News

July 22, 2011

Councils get financial incentive to promote local growth

Local councils will have the power to keep the business rates they raise from later this year, the Government has announced, following the end of a six-month review into council finance.

At present, councils collect payments from local businesses and send them to central government for redistribution. Under the reforms, councils will be able to retain business rates and borrow against future rate income.

The Government said this would create a financial incentive for local authorities to promote growth, as councils which expanded their business base would now directly benefit from increased revenue.

The British Chamber of Commerce (BCC) said that the move would help small firms as it would encourage a “pro-growth and pro-business” attitude in local government.

“Local retention will link council funding to the success of the local business community,” said BCC director general David Frost. “That means councils will pay ever closer attention to the requirements of their local businesses and ensuring they are able to flourish.”

Institute of Directors spokesman Alexander Ehmann said the proposals had the potential to create a “much needed culture change” in making local councils more business friendly. He added that the decision to keep the level of business rates under central government control was particularly welcome.

“We must never return to the days of extravagant councils destroying businesses by imposing ever-higher rates,” he said.

Keeping business rates standardised was also praised by the Confederation of British Industry (CBI). “[If] business rates remain predictable, firms can invest with confidence and aren’t hit by unexpected tax hikes,” said Katja Hall, policy officer at the CBI.

Secretary of State for Communities and Local Government Eric Pickles called the proposals “balanced, fair and equitable”.

“By letting councils keep the products of enterprise we will end their disparaging dependence on Government handouts, finally start rewarding economic growth and support local firms and new jobs,” he said.

A spokesman for the Department of Communities and Local Government said that legislation would be set out this autumn, and councils would begin to retain rates by 2013.

• Councils to retain business rates for local investment