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The absence of the Local Government Finance Bill (the "Bill") from the Queen's speech has been described by the Local Government Association as "hugely concerning". The Bill was intended to set out a framework to enable local authorities retain business rates raised locally. This is estimated to be work £26 billion to local authorities each year. The Bill also sought to provide for Mayoral Combined Authorities and the Greater London Authority to raise an infrastructure supplement. The Bill was approaching a Third Reading (the final debate in the House of Commons), but was not mentioned in the Queen's Speech. Given that the Bill is (at the very least) on hold for the foreseeable future, where does this leave local authorities who had been expecting new tools for raising revenue?
A number of commentators and organisations, such as the National Audit Office ("NAO") were concerned that the Bill was rushed through Parliament without adequate time to consider its true impact. The head of the NAO said earlier this year that the Department for Communities and Local Government ("DCLG") would face a "significant challenge in implementing 100% local retention of business rates by 2019-20".
There were concerns that due to the tight timescale it was highly likely that the final scheme would not have been fully tested. This is particularly worrying given that the experience of the 50% scheme showed that there is a clear risk posed by unforeseen issues.
The NAO also considered that the overall scheme had been poorly thought through. The DCLG had hoped to incentivise local authorities to grow their tax bases by adopting pro-development planning practices which in turn would support economic growth. However, the NAO pointed out that tax growth does not necessarily mean economic growth, as new developments can lead to the relocation of existing economic activities rather than the creation of new ones. Significantly, the DCLG had not looked in detail at whether the present scheme under which authorities keep 50% of their business rates had promoted pro-growth behaviour in authorities.
The Bill was an attempt by the Government to make local government more self-sufficient. with the 100% retention scheme coming in the context of a long-term reduction in local authority funding. The NAO highlighted the risk of implementing a such a scheme that might be technically sound but lacking sufficient funding for local authorities to deliver their statutory functions.
Apparent abandonment of the Bill has created a great deal of uncertainty for local authorities. Prior to the abandonment of the Bill, four in five senior council decision-makers had little to no confidence in the sustainability of local government finance. It is possible that local authorities may now choose to abandon local economic growth strategies to focus on service delivery.
More specific impacts will be on local authorities who were expecting to start a 100% business rate retention pilot soon, and on the mayors of combined authorities, as some of their powers were to be included in the Bill
What next for local government finance?
The general attitude from local authorities is one of "disappointment but not surprise". The DCLG have said that despite the dropping of the Bill, the "Government is committed to delivering the manifesto pledge to help local authorities control more of the money they raise and will work closely with local government to agree the best way to achieve this".
Some finance experts have suggested that both 100% retention and the promised fair funding review could still go ahead without legislation. The DCLG is widely understood to be in the process of working out what aspects of its planned financial reform programme could go ahead if this is the case. However, the devolution aspect will still need specific legislation.
Given the legislative burden of Brexit, and the fact that the upcoming Parliament is intended to sit for two years, it is doubtful that the Bill will ever be implemented in the short term. However, 100% business rate retention is not off the cards. No timescales have yet been announced, and it is expected that a consultation on local government finance reform will take place which may be able to address some issues local authorities are facing. Although the lack of certainty and lack of a long term funding solution for local government is regrettable, given the issues raised on some aspects of the Bill, this could be an opportunity for the Government to consult more widely with stakeholders and may end in the introduction of a more nuanced and well-researched policy.