further business rates retention spring 2017 …...april 2017 business rates retention pilots begin,...
TRANSCRIPT
Further Business Rates RetentionSpring 2017 regional consultation event
West Suffolk House, Bury St Edmunds
Timetable for today
13:30 Introduction and overview
13:55 Discussion 1: The progress of the Fair Funding Review
Q&A
14:35 Discussion 2: Balancing spending needs and growth incentives
Q&A
15:15 Discussion 3: Managing risk
Q&A
15:55 Conclusion and Any Other Business
A brief recap of the
Government’s announcements
• 100 per cent rates retention, by the sector as a whole, by 2019
• Local authorities will keep rates growth, i.e. no levy
• Revenue support grant (RSG) as well as other council grants will be phased out. Councils may also be given new responsibilities. This is to ensure reforms are ‘fiscally neutral’
• All councils will be able to reduce the multiplier.
• Mayors of Combined Authorities will have the power to levy an infrastructure supplement up to the value of 2p in the £
• A full review of the needs assessment methodology (the Fair Funding Review) in time for the introduction of the new system
Local Government Finance Bill
Enabling framework for reform including:
• Abolishes central share and levy
• A provision to allow central government to pay councils for the cost of business rates appeals
• Flexibility to reduce the multiplier
• Pooling and local growth zones
• The infrastructure supplement
• Reliefs
Local Government Finance Bill
Does not cover:
• Detailed design of the reformed system, such as resets, tier splits and other such issues
• Accounting and accountability (except safety net)
• Devolution of responsibilities/phasing out of grants
• The Fair Funding Review
Other issues
• Business rates retention pilots
• 6 devolution deal areas starting pilots in April 2017• A variety of arrangements• All areas encouraged to apply for April 2018 tranche – more
information shortly
• Transfer of responsibilities and phasing out of grants
• Revenue support grant, rural services delivery grant, TfL capital grant and public health grants confirmed
• Pilots also testing highways funding and improved Better Care Fund
• Accounting and accountability
April 2017 Business rates retention pilots begin, with a further tranche
in April 2018.
3 May 2017 Deadline for responses to the further consultation on the
design of the new business rates retention system.
Spring 2017 A further consultation on the progress of the Fair Funding
Review.
Spring 2017 Local Government Finance Bill passes through the House of
Commons and moves to the House of Lords. Royal Assent
expected in late 2017.
Summer 2018 Engagement on Fair Funding Review and System Design
outcomes and impacts on individual local authorities
April 2019 The new system is implemented.
Timetable for Reform
Discussion 1:The progress of the Fair Funding Review
Overview and terms of reference
The Government will implement a fair and stable approach to allocating business
rates under 100% business rates retention, reflecting both relative need and
resources and providing support for key services for all authorities.
• Results set new funding baselines for every authority alongside the
introduction of 100% business rate retention in 2019-20.
• It will not consider the overall quantum of funding.
• It will design a needs assessment methodology in support of these wider
reforms.
• It will consider both the relative needs and resources of local authorities.
• It will produce “future-proofed” solutions. It will also define appropriate
transitional arrangements.
• It will focus initially on the services currently funded through the settlement,
considering new grants such as the Public Health Grant on a case-by-case
basis.
Principles
Principles of the Review
• Incentivise growth – to support
the reforms around 100% business rates
retention and help councils grow their
local economies
• Simplicity – an opportunity to
identify the most important factors that
drive need to spend
• Transparency – for councils and
the public to understand local allocations
• Contemporary – using the most
up-to-date data available
• Sustainability – an evidence-
based approach to respond to current
and future demand
• Stability – including transitional
arrangements and alignment with multi-
year settlements
• Speed – work to deliver optimal
solution in 2019/20
Measuring need• A less complex methodology
• Focused on up to date key
cost drivers
• That reflects ‘future need’ as
well
Treatment of resources• A more transparent approach
• That does not undermine the
growth incentive
Approach to transition• Minimises losses in year one
• Provides a clear path to the
target allocations
April 2016 A local government Technical Working Group is established, co-chaired by
DCLG and LGA
July 2016A call for evidence was published yielding 209 responses to questions
ranging across the scope of the Review
Spring 2017A consultation on how to measure need will be published along with a
response to the call for evidence
From Spring
2017
A series of technical papers will be published on other areas within the
scope of the Review i.e. how to take into account relative resources;
transition; new responsibilities as well as further papers on measuring need
Spring 2018 Second consultation on approach to measuring need and resources
Autumn 2018Transition arrangements and baseline allocations confirmed – provisional
2019-20 Local Government Finance Settlement consultation
April 2019 The new needs assessment methodology is implemented
Timetable
Context
12
The use of formulas to measure relative need can be traced back to the nineteenth
century…
• The current system has 15 formulas with over 120 indicators – as well as 17
other formulas with bespoke distributions for grants which have been rolled in
over the last seven years.
