26 May 2006
Local authorities will peg business rate increases to no more than inflation if they are returned to local control as part of a shake-up of the finance regime, town hall leaders have promised.
The Local Government Association said authorities would give the inflation guarantee, under which increases could outstrip inflation only with the agreement of local businesses, in exchange for once again being able to set rates locally.
The promise, made as the LGA launched its own wide-ranging devolution report on local government on May 22, is an attempt to circumvent business' long-standing opposition to returning commercial rates to local control.
LGA chair Sir Sandy Bruce-Lockhart said he understood companies' fears that they would be stung by cash-strapped councils as they had been by some in the 1980s.
'We're not saying that more tax needs to be raised, what we're saying is that more tax should be raised and retained locally, as it is in most democracies in the world.'
Such an approach would, according to the LGA, give authorities a direct stake in fostering economic growth, since they would benefit from a buoyant locally retained tax base.
But business representatives lost no time in rejecting the proposal. The CBI said it would still result in higher business taxes without any clear benefits. It also warned that other policies intended to stimulate local economic growth and which enjoy the support of companies, such as business improvement districts, could be threatened by a relocalised business rate.
A spokesman told Public Finance: 'Business supports the principle of giving local authorities some greater spending powers with the benefit of being able to spend on local priorities to benefit the local communities.
'But this should be achievable without greater tax-raising powers and within the current uniform business rate system.'
Closer to people and places also called for the current regime of around 1,000 performance indicators, targets and plans to be scrapped and replaced with just 30 national outcomes, to be negotiated between Whitehall departments and local government.
Authorities would take responsibility for these and negotiate 'next generation' Local Area Agreements, backed up with targets, with other local agencies to achieve them.
Such an approach would end fears of the 'postcode lottery' and allow for a new era of 'postcode choice', Bruce-Lockhart claimed.
PFmay2006
