Examining funding for flagship devolution plans, the think-tank said the proposal to devolve more than £26bn of business rate revenue to town halls by 2020 was welcome.
However, it concluded this would not be enough to ensure councils had the financial freedom to make a success of the wider programme of localisation of public services, which includes greater local control of health spending as well as economic development.
Retention of stamp duty, estimated to be worth around £10bn in 2014/15, would help place authorities on a sustainable footing, Centre for Cities’ chief executive Alexandra Jones said.
“For places across the country to prosper in the coming years, local leaders must have the right financial powers and incentives to support growth in their local economies. With a new funding system in which places are expected to raise more revenue themselves, some will argue that the focus should be on redistribution from relatively prosperous areas to those with weaker economies.
“However, this report shows the best way of generating more revenue for places with low demand is to increase the overall pot of local government funding – by giving places strong incentives to really drive growth in their local economies.”
Although the report concluded that further devolution of taxes related to land and property would increase variation and disparities in revenue between different places, it was also likely to increase the size of the overall local government funding pot. New redistribution methods could then be developed using the revenue growth from cities with strong economies, while retaining the development incentive.
“This should be the next step in the government’s devolution agenda, to ensure that local leaders across the country have the powers and responsibilities they need to help their local economies thrive in the years to come,” Jones added.
Such a move should be accompanied by devolving responsibility for funding local Housing Benefit to better link housing developments to the cost of support for housing.
Devolution was also likely to boost income tax for the national exchequer, the report, which was supported by the Business Services Association found. It identified a correlation between land and property taxes and other tax bases. If local government were able to achieve 1% growth in land and property taxes through devolution, an extra £1bn in income tax would be generated annually based on 2014/15 data.
