In an analysis for the Core Cities UK group, which represents the country’s ten biggest cities outside London, city strategists Metro Dynamics said business rates localisation, set to take place in England by 2020, was welcome. Chancellor George Osborne set out the plans last October, which would also lead to revenue support grant being scrapped, and legislation to implement the change was included in last week’s Queen’s Speech.
However, Metro Dynamics highlighted that business rate income varied according to how a local economy is performing, but local authorities were currently ill-equipped to absorb the impact of short-term economic shocks.
For this reason, business rate devolution needed to be part of a basket of fiscal measures devolved to councils, and particularly cities, to help drive growth, Metro Dynamics director Sarah Whitney said. Increased fiscal autonomy would help local authorities produce better economic outcomes, she added.
“The only two taxes over which English councils have any degree of control are council tax and business rates. Most cities within the OECD countries have control over many more taxation streams and many receive direct allocation of national or federal taxes.
“Business rate localisation is a welcome start – but we need to recognise that fiscal devolution poses significant additional risks and burdens as councils wrestling with the complexities of this reform are finding out. For this reason, cities need further fiscal freedoms to help them manage this risk.”
The government’s immediate priority must be achieving ‘sensible’ local business rate retention, and making sure city finances are not disadvantaged, the report suggested.
This should include central government covering the cost of any successful appeals against property valuations for business rates. Currently local authorities have to meet half the cost, even if the award relates to a period before partial localisation in 2013.
However, once this is achieved, government should commit to a longer term, and timetabled programme of wider fiscal reform focusing on local authorities retaining more of their tax base.
Metro Dynamics recommended that stamp duty land tax and other property levies, as well as greater autonomy over planning and licensing fees, should be among the areas considered.
Responding to the recommendations, Core Cities UK – which represents Birmingham, Bristol, Liverpool, Leeds, Manchester, Newcastle, Nottingham and Sheffield in England as well as Glasgow and Cardiff – said it was vital that a workable and fair solution is found to business rate localisation.
The group highlighted that any additional responsibilities handed down within the new system must focus on helping cities to tackle productivity and reform the public sector to achieve better outcomes. Proposals are being sought by government for what services could be devolved in order to make business rates retention fiscally neutral.
Sir Richard Leese, chair of Core Cities UK and leader of Manchester City Council, urged the government to recognise the link between giving places more financial freedoms and improved economic and social outcomes.
“We believe that cities should retain more of the taxes they raise to spend how they like and we want to partner with government to focus on creating a workable, sustainable, system of local government finance,” he added.
“Fiscal reform is complex. Business rate reform is just the start of this journey and the process of its implementation needs to be managed carefully to make sure that cities don’t lose out.”
