Tag Archives: business rates

Budget 2016 – 5 messages for local government

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One pound coin on fluctuating graph. Rate of the pound sterling

By Heather Cameron

Last week George Osborne revealed the details of his 2016 Budget, at the centre of which was a major deterioration of the forecast for productivity growth. Last year, the Office for Budget Responsibility (OBR) projected an average growth in productivity per hour of 1.9% between 2015-16 and 2020-21; that average is now 1.7%.

As a result, a further £3.5 billion of savings from public spending is to be found in 2019/20. While Osborne has suggested these savings are equivalent to 50p in every £100 the government spends, experts have warned that the figure is closer to £2 or £3 for services that haven’t been protected.

What does it mean for local government?

Despite no direct cuts for local government, it remains unclear where these savings will come from. And with ring fencing of much public spending, local government may yet again bear the brunt of these cuts one way or another.

Business rates

Concerns have been raised over the announcement to extend business rate relief, the revenue from which is 50% retained by councils. It was revealed that this will remove £7 billion from the total take in England over the next five years; 600,000 small businesses will pay no rates at all from next year.

While good news for small businesses, there are fears it could leave a huge hole in local government finances as all locally raised business rates are to be fully devolved by the end of 2020. This will be accompanied by the phasing out of central government grants, and the devolution of additional spending responsibilities.

The government says that “local government will be compensated for the loss of income as a result … and the impact considered as part of the government’s consultation on the implementation of 100% business rate retention in summer 2016.”

But details of how such compensation will work remain unknown. The Institute for Fiscal Studies (IFS) has suggested that the government’s plans for reimbursing local government is “nigh on impossible”.

According to the Joseph Rowntree Foundation (JRF), if protection for council budgets isn’t extended to beyond the devolution of business rates, councils stand to lose £1.9bn per year, or 2.9% of their total revenues.

Benefits cuts

Further cuts to welfare spending could also have a knock-on effect. The Chancellor outlined controversial plans to reform Personal Independent Payments (PIP) for disabled people, to save £1.3 billion. Overall, £4.4 billion will be cut from benefits for disabled people over the course of the parliament.

The cuts to PIP have been described as ‘devastating’ for disabled people, with many relying on them to live independently. They could therefore lead to increasing pressure on already stretched local services.

Even the government’s own party members criticised these cuts, which have since led to the shock resignation of Iain Duncan Smith and a government U-turn on the reforms to PIP, which will now not go ahead.

But there is no alternative plan to fill the hole left by this U-turn so local government may still need to brace themselves for cuts elsewhere.

Education

Under the education reforms, every state school in England is to become an academy by 2020 or have a plan in place to do so by 2022, ending the century-old role of local authorities as providers of education.

But, as our recent blog has highlighted, there are ongoing concerns over the academy programme with little evidence to justify it.

The plans have been criticised by councils and teaching unions. Chairman of the Local Government Association (LGA) children and young people board, said:

“We have serious concerns that regional schools commissioners still lack the capacity and local knowledge to have oversight of such a large, diverse and remote range of schools.”

Ofsted rated 82% of council maintained schools as good or outstanding, while the results of recent HMI inspections of academies has been described as “worrying”. The findings also highlighted a “poor use of public money”, something that has been reiterated by the LGA.

In response, the LGA noted that “councils have been forced to spend millions of pounds to cover the cost of schools becoming academies in recent years”.

Devolution deals

There was some better news for local government in the form of new devolution deals with the West of England, East Anglia, and Greater Lincolnshire. The West of England and East Anglia will each receive a £900 million investment fund over 30 years to boost economic growth, while Greater Lincolnshire’s deal is worth £450 million.

New powers over the criminal justice system are also to be transferred to Greater Manchester and business rates are to be fully devolved to the Greater London Authority next year, 3 years before everyone else.

The LGA welcomes these deals as recognition of the economic potential of all local areas and calls for a return to the early momentum in which similar deals were announced last year.

Flood defences

Another positive for local government was the £700 million funding boost for flood defences by 2020-21, including projects in York, Leeds, Calder Valley, Carlisle and across Cumbria, to be funded by a 0.5% increase in the standard rate of Insurance Premium Tax.

Considering the extent of recent winter flooding, this was welcomed by local government as a “step in the right direction”.

However, the LGA has stated that councils will need further help from government once the full cost of recent damage emerges. It has also called for flood defence funding to be devolved to local areas so the money can be spent on where it is really needed.

Final thoughts

So despite no direct cuts for local government, and the welcome boost to local economies and flood defences, it remains to be seen whether local government will lose out financially in the longer term.

Read our related blog on the total academisation of schools.

Follow us on Twitter to see what developments in public and social policy are interesting our research team.

 

Top down ‘devolution’ or a bold new era for local government? An update on the Cities and Local Government Devolution Bill

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By Steven McGinty

On Wednesday 21st October, the Cities and Local Government Devolution Bill reached the Committee Stage for consideration by the House of Commons. The Bill, which was initially introduced in the House of Lords, provides statutory authority for the devolution of powers to local areas. The Local Government Association (LGA) has described it as an ‘enabling Bill’ – as very few of the policy areas covered in devolution agreements are mentioned.

Yet its technical nature has not deterred debate. Whitehall, local government, and a host of other interested parties have all sought to shape the Bill, and the devolution agenda.

So, what are the main elements of the Bill?  

