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‘Opaque’ national plan may hold back London business rates devolution

London councils are seeking new powers over business rates devolution, arguing that otherwise they will be disadvantaged by the government’s approach.

A new report, published by London Councils ahead of its executive meeting tomorrow, says that it is wrong for the government to set national standards on key areas of business rates.

It says that London, which provides the greatest share of the national business rates income, should have greater freedom in implementing changes to business rates.

The report says that the appeals system and the government’s planned increase in the income threshold for business rates “could undermine” plans for central government to devolve 100% of business rates by 2020 in London.

“The difficult balance between rewarding growth and reflecting needs in local government funding is also made harder by a national approach which seeks to address the issues of authorities of hugely different scale, geography, demography and economic activity,” the report says. “The result is complex, opaque and promotes unhelpful division. A more devolved approach could improve clarity and accountability.”

The report suggests the increase in the income threshold will mean that London’s businesses contribution of national business rates income will increase from 30% to 60% from April 2017. A recent report from Centre for Cities warned that UK tax income is increasingly dominated by London.

In June, London Councils agreed a set of principles for seeking further devolution of business rates and other taxes. It is now running a consultation on a draft set of ‘asks’ to central government for how business rates retention will be conducted, and is also seeking evidence on the forthcoming Fair Funding Review.

London Councils said that if it does not achieve 100% retention of business rates by 2020, there should be a single aggregate tariff for how much of the income from London is transferred to central government. This would allow the London governments to manage top-ups and tariffs within the capital.

In addition, it says the power to decide future resets of business rates, determine business rates discounts and reliefs, and decide how business rates income is divided between borough councils and the Greater London Authority should all be decided by London Government.

The report also proposes prioritising greater transfer of responsibility for those areas which would allow London councils to encourage growth, including Early Years education, 16-19 year old skills, adult education, and the work and health programme.

It says that before business rates are 100% devolved, London Government should agree a “robust mechanism” with central government that will allow it to negotiate further devolved powers in the future.

The final set of asks will be approved by London Councils and London mayor Sadiq Khan before being submitted to central government by 26 September.

In addition,  Khan has reconvened the London Finance Commission and tasked them with producing further recommendations on London’s fiscal devolution.

The report notes: “It is likely that the recommendations of the Commission will be more ambitious than in 2013, recognising the changing macro-economic and political circumstances in light of June’s EU referendum result.”

It says London Government could make “significant asks” of the chancellor in his first Autumn Statement.

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