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Viewpoint - 21/06/2012

Pragmatism holds sway for rates relocalisation

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The government intends that just 50% of revenue from business rates will come under direct local authority control. A pragmatic, business-friendly outcome.

Details of how the proposed localisation of business rates will work in practice are finally coming to light. Having been roundly criticised for the complex plan for rates redistribution, it was only a matter of time before Eric Pickles, the Communities and Local Government Minister, made the key announcement: just 50% of rates collected will remain under direct local authority control.

All or nothing reloalisation was never going to work

Minister Pickles appears to have been swayed by the unstinting pressure from the business community to ensure that local councils are never given full, unfettered authority to tax and spend at will. No doubt, Chancellor Osborne’s treasury officials will also be relieved that some semblance of centralised control will be maintained. By enabling local authorities to hold on to just 50% of the local business rates tax yield, the minister has accepted that all or nothing relocalisation, without some form of equalisation, was never going to work.

Neither business nor local authorities can claim outright victory

The government has gone further than many business leaders would have liked. Yet, for those local authorities located in high tax yield locations, the 50% share probably does not go far enough.

In the end, pragmatism has won the day. Neither side of the argument can claim outright victory, yet the minister’s policy looks set to diminish the local authority ‘begging bowl’ culture encouraged by the existing centralised redistribution process. Local authorities will exercise control over a substantial proportion of locally derived tax revenues, while those authorities in need are protected from the often cruel reality of marketplace economics.

All councils will receive at least 90% of previous year's funding

That protection only stretches so far. The minister has guaranteed that all councils will receive at least 90% of the previous year’s funding, either from local collections or from central redistribution. However, in order to maintain funding levels in the longer term, all councils will have to accept that local businesses must be supported and encouraged to succeed and grow. For many authorities, this will require a significant change of mindset, and for the few which are unable or unwilling to adapt, a funding crisis and political spat surely beckon.

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