Written evidence submitted by Southampton City Council [BRR 012]

  1. Introduction

 

  1. Enquiry Response

 

Q1) What are the consequences for councils of the longer implementation period for 100% Retention in the context of the four-year settlement?

Whilst a longer implementation period for the implementation of Business Rates may give rise to a better informed and designed retention scheme there are a number of issues which remain unclear. Namely:

  1. What ‘new burdens’ will be placed on local authorities in light of the additional rates retained. To that end we have had to assume a neutral impact for the purposes of the Medium Term Financial Strategy (MTFS).
  2. The offer and acceptance of the four-year funding settlement, whilst giving a baseline position and intended to give some certainty to funding levels, was accepted on the basis that there was still an underlying need for additional funding to meet the growing demand and financial pressure for some services i.e. Adult Social Care. As yet this need has not been met and there is still uncertainty of how the business rates retention scheme will help to address this.
  3. Further clarification is still needed on ‘reset periods’ whereby total rate income and authority relative needs are reassessed with a resulting reset of the baseline. Clarity is needed on what Growth if any would be retained beyond each reset.
  4. In order to have some clarity over future income levels, clarification is also needed on any transitional arrangements from implementing the new scheme.

 

  1. In light of the above it would be fair to conclude that there is still significant uncertainty around potential income levels that the four-year funding settlement has not addressed and little assurance that SCC will have sufficient funding to provide its statutory services.

Q2) What are the consequences for councils of implementing the outcome of the Fair Funding Review (FFR) in 2020-21?

  1. Whilst the consultation on the Fair Funding Review (FFR) looks at the mechanism for allocating the ‘pot’ of available funds it does not address whether the ‘pot’ is sufficient to meet the increasing demand for some services and therefore the resulting financial pressure that local authorities are subject to. The FFR provides an opportunity to assess the current shortfall and future potential impact on local authorities.
  2. Given the complexity and need to have a properly assessed and designed system it would not be realistic to implement before 2020/21.
  3. One element of the FFR is to look at Council Tax Bases as a local funding resource and to what extent this should be taken into account in agreeing the FFR. Whilst this is outside the remit of the working groups, some assessment needs to be completed as to the local nuances of each local authority i.e. % of student accommodation, discounts and exemptions that are applied which are all local factors can impact significantly on the level of Council Tax income raised.
  4. For authorities that suffer a reduction in funding as a result of the FFR, it will be essential that they have sufficient time to prepare for implementation as the delivery of sustainable budget adjustments (e.g. through releasing further savings) with sufficient lead in time if unnecessary service cuts are to be avoided. Transitional funding (perhaps tapered for two years) is one potential method that could be considered if the outcome from the FFR is to be implemented in 2020-21.   

Q3) What are your views on the Government’s plans for pooling and local growth zones under the 100% Business Rates Retention system?

 

  1. SCC have applied to become a BRR Pilot in 2018/19 along with Portsmouth City Council and the Isle of Wight. The geography covered by the three unitary authorities is accepted by Government as a functional economic area and forms the Solent Combined Authority Deal currently under consideration by the Secretary of State for Communities and Local Government. That Deal also featured 100% Business Rate Retention.

 

  1. Whilst the Councils of Southampton and Portsmouth are able to make meaningful
  2. financial injections into their local economies, the Isle of Wight Council cannot and this
  3. acts as an economic growth inhibitor for the Island and the region as a whole.

 

  1. Whilst a pooling arrangement for the Solent area could support better improve economic development and growth across the region, nationally there needs to be assurances that funding retained under these agreements do not deter from the issue that there needs to be sustainable funding for services across all authorities.

 

Q4) How are these changes to the original implementation schedule affecting councils’ financial planning from 2020 onwards?

  1. An extended period of uncertainty regarding the implementation of 100% Business Rates Retention does hamper financial planning from 2020 onwards. As with any financial uncertainty, prudent planning assumptions are required which could potentially lead to (in certain circumstances) unnecessary service cuts.
  2. Our MTFS has been based on a cost neutral assumption following an assumed implementation of 100% business rate retention in 2019/20. Whilst some clarity has now been given around how some elements of the current system could work i.e. S31 grants little information is available in order to be able to undertake more robust financial planning for the later years of the four-year funding settlement and beyond.
  3. One further consideration of the possible delay is the implications of the introduction of the three stage system for Rating Appeals.
  4. On the 2nd November 2017 SCC Officers met the VOA Relationship Manager and discussed the impact of the new three stage system for Rating Appeals known as 'Check. Challenge. Appeal.' (CCA) for the 2017 List.
  5. Moving Rates Retention back will give billing authorities longer to evaluate the effect of the new Appeals system on their local rating list.
  6. Although statistics are limited, it appears that it has already significantly reduced the challenges to Ratable Value (RV) assessments in respect of the 2017 list. 
  7. In Southampton, the updated schedules from the VOA show that in the first year (October 2009 - September 2010) following the 2010 Revaluation there were 2,208 amendments to the draft Rating List. In comparison there have been 1,365 amendments in the first year to the 2017 draft Rating List.
  8. However it is possible that agents are taking time to schedule appeals on behalf of their clients over a longer period due to the supporting information required by the VOA from them at the initial stage.
  9. The nature and timing of some economic development schemes in the area will have been influenced by the assumed introduction of 100% Retention in 2020. We have a concern that extending the implementation period (e.g. through the timing of ‘baseline settings’) may possibly result in originally assumed Business Rates growth being reduced or not materializing at all. With further information now circulated that post the 2022 revaluations will be carried out every 3 years, more information will be required as to how this impacts, if at all, on rebasing the business rates baseline.
  10. Although not directly attributable to the business rate retention, as not included in the proposed new responsibilities, it is important to understand what assumptions are being made regarding Social Care Funding beyond 2019/20 with regards to the better care fund and precepts. This information is vital to ensure adequate financial plans are in place to meet the costs of these services.

 

 

December 2017