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Look carefully at London

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The long awaited consultation on business rates “retention” (significantly NOT relocalisation!) managed to slip under the wire before the summer recess – and with a heart-warming recognition from Eric Pickles of London Councils’ work on the issue.

Sadly we have to wait a little longer for the technical papers that will give us the detail we need before we can take our modelling to the next stage.

On the face of it the consultation offers some real opportunities for local government to benefit from the efforts put into local economic development. But I am concerned that it does not give sufficient detail about the incentives for growth. 

My sense is that our members see some benefit in coming together as a pool – but there are some very real issues to be addressed before they can decide on the best way forward. 

Business rate retention, done right and done fairly, will be good for local councils and good for business

Will the government set up a system that strikes the right balance to allow London to benefit from its business rates growth and to contribute to the economic wellbeing of the rest of the country?  At present the government is proposing to take away a large amount of London’s growth through a levy to hold nationally as a rainy day fund.  This would significantly reduce the reward that councils would see for their efforts. 

Too much growth stripped out of London too quickly will forgo the opportunity to reinvest for future growth to the detriment of everyone – as research has shown a pound invested in London generates a fourfold return to the national economy.

Will the government let go of the reins and allow pools to decide for themselves how to balance fairness and the need to reward growth?  Once government has decided on baseline funding for a pool the operation of rewards and incentives within the pool should be down to local decision making.

Will the government be able to step back sufficiently to allow stability in the system?  There is an opportunity for a shared risk and reward system that can bring some measure of longer-term predictability to at least one element of local government finance. But if the government constantly intervenes, stability and predictability will be undermined. 

Will the government discuss with local government the fundamental issue of demand-led growth in cost pressures?  While business rates will exceed formula grant by 2013, and has historically tracked slightly above formula grant growth in the past, we know we face other costs pressures. For example, our research suggests that social care expenditure in London will rise by an estimated 20% between 2010-11 and 2016-17.

So lots of questions remain. To paraphrase our chair, Mayor Jules Pipe (Lab), business rate retention, done right and done fairly, will be good for local councils and good for business. Whether ministers can strike that balance remains to be seen.

Hugh Grover, director of fair funding, London Councils

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