Maximising Business Opportunities for Local Authorities: Assistant Mayor Cllr Gary Millar

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1 Maximising Business Opportunities for Local Authorities: Assistant Mayor Cllr Gary Millar Contact: Twitter garymillar

2 Session Overview This session is centred around piloting the Business Rates Retention Initiative across Liverpool and in particular we will explore the following 5 points: 1. Scene setting 2. Creating stable finance streams to fund high quality public services and open up new business opportunities for the Merseyside area, as outlined in the Liverpool Vision Business Plan report 3. Exploring the impact of the Business Rates Retention Initiative in attracting businesses across Liverpool 4. Discussing the value and benefits of a partial system reset for business rates every five years 5. Outlining the challenges faced by Liverpool City Council when implementing the Business Rates Retention Initiative

3 Facts and Figures It might be useful to provide some high level facts and figures by way of background. The table on the next slide shows the total % by sector. Unfortunately due to the Valuation Office categories we have around 27% which is not easily allocated so we have described as other; this will include some public sector buildings e.g. hospitals and universities. Liverpool currently has 2,257 empty properties of which 1,962 have been in place for over 6 months. Total listed building exemptions value amounts to RV of 16,865,040 with a value of exemption applied of 8,631,

4 Facts and Figures Sector Numbers % RV % Offices 4, % 95,772, % Shops, Banks, Post Offices etc.. 5, % 169,061, % Hotels etc % 20,093, % Licensed Properties % 23,103, % Restaurants, Cafes etc % 14,018, % 1, % 57,215, % Warehouses, Stores etc.. 1, % 35,918, % Industrial 1, % 24,368, % 3, % 60,286, % Other 4, % 142,935, % Totals 18, % 525,271, % This table shows the total % by sector, unfortunately due to the Valuation Office categories we have around 27% which is not easily allocated so we have described as other; this will include some public sector buildings e.g. hospitals and universities.

5 A Tale of Two Cities 4 th most deprived local authority in the Country Major Developments (completed or on site) Since Jan 2012 Total Disproportionately affected by shift in funding Budget 58% ( 367m) reduction in funding from central government between Total Cuts to m Staff Lost more than 3,000 since billion Job spaces created: 18,918 FTE equivalent in new developments 46,500 + construction/year 13,393 new homes 6,469 under the HDP and SHDP 6,899 other private sector homes

6 Business Rates Retention - Recap Since 2013/14 local authorities have been allowed to retain up to 50% of any business rates income collected. From 2017/18 the Liverpool City Region (amongst others) is piloting the 100% rates retention system. Local authorities also receive a top up grant from the government if the Business Rates Baseline is less than the Baseline Funding Level or pay a tariff if it is more. (See illustration on next slide). These baseline amounts were set at the outset in 2013/14 and have not been reassessed since. They are government calculations based on historic levels of business rates income and on relative needs assessment at a point in time (2012).

7 Calculation of Top Ups and Tariffs

8 50% Business Rates Retention Under the 50% Scheme, Liverpool City Council retained 49% of any business rates collected with 1% going to the Fire Authority and 50% paid into a national pool. Effectively, 49% of any gains or losses were borne by the Council. The Council also received a Top Up because the total government-estimated retained income from business rates was deemed to be less than its Baseline Funding level. Some authorities paid a tariff because their estimated retained income was more than their Baseline Funding level (see illustration on previous slide). Local authorities also received Revenue Support Grant (plus other grants) partially funded from the 50% pooled rates paid to the government.

9 100% Business Rates Retention - Pilot Under the 100% Pilot Scheme, Liverpool City Council retains 99% of any business rates collected with 1% going to the Fire Authority and no contribution to the national pool. Effectively, 99% of any gains or losses will be borne by the Council subject to the No Detriment clause operating during the pilot (see slide below). The Council also receives a Top Up because the total government-estimated retained income from business rates (even at 99%) is still deemed to be less than its Baseline Funding level. The Council no longer receives Revenue Support Grant as this has been rolled into the 100% Business Rates Retention Pilot Scheme. Improved Better Care Fund has also been rolled into the pilot scheme for the Liverpool City Region.

