Local government should not be dependent on a single locally generated revenue stream to fund their activities.
The Government’s commitment to devolve business rates to local government after 2020 is a significant and positive announcement, in as much as it demonstrates a willingness to give more control to local government over the taxes that are raised in their area, as Alexandra Jones has written about here.
There remains much detail to be clarified regarding how the new devolved version of an already complex and partly localised tax will work, but we do know that the devolved tax will replace the current revenue support grant funding to local authorities to pay for public services.
This raises important questions about how sustainable a model of local government funding heavily reliant on this one revenue stream will be, especially for those places less able to generate high revenues (e.g. rural and less economically successful urban areas).
This is illustrated sharply in the Liverpool City Region, where in 2013-14, business rates generated in the area accounted for less than half the amount of funding received to provide local government services. Our latest briefing, which builds on our report that maps national tax and spend data across the country, shows that £471 million was collected in business rates across Liverpool, St. Helens, Wirral, Sefton, Knowsley and Halton local authorities in 2013-14. Meanwhile, in totality the area received approximately £1bn in grant funding from central Government (which includes revenue support grant plus the local share of business rates under the current scheme).
The Government has indicated there will be a safety net for those local areas facing this kind of shortfall, and that some kind of re-distribution will remain in the new system, to help offset some of the differences in business rate bases that exist between city regions. But if the new arrangements are to provide an effective growth incentive, some places will do better than others.
This analysis highlights the potential scale of the challenge that a more devolved funding regime for local government poses for places like the Liverpool City Region. That’s why it’s vital that as the fiscal devolution debate moves forward, a wider range of revenue streams and service delivery options are considered, to make sure authorities are not dependent on single locally generated revenue streams to fund their activities in the future.
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