Central government takes ****how much?**** from Cambridge City Council’s business rates revenues?!?!

Quite a lot as it turns out – but very few people actually know about this. Because it’s local government finance – one of those boring but essential subjects at the heart of the century-long central vs local tensions. Starting with Cambridgeshire:

“Cambridgeshire County Council has seen its core funding cut from £143million in 2013/14 to just £68m in 2023/34 – a real terms [accounting for inflation] reduction of 70%”

Cambridgeshire County Council to Secretary of State Michael Gove, 03 Feb 2023

This was mentioned by Cllr Dr Alexandra Bulat (Labour – Abbey) at the County Council budget setting meeting today.

Scroll to the very end of this blogpost to see the detailed 4-page letter. It’s grim reading.

****That’s a huge reduction!****

Which is why we cannot have nice things here. And it gets worse.

“Cambridge City Council collects circa. £110m/yr in business rates, keeping measly £5m for Cambridge & similar for Cambridgeshire County Council etc. whilst £100m is handed over to HM Treasury, with a chunk in the past redistributed to councils in real need.”

Cllr Lewis Herbert (Labour – Coleridge) – Cambridge City Council

The retention of business rates has been a contentious issue that the Conservatives in Government have talked lots about but delivered very little in terms of a visual, positive difference that people can notice.

“What are business rates?”

The House of Commons Library‘s Mark Sandford says ‘Business rates are a property tax paid by occupants of non-domestic properties.’ So it’s a bit like council tax but for businesses.

Mr Sandford tells us that ‘the standardised system of non-domestic rating dates to the Rating and Valuation Act 1925. [Whilst] The current system in England, Wales and Scotland dates from the Local Government Finance Act 1988. (House of Commons Library – Business Rates 2021, Number 06247)

Between 1988-2013, all of the business rates were thrown into a big pot and redistributed around the country so that less affluent parts of the country would not lose out. The funding received by local councils from business rates revenues were known as ‘formula grants’.

Before 2010, Cambridge used to get more than it currently does from that formula grant – as Cllr Lewis Herbert reminded former Lib Dem councillor for Arbury, Tim Ward – the latter a former executive councillor for Cambridge City Council during the Lib Dems high point of the late 2000s.

The point Cllr Herbert makes is that Cambridge still has to surrender all of this revenue, but gets ever so little back. In 2013 The Chancellor added a little ruse to make it feel like some local councils would be getting a bonanza with business rates retention, but that was only for post-2013 growth.

“Reforms in 2013 enabled local government to retain 50% of local business rate income. This enabled individual authorities to hold onto growth in their rates revenue but they would also have to manage losses above the safety net threshold.”

DCLG To Parliament Aug 2018 CM 9686, para 5 p6.

“The business rates retention scheme is designed to enable local authorities to benefit directly from supporting local business growth and the resulting growth in business rates income. The City Council is able to keep a half of its share of any growth in local business rates.”

Cambridgeshire’s guide to local taxation 2017/18

The idea is that this would incentivise local councils to support policies that generated economic growth. The problem is that central government policies have been so catastrophic that economic growth has been miserable that in 2020 various commentators referred to the 2010s as a lost decade. Then the pandemic hit.

Local Government Broken.

MPs have written three reports on this:

Then late last week, Michael Gove the Secretary of State responsible for local government received a letter from the leaders of each political group (including the Conservatives) about the state of local government finances.

I have stacked them at the end of this blogpost so you can read the letter in detail

In the grand scheme of things, ministers can say what they like about levelling up handouts, but it cannot change the current situation where local services have been more than cut to the bone, leaving local councils dependent on central government hand outs – which was supposed to be the complete opposite of what successive local government ministers have said their objectives were over the years. i.e. to put local councils on a longer term more sustainable footing where they were less dependent on central government and more able to take independent decisions for themselves.

For those of you interested in the case for local government as opposed to continued centralisation, the book by messrs Jones & Stewart from 40 years ago – The Case for Local Government, still reads well.

Something to consider when getting in touch with politicians in the run up to the next general election?

If you are interested in the longer term future of Cambridge, and on what happens at the local democracy meetings where decisions are made, feel free to:

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