Business rate reforms could lead to losses for some councils

Councils are forecast to see divergent effects on their funding due to the business rates reforms in 2016/17, according to research by the Institute for Fiscal Studies (IFS).

The reforms will likely make councils more dependent on the amount of council tax and business rates that are raised locally.

By 2020 councils will retain 100% of their business rate revenues, which could lead to larger gains as well as larger potential loses. Some councils could still lose significant sums even if business rate revenues grow at the same rate across all councils.

The IFS forecast that 52 councils (mostly district) will see their funding increase by 5%, while 119 county councils may lose their funding by 2% in 2016/17.

Other findings on council’s budgets since 2009/10:

  • Councils in England plan to spend less (22%) on service provision in 2016/17
  • Scotland and Wales have seen smaller cuts, by 15% and 11.5% respectively
  • Cuts have been much larger in England, with more grant-dependent councils having to cut their spending on services by 33% on average.

David Phillips, senior research economist at the IFS, said:

“Along the way there will be lots of tricky policy decisions. And 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.”

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