Business rates reform will help kickstart growth

Author: Alex Thomson, Localis (Conservative Home) - Aug 1, 2011

Back in March, I wrote on ConHome about Localis’s then forthcoming report on the local retention of business rates. The report – ‘The Rate Escape’ – produced in partnership with Ernst and Young and available to download here, made a strong case that the current local government finance system is opaque, highly centralised and riven with perverse incentives.

It went on to argue that giving councils more control of their locally collected business rates would empower them to help support local businesses, and play a key role in kickstarting national economic growth. For instance, a Localis survey, carried out as part of the report and completed by over 200 English council leaders and chief executives found that financial incentives, including the local retention of business rate growth, would drive a wave of innovation in councils across the country, particularly in the north and midlands, where 4 in 5 councils believe that more incentives would make them more innovative.

So it is excellent news that the Government is indeed moving forward with plans for the local retention of business rates, which will give councils a real incentive to grow their local business rates base. And I’m even more delighted that the Government’s proposals adhere so closely to those we outlined in ‘The Rate Escape’.

As with the model described in our report, the Government’s plans:

•will ensure that all councils, regardless of whether they are net contributors to, or net beneficiaries from, the current system, have the potential to benefit from local business rate growth
•include measures to minimise the impact of extreme economic shocks
•will give businesses confidence by leaving the existing revaluation and rate-setting architecture untouched
•allow for voluntary pooling of business rates between local authorities, for instance in a Local Enterprise Partnership (LEP).

Despite the less than overwhelming response to the Government’s announcement, the fact remains that this is a big step in the right direction. The existing local government finance system is long overdue for reform. Councils have been powerful drivers of economic growth in decades past; it is high time they were allowed to play their part again.

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