Thursday 1 March 2018 / 12:01 AM Andrew Gwynne / Economy

IFS warn Government Council plans will not promote growth and lead to greater inequality

A new report published by the IFS shows that Government plans for Local Government finance risk growing inequalities in the funding available to councils.

The government plans to increase the share of business rates English councils retain from 50 per cent to 75 per cent in 2020, and is piloting 100 per cent retention in parts of the country. This is a major change to Local Government funding.

The report shows that significant divergences could arise in just a few years under 100 per cent rates retention. This is because those councils which would have seen the biggest increases in their retained business rates revenues were often not the councils that experienced the biggest increases in their relative spending needs, for example, because their population became older, poorer or sicker.

The lack of relationship between changes in business rates and economic and employment growth also raises questions about the Government’s approach. The IFS reports no relationship between changes in the councils’ business rates tax bases and local economic growth, or any employment or earnings growth.

Andrew Gwynne MP, Shadow Secretary of State for Communities and Local Government said:

“Following this report, the Government needs to take stock and reassess its approach to funding Local Government.

“There is a real risk that services and councils are reaching a financial breaking point. The sector needs clarity that there is an appropriate mechanism in place that will ensure sustainable funding and will not widen the gap in regional inequality.

“The Government has shown that it does not understand Local Government, and it’s current approach appears to treat the sector as little more than a smokescreen to shift the blame for cuts. The next Labour government will empower our councils through a new brand of municipal socialism, supporting the sector to rebuild after years of Tory austerity.”