Business rates will help successful councils open the funding floodgates
Author: Alex Thomson, in the Guardian Professional |
Local rate retention has not gifted authorities the financial independence they crave, but it is a first step towards autonomy
Some industries seem to be recession proof. The West End musical Mamma Mia, for example, has been pulling crowds in London for 14 years, come financial rain or shine, and has reportedly now been seen by more than 1 in 10 of the UK population. That’s a lot of Voulez-Vous.
Sadly, during that period things have not been so good for local government where, to extend the metaphor, “money money money” has become an ever more precious commodity, with shrinking government grants and rising demand for the public services councils provide.
Some 18 months ago, Localis published a report that argued for a major transformation of the local government funding system to encourage local authorities to promote local economic growth. Our proposal would have allowed councils to opt out of the centrally-controlled formula grant system and benefit from the local retention of business rates. This would help kickstart – from the bottom up – the economic growth that the country was lacking.
What’s changed since then? As GDP still remains 4% below the UK’s pre-recession peak, growth remains the government’s number one priority. But now an overhaul of local government finance is planned, will it be radical enough to inculcate a new more dynamic approach at the local level?
Crucially, the new system is mandatory for all local authorities and is designed to build in systematic protection for the most economically vulnerable councils. The result is that the amount of business rate growth that any council can retain is reduced, limiting the incentive effect and raising questions over whether it can catalyse a fundamental change in behaviour. The Treasury has failed to take its chance on local government finance.
For those who laboured for years under the old “four-block” model of council funding, any change is welcome, and despite the fact that the system is arguably just as complex as its predecessor the principle of linking finance to growth has at last been established.
Given that we are now less than six months away from implementation, councils will need to work with the new regime as best they can. An optimist might hope that, once the system is up and running, the floodgates might start to creak open and more ambitious local authorities may be able to win an argument for a greater degree of financial devolution.
In the meantime, while the new regime might not be everything that many had asked for, it’s a step in the right direction and along the path that leads to the genuine local autonomy we would like to see. But the day when a centrally-controlled system meets its Waterloo remains tantalisingly out of reach for now.