Local Government Finance Revenue Expenditure - Revenue Support Grant
The overwhelming majority (74% as of 2008 – 2009) of local authority revenue finance derives from government grants.
Until recently the bulk came in the form of the Revenue Support Grant (RSG), also known as the General Block Grant, which local authorities were left to spend at their discretion, focusing on particular local funding needs.
However, the importance of the RSG has hugely diminished and it now represents only 3% of local authorities' annual revenue budget, as 'passporting' process initiated by the central government has 'ring-fenced' and directed the grants to specified areas of spending, notably schools.
Since the 2006 - 2007 tax year, the central government has worked out the RSG on the basis of a two new calculations: the relative needs formula (RNF) and the relative resource amount (RRA).
The RNF is a kind of formula based on detailed information about the population size, social structure, and other characteristics of a local authority area, such as the number of pensioners and school-aged children and its relative economic prosperity.
Within the RNF, separate formulae are used to decide how much should be allocated to individual local authorities to cover the likely expenses, associated with each of the 'major service areas' such as education, social services, police and fire.
The RRA, in contrast to the RNF, is a negative figure. It is based on the logical assumption that an area with a large number of Council Tax-paying households needs less financial help from central government than one in a poorer area.
Then the resulting figure from the formula: RRA – RNF will reflects what an individual area should be allocated in government formula grants, and it will be shared according to its levels of responsibility between local authorities.
Showing posts with label revenue expenditure. Show all posts
Showing posts with label revenue expenditure. Show all posts
Tuesday, 26 January 2010
Uniform business rates (UBR)
Local Government Finance Revenue Expenditure - Uniform Business Rates
The National Non-Domestic Rates (NNDR), alternatively known as Uniform Business Rate (UBR), has been revalued every five years since 1990 when it was firstly introduced. The UBR is set by the central government.
Every business premise is rated on how much it could have been let for and based on the rateable value of property evaluated in 1991.
The amount of money actually charged in UBR annually will depend on a centrally determined calculation known as the 'national multiplier' ('poundage' in Scotland).
The multiplier is set at two levels: a 'standard' rate for middle-range and bigger companies which is £42.2p/£, while a 'small business rate' for those who meet necessary criteria which is 41.5p/£, defined by the Department for Business, Innovation and Skills (BIS) and the Treasury.
No matter which category the multiplier fall into, it is normally help below the level of inflation for business properties with 'average' values.
Therefore UBR is determined by the following formula: Rateable value of property x National multiplier.
Apart from what explained above, UBR charge are paid by business premise owners.
Regarding who collects the money, in England, Wales, and Scotland, local billing authority (in two-tier areas – district/borough council, in unitary areas – unitary authority) is responsible for collecting the money.
After having been raised locally, in England and Wales, it is central government's obligation to gather UBR revenue and redistributes it to local councils according to a population-based formula, taking into account variations in local socio-economic factors, such as unemployment levels.
However in Scotland, UBR was still a 'local tax', which both collected and spent in each area.
The National Non-Domestic Rates (NNDR), alternatively known as Uniform Business Rate (UBR), has been revalued every five years since 1990 when it was firstly introduced. The UBR is set by the central government.
Every business premise is rated on how much it could have been let for and based on the rateable value of property evaluated in 1991.
The amount of money actually charged in UBR annually will depend on a centrally determined calculation known as the 'national multiplier' ('poundage' in Scotland).
The multiplier is set at two levels: a 'standard' rate for middle-range and bigger companies which is £42.2p/£, while a 'small business rate' for those who meet necessary criteria which is 41.5p/£, defined by the Department for Business, Innovation and Skills (BIS) and the Treasury.
No matter which category the multiplier fall into, it is normally help below the level of inflation for business properties with 'average' values.
Therefore UBR is determined by the following formula: Rateable value of property x National multiplier.
Apart from what explained above, UBR charge are paid by business premise owners.
