Local government in London is seeking to “de-couple” from the national business rates system in a move it claims will benefit both the capital and the rest of the country.
In a joint response to the consultation on the move to 100% business rates retention, shared with LGC, the capital’s 33 councils and the Mayor of London warn the current system of revaluation threatens to undermine the government’s ambition to incentivise councils to drive growth.
This is because as the total yield from business rates is set by government at a national level, revaluations cause rates to go up in areas where property values have increased by more than the national average and down elsewhere.
The Greater London Authority estimates the capital’s businesses currently contribute 30% of the total raised nationally but this is set to increase to 60% by 2040.
The consultation response said: “This has two interrelated consequences which potentially undermine the government’s policy objective. Firstly, the burden of business rates will fall on a smaller and smaller number of businesses…
“Secondly, the taxbase in areas with lower rates of property market growth is artificially depressed, thus leaving local authorities in those areas increasingly reliant on top-up funding and increasingly unable to benefit from the economic growth they are seeking to promote.”
The boroughs and the mayor are also calling for London local government to keep all of the additional business rates that will be available under the move from 50% to 100% retention and to manage the distribution between boroughs and with the Greater London Authority.
They also want their own London valuation office as well as power to set the multiplier or multipliers, determine all discounts and reliefs and manage a London safety net for councils that see large falls in their business rates.
London Councils chair Claire Kober (Lab) said: “At present, government’s plans simply do not go far enough in meeting their desire for greater local autonomy. If we are to protect communities and promote growth across the country, now is the time to look closely at how business rates sit in the overall picture.”
She said ministers must “sit up and listen” to the proposals being brought forward by London, Greater Manchester and the Liverpool City Region which are piloting the move to 100% business rates retention as well as “those that will shortly be presented by the reconvened London Finance Commission”.
The additional funds available to local government in London are estimated to be worth almost £4bn, excluding the Transport for London capital grant and revenue support grant for the GLA that are already due to be funded from business rates from April 2017.
The response identifies grants and responsibilities worth £3.7bn that could be devolved and either have a direct relationship to business, improve infrastructure or enable public service reform.
London mayor Sadiq Khan (Lab) said: “London government still has to rely on Whitehall for over two thirds of its funding – compared to less than 6% received from central government in Tokyo, 16% in Paris, and 26% in New York, who are all much more self-sufficient. The capital was the only region in England to vote to remain in the European Union and it is vital that we now have a stronger voice so we can protect jobs and growth through the uncertainty ahead.
“The government’s proposals to decentralise the business rates system are welcome but I hope that following this consultation they will go further and genuinely devolve this tax and the way it is operated so that London’s local authorities and City Hall can make it work better for business and help the country at large.”
*This story was updated to 10.24 to make it clear that the GLA estimates London businesses will be contributing 60% of business rates by 2040, not 2017 as originally stated