Councils should have retained business rates as extra revenue

The Housing Communities and Local Government Committee has reported that the money councils receive from the further retention of business rates should be an additional revenue, and not replace existing sources.

The government's intended 75 per cent business rate retention in 2020-21 will generate approximately £6 billion extra for local government, although, as the committee’s reports highlights, ministers intend for this additional revenue to replace existing grants to local government.

Therefore, the committee stresses that, in order to preserve and support struggling local services, extra revenue from the retention of business rates should be kept by councils on top of current funding. Additionally, it argues that the government must ensure that any new responsibilities placed on councils from further business rate retention are linked to stimulating and promoting economic growth.

Clive Betts, chair of the committee, said: "Many councils across the country are in a difficult financial position, with huge pressures on a whole range of provisions from children's services through to road repairs. After many years of financial constraints, the government now has an opportunity to go some way towards protecting vital services for taxpayers by ensuring that any extra revenue from the retention of business rates can be kept by councils on top of current funding.

“The government also needs to move quickly to spell out a detailed timetable for funding reform. The current uncertainty means councils are being pessimistic about their financial futures, which risks impacting on the frontline services that residents rely on."

Responding to the report, Local Government Association Chairman Lord Porter said: “ We are pleased that the Committee is backing our call for councils to be able to use extra business rates income to plug this growing gap. Delays to when business rate reforms will be implemented mean councils are facing a financial cliff-edge in two years that the government has to address.

“Introducing a fairer funding system and allowing local government to keep every penny of business rates collected to plug funding gaps is now the only way the government can ensure local authorities are able to protect the services communities rely on into the next decade and beyond.”