Council funding shake-up dropped because it would hit Boris Johnson’s ‘Red Wall’ voters

Poorer areas to suffer if business rate retention goes ahead, Michael Gove admits – which ‘goes against the principle of levelling up’

A controversial local council funding shake-up has been shelved over fears it would penalise Boris Johnson’s new ‘Red Wall’ voters in the North of England.

Town halls were set to retain 75 per cent of business rates income – instead of funds being redistributed from a central pot – a switch long opposed by council leaders in poorer areas.

They fear it would hit councils where fewer firms pay rates and with less income from council tax, which are effectively propped up by Whitehall currently.

David Cameron’s government announced 100 per cent business rate retention by 2020, a proportion cut to 75 per cent – and then delayed because of the twin impacts of Brexit and the Covid pandemic.

Giving evidence to MPs, Michael Gove, the new levelling up secretary, suggested the shake-up had been dropped altogether because it would undermine his flagship policy.

The apparent U-turn came as he hinted at further delays to attempts to define what levelling up means, with a long-promised white paper now not certain to appear this year.

Mr Gove also said he wants to review plans to force leaseholders to take out loans to pay for dangerous cladding to be replaced, following the Grenfell tragedy.

A £3.5bn package was condemned as “a betrayal” earlier this year, because residents in shorter buildings face £50-a-month charges to repay loans for the cost of their repairs.

With costs easily reaching £40,000 in many cases, those residents could be paying off their debts for decades, it is feared.

Mr Gove stopped short of promising a rethink, but said he had requested a “pause” to establish whether loans are “a necessary way” of resolving fire safety issues.

“I’m still unhappy with the principle of leaseholders having to pay at all, no matter how effective a scheme might be in capping their costs,” he said, adding: “My question is why do they have to pay at all?”

But he admitted he might return to the committee having “tried and tried and tried”, only to conclude that “it is too difficult” to free leaseholders from paying the costs.

On business rate retention, Mr Gove told the Commons local government committee: “It’s important that we proceed with caution.

“Those local authorities that have the most resilient council tax base, and also the highest proportion of business rates, are relatively speaking in a stronger position, are relatively speaking more in the south-east.

“That goes against the broader principle of levelling up, to move precipitously to a system where 75 per cent of business rates are retained – because that goes against the process of redistributing towards the areas that need it most.”

Mr Gove insisted the policy rethink was “not as crude as seeking to help local authorities in the North”.

But he added: “If it had to be boiled down a single sentence, that is very much something that is in my mind.”

Tory MP Neil O’Brien was asked to put meat on what Mr Johnson himself accepted was a “skeleton” of his levelling up policy and is now a minister in Mr Gove’s department.

His white paper was expected to appear before last month’s three-year spending review, to allow its ideas to be funded by the chancellor Rishi Sunak.

Asked when it will not appear, Mr Gove told the committee: “We hope to publish a white paper before Christmas.”