The government is minded to exclude councils’ commercial income from calculations on how much funding they receive from central government, according to a senior official working on the Fair Funding Review.

Stuart Hoggan, deputy director for local government finance at the Ministry of Housing Communities and Local Government (MHCLG), said that the department is cranking up technical work on the review following the general election.

He said that, although no firm decisions have been made, commercial income is likely to be excluded from the “resources adjustment” used to work out how much money councils need to provide services.

Speaking to the Local Government Association’s (LGA’s) Local Government Finance Conference last week, he said: “My guess is that what we will not take into account sales fees, charges or commercial income.

“No final decisions have been made on that yet. But my guess is we won’t take that into account.”

He said that including commercial income could reduce incentives for councils to pursue it as a source of income, and that some councils face restraints on raising or spending such income.

Richard Harbord, former chief executive of Boston Borough Council, told Room 151: “Commercial income is now quite a vital part of local authorities’ income.

“It is a bit strange if they excluded it from the resources adjustment – some councils will have low resources on paper but high commercial income and they may do better from future settlements under this scenario.

“You could say that they are being rewarded for taking commercial risks, but it is a little hard to follow the logic.”

Hoggan also told delegates that the government has yet to take a decision on whether to include deprivation as a factor in the calculation of base funding to local authorities.