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Business rates reform 'not a done deal'

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Local government has been urged to engage with Whitehall to ensure the sector fully capitalises on George Osborne’s business rates reform, which is not yet a “done deal”.

The call came at a session at the Society of Local Authority Chief Executives & Senior Managers summit in which finance professionals agreed that it was unclear to what extent councils really would have mastery of their own budgets.

They also pointed to international examples of failure which stood as warnings to English councils of the dangers of a system in which more autonomous areas were not bailed out by the centre.

Guy Ware, London Councils’ interim director of finance, performance and procurement, said the sector needed to work out how it positioned itself after the chancellor pledged to give councils control over business rates.

“We need to acknowledge that this is not a done deal. This is an announcement. This is an opportunity to work with the government to help it to understand what it actually means by this announcement,” he said.

He gave the example of councils lobbying to be able to use the promised power to cut rates within part of their areas rather than across their entire area.

Later, speaking to LGC, he gave the example of how Redcar & Cleveland Council may be able to use a business rates discount to “encourage someone to reopen the steelworks in Redcar”, adding that a blanket reduction would unnecessarily lose the council money because “it doesn’t help if the business rates on your newsagents goes down”.

During the session Mr Ware said key questions remained about how a system of fully devolved business rates would work, urging debate about the local geographical area in which changes were applied, whether appropriately stable taxes were being considered and whether councils had appropriate power and accountability.

He suggested councils may need new skills as a result of the reform. “We don’t employ economists as a rule. Maybe we will need to be thinking about that in an economic self-sufficient local government in the future.”

Mr Ware also warned that councils could be hugely impacted by any future recession, pointing to North America’s most prominent bankrupt city government.

“Detroit is an awful warning of the caveat that the extra revenue can go down as well as up,” Mr Ware said.

“All of the debate about business rates retention has been about capturing growth but we haven’t forgotten 2008 to 2010 and just how fast economies can go down.”

Speaking in the same debate, Stephen Hughes, the outgoing executive director of the Local Government Association, said he had seen indications that the Treasury and Department for Communities & Local Government were “open to discussions on how this will work out”.

He urged debate on “who underwrites the risk of failure” and spoke of a “dilemma between equalisation and devolution”. He added: “Can areas be free if there’s a state guarantee?

“The culture of the political economy is important,” he said. “In Detroit the underlying assumption is that things are at a local level – it doesn’t expect Chicago or New York to intervene so Detroit declared itself bankrupt.”

Mr Hughes painted two possible scenarios for councils. One would see fully confident councils acting as leaders of place, although it was unclear how they could gain the funding freedoms to make a reality of this.

The other involved “quiet desperation” in which they had a minimal role, undertaking tasks such as street scene, refuse collection, libraries and planning, just about funded by council tax and business rates.

“This would see us lose our pride and ambition of the place and the ability to make the big strategic change,” he said.

Wandsworth LBC chief executive Paul Martin said: “Most reporting of George Osborne’s announcement is that local authorities would control business rates. It’s not a wholly accurate picture.”

Mr Martin, also the Solace policy spokesperson on council finance, said there was little evidence that most authorities had any new ability to increase their income, with even the combined authorities with mayors needing business support to increase business rates.

He compared the situation to council tax, in which authorities theoretically had the ability to increase income by holding referenda but it being politically impossible to successfully implement local polls.

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