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It's still a very complicated system

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At a recent seminar Bob Neil said that there are only three people who understand the current local government finance mechanism and the government needs to find one of the other two because the only one in the government who understands it is about to retire.

I don’t think it will be long before the same joke is being used about the replacement mechanism.

But it is a serious point. If the cause and effect of any incentive is too confused or convoluted, it will not serve its purpose. There must be some concern that by the time we are finished with “set asides”, “levies”, “tier splits”, “transitional schemes” and “reliefs”, the scheme will go over the heads of those whose behaviour it is intended to influence. 

When Warren Buffet, the second richest man in the US, was asked about his investment strategies he replied “I don’t invest in what I don’t understand”.

With this complexity it is quite possible to miss some unintended or un-signalled consequences. Let’s look at a few.

The LGA has done a sterling job in identifying disparities between different figures used to predict the proceeds of business rates. The Treasury project the set aside will be more than £1bn in year one and £3½bn in year two.  That windfall should be used to fund the removal of damping so that it creates no losers. 

The scheme needs to make a distinction between rewarding interventions and rewarding the inevitable (the Barnsley/Westminster axis). Perhaps it’s expecting too much of a property tax system to reconcile all of these difficulties, provide a track-able incentive’ and be predictable and stable.

In its legislative passage through parliament these proposals are likely to be coupled with those on localising council tax benefit, which look behind the curve. Wiser commentators than I have observed that it would not be the first time that one part of a bill became delayed due to misgivings about another part of a bill.

Finally, I must say something about green energy. The national grid (i.e. the “wire” that moves the electricity around) is getting old, it will need around £30bn of investment between 2013-2021. Anything we can do now to incentivise localised green power generation would mitigate that massive infrastructure bill.

The desire to give particular incentives to communities which accept green energy proposals shows great foresight. Unfortunately the mechanisms proposed in the consultation do not offer sufficient incentives as business rates values for green energy installations are so low. Biting that bullet will be easier than finding the money to fix the grid.

David Cook, chief executive, Kettering BC

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