Battle lines drawn up over rates cash

Sep 19 2008 by Adrian Pearson, The Journal

CITY leaders are preparing for a budget battle with the Government after accusing ministers of withholding money which could prevent a tax bill rise.

North East councils are facing up to a £5m credit crunch shortfall threatening to push up household bills, while struggling business have seen their costs rise thanks to the latest increase in inflation.

Business rates collected by the Government will rise in line with the Retail Price Index, meaning a payday for ministers as a result of extra financial pressure on businesses.

So far the Government has refused to redistribute any extra cash to councils facing the full impact of the credit crunch. Rising energy bills and a downturn in business growth has seen councils forced to dip into reserves amid warnings it could be late 2009 before costs come down.

The Journal can today reveal the full impact of the credit crunch in the North including:

The Bridging Newcastle Gateshead scheme set up to revitalise the housing market has had to reduce its multi-million pound housing regeneration work.

Vital cash-raising land sales could be mothballed as one of the country’s biggest auctioneers admits the region is “on hold”.

And uncertainty over the payout from Newcastle Airport which council’s traditionally depend upon for extra cash.

With many councils struggling to get by on a below-inflation rise in Government grants and forced to make increasingly harsh year-on-year efficiency savings, some councillors feel they have very few options left to tackle the impact of the credit crunch.

Newcastle has now called on the Government to look again at providing authorities with a larger share of Business Rates. Peter Allen, the council’s executive member for resources, said the Government had to act to prevent a region-wide budget crisis.

He said: “We are calling on them to release extra funds from this unexpected windfall which has come as a result of their failure to control inflation. Local people and businesses should not suffer so that Government coffers can grow.”

The North East Chamber of Commerce has backed the council’s concerns and called for a “more sensible” approach from the Government. Ross Smith, head of policy, said: “We need measures which will ensure that we are able to come through the current economic turbulence in the best possible position.”

A Department of Communities and Local Government spokeswoman said: “Even though, business rates fluctuate from year to year, Government still guarantees to provide a total for the formula grant.

“This system provides a reliable source of funding for local authorities and gives a level of financial stability.”