One of the highlights of the political calendar is the annual Local Government Association (or more correctly ‘Group’) conference. It’s a bit like a party conference but people go to bed earlier. And there are other political parties here. And officers.
Its formal function is to be the sovereign body of the LGG. It also allows exhibitors to exhibit, group leaders to network and national politicians to showcase.
So we heard from David Cameron, the first serving prime minister to speak at an LGA/LGG conference. He told us sternly that pensions had to be reformed and that strikes would only hurt the public. Not much controversy there.
Yesterday we had Nick. Lib Dems have been complaining for months that the Lib Dem ministers get all the nasties to announce – or flak to receive – while the Tories get most of the nice stuff. And even some of the nice stuff we get to announce is overwhelmed by public indifference and Tory derision (eg reform of the Lords).
So it was pleasant yesterday to hear Nick announcing something good that really matters. The repatriation of business rates is long overdue. As Nick said, it was always a mistake to centralise it because it means that most local government finance is set by central government and redistributed by central government.
He made three key points:
- “We will localise the retention of business rates. No ifs, no buts, no maybes. You currently control less than half your budget. With rate retention, it could become 80 per cent or more.”
- “I guarantee any new system will be fair. More deprived areas will not lose out. From the start, no authority will receive less funding when the new arrangements are introduced than they would have done previously.”
- “Will introduce Tax Increment Financing. Freedom to borrow against business rate income helping to unlock the development potential of their areas and increase Councils’ income.”
“You asked for new borrowing powers and to be given back business rates – we’re delivering it. You’ve told us you want change but any reform must be fair – we’ve heard you.”
It was powerful stuff – particularly the guarantee to deprived areas.
Predictably, the playground players of the Labour Party (Caroline Flint in this case) have condemned the initiative:
Nick Clegg must explain how he intends to localise business rates without pulling the rug from beneath the finances of councils in Britain’s most deprived areas. If business rates were completely localised, Westminster Council would gain over a billion pounds, the City of London would gain half a billion, but many other areas would lose hundreds of millions in vital funding.
Readers may be interested to know that Labour has supported the localisation of business rates at the LGA ever since it was formed.
But why should Ms Flint let facts get in the way of hypocrisy?
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7 Comments
Isn’t (3) what Nick announced at our conference back in September though?
Caroline Flint is probably engaged in opposition for opposition’s sake, but her question is reasonable. How will this be set up in such a way as to ensure business-heavy areas don’t take the lion’s share at the expense of residential and economically deprived areas?
I hope I’m wrong and perhaps I just don’t understand the arguments well enough, but this sounds problematic to me. If a certain area loses a large local business this will presumably result in a significant drop in the council’s takings – often through no fault of any local decisions (eg a car manufacturer closes a plant). If business rates are used to pay for local fire / police services, this decrease will lead to poorer services for the unfortunate people who happen to live nearby. Having the rates nationalised presumably provides a necessary buffer against the disproportionate effect of local business fluctuations.
Have I just misunderstood how this will work? I hope so, but if not do we really want residents penalised (or indeed rewarded) simply because a large business decides to move into / out of their vicinity?
Also, won’t this discourage councils from pursuing the kind of substantial house-building projects that are desperately needed – after all quiet residential districts won’t be fiscally attractive?
Will the business rate be handed to Borough/District Councils, or County Councils. Clearly no problem in London or the Mets. though!
Hywel: yes, but it’s now on its way rather than an aspiration.
Catherine
Most councils spend more or less what is collected in their area in business rates. There are some outliers (Westminster, Camden etc at the plus end with some significantly deprived areas at the minus end) and there has to be a system of equalisation to deal with that. Modelling shows that this is likely to be pretty straightforward. In most cases, the loss of one large employer would not make much difference and anyone – if it did – would be caught by equalisation.
Flint’s sin is to pretend that no-one – including Nick and her own cronies at the LGA – had thought about this. Nick’s speech demonstrates that he has.
Chris White Posted 30th June 2011
“there has to be a system of equalisation to deal with that”
I’m a bit confused by that statement, if all councils are getting business rates direct then how the act of “equalisation” going to happen.
Is this going to end up with rich areas getting their money directly and poorer areas being subsidised from general taxation?
The present system is terrible. Even in a wellish-off Outer London Borough like where I live, about half the council’s income comes from “Goverment Grants”, which is another way of saying from the Income Tax and VAT (and business rates) paid by our citizens, which does a return journey to Whitehall and back, and on the way has to pay for a monstrous bureaucracy to second guess our council on the delivery of services. Think of the savings to be gained by reducing this process! (and the talented people who could be released to help in the delivery of front line services. )
Yes there is a place for Whitehall, or perhaps Regional Government, to provide general standards and reasearch, an auditing function, and support for financially poor councils or those in trouble – including equalisation, but many areas could run themselves with much less expensive meddling from Whitehall.
A system of equalisation is as important to the rich areas as the poor, as the one thing the rich areas don’t need is even more people being forced to come to live in them.