Local government

A brief guide to the Local Government Finance Bill

The Local Government Finance Bill takes forward proposals designed to encourage local economic growth, reduce the financial deficit and drive decentralisation of control over local government finance.

1. The Bill amends existing legislation to change how non-domestic rates are distributed to local authorities. (Clauses 1 to 7)

2. To do this, we are inserting a new schedule (7B) in the 1988 Local Government Finance Act, which sets out the parameters of how that new system will work, including:

  • how total business rates should be split between central and local government
  • a duty on billing authorities to either pay a "tariff" to, or receive a "top up" from, Central Government; and for billing authorities to make payments to upper tier authorities. This will balance funding across local authorities in order to ensure they all start on a stable footing and enable upper tier authorities to be included within the new system
  • that the "levy" on disproportionate growth and "safety net" payments will be handled via a separate single account, and that decisions about how these will be set will be taken in regulations
  • allowing for authorities to retain in full the rates growth in designated Tax Increment Financing (TIF2) and Enterprise Zone areas
  • that local authorities can choose to form "pools" and can then be treated as a single authority under the scheme.

3. The existing legislation sets out how non-domestic rates are collected and then redistributed and requires the payment of Revenue Support Grant. Since much of this is no longer needed under the new localised retention scheme, Schedule 2 (enacted by Clause 2 of the Bill) makes the necessary amendments to existing legislation so that they are not contradictory and changes the requirement to pay Revenue Support Grant to a power to pay Revenue Support Grant.

4. Other clauses, such as Clause 3 and 4 also make changes to existing legislation. Clause 3 removes the requirement for the Secretary of State to pay additional grant to local authorities, as this is no longer used, and Clause 4 makes changes to the Greater London Authority Act 1999 so that the Secretary of State no longer has to pay a grant to the GLA, but can do so should he have need.

5. Clause 5 is needed to give effect to Schedule 3, which reflects that some of the changes needed to bring about the rate retention scheme, will not affect Wales. Schedule 3 makes sure that the existing legislation continues to apply to Wales.

6. Clause 6 will amend a drafting error in the 1988 Local Government Finance Act. The High Court have determined that the current drafting of a section creates a loop-hole whereby serviced apartments being let by a free-holder are not subject to the same rules as other serviced apartments which are let out for short periods of "non-domestic" usage. This clause will correct that error.

7. In light of the Government's drive toward transparency, we are including a clause which will allow the publication of information about collection and distribution of non-domestic rates to by done electronically.

8. The Bill also requires local authorities to establish a council tax reduction scheme by 31 January 2013. There is also provision in the Bill to allow the Secretary of State to amend the date upon which the scheme must start.

9. Schedule 4 sets out details of what reduction schemes should contain and how they should be developed. It also enables the Secretary of State to prescribe in regulations how some elements of local schemes should operate; this provision will be used to prescribe the scheme for low-income pensioners, to ensure their support is not reduced as a result of this reform.

10. The Bill makes minor technical changes to elements of the council tax system. This includes:

  • replacing the empty dwelling exemption with a discount, the level of which can be set at the local level (clause 9)
  • setting an "empty homes premium" which can be charged on a properties which have been empty for more than two years (clause 10)
  • making the mortgagee (the lender) responsible for paying the council tax when a property is repossessed (clause 11)
  • enabling local authorities to publish council tax information on their websites rather than in paper format.

Have your say

My favourites