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Councils to keep £26bn business rates income – Osborne

Councils will be able to keep all the income generated from business rates in the future instead of sending them up to Whitehall, the chancellor has announced. 

In George Osborne’s speech at the Conservative Party Conference in Manchester, he said that he was “embarking on the biggest transfer of power to our local government in living memory” with the £26bn raised by councils to be retained locally. 

Under his proposals, local authorities will now have the power to set their own business rates. He also announced that he will be abolishing the uniform business rate – a single tax rate that is imposed on every council by central government.

“Right now, we collect much more in business rates than we give back in the main grant,” he said. “So we will phase out this local government grant altogether.”

Cllr Gary Porter, chairman of the Local Government Association, said that today’s announcement is great news for councils and shows that the government has listened to the arguments set out by local government. 

However, he added that while this is good news for councils and businesses, local authorities will face almost £10bn of cost pressures by 2020 so “we will now seek to work with government about how this proposal can be introduced more quickly”. 

Cllr Porter said: “We would expect measures to ensure local areas with less ability to generate business rates income do not suffer as a result of these changes and all councils are also given leeway to vary business rates up as well as down.”

A Treasury announcement stated that by the end of the Parliament, local government will be able to retain 100% of local taxes – including all £26 billion of revenue from business rates – to spend on local government services. 

Local areas which successfully promote growth and attract businesses will keep all of the benefit from increased business rate revenues. At the same time, the core grant from Whitehall will be phased out, and local government will take on new responsibilities. 

Additionally, those areas which choose to have city-wide elected mayors will get greater flexibilities – being given the power to increase rates for spending on local infrastructure projects, likely to be set at 2p on the rates, as long as they win the support of local business.  This support will be through a majority vote of the business members of the Local Enterprise Partnership.

Rob Whiteman, CEO of CIPFA, added that the government must now make clear how the decentralising process will work, including the procedure for worst-case scenarios and importantly how high-need authorities, who currently have a net reliance on central funding, will be supported. 

“They must also make clear exactly which services such as police, public health and special education needs local government will be expected to fund from business rates,” he said.

Darren Johnson AM, chair of the London Assembly Devolution Working Group, said this was a welcome step. “However, we will need to see more detail - in particular, robust scrutiny of the process must be in place with the right checks and balances, to ensure this money is spent wisely,” he added.

District Councils’ Network (DCN) director Stephen Brown said: “We will need to delve beyond the headline announcement to fully grasp the details and implications for our members, ahead of next month’s Spending Review. 

“Securing financial independence remains a core campaigning goal for DCN, and we will work to understand how the phasing out of core grant will affect our membership over the next five years.”

John Cridland, director general of the Confederation of British Industry (CBI), added that the opportunities should be welcome, as long as they don't push up costs for businesses. 

“If this bold announcement on business rates is a way to cut them, then it will spur councils to take a pro-growth approach, and has the CBI's support,” said Cridland. “But this must not be a way to increase rates without the consent of the local business community.”

Paul Dossett, head of Local Government at Grant Thornton UK LLP, added that in his organisation's survey of mid-sized businesses last year, there was significant business support for devolution of business rates. “Against expectation of further cuts to budgets, local government will want to see the detail but in principle this is a welcome move to give greater autonomy to local areas.”

Cllr David Borrow, CCN finance spokesman, added that any new system must maintain a certain level of national redistribution to enable reinvestment in growth in all areas and offer protection from the shocks and cycles of the economy. 

“In county areas, the upper-tier council must also receive a fairer share of revenue as it is our authorities who provide vital services, such as social care and key infrastructure to promote and enable growth,” said Cllr Borrow. 

“If local areas are to realise the full benefits of the new system, they must have the tools to respond to local business and community needs. This includes the powers to reduce rates and attract more business, but equally must also include powers to raise funds for vital infrastructure projects which he proposes to restrict to City Mayors.”

Osborne also announced that he would create a ‘National Infrastructure Commission’, spearheaded by Labour’s Lord Adonis, to advise Whitehall on how to speed up British infrastructure spanning road, rail, housing and energy projects in the long term. 

(Image: c. Stefan Rousseau/PA Wire)