I ended my last LGC contribution on business rates retention by paraphrasing London Councils’ chair, Mayor Jules Pipe (Lab), saying “business rate retention, done right and done fairly, will be good for local councils and good for business” - and challenged ministers to strike the right balance.
Worryingly, what we saw revealed over the summer, as the consultation grew to 200 pages and 96 questions, has all the potential of falling somewhat short of that challenge.
It’s not often that you get agreement across the political divide, but at our leaders’ meeting this week there was a unanimous expression of disappointment at the government’s proposals and a sense that a real opportunity might be slipping away.
In its terms of reference for the review, the government said it would “…look at ways to reduce the reliance of local government on central government funding, increase local accountability and ensure that the benefits of economic growth are reflected in the resources authorities have”. It set itself ten areas for consideration, which included incentivising growth, and the scope for transparency.
In fairness I think the government has done an extremely thorough job of analysing the complexity of the issues, but their options for solutions, in my view, fall short of delivering on the ambition they set out at the start.
We’re not seeing a reduction in our reliance on central government and more local accountability; they simply have a different set of levers.
Nor are we seeing the benefits of economic growth reflected in resources. Through top-ups and tariffs, levies, set-asides and neutralising the effect of growth from rental value increases it’s difficult to see how much reward will actually land with the authority that drives it.
We’re not seeing an incentivisation of growth. Local authorities are already focused on developing their local economies and without a clear line of sight to how much reward they will get and for how long I find it difficult to see why behaviours would change.
And on transparency… well I’m not sure we’re seeing a big win here. The system remains hugely complex.
The consultation poses the question about how and how often resets should happen. Putting to one side the question of how often, because I think that’s a question for politicians to grapple with, the one thing that I would argue is that they must be predictable. In my view moving to this new world will inevitably bring with it a risk premium that we’ll see flow through to authorities’ reserves; the additional risk of unpredictable resets will push that premium even higher, stripping much needed cash out of the system.
To finish on a more positive note – it’s not too late for the government to return to some of this and adopt a simpler, more incentivising approach that will be good for all.
Hugh Grover, director, fair funding and performance, London Councils