LGA 'plotting legal action' over funding

Smith Square is considering legal action against the Treasury or CLG over a government ‘claw back' of council business rates income in this year's local government finance settlement, The MJ has learned. A senior figure at the Local Government Association this week revealed council leaders were ‘utterly convinced' that a government decision not to allocate back to councils an expected £102m surplus in pooled business rates income this year represented a potential breach of rules governing the levy. The Treasury estimates there will be a £102m ‘surplus' in business rates this year The issue was raised at a meeting between senior LGA figures and local government minister, Bob Neill, on 12 January, and councils are hopeful ministers and civil servants will reverse their decision on this year's business rates allocation. However, a source said that if ministers did not hand the cash back, the LGA would consider legal action. ‘There is a moral issue and a legal issue at play here. Naturally, our preference is to reach an agreement on this with ministers and officials. But we believe it is a breach of the 1993 rules governing business rates.' The LGA first identified a problem with councils' business rates income following chancellor George Osborne's Spending Review last October. The problem intensified after December's local government finance settlement, when ministers published detailed, multi-year breakdowns of councils' grant and income allocations – including plans to front-load 26% grant cuts from Whitehall. The LGA claims the tight spending settlement left local government facing a £6.5bn total funding shortfall. In particular, Smith Square claims ‘the full impact' of amendments to business rates calculations ‘is to reduce the amount of business rates that might be expected to be distributed to English local authorities by more than £2bn'. But the potential legal action is likely to focus on a fraction of this figure. Following the winter's number-crunching, the Treasury estimates there will be a £102m ‘surplus' in business rates this year. However, while business rates are pooled centrally, they have historically been reallocated in full back to councils, and the LGA believes the Treasury should have built into its public accounts a position of ‘break even' for business rates this year. Cllr Richard Kemp, leader of the Liberal Democrat group at the LGA and a vociferous critic of the finance settlement, would not be drawn on the details of a possible potential legal action. But he did state that ‘all options are being considered'. Mr Neill responded by claiming ‘there is no black hole' in the business rates income, and added that an already-announced CLG review of business rates could ensure that councils retained more of, or all of, the cash they raised locally from 2013. ‘I do not expect the Government to run the current system, where business rates are collected locally, pooled and redistributed to local authorities, for much longer,' he said. The LGA this week published a detailed submission to the Government's consultation on the finance settlement, which it describes as ‘the toughest in living memory'. The submission states that the settlement ‘requires significant amendment' and demands four key changes: ‘a substantial increase in the business rates ‘distributable amount' included in the settlement, ‘without any corresponding reduction in Revenue Support Grant' freedom for authorities to capitalise expenditure on redundancies, or to fund that expenditure from capital receipts or reserves a ‘reinstatement' of the funding of £148m in 2011/12, and £265m in 2012/13, ‘unjustifiably' taken away from councils to cover the cost of education academies' central functions the creation of separate locally-controlled and transparent funding arrangements for local travel subsidies, to replace ministers' plan to bring concessionary fares funding within the Formula Grant system. The LGA's submission acknowledges that Mr Neill has agreed to ‘look again' at the issues raised in the submission.

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WHITEHALL

LGA 'plotting legal action' over funding

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