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 is 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 get to 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 executive committee on Tuesday, 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 like 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 said he knew of a firm whose rateable value was downgraded earlier this year, reducing its annual business rates take by £370,000.

“From next year not only would this have had a major cashflow 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.”

This would “effectively wipe out single-handed” the council’s current general fund balance – currently 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 coun Paul Swinburn said it was essential the council either entered a pool or put other “insurance measures” in place.