10 Baseline Figures Compared: 50% vs 100% Liverpool 50% BUSINESS RATES RETENTION SCHEME m Retained Business Rates (49%) - Baseline Figure Top Up Revenue Support Grant Improved Better Care Fund Total % BUSINESS RATES RETENTION - PILOT SCHEME m Retained Business Rates (99%) - Baseline Figure Top Up Total

11 No Detriment One of the conditions for participating in the 100% Pilot Scheme is that no authority will be worse off than it would have been under the previous 50% Retention Scheme. The government will intervene to make good any losses incurred by the pilot authorities (i.e. the City Region) due to their participation in the pilot, as measured at the level of the pilot area. The government will only make a no detriment payment if there are insufficient gains across the pilot authorities to make good any losses incurred by any individual authorities. The No Detriment agreement only exists for the duration of the pilot scheme (2017/18 and 2018/19). The 100% Retention Scheme is due to be rolled out nationally from 2019/20.

12 No Detriment - Calculation For each year that the pilot operates, the calculation compares the resources that would have been available under the 50% retention scheme to those available under the 100% scheme. This includes: Retained rates Any top up received or tariff payable Any levy payable or safety net payment received Compensatory section 31 grants received relating to business rates measures introduced by the government since 2013/14 Revenue Support Grant previously payable under the 50% scheme Other grants previously payable, rolled into the pilot scheme (Improved Better Care Fund in 2017/18).

13 No Detriment - Example Authority A Authority B Pilot Area m m m Surplus / Deficit Compared to Budget (100% Scheme) Surplus / Deficit Under 50% Scheme Gain or Loss from Participation in Pilot Payment Required from Authority A to Authority B No Detriment Payment from Government Final Position After No Detriment Payment

14 Advantages of Participating in the 100% Pilot No authority should be any worse off than it would have been under the 50% scheme due to the No Detriment agreement. Authorities can gain by retaining 99% of any business rates surplus compared to only 49% previously subject to other City Region authorities not making losses. In effect, you can win but you cannot lose. Ability to influence the final shape of the 100% scheme.

15 Fair Funding The roll out of 100% business rates retention from 2019/20 will coincide with a full reset of the system which will be based on a revised assessment of needs and resources (e.g. estimated rates income and possibly also council tax income). The fair funding review is currently looking at the best way of measuring the relative needs of each authority, taking account of the resources that each authority might have available. The reset will be based on a new formula and not simply an update of the previous one used to set the baselines for the system back in 2013/14. The LGA and DCLG are working together to devise the new formula and Liverpool will feed into this also via SIGOMA, City Region and Core Cities. However, it is understood that it is the LGA s view based on discussions with DCLG that any move to a new 100% Business Rates retention scheme is now likely to be 2020/21 rather than 2019/20. This could mean that the pilot schemes continue for another year (2019/20) and allows more time to absorb the lessons from the pilots.

16 Pooling of Business Rates - Advantages Under the Business Rates Retention System two or more authorities can form a pool for the purposes of calculating tariffs, top ups, levies and safety net payments. The advantages are: Encourages collaboration and joint working between LA s Easier to make strategic decisions on infrastructure investment across area Discourages competition between neighbouring authorities which could prove detrimental to area in long term Gains & losses can be managed across pooled area making it easier to manage the inherent risk caused by natural volatility in rates income The levy rate for the pool can be less than the individual levy rates for individual authorities The safety net threshold can also be reduced for some authorities meaning a smaller reduction can trigger a payment

17 Pooling of Business Rates - Example All figures m Authority A Authority B Pool Retained Rates Baseline Top Up Tariff Baseline Funding Safety Net Threshold 92.5% Reduction to Trigger Safety Net % Reduction in Rates Income Required -12.6% -4.2% -7.5% Levy % 0.0% 43.9% 0.2%

