With major changes in local government funding planned from April 2013, Ian Fifield, Head of Training at LG Futures Ltd, outlines what changes are afoot with the Finance Act and how Learning Pool’s Finance can help you prepare.
The Local Government Finance Act 2012, will lead to significant changes in the way that every council is funded.
Unfortunately, the details of the forthcoming changes have not been finalised.
Therefore, we have made a decision to fully revise and update all training materials once the full details of the changes are known, probably towards the end of 2012.
In the meantime, the bullet points below provide an overview of what the Finance Act changes are likely to mean for local councils.
No initial winners or losers with the Finance Act
At present, Business Rates (also known as National Non Domestic Rates) are collected by local billing authorities, but then pooled nationally as part of the Formula Grant system.
This means that councils do not directly benefit from the business rates they collect. This will change on 1 April 2013 with the Government’s new Redistributed Business Rate scheme.
Business ratepayers will see no difference in what and how they pay their rates and the Government is ensuring there will be no “initial winners and losers” as a result of the initial changes in funding.
However, from April 2013, increases and decreases in future business rate income due to more or less businesses paying rates will be shared between central Government and local councils in a different way.
Details are yet to be finalised, but essentially councils will be able to retain locally a proportion of any increase in business rates brought about by new business activity in their area.
Conversely, councils will lose funding if the business rate drops. In two-tier areas, County Councils will receive 20% of any change, with the District council receiving the other 80%.
Localisation of Support for Council Tax
At present, there is a national scheme of Council Tax Benefit to assist vulnerable groups in paying their tax bills.
Councils receive specific grant funding from central Government to recover the full cost of the income they lose as a result of people paying less Council Tax as they receive benefits.
From April 2013, individual councils will be operating their own local schemes to support people with their Council Tax by providing discounts on their bills.
It is down to councils to decide who and how to help, with the exception of vulnerable pensioners who are protected nationally.
In addition, the Government is reducing the amount of money they provide local councils to pay for such support by around 10% as part of their deficit reduction plans.
Empty and Second Homes
The Government is enabling councils to reduce the current discounts people currently receive on their Council Tax for second or homes that are empty and in need to major repairs.
In particular, the Government will enable councils to charge an “Empty Homes Premium” of up to 150% of the Council Tax that is due on any home that has been empty for more than 2 years.
Financial incentives for councils
The main effect of these changes is that there is now a direct financial incentive for councils to consider economic regeneration that will increase business rates.
There is already the New Homes Bonus that provides a financial incentive to build new homes. Conversely, those councils that do not see their business rates increase will find that the money they can spend on local services will reduce.
In terms of Support for Council Tax, every council is currently balancing the reduction in funding they receive from Government with the need to support vulnerable and low paid local people in paying their Council Tax bills.
Both of these changes means that the council needs to ensure that it is planning and budgeting even more carefully over the longer term – making the Medium Term Financial Strategy even more significant.
Challenges as a result of change
For budgets managers, those involved in economic regeneration activities and benefits and Council Tax administration will see direct challenges as a result of the changes.
Others may not see the effect of changes so directly, but should be aware that overall council finance and the sources of funding will change significantly, which will impact in the 2013/14 and subsequent budget setting process.
What can I do to prepare?
If you are a budget holder or responsible for administering budgets in a public sector organisations, now is the time to arm yourself with Learning Pool Finance.