Transport authorities face a difficult financial future under the devolution of business rates unless the formula is reformed, finance experts have warned.
Research from the Institute for Fiscal Studies (IFS) found 119 councils had lost up to 2% of funding because of the switch away from grants to 50% local business rates retention.
Planning authorities in the districts on the other hand would benefit, with 52 (mostly district) councils forecast to see their overall funding boosted by 5% or more by the scheme between 2013–14 and 2016–17.
This is compared to what they would have received if business rates had been pooled and the amount received by each council had instead increased in line with national growth in business rates revenues.
And around 122 authorities would have been worse off under a 100% business rate retention scheme between 2013/14 and 2016/17 if the current formula for 50% retention had been applied, including all county councils.
The largest of these losses would have equated to up to 3.5% of funding. An estimated 16 councils – again mostly districts – would have seen a funding increase of 20% or more in the same circumstances.
IFS senior economist David Phillips said: ‘We will have moved from a system where equalisation and insurance was paramount to one with much more emphasis on incentives for growth, but also more financial risks for councils.
‘There are big picture questions, such as whether these changes will actually empower councils to deliver more growth or just burden them with additional revenue and spending risks.’
The IFS report A Time of Revolution: British local government finance in the 2010s, was written for the Local Government Finance and Devolution Consortium, which is supported by Capita, The Chartered Institute of Public Finance and Accountancy (CIPFA), the Economic and Social Research Council, PwC and a number of local authorities.
CIPFA director of local government Sean Nolan said: “CIPFA agrees with and supports the Institute of Fiscal Studies’ assessment of the state of local government finances.
'Against a backdrop of turbulent economic uncertainty and having already weathered six years of ‘austerity’ cuts, councils across England are now in the process of managing tectonic fiscal reforms, while continuing to delivery day-to-day public services.'
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