Pickles to councils: keep business rates cash you raise

by Paul Goodman

When I was a member of the front-bench Local Government team, one of the biggest internal debates was about raising local revenue, without which there can be no lasting localism.

The team tended to push and the Shadow Treasury team to resist - understandably on both counts, since the former wanted more local control and the latter proper financial control.

The two present local taxes on the table were council tax and business rates.  When talk turned to the latter, the Shadow Treasury and Business teams would raise memories of the 1980s.

During those years, some Labour-run local councils - Liverpool springs to mind - raised business rates through the roof, driving businesses away locally and impeding recovery nationally.

The compromise struck was cash incentives for councils that build more homes and attract more businesses.  There are details of the latter in the Times (£) today, which reports that:

"Eric Pickles, the Communities Secretary, is expected to announce plans today for councils to keep £19 billion of business taxes a year to spend on local services.

The proposals, to be published in a White Paper, would give cash incentives to councils that are able to attract business and regeneration to their areas...

Until now business rates have been passed by councils to the Treasury so that the sum can be redistributed to more than 300 local authorities in England as part of a £30 billion annual central grant.

Under this system there is no incentive for councils to attract business, and in some cases it can cost local authorities more, as they have to fund infrastructure for new developments.

Under the new model, town halls can keep all or most of the cash to spend on local services. They will also be allowed to borrow money against revenues from business rates.

The Times is pushing a north-south divide angle, complete with a quote from Tony Travers of the LSE, without whom no local government story is complete.

The point being that since the south is likely to grow faster the north, any business rates incentive scheme would exacerbate the "north-side divide".

But Pickles has thought of that: the story refers to "protection in the first year" to poorer councils, with a system of tariffs and top-ups.

Cllr Colin Barrow, the leader of Westminster City Council, is quoted as saying that the present system leaves local authorities simply as the tax-collecting agents of central government.

He goes on to point out that reform would be good for local government, business and the economy - and is absolutely right.