London councils could do so much more with increased powers

By:
19 Dec 18

London councils will continue to pilot business rates retention next year but at the lower rate of 75%, rather than the 100% they trialled in 2018-19, the draft local government settlement revealed last week. London Councils’ Guy Ware says local authority's will rise to the challenge - as ever - and continue to deliver services with less money. 

Oxford Street

 

This is a blog about business rates, not Brexit.

But sadly you can’t really explain how business rates are going without acknowledging the way in which the policy – like so much else – has been bent out of shape by the gravitational pull of the Brexit supernova. And not just because the formal announcement of next year’s pilots was delayed by the ‘meaningful vote’ that never was.

Cast your mind back to 2015, when all we had to worry about was an unfolding decade of austerity budgeting, and the future editor of the Evening Standard announced that, by 2020, local authorities would retain 100% of business rates. At London Councils we quickly agreed four ambitions for their fundamental devolution, the first of which was that it should be contingent on improvements to the tax itself.

We knew then that business rates were flawed. Anyone who cared to look could see that determining the level of a business’ contribution to local services on the basis not of the success of that business, or even of the local area in which the business operates, but the rate of change of the property rental market in that local area relative to that in the centre of London, is not a sound basis on which to fund half of local government spending.


‘Anyone who cared to look could see that determining the level of a business’ contribution to local services on the basis not of the success of that business, or even of the local area in which the business operates, but the rate of change of the property rental market in that local area relative to that in the centre of London, is not a sound basis on which to fund half of local government spending.’


Even the Treasury thought reform was necessary, but then – in a taste of what was to come – decided it was too hard/boring to worry about. Instead, it stuck to tinkering at the edges, announcing relief after relief in a desperate attempt to keep the leaky vessel afloat.

Nevertheless, government announced that it would pilot 100% retention and began to legislate for its nationwide introduction. In London we began negotiations with Ministry of Housing and Local Government. Then the prime minister called an election. There would be no local government finance bill, and, by the time a new secretary of state got around to negotiating our pilot, there was no time left to negotiate real flexibilities.

But we had a deal. London’s 32 boroughs, the City of London and the Greater London Authority would retain 100% of growth in 2018-19 and had agreed how it would be distributed. A ‘Strategic Investment Pot’ would help promote future economic growth – the eight projects agreed so far will generate over 4,000 new jobs, 20,000 new superfast broadband connections and over 22,000m2 of business workspace.

The rest would be split 64:36 between the boroughs and the GLA, whose share was also dedicated to strategic investment, delivering thousands more jobs, homes and workspaces. The year isn’t over yet, and the figures are not final, but the boroughs’ direct share of the benefit – approximately £190m – is providing some much-needed relief and time to prepare for the £2bn savings they are still going to have to deliver by 2022.

In the scheme of things, this is a huge success. London – and some of its vital public services – will work a little better as a result. But it isn’t devolution, and a broken tax remains unreformed.

Meanwhile the government said there would be no parliamentary time for non-Brexit legislation before 2019. That wasn’t actually true, of course. The gap between the election and any serious parliamentary debate on leaving the EU would have provided ample time to reintroduce a local government bill (and to write a green paper on funding adult social care, to boot, but that’s another story). And they did find the time to legislate on the precise status for business rate purposes of garden centres that grow plants. Really.


‘When handed a pig’s ear, local government will check what colour you’d like your silk purse to be before getting on with making it.’


Another year rolled around. Government invited applications for new – 75% – retention pilots. The London pilot would be renegotiated but then – whaddya know – the Budget was pulled forward to create space for Brexit, and there was suddenly no time – and no real appetite – for those negotiations. So we have a deal in which nothing has changed except the numbers. It’s a deal we’re more than happy to have, but it still feels like a missed opportunity.

What have we learned from our 100% pilot? We’ve learned a lot about how business rates really work, both as a tax and an incentive – London borough finance directors are much more engaged with the detail; they are sharing and comparing assumptions about appeals and future income with each other and within their councils in ways that can only benefit us all.

We’ve learned – in the face of some profound scepticism – that 32 boroughs, the City and the Mayor of London can agree how to pool, redistribute and collectively invest resources.

We have learned – again – that people who spend their lives delivering real services for their local communities are more than capable of cracking on with the job. That, when handed a pig’s ear, local government will check what colour you’d like your silk purse to be before getting on with making it.

What will we learn from a 75% pilot next year? We’ll learn how to keep delivering with less money. That’s what local government does. But, given space and real power to reform local taxes, we could do so much more.  

  • Guy Ware, London Councils
    Guy Ware

    director, local government performance & finance, at umbrella-group London Councils

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