Retaining 100% business rates will make make many count councils worse off

“County councils face unique challenges and retaining 100% of business rates could widen their funding gap, the County Councils Network has warned.

Analysis from the cross-party group, released yesterday, showed under full business rate retention the funding gap for county authorities could increase by £700m by 2029.

This was because business rate growth would fail to keep pace with acute demographic and service pressures for county councils, the analysis – done by local government consultancy firm Pixel Financial Management – concluded.

In contrast areas, such as London boroughs and district councils, are likely to disproportionately benefit from this policy, the CCN found.

The research comes as the Department for Communities and Local Government is encouraging bids for the second pilot scheme.

Council leaders at the CCN are calling on the government to provide more options in the pilot schemes to encourage more county authorities to participate, which would enable the risks to be fully trialled before the policy was rolled out across the country.

Pilots for 100% business rate retention have already been launched in Liverpool, Greater Manchester, West Midlands, West of England, Cornwall and Greater London in April, which will also continue into next year.

The West Midlands combined authority was part of the first pilots for the scheme, which began this April, ahead of plans to roll out the policy nationwide by 2020.

CCN finance spokesman and leader of Leicestershire County Council, Nick Rushton, said the research did not aim to dissuade countries from taking part in the pilots but to raise awareness of the issues facing the sector.

Rushton said: “The modelling we have released shows the unique challenges facing county authorities in implementing 100% business rates retention.

“CCN is supportive of moves towards greater local retention, alongside wider fiscal devolution, but we must ensure the system provides sustainable long-term funding and a platform to truly incentivise growth and self-sufficiency.”

He concluded that more options should be on the table, such as a ‘no detriment’ clause which is missing from next year’s pilots.

The CCN warn that by not providing this clause it may mean only ‘high growth’ counties coming forward to pilot, meaning that risk is not properly trialled.

Rushton added: “These findings clearly demonstrate the need for a fairer funding formula as part of wider reforms to local government finance.

“These reforms must stay on track and government should not shy away from adopting a new approach to measuring relative need; one based on real cost-drivers, not past spend.”