The Bill makes a number of proposals, including that:

  • Ministers will have to make a statement demonstrating that all new domestic legislation is compatible with the principles of devolution;
  • Elected mayors can be introduced for combined authority areas, and can be given the functions of Police and Crime Commissioners (although this is not mandatory);
  • Powers can be transferred from public body functions to combined authorities;
  • There should be requirements for combined authorities to be scrutinised and audited;
  • Powers should exist to transfer public functions to certain local authorities, and to fast track changes to their government structures.

Which devolution deals have already been agreed?

The Government has received 38 bids, including four from Scotland and Wales. The first devolution deal was the Greater Manchester Agreement on the 3rd November 2014. Since then, a number of other deals have been agreed, including the Sheffield City Region Agreement on Devolution (12th December 2014), the Cornwall Devolution Deal (16 July 2015), and Tees Valley Devolution Agreement (23 October 2015).

However, a number of agreements are still under discussion. For instance, the Liverpool City Region bid is seeking power over a large range of areas, including the creation of a Land Commission and a development corporation, EU structural funds, and retention of business rates. They are also considering introducing an elected mayor.

Elected mayors

The Bill currently before the House of Commons states that elected mayors should not be a condition of further devolution. Nevertheless, the government have linked a full transfer of powers to a directly-elected mayor. In May 2015, the Chancellor, George Osborne, argued that:

“It’s right people have a single point of accountability: someone they elect, who takes the decisions and carries the can. “

However, in the same speech, the Chancellor also suggested that he would “not impose this model on anyone”.

Some, though, would argue that the Chancellor’s approach is closer to the first statement. For instance, a group of North East MPs have challenged Ministers to “just be honest” and admit that they forced the North East Combined Authority to accept an elected mayor. Interestingly, Durham County Council, a member of the North East Combined Authority, is set to allow residents to vote on the new deal. Yet, even if the public voted against the deal, the Cities and Local Government Devolution Bill provides that the Communities Secretary has the power to eject a combined authority member, and continue with the deal.

Similarly, it’s been reported that the Department for Communities and Local Government (DCLG) has explicitly told Suffolk and Norfolk that they would need a directly-elected mayor if they want major powers to be devolved.

The LGA has recently suggested that the government should look to identify alternatives to directly-elected mayors.

Health and social care devolution

During the debates, concerns have been raised over whether devolving health services would mean that health services would no longer be subject to national standards. In the House of Lords, Baroness Williams attempted to clear this up, explaining that services would still be part of the NHS and the social care system and national standards would apply.

However, this led to Lord Warner questioning how ‘devolved’ health services would really be. Chris Ham, Chief Executive of the Kings Fund, also stated that:

“The unanswered question is how much freedom public sector leaders will have to depart from national policies in taking greater control of NHS resources.”

He suggested that this issue would need to be worked on.

 Will the Bill bring devolution to English regions?

The great advantage of the Bill is that it provides flexibility for local areas to negotiate their own devolution deal. But, as we have seen from already signed agreements, combined authorities may have to agree to terms that are at odds with the local electorate. For example, in 2012 the electorate of Manchester voted against directly-elected mayors. Yet, a couple years later, they became the first combined authority to sign an agreement with the Chancellor.

Some, however, will say that genuine devolution will only be achieved through devolved finances. This has already started to happen with the Chancellor announcing that local authorities will be able to retain business rates.

Overall, though, the devolution journey has just begun. Each local council will make their own arrangements, and will be answerable to their own electorate. Ultimately, it will be for them to decide through the ballot box whether genuine devolution has been delivered.

The Bill will return for further consideration in the House of Commons on 17 November 2015.

Follow us on Twitter to see what developments in public and social policy are interesting our research team.

Read our other blogs on devolution:

Enterprise Zones … did they work then, will they work now?

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by Laura Dobie

In this article we look at past and present incarnations of Enterprise Zones, their potential to create jobs and growth, and issues to address in policy approaches.

Past experiences and lessons learned

The Enterprise Zone concept emerged in the UK in the 1970s. They were conceived by the planning academic Peter Hall, with the idea that removing all obstacles faced by businesses, such as regulation and bureaucracy, would allow enterprise to prosper, prompting a surge in the number of companies, employment levels and incomes in areas which had been ravaged by industrial decline and restructuring.

Enterprise Zones were created in the UK between 1981 and 1996 and were mostly concentrated in areas of post-industrial decline on the outskirts of towns and cities. The policy, as it was implemented, departed somewhat from the original, free-for-all vision: the zones concentrated on built environment challenges and the use of capital-based grants and rebates to drive growth.

The incentives offered included:

  • 100 percent tax allowances for capital expenditure on constructing, improving or extending commercial or industrial buildings;
  • Exemption from Business Rates for industrial and commercial premises;
  • Simplified planning procedures;
  • Exemption from industrial training levies;
  • Faster processing of applications for firms requiring warehousing free of Customs duties;
  • A reduction in government requests for statistical information.

The Department for Environment’s final evaluation found that approximately 126,000 jobs were created, of which up to 58,000 were additional, and that additionality was highest for manufacturing and lowest for retailing and distribution activity. It estimated that the cost per additional job created was around £17,000 (£26,000 at current prices), assuming a ten year job life, and that over than £2 billion (1994/95 prices) of private capital was invested in property on the Enterprise Zones, a public to private leverage ratio of about 1 to 2.3.

However, Enterprise Zones have been subject to much criticism, and it has been argued that, overall, they did not produce a lasting recovery in investment and employment. (Danson, 2013, p17). Critics have highlighted the displacement effects of Enterprise Zones, i.e. that many jobs created in Enterprise Zones were displaced from other areas (Sissons and Brown, 2011), and the expensiveness of the policy (Larkin and Wilcox, 2011).

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