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17.12.15

Commons committee launches probe into ‘pretty limited’ fiscal devolution

Calling the government’s approach to fiscal devolution “pretty limited”, the Communities and Local Government (CLG) Committee has launched an investigation into the details of Whitehall’s proposal to denationalise business rates by 2020.

The Committee said it will seek evidence on what responsibilities and functions should be devolved to councils to take account of the increase in their funding, and what other possible changes to the definition and collection of business rates can be done.

It will explore the effects of retaining business rates in the context of the local government financial settlement, to be published today, and the differences it will make to richer and poorer areas and inter-authority competition.

Its chair, Clive Betts MP, commented: “The government is now pursuing the total localisation of business rates, but proposes to retain council tax capping and control by referendum, which suggests a pretty limited approach to fiscal devolution.

“As a Committee, we will want to examine the details of the government’s proposals and, among other issues, what responsibilities should be devolved to local authorities in return for the increased funding.

“We’ll also be keen to look at the likely impact resulting from councils competing on business rates and what measures should be introduced to ensure local areas with less ability to generate business rates income do not suffer as a result of these changes.”

The CLG will also review the role of directly elected mayors and LEPs and the changes to the local role of businesses as a result of rates devolution.

Written evidence can be submitted by 1 February through the Committee’s inquiry page.

Fiscal devolution criticisms

This is not the first time the government has been criticised for the allegedly slow pace of its fiscal devolution programme. Just this week, the Centre for Cities think tank argued that to create a sustainable system of local government funding, Whitehall must look into further devolving fiscal powers through land and property taxes and housing benefit.

It argued that while devolving business rates was a welcome step, local leaders must be given greater control over their own finances to create stronger incentives to boost growth and widen the funding pot. Devolving stamp duty tax revenue, it said, would already raise £10bn alone.

Last week, professional services firm Grant Thornton also acknowledged that measure was a positive step in the way of enhancing councils’ role in stimulating local growth, but argued that devolution should go even further.

“It should be noted that this represents only partial fiscal devolution in relation to business grates,” its report said. “The government has not yet been willing to offer full fiscal devolution to local authorities on a scale that would allow them to optimise the benefit from local economic growth.”

In October, just after the chancellor’s announcement for business rates devolution, a credit agency report said the move meant councils would only benefit from additional business rates revenue – given that the existent ones will be offset by a drop in main grant funding. As a result, only devolving these rates would make councils more dependent on a less predictable form of income, as well as spark inequalities between authorities with different characteristics and credit profiles.

The Spending Review also cast doubts on the scope of the business rates devolution programme itself, with the chancellor announcing that, as part of wider devolution deals, city-wide mayors will have the power to levy a ‘business rates premium’ for local infrastructure projects.

To raise these rates, however, they will need the support of the local business community through a majority of business members of their LEP.

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