Prior to 2013/14, councils handed business rates they collected to the government and received a share back as part of overall government grant. In 2013/14, the government implemented reforms which allows councils to retain a proportion of the business rates they collect in exchange for a reduction in their grant funding.
For the last three years Camden, along with all London authorities and the GLA, have been participating in a pilot scheme to pool business rates income across the capital and retain an increased proportion of any business rate income growth, as the government sought to make moves towards greater local financial autonomy.
Camden welcomed the pilot pool approach as a step towards wider devolution. We have strongly supported the principle that Councils should retain more funding generated locally as part of our advocacy of wider devolution as a means of improving outcomes by moving decisions closer to the residents and businesses they effect. We argue that services that have a direct relationship to business should be transferred to councils including services that can help tackle key infrastructure challenges, including housing, transport and digital connectivity. In turn, we are creating a circular economy by encouraging greater participation of SMEs through our procurement processes.
The 2019 Spending Round announced that the implementation of a new model for Business Rates would be deferred again, to April 2021, however on the 28 April 2020 the Government confirmed that the review of relative needs and resources and the move to 75% business rates retention will no longer be implemented in April 2021 creating more uncertainty around local authority finances in the medium term. Whilst London Councils have agreed to continue with the current pooling arrangements in 2021/22 to benefit from a share of business rates above an agreed baseline, the retention rate for London will remain at 67% of income above the baseline with the GLA keeping 37% and councils keeping 30%.
There are also a number of uncertainties to consider such as the ongoing negative impact of the pandemic on business rates in the capital and the possibility that Government may still implement a ‘reset’ of baselines. There is also uncertainty around the level and/or continuation of reliefs and grant schemes introduced in 2020-21 to support businesses with their rate bills.
If the Council operated outside of a business rates pool, it would be required to pay a 50% levy on the business rates income growth it retained. However, London Councils Leaders’ Committee have agreed in principle to support a pool for London under the 67% retention rates. The benefit of a London wide pool would be that collectively, London would pay a lower levy rate on growth than the individual authorities would if they operated outside of the pool.
In light of the pandemic and the ongoing uncertainty around the future trade relationship with the EU the government will, as before, only provided a one-year Spending Review covering the financial year 2021/22. This will give local authorities limited assurance in terms of their financial stability for the coming financial years.
The Review of Medium-term Financial Strategy report to Camden’s Cabinet in December 2020 set out an overview of the council’s financial position, including our plans to address the medium term funding deficit and an update on preparations towards setting the 2021/22 budget. See the supporting documents below and have your say on proposals.