CIPFA response to BRR consultation

posted on 03 October 2016, updated on 03 October 2016

CIPFA has said that there are inherent tensions at the heart of the plan to allow local authorities to retain 100% of local business rates, which will have to be managed carefully if it is to be a long-term success.

In its response to the Department for Communities and Local Government’s (DCLG) consultation Self-sufficient Local Government: 100% Business Rates Retention, CIPFA agrees the proposal is a positive step towards greater financial autonomy for local authorities. However, the long-term opportunities come with a number of short- and medium-term challenges.

CIPFA’s response to the consultation includes eight key points:

  1. Government must find the right balance between those areas with strong business rate prospects and those without. A number of trade-offs will be required, for example, ‘how much business rate growth can individual councils keep’ and ‘how much will be used to help those less well-off elsewhere’.
  2. The review of needs implies a potential major redistribution of resources on day one of the launch of the new 100% scheme in 2020. This will cause a lot of uncertainty and financial volatility for individual councils between now and 2020. Government must consider how to minimise the uncertainty and to avoid councils feeling forced to set money aside between now and 2020 just to cope with the day one risk.
  3. Government should ensure that they engage independent experts as part of the process to advise on the best and most appropriate statistical approaches to use when reviewing complex formulas as part of the review of needs.
  4. CIPFA supports periodic resets to rebalance differences in business rate growth and need between councils over time, but calls for a debate about what is an acceptable level of divergence in spending power between different areas and councils over time.
  5. CIPFA feels a significant proportion of the additional quantum of money that comes with 100% retention should go to existing service pressures facing local government, but a significant proportion should be used to allow local government to deliver improved growth and social outcomes for it citizens.
  6. The final design needs to be stress tested against different spend and resources assumptions over the medium and long term and not just testing it works on day one.
  7. CIPFA has advocated the transferring of new responsibilities where local government can directly influence improved economic growth and better social outcomes, however, the DCLG must ensure any new responsibilities do not represent a high risk portfolio of new demand-led services that outstrip business rate growth.
  8. Finally, it is vital that potential impacts on local budgets are shared early and often with local government to ensure sensible local financial planning.

Sean Nolan, Director of Local Government at CIPFA, said: “The move to 100% business rates retention is not simply a technical matter, but represents a step-change in how all our vital local government services will be funded in future.

“The long-term opportunities for local government come with short-term challenges and trade-offs will need to be made if the reforms are to succeed. The launch of the scheme could coincide with a major shift of resources between councils and thereafter, and at the heart of those challenges is the trade-off between those areas with strong local business rates prospects and those where the reverse is true.

“Fundamentally, that will raise the inevitable question as to what is considered to be an acceptable level of divergence over time in local spending power between local councils and areas as part of a national funding framework.

“We must also consider the risks and challenges around the volatility of business rates income. The final design must be thoroughly stress tested, not just on day one, but over time, so that changing pressures and business rate profiles can be fully assessed.”

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