News

July 08, 2011

Councils to retain business rates income for local investment

Government plans to introduce a Local Government Finance Bill that would give the councils the power to retain business rates were met with approval from business organisations.

Currently, councils collect payments from local businesses and send them to central government for redistribution. Following the changes, councils will be able to borrow money against anticipated future revenues, funds they can use to build new industrial estates and encourage enterprise in other ways.

Reported Government plans to devolve rate-setting power to local authorities have met with opposition however.

Forum of Private Business senior policy adviser Alex Jackman said: “We would be wary of any council powers to set their own rates, because while some local authorities might lower rates to attract investment, many would take the opportunity to increase them.

“However, with the right checks in place, more autonomous decision-making at a local level as is being proposed should be good for business, providing traders are genuinely involved in the decision-making process. We support councils investing locally to bring in more business – through tax increment financing – if local businesses are on board."

British Retail Consortium director general Stephen Robertson said: “Local authorities should have a financial incentive to promote business growth in their areas. Allowing them to keep some of the extra business rates revenue generated by local business expansion is the way to do that. But, letting local authorities set business rates would damage growth and jobs.

“The localised business rate system was scrapped in 1990 because it created huge inconsistencies in rates and left businesses – that have no vote – open to excessive and unpredictable rate hikes.”

In a speech to the Local Government Group conference, Deputy Prime Minister Nick Clegg confirmed the Government’s plans.

Clegg said: “At the moment [there is] no financial incentive to promote [local] economic growth. By localising retention of business rates, [local authorities will have] a dramatic new incentive to work with business and others to boost economic prosperity in [their] areas.”

And to allay any fears, he added: “No authority will receive less funding than they would have done previously. The new system will start on a level playing field. Where you progress from there is up to you.”

A Department for Communities and Local Government spokesman confirmed that the Government is not in fact planning to allow local authorities to set their own business rates.