PUTTING business rates under council control will transfer “massive” financial risks to local authorities, finance chiefs have warned.

At present, some £19 billion of business rates are collected by councils nationally every year and then redistributed by government to ensure that rich areas with small populations do not benefit over poorer neighbourhoods.

But changes to be set out in next year’s local government finance bill will mean councils will keep some of any future increase in business rates.

However, they will see less cash if business rates decline.

Addressing members of Malvern Hills District Council’s (MHDC) executive committee, head of resources Andy Baldwin described the new system as “more complicated, untransparent and unfit for purpose” than the one it is set to replace.

“Localisation places the risks often with very small district councils such as Malvern Hills,” he said.

“Reductions in business rate through either recession, closure of major employers or revaluations will potentially cause large financial losses, which will be locked in for a period until the next government review.”

He cited an example of a major business in the district that had its rateable value downgraded earlier this year, resulting in a reduction of £370,000 in annual business rates take.

“From next year, not only would this have had a major cash flow implication on the council, it would have also meant a reduction in income for the seven to 10-year review period, costing the council up to £3.7 million.” He said this would “effectively wipe out single-handed” the council’s current general fund balance, which stands at about £3.5 million.

Councils are being given the option of “pooling” with other local authorities to minimise risk, by sharing any fluctuations in one district across the group. Mr Baldwin said the benefits or otherwise of pooling would not become clear until the Government releases further figures in the coming months.

After being advised there would be a 14-day window to withdraw from any potential pool once the specifics of the finances are revealed, executive members voted to pursue an interest in joining with other Worcestershire councils.

Deputy leader of the council Councillor Paul Swinburn said it was essential that Malvern Hills District Council either entered a pool or put other “insurance measures” in place.