The local growth reforms are part of the Local Government Finance Bill that will have its third reading in the House of Commons next week. The Bill was not directly mentioned in the Queen’s Speech because it was ‘carried over’ from the previous legislative session.
The Bill seeks to create a new incentive for local government across England to support growth by directly linking a council’s financial revenue to the decisions they take to back local firms and local jobs. Councils will be able to keep 50 per cent of their business rates, providing a strong incentive to go for growth.
A set of papers on key aspects of the Local Government Finance Bill have been published today. Departmental analysis shows that the projected economic benefits of the new business rate retention scheme could add an additional £10 billion to national Gross Domestic Product over the next seven years.
The new system will be fair and equitable for all areas with protections for vulnerable or less prosperous areas. Business rate growth would be shared evenly between central and local government. The ‘local share’ would be retained in full by councils and would be set at 50 per cent for the seven year period. The full ‘central share’ will always be returned in grants to local government.
In addition councils would get to keep 100 per cent business rates from new renewable energy projects. These would not count against the local-central shares.
A centrally run safety net fund would provide support should a council’s income drop below a set baseline, protecting areas which suffer a downturn.
Secretary of State for Communities and Local Government Eric Pickles, said:
"The current flawed system of government handouts to local authorities encourages a begging bowl mentality, with each council vying to be more deprived than its neighbour. Our reforms will allow councils to stand tall, and reward them for supporting local jobs and local firms. All councils, including the least prosperous, have the opportunity to gain from this system.
"These new laws and reforms deliver an opportunity for a £10 billion boost to the wider economy, and more business rate revenues for councils. Councils will have a strong incentive to go for growth, generating more money to support frontline services, help pay off the deficit and still protect vulnerable communities."
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