The government has said it has “heard” concerns the provisional local government finance settlement used incorrect figures for the distribution of business rates revenues through pools.
The Institute for Fiscal Studies this week warned the methodology to estimate the distribution of business rates revenues in 2025-26 “is likely to be systematically overestimating revenues for some councils and underestimating them for others”.
It said this could lead to the funding floors used in the settlement to provide transitional protection for some councils being set too high for the former, and too low for the latter.
The report said this was largely because of how the Ministry for Housing, Communities & Local Government estimated how authorities involved in business rates pooling will share funding.
Business rates pools, which were introduced in 2015-16, allow councils to share risk and reduce or avoid levies charged on councils with larger tax bases. In 2025-26, there are 25 business rates pools with more than 180 local authorities as members.
The County Councils Network’s response to the provisional settlement warned the business rate pools calculation was “clearly wrong” and called for the government to “revisit” the allocation for business rate retention scheme income and “share the gains from pooling fairly”.
MHCLG said it recognised the issue regarding how business rates pooling gains were included in the delivery of transitional funding arrangements in the provisional settlement.
A spokesperson told LGC: “We’ve heard the sector’s concerns about how business rates pooling gains were treated in the provisional settlement.
“That’s exactly why we sought views through consultation and we’re considering all the feedback carefully, and the final settlement will set out the next steps soon.”
The publication of the final settlement was delayed by a week and is expected on Monday.
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