AGENDA ITEM:

MIDDLESBROUGH COUNCIL

EXECUTIVE REPORT

Government Consultation on Business Rates Retention

Deputy Mayor and Executive Member for Resources

Director of Strategic Resources

October 2011

PURPOSE OF THE REPORT

1.Inform Executive of the Council’s proposed response to the Governments consultation on its proposal for business rates retention.

SUMMARY OF RECOMMENDATIONS
  1. Executive are asked to:

a) Support the key principles of the proposed response to consultation.

IF THIS IS A KEY DECISION WHICH KEY DECISION TEST APPLIES?

33. / It is over the financial threshold (£150,000)
It has a significant impact on 2 or more wards
Non Key / 

DECISION IMPLEMENTATION DEADLINE

4. For the purposes of the scrutiny call in procedure this report is

Non-urgent / 
Urgent report

If urgent please give full reasons

BACKGROUND AND EXTERNAL CONSULTATION

  1. The Department for Communities and Local Government issued its first consultation paper on its proposal in July 2011. This paper set out the Governments case for changing the current system and set out the framework for the proposed changes. This paper was followed by 8 technical papers issued in August 2011, which set out in detail the component elements of the proposed system and the options within those proposals on which they wish to consult on in developing the new system. The deadline for consultation on all papers is 24October 2011.
  1. The proposals will be a major change to the way local government is financed from 2013/2014. The current system works on the basis that business rates are set by central government and are collected locally by billing authorities like Middlesbrough Council. The amount collected by the Council is paid across to Central government who pool all of the business rates receipts across the Country and then redistribute the receipts through the formula grant process according to need.
  1. It is the Governments view that the current system provides no incentive for local government to promote economic growth within its boundaries because any growth in business rates is not retained by the authority collecting it. The Government believes that if local authorities are able to retain significant proportions of the business rates generated in their area then there will be a strong financial incentive for them to promote local economic growth.
  1. They key issue with the proposal is that some authorities collect less than they receive and some collect more. Middlesbrough collects approximately £38 million from businesses in the town on behalf of the government and receives back from the Government £66 million. A net ‘gain’ of £28 million. Westminster on the other hand collects £1.236 billion from businesses and receives back £143 million. A net ‘loss’ of £1.093 billion.
  1. Middlesbrough is heavily reliant on the central government support it receives through the redistribution of business rates and as such is at risk through any change to the system, which could see that support reduced.

Key principles in the response

  1. There are a total of 99 individual questions within the consultation papers. The Council’s response to these questions is based on the following key principles:
  • The new system must be fair and acknowledge the importance of funding statutory services, so that councils like Middlesbrough, who are heavily reliant on government support, are not disadvantaged by the proposals and that Middlesbrough residents are not victims of a postcode lottery for council services.
  • That the underlying unfairness in the current local government finance settlement is corrected before the start of this system so that this unfairness is not perpetuated into the future.
  • The Council does not accept the link between local authority actions and the level of non-domestic rates received.
  • Allow for and acknowledge, at the outset, the fact that some areas such as Middlesbrough are limited in the amount it can raise in taxes locally because of its smaller tax base.
  • Adequate safeguards are in place to protect councils who will not see increases in business rates or lag behind others.
  • No council should be allowed to benefit from excessive growth in business rates as a result of its favourable geographical location, such as London or the South East or fortunate economic conditions.
  • That any additional resources that may be generated by the Government under the proposals remain within local government to fund services.
  • Need for the Government to recognise the increased uncertainty the proposals will have on local government funding and the increased difficulty it will place on Councils in budgeting, which is already stretched because of the levels of funding reductions already announced.

EQUALITY IMPACT ASSESSMENT

  1. Not Applicable

OPTION APPRAISAL/RISK ASSESSMENT

  1. Not Applicable

FINANCIAL, LEGAL AND WARD IMPLICATIONS

  1. Given the complexity and the variables within the proposals, the financial implications cannot be evaluated at this stage. However, if business rates growth in Middlesbrough lags behind other parts of the country, then without proper safeguards within the Government proposals, the financial resources available to the Council will be reduced.
RECOMMENDATIONS

14.It is recommended Executive

a)Support the key principles of the proposed response to the consultation.

REASONS

15.To ensure that the Council’s view on the Government proposals are considered as part of its consultation process on the proposal for business rates retention.

BACKGROUND PAPERS

The following background papers were used in the preparation of this report:-

Communities & Local Government consultation papers

-Local Government Resource Review: Proposals for Business Rates Retention (main paper)

-Local Government Resource Review: 8 Technical Papers

AUTHOR: John Shiel, Assistant Director of Finance

TEL NO: 01642 729548

______

Website: