West Midlands councils among first to test Government’s business rates reforms
West Midlands’ councils could be among the first in the country to benefit from the Government’s business rates retention scheme – enabling them to keep all of the taxes generated by local firms.
At the moment councils can keep only a proportion of business rate income, with the remainder being placed into a national pot to be redistributed back to local authorities by Whitehall.
By the end of the current parliament in 2020, the Government plans to implement 100 per cent retention of business rates and local authorities that have signed devolution deals, including the West Midlands, are being given a chance to pilot the new system.
The Government believes the changes will act as an incentive for cities like Birmingham to push forward with economic regeneration in the knowledge that the council’s coffers will be swollen by rates income from new businesses.
But the 100 per cent retention scheme has its critics, with the Local Government Association warning that the change could benefit richer areas, more easily able to attract new businesses, and leave poorer areas worse off.
The Government is stressing that any pilot schemes will operate on a “no detriment” basis, so that no participating authority can be any worse off financially than they would otherwise have been – but there is the potential for financial benefit arising from the real terms growth in the share of business rates that is currently passed to Government.
West Midlands’ council leaders have backed the idea, which now needs all seven metropolitan councils to formally agree to the plan, before any final sign-off by the Government.
Cllr John Clancy, Leader of Birmingham city council, said:
The Government’s reform of local government finance will become a reality sooner rather than later, so our participation in a pilot will give us the opportunity to look at how it works in the West Midlands, and then help shape national thinking about the way the full national scheme will be implemented in due course.
Just as importantly, it will also facilitate discussions with Government about further devolution, again ensuring that Birmingham and the wider West Midlands gets the best deal possible.
Former Communities and Local Government Secretary Greg Clark launched a consultation into the business rates scheme in July, asking councils, businesses and the public to have their say on the proposals.
Mr Clark said 100 per cent business rate retention would be “a huge opportunity for local authorities of all kinds to take control as never before”.
Business rates retention would make councils the drivers of economic growth in their communities, giving them an incentive to prioritise economic regeneration, while also helping to transform the key services that their residents’ value, he added.
Councils in England will gain control of £12.5 billion from business rates to spend on local services. But in order to ensure that the reforms are “fiscally neutral”, councils will gain new responsibilities, and some Whitehall grants will be phased out.
The consultation paper suggests areas of responsibility that may be devolved to councils to be funded through business rates could include the Better Care Fund, the Independent Living Fund, Early Years grants and the Youth Justice grant as well as Attendance Allowance paid to older people with special needs.
Mr Clark said the new system would be designed to encourage and reward councils that promote and support economic growth in their areas, and steps would be taken to “manage risk” including the huge number of appeals lodged by businesses against their rates calculations, which leave councils facing a financial headache.
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