Local Government Resources review sets out plans for 'free councils'

17 Mar 11
Ministers today paved the way for ending the financial dependency of councils on Whitehall, launching the delayed Local Government Resources Review.
By Lucy Phillips

17 March 2011

Ministers today paved the way for ending the financial dependency of councils on Whitehall, launching the delayed Local Government Resources Review.

The review will begin with a short consultation on the best way to allow councils to repatriate their business rates and the extent to which local authorities should rely on central government grants, in a move that could establish ‘free councils’, entirely independent of Whitehall purse strings.  

The review had originally been scheduled for January but wrangling between the coalition partners over the scope of the inquiry delayed publication until today.  

Ministers are asking for views on the best way to balance funding between councils that would raise little income from business rates and those that would raise substantial amounts. They are also consulting on ways to implement Tax Increment Financing, an idea originally put forward by Liberal Democrat leader Nick Clegg in September. This would allow councils to invest in infrastructure and other developments in their area, using funds borrowed against the likely rise in rates these developments  would generate.

Currently councils across England collect £20bn of business rates, which is then redistributed by central government through grants.

Launching the review in the Commons, Local Government Secretary Eric Pickles said: ‘By letting councils repatriate their business rate income you make the system more straightforward and councils more self-sufficient in one fell swoop, whilst deprived councils would still get the support they need.

‘Scaling back central government's historic control and redistribution of this local business tax would also give councils a sudden shot of financial adrenaline and a legitimate stake in their economy with direct benefits for supporting new business and growth. It is what councils want and precisely what we mean by localism.’

The review’s termsof reference also include: the localisation of council tax from 2013/14, as outlined in the recent Welfare Reform Bill; implications that the move away from central grants might have on other policies, such as the New Homes Bonus; further scope for financial freedoms for local government; and how future business rate revaluation and relief should work.

This first phase of the review will conclude in July while a second phase will be launched next month, focusing on the rollout of community budgets. The government has recently been accused of ‘losing momentum’ on the idea of pooled budgets, first piloted as Total Place under the previous Labour government.

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