More smoke and mirrors from DCLG

Copied from Local Government Chronicle online

A forecast increase in business rates income next year will mean little extra cash for councils, it has emerged.

Earlier this week local government minister Marcus Jones trumpeted a £386m increase in the rates due to be paid by businesses in 2016-17. He claimed the rise was due to a 900,000 increase in the number of businesses.

However, figures published by the Department for Communities & Local Government show that £284m of the extra cash available was due to the end of ‘retail relief’, which councils could grant to retail businesses with low rateable values.

As councils were compensated for this discount by the government under section 31 grants, and will only keep 50% of rates income, the actual additional cash available to local government is minimal.

Neil Benn, director of Pixel Financial Management, told LGC it was “obvious” when looking at the figures that the end of retail relief was behind the change.

He said: “More rates will be paid but it’s offset for councils by lower DCLG compensation grant so Her Majesty’s Government is the only gainer.”

Once the £284m is stripped out the increase is 0.4%, rather than the 1.7% claimed by the DCLG earlier in the week. This is less than the annual inflationary increase in the business rates multiplier which has been set at 0.8% for 2016-17.

Alan Gay, deputy chief executive at Leeds City Council, told LGC the combined impact of the increase in the multiplier and the ending of retail relief meant income should have increased by around £500m.

“To me it suggests there is actually a decline in business rates,” he said.

Mr Gay also suggested there was often an “element of optimism” in the forecasts submitted to DCLG at the beginning of the year on which the figures are based.

“I would be surprised if there is not a similar shortfall to that we have seen in previous years,” he added.

As LGC reported in November, there was a £750m shortfall in the amount of business rates collected in 2014-15 compared to forecasts for the year, a discrepancy blamed on losses to appeals.

That year the actual net business rates income, once deductions had been made for discounts and appeal losses, was £21.6bn compared to a forecast of £22.4bn. The total net income in 2016-17 is forecast to be £23.5bn.

In a statement the DCLG maintained their position.

A spokeswoman said: “It is beyond dispute that there are now 900,000 more businesses than in 2010 and the latest figures show that, after stripping out changes in reliefs, multiplier and appeals provisions, the increase in the number of businesses has contributed to real growth in rate income between 2015-16 and 2016-17.”

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