WBC Income Options

[blackdog]

I've just been looking at some figures relating to business rates in West Berks. I'm far from sure that I have been looking at the right figures but it seems to me that the rateable value of business premises in West Berks is about £194m.

Many of the properties attract some sort of rate relief - rather than work these out individually I assumed none of these pay any business rates. This leaves a rateable value of just over £164m.

Then I applied the national (England) business rate multiplier (46.2p in the pound) and came up with a rates income of almost £76m.

In 2013/14 WBC retained £17m (I haven't found more recent figures) of the locally collected business rate. The rest goes to central government and is doled out in Revenue Support Grants. In the same year WBC received £22m in RSG.

This coming year the RSG is being cut by £18m. As it was also cut last year there can't be much left!

At the same time local councils have been told that they will be able to keep 100% of their business rates by 2020.

So in 2020 WBC will have an increase in income of around £58m (in 2013/14 terms) offset by a total loss of RSG (£22m). So they will have at least £36m a year extra income.

My question is - rather than make such swinging cuts in services in 2016/17 why not borrow £10m a year until 2019/20 and pay it off from the first year or two of additional business rate income?

Once these loans are paid off they can think about reducing their surplus income by lowering business rate and council tax levels.

[Lolly]

I've just been looking at some figures relating to business rates in West Berks. I'm far from sure that I have been looking at the right figures but it seems to me that the rateable value of business premises in West Berks is about £194m.

Many of the properties attract some sort of rate relief - rather than work these out individually I assumed none of these pay any business rates. This leaves a rateable value of just over £164m.

Then I applied the national (England) business rate multiplier (46.2p in the pound) and came up with a rates income of almost £76m.

In 2013/14 WBC retained £17m (I haven't found more recent figures) of the locally collected business rate. The rest goes to central government and is doled out in Revenue Support Grants. In the same year WBC received £22m in RSG.

This coming year the RSG is being cut by £18m. As it was also cut last year there can't be much left!

At the same time local councils have been told that they will be able to keep 100% of their business rates by 2020.

So in 2020 WBC will have an increase in income of around £58m (in 2013/14 terms) offset by a total loss of RSG (£22m). So they will have at least £36m a year extra income.

My question is - rather than make such swinging cuts in services in 2016/17 why not borrow £10m a year until 2019/20 and pay it off from the first year or two of additional business rate income?

Once these loans are paid off they can think about reducing their surplus income by lowering business rate and council tax levels.

[Simon Kirby]

I agree BD, it deserves an explanation. I would suggest one reason is that cutting services appeals to the Conservative councillors, and raising council tax appeals to local government, so by cutting services you perpetuate the austerity myth and allow the Daily Mail-reading public to feel comfortable about depriving the vulnerable of their necessities, and having sat it out for a couple of years it's happydays when the business rates boost the local government income and doubly so because people will have got used to paying 50% more in council tax, so let the good times roll.

[Lolly]

In principle this seems like a very sensible suggestion, but personally I don't have enough knowledge of Local Government financing to be able to comment further, and I suspect that is the problem generally. As I believe RB said in a recent NWN article - it's complicated! I do have some questions though:

1 Are there restrictions on Local Government borrowings?
2 Can we rely on the Business Rates rebate happening by 2020?
3 Why is the cut in the local settlement being effected immediately, when the business rates change is being phased in?
4 Will the "top up/tariff adjustment be carried over to the business rates settlement? And when & on what basis was that adjustment introduced.

[Exhausted]

The only fly in the ointment that I can see is that there will be another election by 2020 which may change that promise.

If WBC only get a proportion of their industrial rates back and that seems to be declining year on year does that mean we are supporting towns "up north" and if so when 2020 arrives, where will they get their support from then.
I like the way Blackdog has worked this financial problem through and wonder if the council could borrow on a promise and what would happen if it all went tits up with a change of direction by central government or a new reducing multiplier added when they realise how much revenue they might be losing.

[Simon Kirby]

I like the way Blackdog has worked this financial problem...

Yes, same here,

[blackdog]

The only fly in the ointment that I can see is that there will be another election by 2020 which may change that promise.

