Today, my department has published the “2019-20 Local Government Finance Settlement: technical consultation” as well as an “Invitation to Local Authorities in England to pilot 75% Business Rates Retention in 2019/20”.
The technical consultation reiterates this Government’s intention for the 2019-20 Settlement to confirm the final year of the 2016-17 multi-year settlement accepted by 97% of authorities, and to implement council tax referendum principles as announced at the final 2018-19 Settlement last year.
Looking to the longer term, the 2019 Spending Review will confirm funding from 2020-21. The Government is working towards significant reform in the local government finance system in 2020-21, including an updated, more robust and transparent distribution methodology to set baseline funding levels, and resetting business rates baselines.
This Government is committed to rewarding councils for supporting local firms and local jobs. The business rate retention system ensures that local authorities directly benefit from the proceeds of economic growth – with more funding to support local frontline services. All councils, including those which are currently less prosperous, have the opportunity to gain from this system.
The current 50% business rates retention scheme and piloting programme is yielding strong results. Local authorities estimate that in 2018-19 they will keep around £2.4 billion in business rates growth. Our continued reforms to this system will continue to give local authorities even greater control of their finances, but, to ensure a successful implementation, this Government is committed to testing aspects of the proposed new system.
This 2019-20 prospectus invites all local authorities (except for those with on-going pilots in devolution deal areas and London) to apply to pilot 75% business rates retention in 2019-20. From 2020-21 we are aiming to roll in additional grants, with a target of reaching 75% retention based on the current 2019-20 values of these grants. These pilots will help us test the retention system at this level. Given the limited time before 2020-21, when we aim to roll out increased business rates retention to all local authorities, there are fewer issues we can usefully test in pilots. It is therefore likely that this pilot programme will be smaller than in 2018-19.
Separately, the Government can confirm that local authorities in areas with a previously agreed devolution deal will continue to pilot 100% business rates retention in 2019-20. Separate conversations will happen with London authorities to decide arrangements following their 100% pilot this year.
Finally, I have noted the strength of feeling in local government around the issue of ‘Negative RSG’ and this technical consultation sets out the Government’s preferred approach to resolving the issue in 2019-20.
This preferred approach recognises the commitment made by the Government during the implementation of the business rate retention scheme in 2013-14, that tariff and top-ups would be fixed until the system was reset.
This commitment was made so that local authorities would benefit directly from supporting local business growth and the Government's preferred approach does not reverse this commitment. In practice this will mean that the Government meets the cost of Negative RSG through forgone business rates.
I am placing a copy of the “2019-20 Local Government Finance Settlement: technical consultation” and the “Invitation to Local Authorities in England to pilot 75% Business Rates Retention in 2019/20” in the House library.
This statement has also been made in the House of Lords: