London Councils has proposed an independent London business rate pool to allow boroughs to leave the central formula grant system.
The group has commissioned local government expert and LGC columnist Tony Travers to work up the proposals and plans to submit them to ministers’ local government resource review consultation before the summer recess.
A paper being discussed by London Councils leaders on Tuesday said: “Any London scheme would fund the withdrawal of the London Boroughs, the Corporation of London, LFEPA and the MPA from the government’s formula grant system.
“[The scheme] would pool business rates across the city and allocate them, at least at the outset, according to the 2012/13 damped formula grant distribution – i.e. the year before the government’s proposed introduction year.”
The plans, which would be overseen by a small independent body funded by the pool, would have an incentive mechanism so boroughs retained a percentage of any growth in their business rates yield and fed the rest into a pool for equalisation across all participating authorities.
London would continue to pay a share of its business rates yield to the rest of England to reflect London’s historic position as a major generator of business rates and its relative ability to grow faster, the paper added.
The London pool is the latest plan to be unveiled following ministers announcing the local government resource review would look at the repatriation of business rates to local government.
Other proposals included a detailed Localis report which set out plans for councils to ‘buy’ themselves out of the national business rates system and retain local tax revenues.
Localis said councils should broker individual deals with the Treasury, based on their projected net contributions to the current national rates pool, which would allow them to retain all locally collected rates.
Councils could then benefit from the net difference between the business rates that are collected over a specific period, initially three years but moving up to five, and the payment to the Treasury which would give them a huge incentive to drive up business growth within their borders.