The Chancellor's announcement at Conservative Party Conference is a significant step towards further devolution.
Giving cities greater control over their finances to enable them to invest in their economies more effectively has been at the heart of the Centre for Cities’ research for years – and it received a big boost today with the announcement that councils will be able to set and keep hold of the business rates raised in their area. The Chancellor said that:
The devil is in the detail – as always – but if done well it has the potential to be a hugely significant step. Currently only 17 per cent of local government money is raised through local taxation – compared to an average of 55 per cent across the OECD – and councils only directly control and raise 5 per cent of their money in the form of council tax. This means that councils currently gain a limited amount from business growth in their area. This announcement is set to change this.
Being able to retain business rate revenue will incentivise councils to support growth and – provided the money is not swallowed up by the costs of services such as adult social care – enable them to better respond to the needs of local economies. Being able to raise supplementary business rates (if LEP businesses agree) will make a particularly big difference in enabling cities to undertake ambitious and much-needed infrastructure projects that respond to business need, such as major transport schemes or housing developments. In London, for example, this kind of supplementary business rate has funded Crossrail.
The detail will be crucial and big questions will need to be answered, including how the government intends to balance the needs of “winners and losers” under the new system, how the costs of public services will be managed, whether the reforms could lead to a “race to the bottom”, and what this announcement means for those fast-growing cities that sit outside of city-regions such as Cambridge and Milton Keynes. Technical issues such as the uncertainty created by business rate appeals and any government reviews will also need to be dealt with. But for now this is a very welcome announcement that signals the government is now ready to devolve significant fiscal powers alongside the strategic planning, transport and skills powers included in devolution deals to date.
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