Local business rates model unveiled
Author: James Illman, Local Government Chronicle |
Ministers should allow councils to ‘buy’ themselves out of the national business rates system and retain local tax revenues to encourage authorities to stimulate economic growth, a thinktank has proposed.
Localis said councils should broker individual deals with the Treasury, based on their projected net contributions to the current national rates pool, which would allow them to retain all locally collected rates.
Councils could then benefit from the net difference between the business rates that are collected over a specific period, initially three years but moving up to five, and the payment to the Treasury which would give them a huge incentive to drive up business growth within their borders.
Conversely, though, councils would lose out if rates dipped, which would mean councils facing risk.
The report, The rate escape, Freeing local government to drive economic growth, comes with a series lobby groups set to make proposals for ministers’ local government resource review, which centres on rates localisation.
It said: “If any council manages to beat its projection growth in business rates revenue by even a small percentage, it will obtain a considerable financial reward on top of what it would have received if it had remained within the existing system of business rates distribution.”
Councils would not be able to set their own rates locally – a scenario fiercely opposed by the business lobby. Instead, the current system of five-yearly revaluations and a national non-domestic rates multiplier would be maintained.
Localis said the buy-out option circumvented other thorny issues associated with rates localisation. By keeping an equalisation mechanism, it said it negated concerns raised by deprived areas, which are unable to raise as much in business rates as their required expenditure, about being left out of pocket by any form of re-nationalisation of rates.
Localis chief executive, Alex Thomson, said: “In the current economic climate, it is even more important that the government looks at reforms that are swiftly implementable, and that would have a lasting impact on the local and national economy. Our model will do just that.”
The model has attracted support from a broad church, including Sir Michael Lyons, junior local government minister Bob Neill (Con) and business lobby group, the British Chambers of Commerce.
Sir Michael, author of the last major review of local government finance said: “This Localis report is an interesting contribution to the debate and I urge anyone interested in finding a solution to the nagging issues of local government finance to consider its proposals.”
Mr Neil said:”Localis’ report underlines the real importance of government’s drive to end councils’ dependence on the whims of Whitehall grants.
“We’ve been absolutely clear in our resource review that we want to put elected local councils back in control, by letting them retain their local business rates and in doing so give them real a stake in their local economy, creating local jobs and supporting local firms.”
British Chambers of Commerce director of policy, Dr Adam Marshall, said the report was “interesting and thought provoking”.
He added: “We must remember, however, that further reform of business rates depends upon a fundamental improvement in levels of trust between local councils and local business communities. The time is emphatically not right for the re-localisation of rate-setting powers.”
See Thursday’s LGC for full analysis and reaction