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GIVING LOCAL AUTHORITIES A STAKE IN LOCAL ECONOMIC GROWTH

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The chancellor today announced the results of a consultation into how ...
The chancellor today announced the results of a consultation into how

best to boost the role of local authorities in economic development,

and details of how the scheme will operate. The Local Authority

Business Growth Incentives scheme will give local authorities a

direct financial incentive in business creation in their areas, and

could mean up to £1bn over three years.

By allowing local authorities to retain part of the increase in

business rates revenues associated with local economic growth in

their areas the scheme will encourage them to work more closely with

businesses and other partners, including the regional development

agencies, to boost economic growth. Response to the consultation was

very positive, with the vast majority of respondents expressing

agreement with the government's objectives and principles for the

scheme.

Today's announcement includes details of the response to the

government's consultation and a decision on the model on which the

scheme will be based.

Minister for local government, Nick Raynsford, said: 'Local

authorities have a key role to play in fostering local economic

growth. The Local Authority Business Growth Incentives scheme

complements the range of other reforms we have introduced in the

Local Government Act to strengthen the role of local authorities

in economic development and the delivery of public services.'

Economic secretary to the Treasury, John Healey, said: 'Sustainable

economic growth cannot be achieved in all regions and communities

through centralised government policy-making. In the global economy,

effective economic policy and business support needs to take account

of the local dimension. This scheme gives local authorities a direct

financial incentive to boost economic activity in their areas and to

work with the business community and a range of partner agencies

including regional development agencies and Business Links. The

government has pledged that this will be additional money

for local councils and that the scheme will not mean higher business

rates.'

NOTES

The Local Authority Business Growth Incentives proposal was announced

by the chancellor in the Pre-Budget Report 2002. The consultation

document was launched at the Local Government Association conference

in Harrogate in July 2003 and the consultation period ended on 31

October 2003.

Over 160 written responses from local authorities, business

organisations and others were received. Nearly 90% agreed with the

Government's objectives and the principles behind the scheme. The

summary report of responses to the consultation is available here.

Of those who expressed clear preferences as to the baseline model,

two thirds opted for one of the Government's favoured models - the

National Historic Growth model or the Sub Regional model.

The government has decided to take the scheme forward based on the

national historic growth model as this is fairer on local authorities

in different regions with similar growth rates.

The government intends to adapt the model by dividing authorities

into seven rather than five groups, based on historical rates of

growth. This takes on board the strengths of the Sub Regional model

and improves the incentive for most authorities, particularly those

with higher rates of growth, whilst retaining the advantage of

relative simplicity.

Under this model, local authorities will be grouped into seven groups

according to their historic rates of growth - e.g. those with the

lowest historic growth in the bottom group and those with the highest

in the top group. The baseline for each authority in the group is

then set with reference to the average growth rate for all

authorities in the group.

Baselines, floors and ceilings will be announced in the Budget next

year and authorities will be ab le to benefit from the incentive from

April 2005.

The Welsh Assembly government finished consultation on a similar

scheme on 8 December, and will be making more information available

in due course.

Based on historical analysis, and depending on final decisions about

the scheme, behavioural effects, and the decisions of the Welsh

Assembly government, it is estimated that the scheme could divert up

to £1bn in additional business rate income to local authorities in

England and Wales. Possible gains in individual regions are set

out below:

Region/Country £m

East 80

East Midlands 60

London 150

North East 50

North West 130

South East 110

South West 85

West Midlands 150

Yorkshire & the Humber 120

Wales 65

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