I believe the promise is that councils will retain 100% of business rates by the end of the current parliament (ie before the 2020 election).

As I see it the issue is whether the promise will be fulfilled in the light of all the other setbacks Osborne has had recently.

If WBC only get a proportion of their industrial rates back and that seems to be declining year on year does that mean we are supporting towns "up north" and if so when 2020 arrives, where will they get their support from then.
I like the way Blackdog has worked this financial problem through and wonder if the council could borrow on a promise and what would happen if it all went tits up with a change of direction by central government or a new reducing multiplier added when they realise how much revenue they might be losing.

I don't think the retained portion of business rates is declining - as I understand it it is rising. Councils keep half of all new business rates - which surely can't explain the £17m retained in 2013/14 but would result in a steadily increasing retention (though perhaps not a huge change).

Revenue Support Grant is indeed (in theory) an means of sharing out business rates across the country and wealthy regions (like West Berks) do end up supporting depressed areas (not necessarily 'up north'). I am not at all sure that the sums are balanced - I suspect that, in typical Treasury fashion, they simply take the rates as income and spend the RSG with no limitations (much like Vehicle Excise Duty is not all used to fund road maintenance or development). The Governments big problem is what to do with councils who cannot be self financing. If WBC get a £36m windfall there will be poorer areas where business rate income does not match their RSG.

The Government is committed to phasing out RSG and allow councils to keep business rates - a localisation policy that should be of huge financial benefit to WBC. A £36 hike in revenue on a budget of around £120m should make an enormous difference. For instance a 25% council tax cut would be affordable, along with a similar cut in business rates. The downside being that being a low tax area would encourage immigration and the resultant need to build build build.

But should they simply cut taxes? Or should they provide free car parking, a new road or two, improved social services . . . ?

[Andy Capp]

They're Tories and they won't be happy until we send children back up chimneys where they belong.

[Lolly]

I believe the promise is that councils will retain 100% of business rates by the end of the current parliament (ie before the 2020 election).

As I see it the issue is whether the promise will be fulfilled in the light of all the other setbacks Osborne has had recently.


I don't think the retained portion of business rates is declining - as I understand it it is rising. Councils keep half of all new business rates - which surely can't explain the £17m retained in 2013/14 but would result in a steadily increasing retention (though perhaps not a huge change).

Revenue Support Grant is indeed (in theory) an means of sharing out business rates across the country and wealthy regions (like West Berks) do end up supporting depressed areas (not necessarily 'up north'). I am not at all sure that the sums are balanced - I suspect that, in typical Treasury fashion, they simply take the rates as income and spend the RSG with no limitations (much like Vehicle Excise Duty is not all used to fund road maintenance or development). The Governments big problem is what to do with councils who cannot be self financing. If WBC get a £36m windfall there will be poorer areas where business rate income does not match their RSG.

The Government is committed to phasing out RSG and allow councils to keep business rates - a localisation policy that should be of huge financial benefit to WBC. A £36 hike in revenue on a budget of around £120m should make an enormous difference. For instance a 25% council tax cut would be affordable, along with a similar cut in business rates. The downside being that being a low tax area would encourage immigration and the resultant need to build build build.

But should they simply cut taxes? Or should they provide free car parking, a new road or two, improved social services . . . ?

Well, I for one would like core services restored to pre-austerity levels, but with any true efficiency measures ( as opposed to knee jerk cuts) maintained. I'd feel uncomfortable about borrowing against a "promise" that might never never be delivered though, and which the next government might reverse.

[On the edge]

Borrowing on the promise of future income is all good Keynesian stuff which is why the cynic in me feels very uncomfortable with the whole concept here. After all. it hasn't made headlines and when patted up and presented nicely, it would make a great policy announcement.

Nonetheless, Blackdog's diligent workings show it could be very useful and could offer us a better and more stable economic future locally. Therein lies the rub; as experience demonstrates, we simply haven't got the political capability to pull it off.

With the state of local politics, I can see this ending in total disaster. A mini Liverpool or GLC in the making. They simply don't get it; not even when one of our big contributors decides to up sticks and hop over the boarder!