The government has announced its intention to make fundamental changes to the way councils are funded by allowing councils to keep the business rates they collect locally.
The proposals - made in a white paper on local growth published on Thursday - would see rates collected and retained locally, although it is not proposed to allow localities to set rates, other than through business rate supplements.
A consultation on the changes will be carried out before the proposals are considered as part of the local government resource review starting in January.
A Department for Communities & Local Government statement said: “The plans to localise the business rates would introduce genuine incentives for local economic growth.
“By giving councils the ability to retain the money they raise in business rates, councils will have a more direct stake in the future of their own economies and access to funding to deliver the services their communities need.”
Under the current system over £20bn of business rates collected by councils are pooled by central government and redistributed across all local authorities. Ministers said this resulted in “councils having a vital role supporting the local economy but the cash return for doing so was limited”.
Communities secretary Eric Pickles said the intention was “to radically change the way local business taxes are allocated”.
He added: “By scaling back central government’s control and redistribution of this local business tax it will give them a genuine financial stake in their economy so local policy makers actively encourage growth and new businesses in their area.”
“The changes will introduce new incentives for councils to support local firms and create new jobs. It is what councils have been calling for, what government means when it talks about putting communities in control and what is required to grow our local economies.”
Before proposals can be taken forward the review will need to consider:
- How to fund councils where locally raised funding would be insufficient to meet budget requirements and control council tax levels, as well as councils who do not collect business rates, such as upper tier authorities
- The position of councils whose business rate yield would be significantly higher than current spending
- How to ensure that proposals retain a genuine incentive effect and reward for promoting growth.