Archived decisions

HAMPSHIRE COUNTY COUNCIL

Decision Report :

EXECUTIVE SUMMARY

1) Summary of Decision Area:

1.1. This report considers a draft response to the Government's consultation on the reform of the LABGI scheme.

1.2. Though the proposals for allocation of grant in the reformed scheme are an improvement on the previous scheme, nonetheless the cash limiting of the scheme at £150m for the two year period 2009/10 and 2010/11 fails to provide a real financial incentive to local authorities to promote local economic and business growth.

2) Issues Covered in Report:

2.1. The report outlines the changes to the existing LABGI scheme proposed by the Government and recommends a response to the consultation questions on behalf of the County Council.

3) Recommendations:

It is recommended that:

3.1. Subject to the comments made by the Cabinet, the response to the consultation on the reform of the LABGI scheme be submitted to the Department of Communities and Local Government (CLG), as set out in the conclusion to the report and in Appendix C.

MAIN REPORT

1) Purpose of the Report:

1.1. The purpose of this report is to consider the proposals in the recent Government consultation paper on the reform of the LABGI scheme and to approve the County Council's response to the consultation.

2) Contextual Information:

2.1. The LABGI scheme was introduced in 2005/06 for a three year trial period with the objective of distributing £935m from the growth in business rateable value to give local authorities in England an incentive to encourage local economic and business growth. Hampshire County Council has benefited from the scheme to the tune of £3.8m over the three years it has been running. In committing to the use of 30% of the LABGI funds received for economic development from 2007/08, the Council has been able to help improve the prospects of market towns and establish a grant scheme for village shops, as well as to support the Sustainable Business Partnership in its efforts to encourage businesses to make best use of natural resources.

2.2. The Government announced in the 2007 Spending Review (CSR07) that it intended to reform the scheme, that it did not expect the new scheme to be introduced until 2009/10 and that the scheme would distribute a much smaller sum of £150m in 2009/10 (£50m) and 2010/11 (£100m). An issues paper on the principles that should underline the reformed scheme was circulated in October 2007, and a response to the consultation was agreed by the Cabinet in November 2007. The County Council's response was based on the following principles:

· that the scheme should be relatively simple and transparent to provide a direct incentive for local authorities to support the health of the local economy

· that the County Council continued to be in favour of the relocalisation of business rates and that support for a LABGI scheme did not imply acceptance of the principle of a national business rate

· that no business growth incentive scheme can be entirely fair in recognising differences in the contributions made by individual local authorities in encouraging business growth

· that a more predictable flow of grant than within the current scheme is required, in which grant is allocated well before the beginning of the financial year

· that comparison with historic trends in business rate growth is the best basis for allocating grant and that there is no evidence that the level of deprivation should be taken into account

· that the current split of LABGI in two tier areas should be revised in view of the bigger service impact that development has on upper tier authorities and their role in developing skills and providing infrastructure. The grant should continue to be non-ring fenced.

2.3. The Government has now issued a further consultation paper on 1 September 2008 in the light of responses to the issues paper and the overall direction of policy as it has evolved since LABGI was introduced. Consultation responses have been invited prior to 20 November 2008.

3) Key Issues:

3.1. The Government has reached the following conclusions from the issues paper:

· that not all the objectives outlined can be met to the same degree

· that the new scheme must aim to be simple and transparent

· that the scheme should focus on business growth, rather than trying to reflect `need'

· that there would be a benefit in using published data, generally understood and accepted by authorities as the basis for grant allocation

· business rate yield rather than rateable value should form the basis for allocation

· historical growth does not necessarily provide a guide to future growth potential and the proposed scheme therefore does not use historical growth baselines.

3.2. Based on these conclusions, the proposed scheme for 2009/10 and 2010/11 has the following broad characteristics:

· local authorities will group themselves, or be grouped, in sub-regions for the purposes of the scheme. The proposal in the consultation paper is to use (outside London) the Level 2 categories used by the European Union, in which Hampshire is grouped with Portsmouth, Southampton and the Isle of Wight. Performance will be based on the growth in yield on non-domestic rates in each sub-region. An alternative Level 3 grouping is based upon upper tier authorities and though this is not proposed in the consultation paper it is likely to be supported by some consultees

· if a sub-region qualifies for reward, it will be distributed to authorities within the sub-region pro-rata to population

· in two tier areas, two-thirds of the amount attributable to a billing authority will be allocated to the County Council, one-third to the district council. The proportions were broadly reversed in the previous scheme

· rewards will be assessed by reference to the comparative performance of sub-regions over a period of three years ending in the year before that in which the reward is calculated, drawn from returns submitted by billing authorities each year. Provisional grant allocations will be announced in December prior to the beginning of the financial year to which it applies

· it is not proposed that LABGI be allocated to police and fire authorities, as it is not appropriate to incentivise them to promote economic growth.

3.3. The consultation paper includes an exemplification of the way in which a hypothetical fund of £100m would be distributed based on NNDR data for 2005/06 to 2008/09. The Hampshire and Isle of Wight sub-region would be allocated grant of £3.342m, which would be apportioned pro-rata to population and between upper and lower tier authorities as follows:

	£m		%
Hampshire County Council	1.541		46.1
Hampshire District Councils	0.771		23.1
Portsmouth City Council	0.358		10.7
Southampton City Council	0.418		12.5
Isle of Wight Council	0.253		7.6
	3.342		100.0

4) Conclusions:

4.1. The proposed scheme meets many of the objectives supported by the County Council in its response to the initial issues paper, as a means of allocating a fixed sum in a way that recognises the impact of differences in the rate of growth in business rates. The scheme is simpler to understand, the allocation of grant is more timely and probably more predictable, and the distribution of grant between upper and lower tier authorities is more logical. The recognition of the area covering Hampshire and the Isle of Wight as a sub-region is also welcome.

