Councils to get business rate cash

Local authorities are to keep a share of extra business rates they raise instead of the current system under which the Treasury decides how much each area should get.

Ministers hope the move will encourage councils to support business – by approving viable planning applications and helping companies that want to expand – because of the financial reward.

Deprived areas which currently get more back from the Government than they raise in business rates have been assured that the system will mean they do not lose out, but some council leaders still have “serious concerns”.

The plans to localise business rates are included in a Local Government Finance Bill which will also give councils powers to borrow more money to fund transport and regeneration schemes.

Communities Secretary Eric Pickles said: “For too long councils have been hamstrung and discouraged by a system that failed to encourage and reward economic success.

“This isn’t simply about redistributing the proceeds of growth. If these reforms lead to every council working as hard as it possibly can to help businesses thrive, then they have the potential to benefit individually and increase growth overall.

“It’s good news for communities – growth in business rates means more money to invest in local services. And it’s good news for local businesses, who can look forward to an even stronger partnership with councils.”

Councils collected £19bn in business rates last year but the current system means it is all sent to the Treasury and redistributed through a complex grant formula.

While businesses in Barnsley paid £45.8m in rates, the council received £96m back from the Government. In contrast, Leeds is a net loser from the current system – receiving £265m from the Government despite collecting £330.9m from businesses.

Under the new system, which could be in force by 2013/14, councils will each be given a baseline similar to the amount they receive from the Treasury at the moment. Those authorities who raise less than this in rates will get a fixed top-up from the Government, funded by cash given back to the Treasury from those who raise more than they need.

Councils who manage to increase the amount they collect in rates will keep a share of it as a reward although those who benefit disproportionately – such as London – will pay some back in a levy.

Adam Marshall, director of policy at the British Chambers of Commerce, said: “The reforms will mean that councils need to ‘think business first’ if they want to raise more money to support local services. Simply put, councils need to grow their business base to increase their income, and that means approving viable planning applications, assisting companies that want to expand, and attracting new investors from home and overseas.”

But councils in deprived areas fear they will suffer, and are concerned the Government will only review baseline funding arrangements every 10 years.

Barnsley Council leader Steve Houghton said: “It could have been worse, but we’ve got some significant concerns about what this will do. The worst case scenario is we see gaps between wealthy areas and poorer areas start to open up. Our view is that will happen over time.”

Shadow Local Government Secretary Hilary Benn, MP for Leeds Central, said: “The Treasury will take an unfair chunk of the business rates councils raise locally. There is no guarantee that some councils won’t lose out.”

Comment: Page 10.