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An LGC exclusive by Mithran Samuel ...
An LGC exclusive by Mithran Samuel

The Labour Party's unwillingness to oppose business interests could scupper the relocalisation of non-domestic rates, it has emerged.

The balance of funding review steering group is reportedly split on the issue and some group members feel Labour may not risk its relations with business for the sake of greater autonomy for local government.

Professor Gerry Stoker, group member and director of the Institute for Political & Economic Governance, said: 'If you think about it, a Labour government still keen to be seen as pro-business won't want to do that.

'Once you've got a tax system which people are used to paying, it is brave to the point of stupid to change things.

'It would be a very odd government that decided to get rid of national non-domestic rates.'

The Confederation of British Industry and other business lobby groups back the current system, in which business rates are set nationally and tied to inflation, and the government has traditionally been ultra cautious about opposing business interests.

But relocalisation would effectively give councils control of around half of local funding, and carries senior officer and cross-party support in local government.

One source close to the review suggested its final report would be more equivocal on business rate localisation than on local income tax, because of the CBI's opposition: 'There is an absolute conflict of interest between the views of local government and the views of business.'

Another steering group member, Local Government Association chair Sir Jeremy Beecham (Lab), said: 'It's too early to say [what the government will do]. When it suits government to tax and regulate business they are prepared to do it, but in the interests of national policy.

'But they haven't done it yet in the interests of local government.'

Sir Jeremy described the LGA's arguments with the CBI on the issue as 'like banging your head against a brick wall'.

Local government minister Nick Rayn sford has indicated business rates should rise, following evidence that their declining contribution to local services had put upward pressure on council tax (LGC, 14 May). Many commentators see higher contributions and relocalisation as going hand in hand.

LGA Conservative group leader Peter Chalke, who is also on the steering group, said: 'I think Mr Raynsford is frustrated that business contribution to local services has gone down from 29% to 22%. I have my feeling that the minister may be moving towards relocalisation.'

LGA chief executive Sir Brian Briscoe, who also sits on the review group, said: 'It is gaining ground with those who are looking at it seriously.'

But CBI senior policy adviser Simon Parker said private sector faith in local government would need to increase before it considered backing relocalisation.

He said: 'For instance on the efficiency review, there are some clear savings to be made by local government. If local government were to do that, then one day our members may be more comfortable with [relocalisation].'

Mr Raynsford said: 'We do not want to pre-empt the outcome of the balance of funding review, which is considering several options, including relocalisation of the business rate.'

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