• Measuring relative need is one part of the 4-block model, which was
introduced in 2006/07 and is still the basis of today’s allocation. In addition to the
positive relative need sum, the model includes the following blocks:
• A negative Relative Resource sum reduces a council’s allocation by taking
into account their relative ability to raise council tax
• A positive Central Allocation sum is allocated to each authority on a per
head basis
• Finally, a Floor Damping block adds or removes funding to ensure that all
authorities receive at least the ‘floor’ percentage change occurring each
year.
Context - measuring relative need
Socio-economic and demographic factors which are predictive of the cost of delivering
services form variables in these funding formulas…
• … for example the adult social care relative needs formula includes variables that
reflect the number of older people, while the formula for highways maintenance
includes variables which measure road length and usage.
• The formulas allocate proportionally more money to areas where data indicates
they have relatively more older people, relatively more roads, etc.
• For most services there is more than one indicator of ‘need to spend’.
• Once cost drivers are determined, statistical techniques provide an evidenced-
based approach to determine the weightings of each variable.
o The consultation aims to outline some of the techniques available and seek
feedback.
• A needs assessment must also take into account councils’ varying resources and
the pace at which authorities are moved to the new allocations.
It may be possible to move to a single formula based on common cost drivers:
Focus of the next consultation
• A large degree of variance in funding allocation across local government using the
current formulas can be explained by population, and there are significant
overlaps between many of the other 120 variables.
• However there may be areas where a more specific approach may be
required: high cost areas (Social Care) or services of a distinct nature (Highways
Maintenance) may not fit in a single formula.
• The proposal is to explore using a single formula based on common cost drivers,
by comparing it against an approach which uses multiple specific formulas to
assess the impact of simplifying the needs assessment.
• The consultation aims to receive feedback on this approach and the cost drivers
that should be considered.
Criteria for cost drivers
• Relevant (has a significant evidenced impact on the cost of providing services)
• Objective (using robust data collected on a consistent basis across England)
• Distinct (explains a good degree of unique variation and does not overlap)
• Stable (no unpredictable or large changes year on year)
• Future proof (drives the ongoing costs of providing services)
Common cost drivers
Although specific cost drivers may be required in particular approaches for certain
services, the Government has identified 3 cross cutting cost drivers:
• Population (it is often necessary to distinguish subsets)
• Sparsity (how the cost of providing services varies in rural or urban areas)
• Deprivation (income deprived individuals more likely to access some services)
15
Getting the right cost drivers
Grants being rolled into 100% BRR
The Fair Funding Review will focus initially on how to measure need for
services currently funded through the settlement…
• …and will turn to new responsibilities on a case-by-case basis thereafter
• So far, the Government has announced that Revenue Support Grant, Rural
Services Delivery Grant, Public Health Grant and the Greater London Authority
Transport Grant are to be funded through retained business rates from 2019-20
onwards.
• There are three broad approaches to take towards these grants:
Become part of the new formula.
Include in the assessment but with a bespoke needs based formula.
Maintain the existing distribution.
• The consultation aims to receive feedback on the different approaches.
Structure of works
• Resources:
• The assessment of the relative resources of local authorities is just as
important as that for relative need.
• There are different ways to take council tax into account. Other resources
such as fees and charges will also be considered.
• Transition:
• Implementing new allocations.
• An approach to ‘needs resets’ compatible with the design of the new
system.
The Government will publish a series of technical papers between now and the
completion of the Review. These will set out the options the Government is
considering for the above work streams as well as updates on the approach to
measuring need and other areas, like how to structure funding formulas between
tiers of government, or Area Cost Adjustments.
Measuring need has been the main focus, but there are two equally important
strands…
Local Government Engagement
The Government will continue to engage with a wide range of stakeholders
who will help to shape and progress this review
• The DCLG/LGA Needs and Resources Technical Working Group
• The Government is also further engaging with individual local authorities to
discuss the key issues including what drives costs and how the Government
might incentivise and reward outcomes.