18 Pooling of Business Rates - Example The example above is based on two authorities, A (top up authority) and B (tariff authority) Authority A only receives a safety net payment if rates income drops by 12.6% Authority B pays a levy of 43.9% on any growth in rates income above the baseline By forming a pool they both benefit A reduction of 7.5% will now trigger a safety net payment. Down from 12.6% for Authority A but up from 4.2% for Authority B The levy is reduced from 43.9% to 0.2% for the combined pool Figures assume safety net threshold of 92.5% of baseline funding The levy is calculated as 1-(Baseline Funding/Retained Rates Baseline) or 0.5 whichever is the lowest. A negative result = no levy (e.g. all top up authorities)

19 2 Stable Finance Streams A Unique Commercial Approach to Local Government Finance Mayoral Investment Strategy Innovation Commercialisation Breadth of fund A local approach Balancing risk and return

20 2 Stable Finance Streams Creativity Leading Innovative Partnerships Sweating the Assets - capital/revenue A Distinctive Offer: Investing in our Heritage Culture used as growth enabler A new kind of Local Government Place-Based Approach Place Based Approach

21 2 Stable Finance Streams Commercial Governance Dedicated team Due diligence with external advisors Investment governance Monitoring, intelligence and maximising value Balanced investment fund (programme)

22 2 Stable Finance Streams Catalyst for Growth Devolution Mayoral Model City & City Region Deals Mayoral Development Zones to maximise growth Comprehensive growth (economic, financial and social) Key Interventions

23 2 Stable Finance Streams Creating stable finance streams Mayoral Invest to Earn Strategy commercial, innovative approach to local government finance Supports projects that deliver financial returns to the City Council Supports substantial regeneration and employment opportunities that add social value Increase business rates income by bringing redundant buildings back into use

24 2 Stable Finance Streams Creating stable finance streams Examples: Cunard Building 15m investment, generating 1.3m for LCC revenue savings from relocation of staff to the building increase in business rates from new tenants Paddington Village 30 acre expansion of the Knowledge Quarter Council acquired land for Phase 1 and earning income as landlord and through site disposals deals already agreed with 3 occupiers including Royal College of Physicians

25 Cunard Building Grade II listed building 15m purchase and refurbishment 1.3m (p.a) generated

26 Paddington Village, Liverpool Knowledge Quarter Flagship development with commercial focus Up to 10,500 jobs RCP Northern Centre of Clinical Excellence

27 3 Impact of Business Rates Retention Impact of the Business Rates Retention Initiative in attracting businesses across Liverpool In April 2016 Liverpool was hailed as a city of entrepreneurs with start-up rate of 16% based on new data from Companies House by international office space broker, Instant Offices (against a UK average of 2%) Liverpool is still however approximately 6000 businesses short of the national average base on proportion of population Liverpool City Region (6 authorities) is approximately 18,500 short Has given an opportunity for the City Mayor to implement an enhanced Mayoral Investment Strategy including innovation; commercialisation; breadth of fund; a local approach; and balancing risk and return It has also brought additional leading innovative partnerships where we sweat our assets and brings a distinctive offer where we investing in our heritage and use culture as a growth enabler A new kind of Local Government

28 4 Partial System Reset The value and benefits of a partial system reset for business rates every five years A full reset would remove all business rates growth every five years, therefore removing any incentive to grow the business rates base. Therefore, a five year partial reset provides an incentive for authorities to grow and retain that growth. A partial reset would: Ensure that some authorities with a large business rates base do not grow their funding disproportionately Provide an incentive through retaining some local growth Ensure that authorities who are unable to grow their business rates income are protected and able to continue to fund services at their assessed level of need. Underpinning this is the associated work on reviewing the local government funding formula which will define what a fair level of funding for each authority is. This is subject to a separate consultation process.

29 5 Challenges Challenges and Concerns Going Forward No Detriment agreement only lasts for the duration of the pilot scheme. From 2019/20 authorities will bear the cost of 99% of any losses (subject to the operation of the safety net). Please note that this will now possibly be 2020/21. Business rates income is volatile due to economic factors and also due to the impact of appeals. A greater proportion of local authority income will be subject to volatility. Any grants rolled into the 100% scheme will also be subject to this volatility. Increased risk = increased need for adequate reserves = less funding available to spend on services. How sustainable are business rates in the longer term given structural economic changes (e.g. growth in on-line and out of town shopping)? Spending pressures may increase faster than business rates growth but not be reflected until any reset.