LGiU reaction to Local Government Resource Review

Localisation of business rates is attractive in principle because it incentivises councils to encourage local economic growth and allows them to benefit from it.

It’s also an important early step in shifting the centre of political and economic gravity more towards the local.

At the same time, it is an issue that looks very different depending on where in the country you sit. About a third of councils would not need a government grant if they could retain their business rates but, at the other end of the spectrum, there are others, including many of the most disadvantaged, who do not take in nearly enough in rates to be financially viable without additional funding.

The key question therefore, indeed arguably the only question, is how far you balance greater retention with a degree of redistribution. The measures announced today seek to achieve this through system of tariffs and top-ups. However, the detailed mechanism for this is yet to be announced. So while we can all agree on the desirability of a system that promotes local growth while protecting the revenue of poorer councils, it remains to be seen whether the government’s proposals can really achieve this

The Secretary of State states that no council would be worse off in the first year of the scheme but given that divergence and diversity are central to its conception we should not pretend that there will not over time be winners and losers. That’s OK provided local authorities and local communities have sufficient agency to make local choices that will improve their prospects. For many people, however, and possibly for the government such varying outcomes will be a real test of their commitment to localism

    1. Kevin Lloyd says:

      Absolutely right that the critical test of the proposed system is how it assesses and addresses the need for redistribution, particularly given that there will be significant unearned benefits for some areas which are simply economically buoyant, frankly through little action by the relevant council. But there are also some other potentially significant issues of which I just highlight three here:

      (1) without a major change of heart by the Government the business rate proposal is going to be the default policy for economic development and regeneration. At present it makes no distinction between different types of development and the incentive in the system is simply going to be to grab the easiest type of development available regardless of the wider consequences. There were efforts in the early version of LAGBI to differentiate which foundered but the absence of any differentation is an equal problem, magnified now given the relative scale of this proposal compared to LAGBI

      (2) as I understand it there will be major implications for local authorities in the new system in that they will become directly affected by deficits against projections unlike the current arrangements in which shortfalls are picked up as AME by central government

      (3) if there is the option to reduce business rates then we are of course going to see tax competition and a major issue for local politicians is going to be how they balance the pressure for a short term reduction in rates against the need for revenues to support longer term regeneration and development. Some very interesting and potentially bloody local politics may ensue.

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