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Councils must be given control of business rates - despite the strain it could put on a flirtatious relationship ...
Councils must be given control of business rates - despite the strain it could put on a flirtatious relationship

There is an overwhelming case for the return of control over business rates to councils. The present quarantine of business from one of the most important decisions taken in the name of representative democracy is bad for local government, bad for business and, ultimately, bad for the state.

At a time when the words 'community' and 'governance' - an in-vogue expression, used more often than it is understood - have become common currency in the debate on central/local relations, leaving the present system largely intact would make a mockery of any avowal of serious reform.

Business depends on decisions taken by councils. It depends on them for planning permission, to influence the housing and transport of its workforce, to school its staff members' children, to maintain the environment of the local community and to apply a significant part of the regulatory framework within which it operates.

One important change in the way business looks at the world over the past decade or so has been the mounting desire to engage the community. MPs are besieged by lobbyists asking them for a telephone interview on behalf of an unnamed business client, in return for a modest contribution to charity. Nine times out of 10, the purpose of the interview is to find out how aware we are of the client company's commitment to social responsibility.

Partnerships between councils and businesses, whether for the delivery of frontline services or the promotion of regeneration programmes, are part of daily life. Indeed, there have never been so many business swains strumming their guitars in the council car park to swooning municipal maidens hanging over the town hall balcony.

I do not believe that opposition to the return of business rates, as they conjure up memories of the 'loony left' plundering business in the 1980s, are plausible in the face of the culture of co-operation now embedded in councils. Councils are now so hemmed-in, circumscribed, monitored, inspected, cajoled, bullied and bribed by central government, that their ability to set up outposts of republican radicalism is pretty well zero.

What business really fears is that the rates bill will rise. Business has had a low-cost ride on the back of council tax, because business rate rises have been pegged to inflation while council tax bills have soared. As a result the contribution business rates make to local finance has declined as the burden on council tax has increased. There is no reason why business should volunteer for a tax increase any more than anyone else. It is also true that business has been hit by a series of costly regulatory burdens by the government.

For this reason, the government might prefer the least dramatic adjustment and ease the peg to inflation within a national system. That would yield significant extra revenue without getting into a complex argument about the powers oflocal government, the mechanism needed to redistribute revenue, and safeguards to protect business from excessive increases. This would be a real funk, alleviating the impact of an injustice but not tackling its cause. None of the measures needed to ensure a smooth transition to a local system of business rates demands rocket science. Redistribution of revenue is an established part of local government finance. There is no shortage of mechanisms to safeguard businesses, be it linking council tax and business rate increases to reinstating the business vote. If councils were completely free to set business rates - a real 'freedom' - would the result be a tendency to push business rates up or to hold them down in the interests of tax competition? I put my money on competition.

Business will fight tooth and nail against relocalisation. But it has to be taken on, and the argument made and won. Business needs a direct, clear stake in the decisions taken on behalf of the local community. Councils, representing those communities, need a clear, direct material investment in local business. The present apartheid prevents both.

The government has decided - predictably - to retain council tax, albeit in a yet-to-be-determined reformed state. Deciding what to place alongside it is not just a technical matter about the balance of funding. At the heart of the decision should be the fundamental issue of re-empowering representative democracy. The review of the review being conducted by Sir Michael Lyons will, at least, be free of the constraints of general election timetables. Out of the bathos of the balance of funding review, Sir Michael can create a powerful momentum for real change. Let's hope he decides to be a real lion.

David Curry

MP for Skipton & Ripon

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