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On 5 October the Chancellor announced changes to business rates in his Conservative party conference speech. Since 2013, local authorities have been able to keep around half of business rates collected with the rest being sent to central government. Under new proposals local authorities will be able to keep all money collected via business rates. Combined Authorities will also have the power to raise rates by up to 2p in the pound where they agree to have a directly elected Mayor where the increase is supported by the majority of the business representatives on the LEP, and where any additional funds are used for new infrastructure. The Chancellor said that all local authorities will be able to reduce business rates. It is anticipated that the changes will be in place by 2020, with further details to appear in the Autumn statement.
The current business rates retention scheme can result in certain funding inequalities as far as the local government finance settlement is concerned. Whilst many local authorities will therefore welcome the greater flexibility allowed by the planned changes, all local authorities will need carefully to consider further proposals and in particular any consultation by central government around the new scheme. It will also be vitally important for those local authorities who are eligible for the 2% increase to ensure that they have done the necessary groundwork with the business community.
From the Chancellor's speech, it appears that the ability to raise business rates will not be available to those local authorities outside Combined Authorities or to the constituent authorities of Combined Authorities, and not at all if there is no elected Mayor. This is interesting in light of the amendments to the Cities and Local Government Devolution Bill which now specifically provides that an Elected Mayor is not a requisite for the transfer of powers to a Combined Authority, and it shows the continuing strength of the Government's view about the desirability of elected Mayors.
We also know that there were a number of devolution proposals made to government by the 4 September deadline which certainly did not include an elected Mayor. Many of these were in shire, or part shire/part unitary areas where the prospect of an elected Mayor over a Combined Authority area seems unlikely. Yet these areas can be in need of much infrastructure as well, and have problems in funding it, but would not be able to increase their business rates, no matter how much their business community favoured this.
It is inevitable that the new business rate proposals will have a knock on impact on other elements of the funding settlement. For example, in his speech the Chancellor said that: the main "local government grant" will be phased out which we understand to mean to be the revenue support grant. It is unclear how any mechanism designed to even out funding levels as between different local authorities will operate. Local authorities will need to consider the overall impact of the proposals on their funding and to be ready to raise questions at an early stage.
Bevan Brittan has extensive experience in relation to local government finance and governance, including advising on obtaining the best finance settlement with reference to financial models and individual demographics. For example, we have acted for groups of local authorities in public law challenges to DCLG's funding assessment. In our experience, local authorities are more successful if the relevant arguments and legal basis for the same are deployed at an early stage; and local authorities with common interests and concerns can be more effective if they collaborate and share any associated legal costs. We are of course willing to discuss any issues with local authorities at an early stage in order to see if we can add value.