Cameron offers a bigger share of business rates

Prime minister David Cameron has pledged to raise the proportion of business rates growth retained by local authorities to at least two-thirds if the Conservatives win the forthcoming general election.

From April 2013 councils have been allowed to keep up to 50% of growth in business rates arising from new or expanding businesses in their local areas.

Speaking to the British Chambers of Commerce this week, Cameron signalled that he wanted to lift that amount significantly.

“The next Conservative Government would substantially raise the proportion of business rates that local areas can keep. We are at half today – we want to get that to at least two thirds,” he said.

“So in that moment when you’re putting in an application for a commercial development, mixed use, whatever it may be … this is a further big incentive to get councils on your side and get Britain building.”

It is unclear how the proposal fits in with a review of business rates announced by chancellor George Osborne in last year’s Autumn Statement, which he pledged would be “fiscally neutral” for councils.

Reducing the central share of business rates would leave less money available to fund the top-ups currently made available to support authorities performing less well in growing business rates.

In August, shadow communities secretary Hilary Benn pledged that any future Labour government would devolve 100% of business rate revenue to combined authorities “while ensuring that there would still be redistribution within the system to ensure fairness”.

Andy Hollingsworth, senior policy officer at the Society of Local Authority Chief Executives and Senior Managers (Solace) told Room151: “While any increase in incentive is to be welcomed, it doesn’t address the problem that business rates are a particularly inefficient instrument.

“It is a tax designed for the old economic model based upon organisational property. Business does not grow in this way in the 21st century so any impact is inevitably limited.”

Danny Alexander, chief secretary to the Treasury, also weighed into the debate on fiscal devolution this week.

Speaking to a conference organised by local authority representative body Core Cities, he said: “I’d like to see us go even further by allowing cities to feel the full benefit or loss of their growth policies.

“Some cities have argued for the devolution of stamp duty, and though it would be complex, we should look at that too. So if there are areas you want to take control over, step forward and say so.”

Core Cities, in conjunction with think tank ResPublica, this week released a report calling for more taxes to be devolved to local authorities, including the full localisation of business rates.

Report author and director of ResPublica, Phillip Blond, said: “It is time to change the old ‘one size fits all’ model of centralised public services delivering the same thing to everybody regardless of need.

“It simply isn’t working for the core cities. They deserve a better, more integrated system, free of all external ring-fencing. If we do this correctly the benefits to the public purse will be in the billions of pounds.”