National Non-Domestic Rates
Credit to the Government; when they published their ‘Local Government Resource Review: Proposals for Business Rates Retention’ they also published a plain English version (you can tell one is needed from the title alone) of the report for those of us who choose not to be bored to death by the full technical majesty of it.
However, I think this might be where the credit stops.
The general principle of the review of business rates (otherwise known as a the National Non-Domestic Rate – see I told you the plain English guide was a good idea) is that each local authority should be free to profit from growth in their own local business rates.
At the moment business rates are passed straight to national Government and then passed back to Local Authorities in the form of grants. As the plain English paper helpfully points out:
This dependence on central government funding also means there is a greater incentive to design services in order to secure government funding, rather than to respond to local communities’ needs or align spending with citizens’ service preferences
The Government are therefore keen to ensure that local authorities are not pursuing the agenda of central government but are rather free to collect their own rates and spend them on things that will benefit their local community.
So far so uncontroversial.
The problem with the general theory is that this would be massively unfair if done unilaterally. I feel bad picking on London(well, I don’t really) but some local authorities in London would massively benefit from this and others (perhaps in areas with more houses and farms than huge tower blocks of offices) would suffer.
Therefore, the clever people in the DCLG came up with a plan. They would baseline the rates each authority receives and any increase in the rates received locally would be kept by the local authority.
This is meant to be seen as the Government passing power back to the local authorities but in reality it is simply removing the tyranny of the Performance Indicator and Dedicated Grant so beloved of Labour and replacing it with the tyranny of economic growth.
Tyranny might be a bit strong but let us look at this in more detail:
There is a limited amount a local authority can do to generate growth in its own area. A lot of the determinants of growth are external to any Government, let alone a local one and many more are determined by policies originating from Whitehall.
Even if growth is not totally in the hands of local authorities it is conceivable that they could vary their tax take or stimulate growth by cutting their business rates (both Boris Johnson and Ed Balls – not exactly political bed fellows – have advocated a tax cut as a method to stimulate the economy in the past week for example). Conceivable, and probably right from a free market point of view but against the rules.
According to the paper, you can keep the taxes you raise but you are not allowed to vary the rates. Local Government will be fighting the battle for increased business rates with one hand tied behind its back.
The Government have now said, in effect, that the only way a local authority can get more money is to increase their business rate take. In effect they have decreed that the primary purpose of every local authority is to drive economic growth (but with one hand behind their back.
But growth can often be in contrast with local desires. What if the local population really want Adult Social Care, libraries and a restrictive development policy based on protecting the greenbelt, in that order? The first two are not achievable if the council doesn’t build new industrial estates. So much for democracy guys, no growth (of which we have little control), no services.
Finally, in my mind it stands to reason that if a local area is suffering from poor economic performance it will probably be the same area that requires increased public services.
Local Government has a number of different roles; it is involved in growing the local economy but not exclusively so. It is also a democratic organ, a service provider, an educator, a protector of community safety and green spaces and a co-ordinator of services.
The danger with this proposal is that it tells Local Government that its priority is economic and I’m not sure it really is.
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