By Nick Mann | 19 December 2011
Plans for councils to keep a share of business rates and to borrow against future income to support infrastructure projects have been formally announced today, ahead of the Local Government Finance Bill being laid before Parliament.
In a written ministerial statement, Communities Secretary Eric Pickles said the proposals, which would take effect from 2013/14, would make the local government finance system more simple and transparent.
They would also provide a ‘strong financial incentive’ for councils to grow their local economies, he said, while ensuring that local authorities that need more support and have a low tax base can still meet the needs of their residents.
The Bill’s provisions will end the current system where all business rates are paid into a central pot and then redistributed to councils using a grant. Instead, councils will be able to directly retain a portion of their business rate growth. The percentage share of business rates to be localised, and how this can be spent, will be set out in spring 2012.
A system of Tax Increment Financing would give local authorities the freedom to borrow against future income from business rates. They could then use this money to pay for road and transport projects and other ‘local priorities’.
The government plans to set a national baseline for business rates income. Those with income above that level would pay a one-off tariff to government, while those below would get an individually assessed top-up. This aims to ensure that all councils start from a ‘level playing field’.
A levy will also be introduced to take back a share of growth from councils deemed to be gaining disproportionately from the changes. This money will then be used to fund a safety net to support councils that experience a significant drop in business rates through events such as the closure of a large business.
Pickles said: ‘We need to restore the country to strong sustainable growth and local government has a key part to play in this. For too long, councils have been hamstrung and discouraged by a system that failed to encourage and reward economic success.
‘This isn’t simply about redistributing the proceeds of growth. If these reforms lead to every council working as hard as it possibly can to help businesses thrive, then they have the potential to benefit individually and increase growth overall.
He added that growth in business rates would mean more money to invest in local services and would be ‘good news’ for local businesses, who could develop stronger partnerships with councils.
The Bill will also detail plans to replace national Council Tax Benefit with locally administered schemes. The overall sum will be cut by 10% and councils will choose how to allocate the remaining support, though pensioners will be protected from any cuts.
In the statement, Pickles said: ‘Local authorities will have much greater freedom to administer rebates in a way that best meets local needs and best supports local people whilst safeguards will be put in place to protect pensioners from any reduction in the support that is on offer as a result of the introduction of this reform.’
