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We must avoid exacerbating differences - a north-east view

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The government argues that its proposals for repatriating business rates will create an incentive for councils to grow their economies.

However the Association of North East Councils is concerned that full localisation of business rates would simply re-allocate resources to those councils with strong economies  - predominantly the wealthy and business-rich parts of London and the south-east. 

Those losing out would be poorer areas of the country, including the north-east, where there is less ability and opportunity to generate business rate yield.

Central to our argument, is the need for some form of re-balancing.

The government is proposing to achieve this through the introduction of a baseline and a ‘top up’ and ‘tariffs’ mechanism.

But we are concerned future changes will divide councils into two groups: the affluent, who will pay tariffs to others and receive extra funding for their area, and the poorer, who will receive top ups and may not get much, if any, additional income.

This scenario would be divisive and result in negative and unintended consequences for the north-east which would not be in the national interest.

We must avoid the potential for exacerbating differences between wealthier and poorer areas whereby areas which attract extra growth will retain extra income to provide services, cut their council tax or give business rate discounts. 

Areas that have difficulty attracting growth may not be able to offer any of these benefits, potentially creating a spiral of super growth in some areas and painful decline in others. This could have a significant impact on the services some councils provide – particularly those with low tax bases and high needs. 

The consultation paper sets out a number of choices for how the system will operate and there are a range of issues to be considered.

We have strongly advocated that the baseline needs to be right from the outset, particularly given that over the last year, the principle of equalisation has already begun to be eroded.  This needs correcting and we are arguing that any new system should at the very least restore resource equalisation to its 2010-11 level.

Whether the government chooses to further stimulate those areas of the country that can grow faster or to invest in areas with less strong economies - such as the north-east - will have a fundamental impact on re-balancing the economy.

We are clear that all areas of the country should be equally encouraged to grow and citizens should be entitled to a good level of service, no matter what their needs are, who they are, or where they live.

Simon Henig (Lab) is vice chair of the Association of North East Councils

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