Traditional rivalries such as those between authorities in the West Midlands, the North East and Yorkshire have been set aside as de facto English regions seek to exert influence over government and take responsibility for major regional infrastructure projects.

The trend towards regionalisation, re-ignited by the 2011 Localism Act, has received support from London Mayor, Boris Johnson. The Mayor has called for the key property taxes – council tax, stamp duty and business rates – to raised and managed in their entirety by de facto regional authorities.

The government’s response has, for good reason, been muted. Consider the implications for businesses of regional variance in rate liability. The 2011 Localism Act allows local authorities to retain a portion of rates collected and, under the rules of discretionary relief, provide local relief. It is understandable that, as enlarged, combined, de facto regions, they now wish to raise local taxes.

Downward spiral in two-tier England

However, such a move could have serious consequences. When it comes to taxation, businesses seek clarity and predictability. Regional tax raising powers have the potential to upset the level playing field for businesses. The stronger, more successful regions would generate more income from more businesses, and the weaker regions could become trapped in a downward spiral.

The government is right to be wary of encouraging regional tax competition. It should ensure that tax raising powers remain a fair and equitable central government function albeit allowing for targeted reliefs and exemptions delivered locally but driven from the centre.

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This article is part of the spring 2014 edition of Rating in Brief.