£2.5 billion business rates black hole?

The Times this morning reports a £2.5 billion "black hole" in Council finances due to the closure of about 8,000 businesses since January reducing revenue in business rates. This money is collected by Councils and handed over the Government. However the amount Councils get back in grant is a redistribution of this sum adjusted for population and need. So if the total goes down so could the amount the ends up in Town Hall coffers.

Confusingly, a spokesman for the Department for Communities and Local Government quoted in The Times denies there is a problem:

“There are well-established arrangements to deal with variations in business rate yield that means local authorities are not affected.”

Even if the comment was true and central Government makes up any shortfall here could still be problems with cashflow. Also the recession will have an impact on Councils with a loss of revenue from property developers who help fund infrastructure projects in order to obtain planning permission.