75% or 100% or does it matter? The business rate retention conundrum

Around two thirds of England is not covered by a 100% Business Rate Retention pilot, writes Jennifer Glover meaning that councils in these areas still do not know the terms of their future funding.

Although MHCLG has committed to rolling out 75% Business Rate Retention nationwide by 2020-21, this begs the question – what happens in the meantime for these councils?

See map of business rate retention pilots on Tableau

As Sajid Javid pointed out in his January speech, his department was inundated with requests from councils to be part of a pilot scheme, but only 10 were announced. This seeming enthusiasm for the scheme is likely masking a feeling among councils that their options are extremely limited. Applying to be a pilot area may have been a case of ‘better the devil you (sort of) know’, as the alternative was still unclear back in October when applications were submitted.

For those areas without a plan for 100% BRRS in place, planning for the medium term is very tricky. The so-called ‘technical details’ of the scheme are a long way off being resolved – the small matters of how need will be accounted for in the new system, how funding will be split between tiers and how financial volatility will be handled.

Even for those in pilot areas, it’s not clear how their arrangements (many of which are quite favourable ‘no loss’ deals) will transition from pilot to permanent status. Will they still keep 100% of their business rates, and if so how will this affect the money available for the rest of the sector in the form of top-up payments? Or will they fall into line with the rest of the country and retain only 75%? How might this affect their financial planning during the pilot and their investment in their local economy?

All of these unanswered questions bear heavily on the validity of the pilot schemes as a way of testing how things will work in practice. Councils in the pilot schemes are unlikely to be throwing their heart and soul into the new system without assurance that the same arrangement will continue in two years’ time.

The urgency to clarify the terms of the business rate retention scheme is growing by the day. The Fair Funding Review is an essential part of the picture, but without a framework to which we can apply any new formula the exercise is largely pointless.

Our Local Finance Taskforce is working to raise the profile of the financial issues facing local government and maintain the pressure on government to engage with the sector to resolve these issues.

Jennifer Glover is an LGiU Policy Researcher.

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    1. Eric says:

      It’s 100% retention of growth in the pilot areas not 100% of all business rates