Localising Business Rates will boost economic growth

Rob Dale, the online engagement lead at the Local Government Information Unit, welcomes the proposals but warns there will be losers as well as winners. Follow Rob on Twitter

Localisation of business rates, as proposed in the Local Government Resource Review, 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.

So to balance this out, a system of tariffs and top-ups is proposed to ensure that the poorer authorities are protected, and the richest ones don’t see disproportionate growth. There will also be a levy system of insurance so that an authority doesn’t lose out disproportionately if a large business fails in their area (such as a factory or steelworks).

This is not full financial freedom – but the changes will make a fundamental change to funding of local authorities.

Councils cannot set their local business rate – though they will be able to reduce it (similar to the current BID process). Central government is giving notice that the next CSR may review the functions to be funded by business rates and the arrangements for funding fire and police authorities.

Under existing arrangements, non-domestic rates (or business rates) revenue collected by local authorities is pooled for redistribution to local authorities in England, and makes up around 76% of the grant. However, by 2014 business rate income will fund the totality due to the CSR cuts.

Councils will be considering the linkages and coherence with proposals for the New Homes Bonus, the changes to the HRA and the abolition of Council Tax Benefit to be replaced by local schemes – the consultation paper on this last has not yet been issued.

Presenting the proposals to the House last week, Eric Pickles said “In year one roughly £2.5 billion will be transferred from the south to the north of England, and I do not anticipate a significant change to that amount”. He rejected criticism that central government would after the first year wash its hands of the problem of achieving equalisation to enable all communities to receive services.

But given that divergence and diversity are central to the proposals 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.