Re-localising the business rate

We welcome the news that the Government is considering giving local authorities more control over business rates.  The Centre for Cities argued for the full re-localisation of the business rate in our Cities Manifesto before the general election for the following reasons:

• The UK is one of the most highly centralised states in the developed world. Currently, the only source of local tax revenue is Council Tax. Local government raises 17 percent of its income from local taxation, compared to the OECD average of 55 percent.

• Giving local authorities more control of the business rate provides them with a stronger incentive to support the right local conditions for economic and jobs growth because councils themselves will reap more of the financial benefits. For example, this should make Councils more pro-growth in their approach to dealing with planning decisions. Businesses regularly identify delays in the planning system as a major barrier to their growth.

• More control over the way business rates are raised means more freedom over how funds are spent locally – with less reliance on centrally distributed grants, with strings attached.

Full re-localisation of the business rate was in the Lib Dem manifesto and the Conservatives have been talking up the need for a radical devolution of power. This business rates announcement comes on top of Nick Clegg commitment to introduceTax Increment Financing. It’s good to see national government putting tangible powers on the table with the potential to deliver on the rhetoric around localism.

However, there are also challenges ahead that need to be overcome.