A court date has been set for the long-running legal dispute between councils and NHS trusts over rates relief.

NHS hospitals are calling for charitable status and cuts in their business rates tax, which could cost councils and government as much as £2.35bn in tax rebates for mandatory relief dating back to April 2010.

The trusts say they should be treated as charities, which receive 80% off their bills. However, previous guidance concluded NHS trusts are not charities, therefore not entitled to rates relief.

The case, brought by Derby Teaching Hospitals NHS Foundation Trust and 16 other trusts against 45 councils, will be heart in the High Court on 4 November.

The Local Government Association’s former chair Lord Porter had previously told government the NHS should not be allowed to extract large sums of money from another public body.

The LGA, which is representing the affected councils, says the applications are “unfounded”.

A spokesperson from the association said: “The LGA is supporting member councils who have received applications for mandatory relief from business rates on behalf of a number of NHS trusts and are working with them.

“We have sought legal advice from counsel. We believe that NHS Trusts and Foundation Trusts are not charities, and that the applications for rate relief are therefore unfounded.”

If successful, the case would be another blow for local government finances, as councils are expected to rely on council tax and business rates for the vast bulk of their funding.

At the recent LGA conference, nearly 50 councils said they may not be able to fund services they are legally obliged to provide by 2022.

Currently around one in four private hospitals, such as Nuffield Health, are registered as charities and are entitled to the relief. But as of January 2019, there were 1,554 NHS hospitals and clinics in England and Wales subject to business rates. They are expected to pay £408.55m in rates this financial year, according to real estate advisor Altus Group.

Robert Hayton, head of UK business rates at Altus Group, called on the government to end the dispute before a costly trial. 'If the case was successful it risks setting a precedent for other deserving public services, with the significant loss in revenue which goes to fund essential public services having to shift to businesses at the next revenue neutral revaluation in 2021 at a time when the tax burden is already far too high.'