The government’s self-proclaimed “radical reform” of local government finance finally became law yesterday as its flagship council finance bill gained royal assent.
The Local Government Finance Act 2012 aims to create an “economic incentive” for councils to grow the country’s economy by more than £10bn. It aims to support business growth by creating a more direct link between councils’ income and the decisions they make about local firms and jobs.
Under the act, authorities will now get a 50% slice of business rates and then keep any new business levies generated in their areas over seven years. The previous regime saw all business rates returned to the Treasury for redistribution according to a complex Whitehall formula. The system left England’s finance system ranked as “one of the most centralised in the world,” according to the Department for Communities and Local Government Department, which guided the legislation through Parliament.
Communities minister Eric Pickles described the previous “flawed” regime as one which encouraged a “begging bowl mentality”.
“This Act allows councils to stand tall, and rewards them for supporting local jobs and local firms. All councils, including the least prosperous, have the opportunity to gain from this system,” he said.
“These new laws could deliver over a £10bn boost to the wider economy, and generate more business rate income for councils to help pay off the deficit and support frontline services that protect vulnerable communities.”
The Act also creates what the government claims is a “fairer system of council tax support”.
A new system of council tax support, introduced by the act, should help cut fraud, promote new business and encourage residents to come off benefits and into work, according to the DCLG.