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Rate reform ducks equalisation case

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It is more than two decades since I completed legislation for national non-domestic rates. So it may be time for review and reform.

Sadly, the scheme that communities secretary Eric Pickles is consulting on lacks three vital ingredients:

  • Real evidence that retention of business rate income will lead to greater economic development
  • Exemplification of how the scheme might work out over a number of years as different authorities are differentially successful in attracting new rateable value and the impact of council tax
  • Any explanation of the underlying principles for the local finance system now that equalisation of needs and resources seems to be finally abandoned.

It is also dismissive of local authorities that have, since 1990, worked effectively with developers, using the planning system to secure regeneration of their city centres spurred on by the desire to improve their local areas for their citizens.

It makes no allowance for the possibility that in areas with excessive development pressure, local authorities may be legitimately resisting inappropriate development.

Of most concern is the lack of exemplification of the dynamics of the system.

This will be amplified by the proposal that retention will be calculated as a percentage of the growth while the council tax is based on the number of households in the authority.

Westminster City Council has nearly £40,000 of rateable value per dwelling while Coventry City Council and Hartlepool BC have less than £2,500. So, with the same percentage retention, the impacts on council tax or services will radically differ.

These disparities make me suspicious about the proposed rebasing in 2020. The associated change in council tax rates could be significant: possibly greater than the effect of a revaluation of council tax.

The government would not be able to stand the heat. The winners would continue to win. It is depressing that there is no consideration of the loss of the resource equalisation mechanism - a cornerstone of the finance system.

One of the motivations for the NNDR was concern about local authorities ‘abusing’ the system by pushing up rates paid by businesses, that could not vote, to provide services to households that could vote, but may not pay if on benefits.

Surely, if we are now all signed up to localism and trusting local decision makers, there is a better reform available than this?

Since businesses and households now pay different taxes, why not return control of the rate of business taxation to local authorities with safeguards against abuse and proper arrangements for equalisation?

It could be even more effective at promoting growth.

Phillip Ward, former civil servant who worked on national non-domestic rates in the 1980s

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