2. Current System
Service provision based on needs and
ability to pay
Taxpayers in similar circumstances should pay the same
across the country for the same level of service.
and
It is based on relative needs of communities and differing
ability to raise Council Tax of individual Authorities.
Aim has always been to achieve ‘fairness’
NNDR pooled – because it has no real relationship to
service needs
3. Proposed System
Service provision based upon retention of
Local Business Rates with some
‘equalisation’
No account of communities ability to pay
No account of future needs
4. Full Localisation - Deprived Hit Hardest
£m
400
Surrey
300
Hertfordshire
Hampshire
Surplus or (Deficit) on NNDR
Larger Surplus
200
Oxfordshire
100
0
0 20 40 60 80 100 120 140
-100 Lower Deprivation
Bradford
Liverpool
Birmingham
-200
Index of Multiple Deprivation 2007
- Analysis excludes outliers of Westminster and City of London
5. Government’s potential approach to
reduce the impact?
A system of ‘tariffs’ and ‘top-ups’; with a baseline
/ ‘equalisation’ frozen at 2012/13 funding.
Major issue of locking in existing disparities
i.e. damping
No effective mechanism for updating needs
Authorities who generate NNDR greater than
Formula Grant will pay a ‘tariff’
Authorities who generate less NNDR than
Formula Grant will receive a ‘top-up’
May at first appear to deliver some ‘equalisation’
6. Fairness / Equalisation Issues
Modelling shows the gap between rich and poor areas
would widen.
Equalisation only at the start
Even if business rates and council taxes across
England grow at the same annual percentage rate*
some authorities funding would grow much faster than
others;
Authorities with highest One year % Authorities with lowest One year %
funding growth cash growth funding growth cash growth
City of London 34.9 Northumberland 5.3
Westminster 22.7 Bury 5.3
Hillingdon 10.1 Isle of Wight 5.3
Tower Hamlets 9.8 Waltham Forest 5.3
Camden 9.4 Wirral 5.3
In reality likely to be much wider
* Assumed NNDR(RPI +2.5%); CT (2.5%)
7. Equal Growth + Initial ‘Equalisation’=
Growing Disparities
Average Four Year Percentage Increase in Total Funding Available (including
council tax)
30 29.6
Percentage Increase in Funding
29
28
27
26
25 24.6
24.0 24.2 24.2
23.7 23.7 23.8
24 23.3
23.1
23 22.8
22
NE NW SW SIGOMA WM EM YH EE SE OLB ILB
Excludes outliers of Westminster and City of London Region
Modelling over a four year period, applying same growth in business rate and council tax to all
authorities
8. Fairness / Equalisation Issues
Authorities with high taxbases (NNDR and CT) compared
to their needs are likely to benefit
Weaker economies will increasingly suffer
Cannot deliver Government promise of protecting more
vulnerable in our society
No relationship to ongoing needs
Will give successful economies ability to reduce or remove
council tax – poorer continue to pay
Likely to be more complex than current system
Survival of the Fittest!
9. Incentives for Growth?
Fundamental issue of ability to influence growth
Some growth just happens because of where it is
Rewards go to already successful places (LABGI?)
Focus on physical growth- e.g. would exclude
internet based business
No ‘kick start’ support for economic growth in
more deprived areas
Deprived areas will see reducing resources –
reduced ability to support the local economy
Treasury view – Local Government has little
impact on economic growth
10. Impact on Localism
Localism should be about having funding levels
to meet local needs and deciding the best way
to spend it
This model will provide
different levels of Council Tax irrespective of ability to
raise by individual authorities
different levels of service irrespective of needs
Local rate setting ?
Strongareas ability just to ‘relocate’ business away
from weak
Business may want more say – accountability issues
Is this localism or simply redistribution of
resources
11. Future Growth in NNDR
Expected to exceed current spending plans – will this
solve the problems?
Will Treasury take resources
Will we just get new responsibilities
Given there is no prospect of RSG to supplement NNDR
going forward, this is still likely to be a zero sum game
Winners – strong economies, prosperous places
Losers – weak economies, most deprived
12. Achievability?
Current indications no firm proposals to consult
on in July?
Recognition that significant issues to overcome
Danger of rushing through to meet deadlines
Need consideration of alternative models to
incentives without impacts on services
Should be a delay
to deliver a sustainable model
to achieve buy in
to maintain fairness
If these can’t be achieved
Maintain status quo
Look at other options