The consultation is the outcome of a review into local government funding that sought to repatriate rates; create a financial incentive for councils to promote local growth; reduce dependency upon central Government grant; and maintain protections for business and vulnerable areas.
The proposals will fundamentally shift councils away from their dependence on Government grant, where pleas of poverty earned a bigger share. Any council that grows it’s business base would see increased business rates that they would keep. Importantly, there will be no change to the way business pays the tax, who is eligible for discount, or the way it is set nationally.
A system of new ‘tariffs or top ups’ would be put in place to ensure a fair starting point for all councils – north, south, metropolitan or district – by balancing out those with business rates income above a baseline funding level and those with income falling below it. A safety net levy on disproportionate gain will also provide extra protection where needed. The detailed mechanism will be set out later this year following consultation.
Ministers believe a new system is needed to end a long-standing problem where councils have no direct growth incentive, to build stronger relationships with business and to put councils in charge of their own financial circumstances.
The Organisation for Economic Co-operation and Development (OECD) ranked England’s local government finance system as one of the most centralised in the world. With less than half of spending raised locally councils have less autonomy than Germany, Spain, Italy, USA, France or Japan. Last year £19 billion in business rates collected by councils was recovered by Government and redistributed back out through a complex grant.
Secretary of State for Communities and Local Government Eric Pickles said:
"Our proposals to repatriate business rate income are balanced, fair and equitable creating self-sufficiency, the right incentives for all areas to grow and protecting the most vulnerable places. This is what councils want and precisely what we mean by localism.
"It will be much more straightforward, by letting councils keep the products of enterprise we will end their disparaging dependence on government handouts, finally start rewarding economic growth and support local firms and new jobs.
"The top up and tariff measures will safeguard those places that have relied on grant by making sure successful areas share a slice of their income – from the offset no area will see less funding than they would have got under the old grant system.
"Central redistribution weakened local accountability, gave councils no reason to promote business growth and meant local funding was dictated by bureaucratic formula not local need."
Have your say on this story using the comment section below