Regarding who collects the money, in England, Wales, and Scotland, local billing authority (in two-tier areas – district/borough council, in unitary areas – unitary authority) is responsible for collecting the money.
After having been raised locally, in England and Wales, it is central government's obligation to gather UBR revenue and redistributes it to local councils according to a population-based formula, taking into account variations in local socio-economic factors, such as unemployment levels.
However in Scotland, UBR was still a 'local tax', which both collected and spent in each area.
Local government finance - revenue expenditure (Council Tax)
LG Finance Past Paper
Following the Lyons Inquiry into Local Government Finance that drew attention to the lack of public understanding of local government finance, you have been asked to write a short feature explaining clearly to your readers how local government is financed.
(a) Describe in detail the sources funding for local government revenue expenditure, indicating clearly the role of central government.
Answer (a):
The sources funding for local government revenue expenditure includes Council Tax, National Non-Domestic Rates (NNDR), which is also known as Uniform Business Rates (UBR), the grants from the government such as Revenue Support Grant (RSG), Specific Grants and Area-Based Grants (ABGs) and then other sources such as fines, charges or fees. I will explain them as follows.
********* Council Tax *********
When John Major succeeded Mrs Thatcher, his environment Secretary Michael Heseltine has replaced the controversial Poll Tax with Council Tax. The local authorities are responsible for setting and charging Council Tax.
Council Tax bills in England, Scotland, and Wales are based on a banding system that divides domestic properties into one of eight bands (nine in Wales) – A – H, respectively according to their notional capital values.
In Wales, these bandings were most recently revised in 2005 after it had originally set on 1 April 1991, but in England and Scotland, the binding system has never been revised since 1 April 1993.
The highest Council Tax Band (H) in England currently applies to all homes valued at more than £320,000 in 1991, while at the time in Scotland the top rate starts at just over the £212,000 mark.
The lowest Council Tax band was set for homes worth £40,000 or less in England and £27 or less in Scotland, while the Datum Band covered those valued at £68,000 - £88,000 in England and £45,000 - £58,000 in Scotland.
Since 2005, a new system based on 1 April 2003 values was introduced in Wales. The new Welsh band A has covered properties worth £44,000 or less, with Datum Band D encompassing those valued at £91 – 13,000 and the new Band I all dwellings over £424,000.
Responsibility for valuing homes rests with the Valuation Office Agency (VOA), an executive agency of HM Revenue and Customs, but it is for individual billing authorities to maintain lists of valuations.
Then the listing officers (employed by one of the 85 regional officers of the VOA) are obliged to place individual homes into these property bands based on its market/capital value, with elements of a poll tax.
Local valuation officers (also known as district valuers) are responsible for running each district office, and it is his or her job to hear any formal appeals initiated by households unhappy with their property valuations.
Households will pay the Council Tax, and in each household, the tax is based on a maximum two “liable” adults. For example, full-time students are excluded to pay for the Council Tax.
Local billing authorities (or collection authorities) collects the Council Tax. In two-tier areas, billing authority is the district/borough council while in unitary areas is the unitary authority itself.
After the billing authority collects the proceeds, it then redistributes the money between itself and other precepting authorities, who entitled to set a 'precept' in the area.
In two-tier areas, money goes to the county council (its role is also as local fire authority), the local police authority and the billing authority itself (district/borough council). In unitary area, precepting authorities are the unitary authority, police and county council fire authorities.
The central government's role in Council Tax is that it has powers to prevent local authorities charging excessive Council Tax by introducing formal ceilings to stop bills rising above specified levels. This process is known as capping and introduced by the Tories in the Rates Act 1984.
Labour has generally been reluctant to cap authorities, although it retains reserve powers allowing it to do so under certain circumstances.
For example, in 2008 – 2009, the government announced its intention to cap Portsmouth City Council and seven police authorities – Bedfordshire, Cheshire, Leicestershire, Lincolnshire, Norfolk, Surrey and Warwickshire – after each announced Council Tax rises above the 5 per cent ceiling beneath which it had urged them to remain.
