Local Government Resource Review Simon Ridley, 16 September 2011

Coalition Agreement “We will promote the radical devolution of power and greater financial autonomy to local government and community groups. This will include a review of local government finance.” “We will provide incentives for local authorities to deliver sustainable development, including for new homes and businesses.”

The context DEFICIT REDUCTION Government’s top priority. Taxpayers were paying almost £120 million a day (£43 billion a year) in debt interest - more than council tax, stamp duty and inheritance tax combined last year WELFARE REFORM Reforming the welfare system - to make it fairer, more affordable and better able to tackle poverty, worklessness and welfare dependency LOCALISATION Coalition principles of increasing freedom and sharing responsibility by localising power and funding. De-ringfencing of funding, abolition of top-down targets and inspection regime LOCAL GROWTH Central to economic strategy. Wide ranging programme of reform to encourage closer partnership with private sector and support for economic growth in localities.

Key announcements Support for council tax localised from Spending reduced by 10% from the same date (Around £500m p.a. across GB). Funding to be switched from AME to a DEL grant. Reform should protect the most vulnerable – and support improved work incentives to be delivered through Universal Credit. SPENDING REVIEW 2010 LOCAL GROWTH WHITE PAPER 2010 “Local business rate retention will be considered within this review, which we intend to launch in January after a period of consultation on the proposals in this document. This is a significant opportunity to consider a range of options to provide genuine incentives for local economic growth through the business rates regime, and to equip local authorities with the tools to support that role.”

Give local authorities a greater stake in the economic future of their local area, and supporting the Government’s growth agenda. Opportunity to reform and simplify the system of support for working age claimants. Reinforce local control over council tax - consistent with a drive for greater local financial accountability. Give local authorities a significant degree of control over how 10 per cent reduction in expenditure is achieved. Contribute to the Government’s programme of deficit reduction. Give local authorities a financial stake in the provision of support for council tax - creating stronger incentives for councils to get people back into work. Government's proposals – Council Tax

Support will take form of discounts within the council tax system Government will set broad parameters in which local schemes to be designed, including: the framework for support for eligible pensioners the importance of supporting incentives to work New Government grant to local authorities (at the moment council tax benefit spend is just under £5 billion across Great Britain). Local authorities free to collaborate to reduce costs and develop schemes that support shared priorities Data sharing will reduce administrative costs and complexity. Mechanisms to manage financial pressures through the council tax system

Protecting Vulnerable Groups Reform taking place within a wider programme of welfare reform to help move people back into work. But some groups will be protected- in particular pensioners - who would struggle to pay council tax without support, and whom the Government does not expect to work to increase their income. Government proposing to control system of support for pensioners - by prescribing, for example, criteria, thresholds, award. Also seeking views on other group who should be protected – bearing in mind financial implications

Supporting work incentives Reform is taking place in context of wider welfare reform and introduction of Universal Credit - intended to make work pay. Local authorities already have strong interest in increasing employment. Government is inviting views on proposed national guidelines, guidance and model schemes so that localised support for council tax and Universal Credit work effectively together In addition to protect the positive work incentives and distributional impacts of universal credit some changes to the universal credit design may be required Key principles for incentivising people to work: People should get more overall income in work than out of work. People should generally get more overall income from working more and earning more. People should be confident that support will be provided whether they are in or out of work that it will be timely and correct, and that claiming will not be a complicated and frustrating experience

To build into the local government finance system an incentive for local authorities to promote local growth over the long term To reduce local authorities’ dependency upon central government, by producing as many self-sufficient authorities as possible To maintain a degree of redistribution of resources to ensure authorities with lower taxbases are able to deliver services in their areas Protection for businesses and, specifically, no increases in locally-imposed taxation without the agreement of local businesses Government's proposals – Business Rates

Components of scheme design THE STARTING POSITION… 2: ‘Tariff’ and ‘Top-up’ 1: Setting the baseline …FUTURE YEARS 3: Growth Incentive 5: Revaluation adjustments 4: Levy Essential to give authorities on a stable and fair starting point Essential to get optimal balance between rewarding growth and supporting services 6: Re- setting the system 7. Pooling

The growth incentive By fixing the baseline, and ‘top-up’ or ‘tariff’ for each authority, the proposed scheme provides a positive business growth incentive that will reward local action to support economic growth. The scheme:  Is a key aspect of wider Government reforms to encourage local growth  Should lead to increased local consideration of local businesses and the maintenance and support of the local business tax base  Should reward local growth transparently. However, to get the right balance between rewarding growth and ensuring a sustainable funding system:  We propose charging a levy on disproportionate growth in high business rate base authorities.  We propose a power will remain to re-set the tariff / top-up of each authority and/or the levy periodically to take account of changing circumstances over time.

Pooling across local authorities The approach to business rate retention will allow local authorities to come together voluntarily to form a single pool. A pool could be able to decide how to distribute revenues among its members. Benefits  Enabling groups of authorities to deliver increases in growth by taking advantage of economic efficiencies and working across the natural economic geography of the area.  Helping local authorities manage volatility by sharing fluctuations in business rate revenues across a wider area. Key issues  Organisation and governance  The role of the pool in deciding the distribution of resources, including those from local growth  whether incentives are needed to form pools to encourage their formation

TIF and Enterprise Zones Option 1: Authorities would be free to borrow against retained business rates revenue, including future growth. Authorities would need to take account of levy arrangements but would be able to plan borrowing, and any infrastructure projects. Option 2: Additional business rates arising from a TIF project would be retained for a defined period, and during that period, would not be subject to levy payments, and would be disregarded in any re-assessment of top ups and tariffs. This second option would require government approval to maintain resources available for rebalancing at any reset. All business rates growth within the zone to be retained for 25 years to support the LEP priorities. To deliver this, the business rates uplift from within an EZ will be disregarded from any levy calculations, and will not be taken into account in any reassessment of top ups and tariffs. This will ensure that all growth is retained locally for the benefit of the LEP. Enterprise zones TIF proposals

The road to implementation OctNovDecJanFebMarAprMayJunJulAugSepOctNovDecJanFebMarApr Primary and secondary legislation Local authorities designing and consulting on local schemes Local authorities implementing local schemes Consultation closes Schemes go live Local authority budget setting Parameters of rates system

Getting your views heard We have been and are still holding 16 consultation events round the country – covering specific aspects of the scheme. Key issues so far have included: Timetable for implementation (for delivery group primarily) Protecting pensioners / vulnerable people How work incentives can be supported Impacts on council tax Managing funding pressures We are setting up governance groups – with representatives from key organisations – including IRRV, SDCT, SMT, SCT, SUT, London Councils, CIPFA and the LG Group. These groups can represent your views – and provide real practitioner input into developing proposals The public consultation is open until 14 October – let us know your views: consult Please respond to: Further consultation planned on draft secondary legislation next year

Any questions? Please get in touch: Katy Willison – Jessie Hamshar – Consultation paper, technical papers and the interactive calculator are available at: resourcereview/ Responses to be sent to: by 24 October 2011 Getting your views heard

Local Government Resource Review Simon Ridley, 16 September 2011