Local Government Funding

James Heappey Excerpts

Wednesday 28th March 2018 Commons Chamber

[Sajid Javid]

I will come on to discuss the pilots in a moment, but the good thing about them is that all the local authorities involved, including Suffolk, will now be able to experiment and see what they can do to help raise those local rates by having more incentives for businesses and attracting more businesses to the area. One clever way of getting more revenue is by getting more businesses into the area.

As we look at the resources of local authorities, we need to start looking at creating a whole system of local government finance that will be fit for the future. The current formula for financial allocations had served local areas well over the years, but a world of constant change, with big shifts in demographics, lifestyles and technology, demands an updated and much more responsive way of distributing funding. That is why there are questions over the fairness of the current system, which is why I was pleased to launch a formal consultation on a review of councils’ relative needs and resources in December. That closed recently and I am grateful to everyone who responded. This was not just a paper exercise; we have an unparalleled opportunity here to be really bold and ambitious; to consider, with the sector, where the most up-to-date data and evidence lead us, and to create a new system that gives councils the confidence to fully grasp the opportunities and challenges that lie ahead. We aim to introduce this new approach in 2020-21.

That is also when the latest phase of our business rates retention programme will get under way. It is a programme that gives local authorities powerful incentives to grow their local economies, and so far it has been a resounding success. Councils will keep some £2.4 billion more of their business rates next year alone; this a significant revenue stream, on top of their core settlement funding.

[James Heappey (Wells) (Con)]

The retention of business rates is indeed a huge opportunity for councils such as Somerset’s, which was so disappointed not to be part of the business rates retention trial. Will the Secretary of State reassure us that all that he has learnt from his review of the funding formulas will be applied to how business rates retention is baselined, so that county council areas with smaller economies are not disadvantaged by the retention of business rates when it is introduced in full?

[Sajid Javid]

Yes, I can give my hon. Friend that reassurance. I shall say more about how the system is going to work in a moment.

Our aim is to go further and for local authorities to retain 75% of business rates from 2020-21, as we work towards 100% retention. With that in mind, in December I announced an expansion of the 100% retention pilots that have proved so popular. More than 200 authorities came forward to bid for the new 100% business rates retention pilots that we are going to run in 2018-19. I was pleased to respond to that enthusiasm by doubling the number of initial pilots to 10, covering some 89 authorities. The 10 that we have selected, taken alongside the existing pilots, give a geographic spread to help us to see how well the system works across a broad range of areas and circumstances. The pilot areas will keep 100% of the growth in their business rates if they expand their local economies—that is double what they can keep now. There will also be opportunities for others to get involved, with a further bidding round for pilots in 2019-20, which will open in due course.