Councils Would Get To Retain Business Rates Income Above A Certain Threshold Confirms Communities Secretary Pickles
English councils would be allowed to retain a chunk of their £19 Billion of their Business Rate income the Communities Secretary Eric Pickles has confirmed.
Mr. Pickles was speaking at the House of Commons reporting on the findings of the six month review of local government finances.
Under the plans, each council in England would be provided with a basic level of funding based on grants and top up tariffs. However from 2013/14, the top up and tarrifs would be fixed and local authorities would be allowed to retain any funds beyond this threshold.
Ministers claim this policy shift in local government finance would incentivise councils and drive local economic growth while making local authorities more financially independent.
Currently, local councils in England only generate about 50% of their income however the government argues that this key policy change would push that to 80% in the near future.
Although ministers are using the localism rhetoric, they are putting failsafe mechanisms to ensure local authorities are funded properly.
According to the government proposals, Whitehall would introduce a "safety-net" fee when there is a huge gain to ensure there is funding for "rainy days". In addition, the Secretary of State would have the right to reset the top up and tariff limit as s/he sees fit.
"Our proposals to repatriate business rate incomeare balanced, fair and equitable – creating self-sufficiency, the right incentives for all areas to grow and protecting the most vulnerable places," the Communities Secretary said. "This is what councils want and precisely what we mean by localism."
Caroline Flint, Labour's Local Government Spokesperson accused Mr. Pickles of giving "vague empty assurances".
"Cutting funding to areas of the highest need doesn't free councils from central control or empower them, it stops them from doing the things their communities need of them," she said. ""Yes, we want a funding system that supports jobs and encourages enterprise - but not every area has the same ability to attract investment and new business, not everywhere can be Westminster or the City of London."
But Mr. Pickles argued: "‘The top-up and tariff measures will safeguard those places that have relied on grant by making sure successful areas share a slice of their income – from the offset, no area will see less funding than they would have got under the old grant system."
The Communities Secretary went on to say: "Central redistribution weakened local accountability, gave councils no reason to promote business growth and meant local funding was dictated by bureaucratic formula not local need."
The local government think tank Localis welcomed the government's decision.
“We are pleased that the Government are moving forward with plans for the local retention of business rates – this is a big step in the right direction. In the current economic climate, we need to put real financial power in the hands of councils again to help them drive national economic growth," Alex Thomson, Localis Chief Executive said. "A recent Localis survey1 of 195 council leaders and chief executives found that financial incentives, including the local retention of business rate growth, would drive a wave of innovation in councils across the country, particularly in the North and Midlands, where 4 in 5 councils thought this would be the case."
"But in achieving reform, much of the devil will be in the detail. Localis will be submitting its response to the consultation shortly, based upon our recent report ‘The Rate Escape’ , which received broad cross party support," he added.
Some of the key principles that will underpin Localis’ response are:
· Every council should have the opportunity to benefit from growth, with minimal restrictions
· Measures need to be taken to minimise the impact of extreme economic shocks
· Councils should not be allowed to vary business rates in the short term
· Business rate reform should tie into other initiatives to support economic development eg LEPs, early intervention investment, TIF etc