Nick Clegg, speaking at the Local Government Association conference, promised poorer areas will not lose out from the government's business rates reform.
Nick Clegg boldly announced at the Local Government Association (LGA) ‘Localism Works’ conference today that business rates will be localised in their collection and retention, and that local authorities will be able to borrow against their future income from them.
While Eric Pickles had already announced the localisation, Clegg’s new claim is an explicit promise that poorer areas will not lose out – the key barrier to previous reform of this over-centralised system.
He has explicitly said:
“No authority will receive less funding than they would have done previously. The new system will start on a level playing field – where you progress from there is up to you.”
Another concession won for the Lib Dems for the poorest areas, we are expected to think. Yet the detail of this proposal remains to be seen.
There is no question that the current system of local government finance is broken. It creates dependency on the centre, hinders local strategic planning, encourages councils to look upwards to Whitehall rather than out to their communities, and stifles innovation. And the current system of centralised business rate fails to reward action to drive economic growth and prosperity.
Yet the purpose of centralised redistribution was to ensure that areas with less income from business were not unfairly penalised. It must be right that where one local authority (Westminster) collects nearly 6% of the entirety of the business rate due as much to its natural historic, geographic and economic good fortune as to the good work of its local authority, it has a responsibility to the broader macroeconomic health of the nation.
It is right that this authority should play a role in helping to drive business growth in less-fortunate areas.
So will Clegg’s commitment that no-one will lose out under the new proposals stand up to scrutiny? The issue is that we are not currently at a level playing field – there must be acknowledgement, not just of the starting point of a place’s business strength, but of the future economic potential of a local area. Every place has its own unique industrial and financial capacity, diverse economic patters, variable skills base, social networks and distinct environmental characteristics.
Growth will not be even across the country, and creating a financial level-playing field now will not ensure equality of future opportunity.
If the local government family itself were responsible for arranging redistribution, this could be more achievable; moreover, if redistribution were put on a regional or subregional footing, this might enable a more localised approach to redistribution, based around economic footprints.
This would also tackle the issue of areas which feed into one central business district that, through accident of history and geography, end up in one particular local authority area. Is there an argument for local authority collaborations or local enterprise partnerships to play a greater role in the redistribution of rates within their areas?
Either way, these reforms are going to have a dramatic impact on our already divergent national economy. The issue is whether places pull further apart from each other and whether as a nation we find that socially and economically acceptable.
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