Business rates grant money could be clawed back, says IFS

By Heather Jameson | 14 June 2020

Central government funds given to councils to pay for grants and business rates waivers may have to be paid back if it is unspent, a finance think tank has claimed.

Of the £22bn given to English local authorities, up to £400m could be left unspent, according to calculations by the Institute of Fiscal Studies (IFS).

IFS associate director, David Philips, said a lack of a centralised databases of business rates, and the speed at which the scheme was set up meant it was ‘inevitable’ that the initial allocations would differ from the final cost of the grant scheme.

While most discrepancies are likely to be relatively small, he said: ‘A few coastal councils are likely to spend tens of millions of pounds less than they have been allocated.

‘Overall, more than £400 million of funding will have to be clawed back from local authorities initially allocated too much funding – which could potentially be recycled for more general financial support for local government to address the costs of the coronavirus crisis or to provide more support for businesses across England.’

The Chartered Institute of Public Finance and Accountancy said 87% of all eligible businesses were paid.

Lead revenues advisor, Adrian Blaylock said this happened ‘at pace at a time when resources are stretched and there is high demand’.

He added: ‘Government have committed £12.3bn to support business. Should there be any funding remaining, CIPFA would absolutely support the redistribution of these to ensure the full level of support offered by government is used for its intended purpose.’

Chair of the Local Government Association’s resources board, Cllr Richard Watts, said councils were continuing to redistribute the cash where it was needed.

‘If all eligible businesses can be contacted and paid, and funding for the discretionary scheme is spent in full, we estimate there could be an underspend of £600 million.

‘The Government should redistribute any unspent resources from this scheme, including any clawed back, to councils to be spent on local efforts to help support businesses and reboot local economies as we move into the next phase of this crisis.’

The IFS found:

  • Just £1 difference in a property’s rateable value could lead to up to £24,300 in support
  • There were large discrepancies between the proportion of eligible support in different parts of the country, largely due to property prices and policy differences
  • There was significant variation in how quickly councils could pay out grants
  • Councils could be left with at least £400m of unspent funding
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