Whitehall’s decision to claw back half of the localised business rates collected by English councils ‘falls well short’ of giving them freedom and lacks ambition, according to town halls.
Local Government Secretary Eric Pickles revealed last week that the government would retain 50% of business rates, which would be redistributed to authorities as grants.But the Local Government Association and other council commentators hit out at the decision saying ministers could have gone much further.
LGA chair Sir Merrick Cockell said that, although localisation of the rates represented ‘a step in the right direction’, the scheme that will operate over the next seven years would not give town halls ‘the level of freedom from government handouts that we want… Whitehall is clearly having a hard time letting go’.
He added: ‘We were hoping for a lot more ambition and a greater commitment to the kind of localism ministers have been promoting. The proposed model redistributes funding according to the priorities of central government.’
Cockell also criticised the government’s safety net in the plans. These will kick in when an authority’s business rate income falls by between 7.5% and 10% against its 2013/14 baseline. But the LGA chair said this would leave councils ‘exposed’ to risks in the economy.
‘In areas where the business rates base falls away sharply, the prospect of a further cut in funding of up to 10% before the “safety net” protection becomes available represents a big risk to manage,’ he said.
‘We think the safety net should kick in much earlier to ensure residents are not left exposed to cuts in council services at a time when their local economy is struggling.’
Others in local government have also said that the plans could yet be challenged. One source told Public Finance that authorities might look to ‘push back’ on the decision. ‘It doesn’t feel like localisation if that’s the amount handed to the centre,’ he said.
Simon Parker, director of the New Local Government Network, said that with only 50% of rates growth retained locally, the incentive for authorities to boost local economic growth would be ‘lower than we had hoped for’.
He added: ‘This doesn’t mean there’s not one, but it could have been more ambitious.’
Parker also said the seven-year length of the scheme was not long enough to give authorities an incentive to boost growth through new investment, as they will fear any rate growth could be taken off them at the reset.
He observed that government has to ‘decide what to do with schemes like this, whether meeting needs or meeting growth’.
Parker added: ‘If it’s done to stimulate growth, then stimulate growth. There’s a real danger of a halfway house. They’re probably just on the right side of this, but could have done more.’
