Department for Communities and Local Government
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Historic opportunity for councils to shape their financial future

Councils have historic opportunity to shape their financial future and select the powers that will be devolved from Whitehall to town halls.

Councils have “an historic opportunity” to shape their financial future and to select the powers that will be devolved from Whitehall to Town Halls, Greg Clark said today (5 July 2016).

By the end of this decade, local government will retain 100% of locally-raised business rates – which by 2020 will see councils retain an additional £12.5 billion.

The Communities Secretary said this crucial reform will make councils the drivers of economic growth in their communities, while also helping to transform the key services that their residents value.

In exchange for this financial freedom, Mr Clark today published a list of responsibilities that could be transferred to councils across the country, including funding for public health.

Speaking at the Local Government Association (LGA) annual conference, the Communities Secretary urged councils, businesses and others to have a say over how the new system of funding would work.

Mr Clark also launched the first steps in a Fair Funding Review, which will provide councils with their fair share of funding according to local needs under the new system.

Communities Secretary Greg Clark said:

For years, councils have been calling for central government to give them the power to retain local taxes, including business rates.

Today, we set out the first steps towards making that ambition a reality, transforming the relationship between Whitehall and town halls and putting local government at the heart of delivering strong economic growth for their communities.

These next few weeks offer councils an historic opportunity to play their part in these radical reforms and to shape their financial futures for decades to come.

A funding system fit for the future

In February, the government confirmed a 4-year funding settlement for councils, giving local leaders the certainty they need to plan ahead with confidence.

In particular, this set the stage for the move away from central government grant and towards 100% business rates retention by 2020.

Liverpool and Manchester are already taking the first steps towards 100% business rates retention, with London also retaining more of the rates they collect.

Today, the Communities Secretary canvassed councils for their views of how these reforms will work. Key changes will include:

  • ensuring the system is designed to encourage and reward councils that promote and support economic growth in their areas

  • ensuring a system of redistribution of funding that recognises the needs and demands of different councils, including in cases where there are combined authorities and mayoral areas

  • measures to manage risk within the system, including the improved management of appeals

  • new flexibilities for councils to enable them to reduce the business rates tax rate and, where there is a combined authority metro mayor, to raise an infrastructure levy

But elements of the current system of local government funding are expected to remain, including:

  • a level of redistribution between councils, through a system similar to top-ups and tariffs – underpinned by the Fair Funding Review

  • protection built into the system to insulate authorities from shocks, or significant reductions in income

  • Enterprise Zones continuing to keep 100% in the growth in business rates for 25 years – encouraging their work to increase economic growth in their areas

  • the New Burdens Doctrine, which ensures that departments assess and adequately fund the impact on councils of any new policies, will remain in place

Alongside this, the Fair Funding Review will be a key part of the finance reforms, ensuring a thorough assessment of the relative needs of local councils, in a world where local government is self-sufficient and funded through local taxes.

Today, Mr Clark started the first steps of that review, with a call for evidence from councils.

Further information

Self-sufficient local government: 100% business rates retention is published today. Councils and businesses have until 26 September 2016 to respond.

Over the course of the summer the government will continue to work with the LGA, councils and business to help develop the detail of the reforms.

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