority, with mixed experience between counties near major transport routes or large conurbations benefiting more than areas which are more rural and remote.

CCN said that if the proposals were implemented correctly, they could help ensure counties realise their ambitions in supporting local growth, allowing local government to shape their local economies, recognising their strategic role in generating local economic growth as well as the higher demand-led pressures that they face.

The network welcomed the government suggestion that there was “appetite for change within the sector” on the tier split and was exploring the possibility of a joint proposal with the District Councils Network.

However, CCN has set out four key principles to inform the discussions. These include the principle that the existing tier split should ‘not in any way be used a baseline for establishing a national tier split’, and that a higher tier split would better balance risk and reward between councils; limiting the extent of top and tariffs in county areas.

Counties urge the government to proceed with its plan full baseline reset in 2020, but looking beyond this point, supported the proposal for a phased reset.

The CCN response argued that a full baseline reset was needed to ensure that 75% business rates retention and the outcome of the fair funding review both come on-line properly at the start of the 2020/21 financial year. Many authorities are currently benefitting excessively from the business rate system and a full baseline reset is an effective way of creating a fair redistribution of these gains ahead of new settlement for the sector at the Spending Review.

More widely, the network welcomed the proposals for the simplified administration of the system, with the opportunity for counties to have more control over the system and the financial rewards that they receive. However, they said that there is a considerable amount of work still to be undertaken before a viable system can be unveiled.

CCN also backed the proposal to retain a levy on growth – a policy that was previously ruled out by the previous government who initiated reforms in 2015 - butcannot support the suggestion in the consultation paper that the threshold could be as high as 150%, arguing that this would allow some authorities (with large growth and high gearing) to retain excessive growth. CCN suggests a much lower threshold of 20%.

Cllr Nick Rushton, County Councils Network finance spokesman, and leader of Leicestershire County Council, said:

“The government’s aim is to reset the dial on local government funding from next year, with the introduction of a fairer funding formula to fix a broken system, and greater fiscal autonomy through increased business rate repatriation.

“With some councils benefitting excessively from business rate retention, the only way to effectively do this is for a full baseline reset to take place in 2020 – with phased reset after this point – to create a fair distribution of rates as the new finance system comes in.

““It is also imperative that the government outlines in a default national tier split between county councils and district councils. There is a lot of goodwill on both sides to create a joint position on tier splits and we will meet shortly with colleagues from DCN to discuss the issue further.

“Importantly we have set out a number of principles from the county perspective to inform the negotiations, not least that changes to the existing tier split must be on the table and our objective must be to better balance risk and reward between the tiers.

“The government also needs to acknowledge that it is implementing a new system in a rapidly-changing world where online sales continue to rise. Ensuring that this new business rates retention policy is sustainable in the long-term is paramount. However, we do welcome the government’s ambition in going forward with the policy – the easy option would have been to consign it to the ‘too difficult’ box.”