4.2. However as a means of providing a real incentive to local authorities to encourage growth of the local economy, the scheme is likely to have a limited impact. The arbitrary sum of £150m over the period 2009/10 and 2010/11 is much smaller than the £935m allocated by the original scheme and it is unrelated to the actual rate of growth of business rates. The scheme would provide a much greater incentive to local authorities to promote business growth if the level of grant was directly related to the level of growth, by means of a scheme which shared the proceeds of business rate growth between the national business rate pool and the local authorities in the area. Such a scheme would also mean that in a recession where there was no growth in business rate income, then there would be no LABGI grant payable. Under the proposed scheme it would be possible in these circumstances for a small number of areas with very moderate growth in business rate income to obtain a windfall by sharing the whole £150m of grant made available.

4.3. Alternatively the County Council might wish to support a proposal which would provide a direct link between the rate of growth of business rate income at a local level and the availability of government funding for the provision of infrastructure investment, operating in addition to the LABGI scheme, as an alternative means of sharing the proceeds of business rate growth.

4.4. Despite the limitations of the proposed scheme, it will provide a potential non ring-fenced annual grant stream to the County Council that could be deployed to promote the economic development, accessibility and skills improvement priorities within the Local Area Agreement.

4.5. The consultation paper contains twenty specific questions on various aspects of the proposed scheme. Responses are attached in Appendix C, based upon the principles previously agreed by the Cabinet and the conclusions within this report. In addition the Cabinet may wish to make some more general comments as a preamble to the response to the specific questions, and subject to the Cabinet's comments, this will be based on the comments within the conclusion to this report.

5) Recommendations:

5.1. That subject to the comments made by the Cabinet, the response to the consultation on the reform of the LABGI scheme, be submitted to CLG, as set out in the conclusion to the report and in Appendix C.

CORPORATE OR LEGAL INFORMATION:

COMPREHENSIVE RISK & IMPACT ASSESSMENT:

Race and Equality impact assessment:

Race and equality objectives are not considered to be adversely affected by the proposals of this report.

Crime Prevention:

The County Council has a legal obligation under Section 17 of the Crime and Disorder Act 1988 to consider the impact of all the decisions it makes on the prevention of crime. The proposals in this report are not considered to have an impact on the prevention of crime.

Appendix C

Questions 1 to 20

1. Which other local authorities, if any, do you regard as being in the same sub-region as yours for the purposes of cooperation in economic development?

The County Council supports an approach to grant allocation based on sub-regions and considers the proposed Hampshire and Isle of Wight area to be an appropriate one.

2. Do you agree that London should be regarded as a single sub-region for the purposes of the scheme?

No comment.

3. Do you agree that where local authorities outside London cannot agree on a sub-regional grouping which meets the above criteria, the scheme should be broadly based on NUTS2 groupings, with the possibility of variation where the case for doing so can be made?

Where there is majority support amongst local authorities in the area for an alternative sub-regional grouping ( eg NUTS3 areas), the Government ought to consider the case for a variation.

4. Would you prefer the Government to proceed directly to publish a final list of sub-regions, following discussion after this consultation; or to publish a provisional list for comment first?

It should be possible to issue a provisional list of sub-regions and the provisional grant allocations based on those sub-regions, so that authorities would have an estimated basis for budget setting.

5. Do you agree with the calculation process as outlined in the consultation paper?

Agreed.

6. Do you have any comments on the calculation process?

No.

7. Do you agree that there should be no minimum or maximum awards, at least at the outset of the scheme?

One of the disadvantages of fixing the grant quantum without any regard to the actual level of increase in business rate income, is that there could be a perverse outcome in a recession. In an extreme case one area could experience a small increase in business rate income and receive the whole of the reward fund. Setting a maximum reward level would be one possible way of dealing with this outcome or alternatively the reward fund or distribution methodology would need to be altered.

8. Do you agree that the Reward Period should be set at 3 years' growth?

Three years would be a reasonable period.

9. If not, what other reward period should be adopted in the new scheme?

Not applicable.

10. Do you agree with the proposed division of reward between district and county councils?

The proposed division of reward between district and county councils is supported as it recognises the role of county councils in promoting economic growth and the greater impact on service and infrastructure costs borne by the county council.

11. Do you agree that the scheme should be based on the Contribution to the Pool, without any adjustments for reliefs?

In principle this approach is supported, on the basis that the distorting impact of, for example, mandatory reliefs is unlikely to be significant.

12. If not, which factors do you think should be reflected by adjusting the Contribution to the Pool?

Not applicable.

13. Do you agree that, in calculating NNDR contributions for the purposes of this scheme, we should take actual yield as shown in Line 14 of Part 1 of the NNDR3 for (ie after the application of transitional relief)?

Agreed.

14. If not, what would you propose?

Not applicable.

15. Do you agree that we should not seek, for the purposes of the scheme, to neutralise the impact of appeals on local authorities' contributions to the NNDR pool?

Agreed.

16. If not, what would you propose?

Not applicable.

17. What are your views on the handling of revaluations?

The proposed approach has the merits of simplicity and is supported providing the impact of revaluation does not significantly alter relative NNDR tax bases between areas.

18. Do you agree that we should not make adjustments for cross-boundary transfers or for transfers between the central list and local lists?

In principle an adjustment should be made for cross-boundary transfers and transfers between central and local lists. The proposed approach is acceptable providing the impact of transfers on the distribution of grant is not likely to be material.

19. If not, what would you propose?

Not applicable.

20. Do you have comments on the approach we propose where an audited NNDR3 form is not available?

The use of the latest available data by the proposed cut-off dates is supported.