Several Lancashire councils could be dealt a budgetary blow by a government scheme intended to boost their income.
The local democracy reporting service has learned that Lancashire County Council is one of those which could be shortchanged by the “business rates retention” pilot – with the authority facing a funding gap of around £1m.
Blackpool Council could also lose out, but bosses have yet to confirm the potential impact on its finances.
The majority of local authorities in the county are taking part in a year-long trial enabling them to retain 75 percent of the growth in business rates raised across the region, pooled between individual councils.
It was estimated that the pilot project would generate an extra £10.8m for the county as a whole during 2019/20, compared to previous years when the share of business rates kept by councils was limited to 50 percent – with the remainder redistributed nationwide.
Local authorities are still likely to be better off under the scheme than they were previously – but the way in which Whitehall officials have interpreted a complex calculation underpinning the pilot could leave up to half a dozen Lancashire councils with less cash than they were expecting.
Angie Ridgwell, chief executive of Lancashire County Council, said the authority was preparing to enter into “dialogue” with officials at the Ministry of Housing, Communities and Local Government (MHCLG).
“Our position [is] that government needs to stick by the agreement as we all understood it when we went into these pilots,” she said.
Finance director, Neil Kissock, added that the county council would be “making the case” for the government to change its methodology to the one which local authorities had been expecting it to use.
The business rates retention pilot is being run in advance of an expected national rollout of the scheme next year, in which councils across the country will be allowed to keep 75 percent of the cash raised in their local areas.
The additional money generated for local authorities will replace the revenue support grant (RSG) – a longstanding component of the funding handed down from central government – which is being phased out by the start of the next decade.
The majority of Lancashire authorities have already stopped receiving RSG and so are unaffected by the quirk which has emerged. But others which were due to be given the grant for the final time this year look set to face an unexpected side effect of the government’s calculations, leaving them with a lower overall funding settlement.
Ken Hind, who was leader of Ribble Valley Borough Council at the time the district authority spearheaded the bid on behalf of the rest of the county, said he was “deeply disappointed” by the development.
“We should have been told about this at the time, because if a council has assumed that they will receive a particular amount as part of the pilot, they will have factored that into their budgets and may have set a lower council tax level based on how much they were expecting.
"Ribble Valley didn't make that assumption, we treated it as an extra. But this is something which none of the councils knew anything about and it begs the question as to how much of that extra £10.8m Lancashire will actually receive.
“We were invited to bid for this pilot and I think the government was keen for us to be involved, because we are such a big county…so we need to be pulling them up about this straight away,” Mr Hind added.
An MHCLG spokesperson said: “Members of the Lancashire Business Rates Pool pilot have queried our calculation of grant payments for 2019-20. We are currently examining the issue they have raised with us.”
Other Lancashire councils due to have received RSG this year – and so potentially affected by a lower grant settlement – include the standalone unitary authority in Blackburn with Darwen and district councils in Burnley, Hyndburn and Pendle.
Blackburn Council did not respond to a request for comment. Hyndburn Council leader Miles Parkinson said he expected any effects to be limited to the county council.
Burnley Council could not confirm how it would be affected, while a spokesperson for Pendle Council said the authority was “aware” of the issue.
Lancaster City Council did not take part in the Lancashire-wide pilot this year, because of concerns about its liability for business rate appeals if the power stations in its area should experience any prolonged periods out of action.
The funding issue facing some Lancashire councils stems from the way local authorities are reimbursed for any rate reliefs which the government obliges them to offer to businesses. These range from discounts for small firms to relief for some retail outlets.
The resultant payment from central to local government, known as a “section 31 grant”, is dependant on a council’s “baseline” – the level of funding which the government assesses that an area requires in order to meet its “relative needs”.
That already complicated calculation is further clouded by the fact that it is influenced by a separate pot of money called the revenue support grant (RSG), which is currently being phased out. The majority of councils in Lancashire have already stopped receiving it, but six were due to be handed one final RSG payment during 2019/20.
However, councils taking part in the 75 percent business rates retention pilots do not directly receive the RSG to which they may otherwise have been entitled. The cash is instead incorporated into their baseline.
Local authorities had seemingly expected their section 31 grant to be founded on their baseline funding – including any RSG which they were due. Lancashire County Council says that it received no advice to the contrary.
But it appears that the government has discounted the RSG before making its calculation – leaving councils with a lower section 31 grant than they may have been expecting.
In March, as he introduced in the House of Lords what he described as “highly technical” regulations to allow the implementation of this year’s business rates retention pilot schemes, cabinet office minister Lord Young of Cookham said that they “will ensure that the…pilots operate as we, and local authorities, intended”.