Download Executive

Executive
Local Government Resource Review
Report by:
Hugh Grover
Date:
23 March 2011
Contact
Officer:
Hugh Grover
Telephone:
020 7934 9942
Summary
Recommendations
Item no: 5
Job title:
Director, Fair Funding, Performance and
Procurement
Email:
[email protected]
This paper updates Members on progress and developments since they
agreed London Councils’ response to the White Paper ‘Local Growth:
Realising Every Place’s Potential’ on 28 October 2010. It reports the
formal commencement of the government’s Local Government Resource
Review and proposes that detailed further work be undertaken on this
with a view to detailed reports being taken to the Leaders’ Committee in
May.
(1) That the terms of reference for the Local Government Resource
Review be noted and the Executive express any views it has on the
principles that should guide the development of a response.
(2) That officers be asked to develop further work on the implications of
the Review for London in accordance with the principles the
Executive identifies.
(3) That the Chair and other elected officers engage in a discussion on
the issues surrounding the Local Government Resource Review for
London with the Mayor of London and relevant Advisers.
Local Government Resource Review
Background
1. On 28 October 2010 the government published a White Paper ‘Local Growth: Realising
Every Place’s Potential’. Amongst other matters the White Paper set out the
government’s thoughts regarding mechanisms that might encourage local economic
growth, particularly covering issues concerning the possible benefits of incentivisation
through local retention of the Business Rate. The White Paper also made particular
reference to the government considering a range of options, making specific reference
to the existence of a ‘London Pool’ prior to 1990.
2. The White Paper also announced that there would be a Local Government Resource
Review (LGRR) commencing in January 2011.
3. Members approved London Councils’ response to the White Paper at their 29
November 2010 meeting. The response included the statement: “London Councils
offers to work closely with the Government to assist in the design and implementation
of a business rate retention model as part of the [Local Government Resource] review.
4. The Terms of Reference for the LGRR have been somewhat delayed but were
eventually published on 17 March 2011 (see Annex A for the full Terms of Reference).
Members will note that the stated aim of the review is “…to free up as many local
authorities as possible from dependency on central government funding, as well as
develop better incentives for local authorities to promote economic growth in their areas
and to benefit financially from that growth. The first phase of the Review will deliver
proposals for reform by July 2011.”
Progress Update
5. Since members agreed London Councils’ response to the White Paper, officers have
been engaged in considering what characteristics and principles might underpin any
possible Business Rates retention model in London.
6. There are understandably many issues and points of detail that present themselves
when investigating various options, but it appears to officers that key amongst these
are:

whether regional pooling and redistribution of business rates (addressing the
differential between rates raised and funding need) is viable and desirable;

if pooling and redistribution were to be adopted, what would be the basis for
assessing funding need;

what would a fair and equitable incentive mechanism look like (bearing in mind
the different starting positions for different authorities;

to what extent could business rates justifiably be expected to fund some
elements of regional GLA family activity (for example the formula grant element
of funding for LFEPA and the MPA)
7. On the final point, funding regional GLA family activity, officers have engaged in some
useful initial discussions with officials at the GLA and have committed to further
discussions subject to members’ views on the way forward overall. It would be useful if
this could be supplemented by the Chair and other elected officers discussing the
review with the Mayor of London and his relevant Advisers.
8. More broadly, the Executive is asked to endorse further development work by officers
on response to the Review with a view to this informing further discussions with
Executive members and a report to the Leaders’ Committee in May 2010.
Recommendations
9. (1)
That the terms of reference for the Local Government Resource Review be noted
and the Executive express views on the principles that should guide the
development of a response.
(2)
That officers be asked to develop further work on the implications of the Review
for London in accordance with the principle the Executive agrees.
(3)
That the Chair and other elected officers seek a first discussion on the issues
surrounding the Local Government Resource Review for London with the Mayor
of London and relevant Advisers
Financial Implications for London Councils
10. None
Equalities Implications for London Councils
11. None
ANNEX A
LOCAL GOVERNMENT RESOURCE REVIEW: TERMS OF REFERENCE
Phase 1
The first phase of the Review will consider the way in which local authorities are funded,
with a view to giving local authorities greater financial autonomy and strengthening the
incentives to support growth in the private sector and regeneration of local economies.
It will look at ways to reduce the reliance of local government on central government
funding, increase local accountability and ensure that the benefits of economic growth are
reflected in the resources authorities have.
The review will include consideration of changes to the business rates system, and focus in
particular on:
a)
the optimum model for incentivising local authorities to promote growth by retaining
business rates, whilst ensuring that all authorities have adequate resources to meet
the needs of their communities and to deliver the commitments set out in the
Spending Review;
b)
the extent to which these proposals can set local authorities free from dependency on
central funding;
c)
considering how to fund authorities where locally raised funding would be insufficient
to meet budget requirements and control council tax levels, as well as councils who
do not collect business rates, such as upper tier authorities, recognising that some
parts of the country are currently more dependent on government funding;
d)
reviewing the scope for greater transparency and localisation of the equalisation
process;
e)
the position of councils whose business rate yield would be significantly higher than
their current spending;
f)
how to ensure appropriate protections are in place for business, within a framework of
devolving power to the lowest level possible;
g)
how to deliver Tax Increment Financing proposals against a context of greater
retention of business rate revenues;
h)
how various aspects of the business rate system, including business rate revaluation
and reliefs, should be treated;
i)
examining the scope for further financial freedoms for local authorities, while standing
up for and protecting the interests of local taxpayers, and
j)
the wider implications of rates retention for related policies, including the work of the
Commission on the Funding of Care and Support and the Government’s other
incentive schemes (the New Homes Bonus and the commitment to allow communities
to keep the business rates for renewable energy projects).
The Review will take account of the responses made to the questions in "Local growth:
realising every place’s potential". It will also conduct extensive engagement with interested
parties, including businesses of all sizes, to ensure that all views and perspectives are
taken into account.
Following the announcements at the Spending Review and through introduction of the
Welfare Reform Bill that Government will localise Council Tax Benefit, the Review will also
consider the design of the new scheme (to be launched in 2013-14) and what flexibilities
local authorities should have to help keep overall council tax levels down.
The first phase of the Review will conclude by July 2011, followed by the necessary steps
to implement the concluded reforms.
Phase 2
The second phase of the Local Government Resource Review will commence in April 2011
and will focus on Community Budgets. It will be taken forward in parallel with the continued
roll out of these Budgets. Detailed Terms of Reference will be published shortly.