Org. Rep Org. Rep
DCN Sally Marshall
(Dacorum)
CCN Dave Shipton (Kent)
SIGOMA Geoff Winterbottom SMT Nikki Bishop (Trafford)
RSN Dan Bates SCT Sean Pearce (Worcs.) / Chris
Tambini (Leics.)
North East CA Paul Woods SLT Duncan Whitfield (Southwark)
SUT Alan Cross (Reading) GLA Martin Mitchell
Next steps
• Publish a response to the call for evidence along with a technical
consultation on measuring need which looks at
• how to structure a needs assessment,
• cost drivers,
• statistical techniques and
• approaches to new responsibilities rolling into the settlement
• Direct engagement with local government, Other Government
Departments, academics and other parties to help shape the
analytical approach
• Publish a series of technical papers including on the Review’s
approach to the treatment of council tax and other resources, and on
transitional arrangements
Any questions?
Discussion 2:Balancing needs and growth incentives
The system at a glance
• Baselines, top-ups and tariffs and resets fit together as shown here.
• Document proposes a 5 year partial reset
Calculating growth at a reset
Key questions:
• Baseline against which growth is measured
• Whether to measure growth in real or nominal terms
• Whether to measure growth at a single point in time, or as an average over several years (and if so, how many)
• What proportion can be retained by authorities that have achieved growth over the reset period
Pooling
• Local Government Finance Bill contains provision for pooling, including possibility of compulsion
• Pools may benefit from additional growth incentives including• Local growth zones• Ability to retain more growth at a reset• A different level of safety net• Different or additional responsibilities
Local growth zones
• Parameters for local growth zones could include:• Proportion of growth retained• Rateable value and/or proportion of total income• Number of years • Geographical areas• Connection to investment from the local authority• Purposes for which growth could be used
• Need to balance between redistributing in the system and rewarding growth
Balancing need and growth
incentive - questions
Question 1: What are your views on the proposed approach to partial resets?
Question 2: What are your views on how the Government should measure growth in business rates income over a reset period?
Question 3: What are your views on the Government’s plans for pooling and local growth zones under the 100% Business Rates Retention system?
Discussion 3:Managing risk
Managing the impact of appeals
• Under 50% system authorities have to set aside provisions against the risk of successful appeals
• New provision for loss payments in Bill – in connection with a reduction in income that results from an alteration of the rating list – not for physical changes
• Further work needed on when payments should commence and how this relates to the revaluation timetable
• Loss payment will be funded through a top-slice but this will be held and distributed centrally rather than a share being held by each local authority as at present
• Further proposals expected later in the year – working with CIPFA and others
Tier splits
• Tier splits ensure that risk and reward is shared amongst billing and precepting authorities
• Currently tier splits between districts and counties are set so all districts are tariff authorities and all counties are top-up authorities. This means districts have more risk and potentially more reward
• The consultation says the following are relevant considerations:• The importance of providing stability of funding for adult
social care services;• The ability of different tiers to influence growth;• The services devolved to different tiers
Tier splits
• Districts and counties – and London – are considering the question
• Possibility of two tier areas determining their own tier split for the area
Safety net
• Document recognises the continuing need for a safety net – set at losses over 7.5% of baseline in the current system
• Bill will allow for detail about payments and timing to be defined in secondary legislation so as to support local government accounting practice
• Safety net should not be necessary for appeals loss – but will be necessary for major shocks such as closure of major ratepayers
• No levy – so safety net likely to be funded through a top-slice
• Document does not propose a level but notes that current pilots are using a 3% threshold
Central list
• Government will set out clear statement of policy over what should go on the central list – currently it covers utilities, canals, railways, etc.
• Bill will allow for any changes to the central list to be done by direction rather than requiring regulation – and allows for reliefs to be applied to central list properties
• Government does not intend to introduce area lists at this point
• Review of the central and local lists to ensure that they are consistent with the policy and make changes in time for the introduction of 100% retention and maintain it from that point to ensure it reflects the policy
Central list
• Core purpose will be to provide a home for hereditaments which by their nature are not suitable for local lists – likely to those spanning several areas and not primarily located in one list
• Consultation with ratepayers and local government
Managing and sharing risk -
questions
Question 4: How can the Government best approach moving to a centrally managed appeals risk system?
Question 5: What should the approach be to tier splits?
Question 6: What are your views on proposals for a future safety net under the 100% Business Rates Retention system?
Question 7: What are your views on the proposals for the central list?