Ultimately, only Lincolnshire – which increased its precept by 78.9 per cent – was capped, although the other authorities face limits on precept increase in future.
Following the Lyons Inquiry into Local Government Finance that drew attention to the lack of public understanding of local government finance, you have been asked to write a short feature explaining clearly to your readers how local government is financed.
(a) Describe in detail the sources funding for local government revenue expenditure, indicating clearly the role of central government.
Answer (a):
The sources funding for local government revenue expenditure includes Council Tax, National Non-Domestic Rates (NNDR), which is also known as Uniform Business Rates (UBR), the grants from the government such as Revenue Support Grant (RSG), Specific Grants and Area-Based Grants (ABGs) and then other sources such as fines, charges or fees. I will explain them as follows.
********* Council Tax *********
When John Major succeeded Mrs Thatcher, his environment Secretary Michael Heseltine has replaced the controversial Poll Tax with Council Tax. The local authorities are responsible for setting and charging Council Tax.
Council Tax bills in England, Scotland, and Wales are based on a banding system that divides domestic properties into one of eight bands (nine in Wales) – A – H, respectively according to their notional capital values.
In Wales, these bandings were most recently revised in 2005 after it had originally set on 1 April 1991, but in England and Scotland, the binding system has never been revised since 1 April 1993.
The highest Council Tax Band (H) in England currently applies to all homes valued at more than £320,000 in 1991, while at the time in Scotland the top rate starts at just over the £212,000 mark.
The lowest Council Tax band was set for homes worth £40,000 or less in England and £27 or less in Scotland, while the Datum Band covered those valued at £68,000 - £88,000 in England and £45,000 - £58,000 in Scotland.
Since 2005, a new system based on 1 April 2003 values was introduced in Wales. The new Welsh band A has covered properties worth £44,000 or less, with Datum Band D encompassing those valued at £91 – 13,000 and the new Band I all dwellings over £424,000.
Responsibility for valuing homes rests with the Valuation Office Agency (VOA), an executive agency of HM Revenue and Customs, but it is for individual billing authorities to maintain lists of valuations.
Then the listing officers (employed by one of the 85 regional officers of the VOA) are obliged to place individual homes into these property bands based on its market/capital value, with elements of a poll tax.
Local valuation officers (also known as district valuers) are responsible for running each district office, and it is his or her job to hear any formal appeals initiated by households unhappy with their property valuations.
Households will pay the Council Tax, and in each household, the tax is based on a maximum two “liable” adults. For example, full-time students are excluded to pay for the Council Tax.
Local billing authorities (or collection authorities) collects the Council Tax. In two-tier areas, billing authority is the district/borough council while in unitary areas is the unitary authority itself.
After the billing authority collects the proceeds, it then redistributes the money between itself and other precepting authorities, who entitled to set a 'precept' in the area.
In two-tier areas, money goes to the county council (its role is also as local fire authority), the local police authority and the billing authority itself (district/borough council). In unitary area, precepting authorities are the unitary authority, police and county council fire authorities.
The central government's role in Council Tax is that it has powers to prevent local authorities charging excessive Council Tax by introducing formal ceilings to stop bills rising above specified levels. This process is known as capping and introduced by the Tories in the Rates Act 1984.
Labour has generally been reluctant to cap authorities, although it retains reserve powers allowing it to do so under certain circumstances.
For example, in 2008 – 2009, the government announced its intention to cap Portsmouth City Council and seven police authorities – Bedfordshire, Cheshire, Leicestershire, Lincolnshire, Norfolk, Surrey and Warwickshire – after each announced Council Tax rises above the 5 per cent ceiling beneath which it had urged them to remain.
Ultimately, only Lincolnshire – which increased its precept by 78.9 per cent – was capped, although the other authorities face limits on precept increase in future.
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