Business Rates: The Latest Developments

1. Business Rates:The Latest Developments Neil Benn

2. The Presentation • Basics of the new scheme • Baseline issues / SPARSE campaign • Latest DCLG plans • What happens next?

3. What Happens Now • Formulae assess need • Deduct what you might raise from council tax • Pay the balance as cash • Limits on year-to-year changes

4. What Happens Now • District councils collect rates and send them to Government • Everything else is irrelevant

5. Basics • Target funding level • Target business rates collection • Target rates > funding – pay tariff • Target rates < funding – receive top-up

6. Basics • Districts still collect rates • Notionally shared between districts, counties, fire • Funding target • Formulae assess needs • Deduct what you might raise in council tax • Target is the balance • Limit on year-to-year change

7. SPARSE Campaign • Close gap to urban from 60% to 50% • Changes to EPCS and domiciliary social services • Specific mention in DCLG response

8. SPARSE Campaign • Our council tax is higher • So: • We are relatively over-providing; or • We are relatively inefficient; or • We are relatively under-funded • Hard evidence is difficult to gather • DCLG is not looking for any

9. Baseline / Funding Target • Further cuts – 11% on average for 2013-14 • Up to 4% returned through New Homes Bonus • Transfers of function? • Damping • Locked-in for 10 years

10. New Scheme – Tier Splits Unitary with Fire • Area collects £144m in rates • Assigned 100% = £144m in rates • Funding target £191m • Top-up = £191m - £144m = £47m • Each 1% change in rates is  £1.44m • Which is 0.8% of funding

11. New Scheme – Tier Splits County without Fire • Area collects £194m in rates • Assigned 20% = £39m in rates • Funding target £105m • Top-up = £105m - £39m = £66m • Each 1% change in rates is  £0.39m • Which is 0.4% of funding

12. New Scheme – Tier Splits Shire District • Area collects £32m in rates • Assigned 80% = £25m in rates • Funding target £4m • Tariff = £25m - £4m = £21m • Each 1% change in rates is  £0.25m • Which is 5.7% of funding

13. Levies • To fund a safety net for losers • On “disproportionate gains” • “A 1% increase in rates should cause the same increase in funding everywhere”

14. Levies • Huge levies on shire districts? • Boosts for shire counties? • How far in arrears for the calculations?

15. Levies • Authority invests £5m in a scheme to generate £1m p.a. rates • N Warwickshire would keep about £100,000 • Northumberland would keep all £1m

16. Safety Nets • To protect local services • Based on funding changes since start of scheme • No protection for year-on-year falls

17. Safety Nets • A 10% safety net on scheme income: • Would restrict Surrey’s cuts to 1.7% • Would restrict Breckland’s cuts to 6.2% • Would restrict Westminster’s cuts to 7.0%

18. Pooling Arrangements • Minimise risk by pooling with others… • …but also reduces potential gain • Weakens incentive • You pay for others’ failures or bad luck • Why would fast growers want to pool?

19. What I Like • Incentive to promote business development • The idea of levies and a safety net

20. What I Don’t Like • Beyond reasonable influence • Randomness • Casino shire districts • Proportionate levy – nonsensical formulation • Proportionate levy – unequal returns

21. What I Don’t Like • Damping being increased, not phased-out • Safety net based on grant not budgets • Authorities bearing VOA error losses • No incentive to tackle bad debts • Huge transfer of risk

22. What I Don’t Like • Potential waste / poaching • Enterprise zone effects • Different treatment of fire services

23. Worries • Delegations of services with little or no cash • Cash flow / other timing issues • Ministers will want to tinker • Perfect storm

24. What Happens Next? • Further semi-secret discussions • Bill passing through House • Further consultation over summer • Full scheme details in late-autumn • April 2013 start

25. Business Rates:The Latest Developments Neil Benn 07869 37 35 35 nmbenn@hotmail.com