Retaining Business Rates

Author: Alex Thomson, Localis (in the MJ) - Aug 9, 2011

Sometimes, being a minister at the DCLG must feel like looking over the tennis net to see [this year’s Wimbledon champion] Novak Djokovic grinning back at you... a sinking feeling as you realise you just can’t win.

Having taken a massive step towards delivering something that the local government community has been petitioning for decades – local retention of some – if not all – of the business rates collected in each area – they could be forgiven for expecting a thunderous round of applause.

After all, a recent Localis survey, completed by more than 200 English council leaders and chief executives showed that 96% wanted more control over their locally-collected business rates – with equal enthusiasm from both southern and northern councils.

But, coverage of last week’s announcement has been, shall we say, less than effusive.

Of course, much of the devil will be in the detail, which we won’t see for a few weeks yet. But the fact remains that key elements of the plans described in the consultation paper are very much along the lines that the sector is looking for, and I’m not just saying that because the Government’s proposals will sound very familiar to anyone who has read our report The Rate Escape, published in March.

As with the model described in our report, produced in partnership with professional services firm, Ernst and Young, the Government’s plans are explicit that the new system should be designed to ensure that all councils have the potential to benefit from growth in business rates, via a tariff/top-up system for those above or below the baseline, with caps for those who stand to make disproportionate gains.

Other similarities include the use of measures to minimise the impact of extreme economic shocks, and no change to the revaluation and rate-setting architecture of the current system.

I’m particularly pleased that the Government has agreed with our approach that pooling of business rates between local authorities, for instance, in a local enterprise partnership, is conducted on a voluntary, bottom-up basis.

This must be the localist answer – ‘imposed’ sharing comes with a host of complications and can lead to unforeseen consequences.

It has been evident for some time that the local government finance system is in need of radical reform. And, given this week’s growth figures, we can’t afford to let any economic weapons lie idle.

So, it is even more important that we put real financial power in the hands of councils again, to help them drive national economic growth.

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