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Council finance reforms signed into law

By Vivienne Russell | 2 November 2012

Communities Secretary Eric Pickles has hailed the passage of the Local Government Finance Act, claiming the reforms could deliver a £10bn economic gain.

The Act, which received Royal Assent yesterday, allows councils in England to retain half the business rates generated in their areas and keep any new rates for a seven-year period. Last year £19bn in business rates was collected by councils and passed back to central government.

A system of ‘tariffs’ and ‘top ups’ will ensure councils start the new regime on a stable and equitable footing, while a levy on disproportionate business rate gains will even out discrepancies between councils.

‘These new laws could deliver over a £10bn boost to the wider economy, and generate more business rate income to councils to help pay off the deficit and support frontline service that protect vulnerable communities,’ Pickles said.

The Act also brings in arrangements for localised council tax support schemes, requiring the new arrangements to be ready by January 31 2013 in time for the 2013/14 financial year. The Department for Communities and Local Government surprised many councils last month when it released a £100m voluntary grant to ensure local means tests do not penalise the poorest households too severely. Applications for funding from this transitional grant will be invited after the January deadline.

Tax Increment Financing is also ushered in by the Act. This permits local authorities to borrow for capital schemes against projected business rate growth.

Pickles said: ‘The old flawed system of government handouts to local authorities encouraged a begging bowl mentality, with each council vying to be more deprived than its neighbour.

‘This Act allows councils to stand tall, and rewards them for supporting local jobs and local firms. All councils, including the least prosperous, have the opportunity to gain from this system.’

The Act also brings in a number of technical changes, including powers to reduce certain council tax discounts and exemptions on, for example, empty dwellings.

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