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Localise business rates, say MPs

Wednesday, February 24, 2010

Source: Catherine Deshayes

Councils should be allowed to keep more business rates and have more money raising powers says a new report from senior politicians...

The All Party Urban Development Group, which includes former Labour construction minister Nick Raynsford, says that localising the tax system would help drive greater business success and encourage councils to be more proactive.

Giving councils greater control of their finances would also encourage local development, says the group. Local councils would have more opportunity to develop schemes, such as tax increment financing, that encourage investment in local areas.

Clive Betts MP, chairman of the All Party Urban Development Group and member of the Communities and Local Government select committee, said:

"By giving councils the cash created by local investment we would encourage local authorities to promote new business in their local areas. At a time when the UK is desperately in need of new jobs, business development is crucial to overcoming unemployment.

"Localisation of business rates would cut out the middle man and create a system where local authorities can be more directly involved in controlling regeneration and development in their areas."

The report also calls for greater focus on where public sector investment is going. As funds become increasingly tighter it is important to ensure that areas that need redevelopment get the money to do it.

Liz Peace, chief executive of the British Property Federation, responding to the report said:

"Funding for development outside of prime areas will continue to be extremely challenging and as we brace ourselves for massive cuts in public spending we will need to focus investment on the areas that most need it. Allowing councils to make better use of fundraising powers is a vital part of ensuring parts of the UK don't get left behind.

"Tax increment financing is a great way to empower local communities to improve their economic standing. Scotland has already embraced tax increment financing as a way of bankrolling necessary infrastructure around retail developments. It's vital that ministers listen to their city leaders and level out the top-down approach which has failed so many areas of the country."

Rt Hon Nick Raynsford MP, honorary chairman of the group, said, "The next government must address some fundamental challenges in regeneration in order to secure economic recovery and the reinvigoration of our communities. Intelligent, targeted public spending is just one of these. Also fundamental to UK urban renewal is matching incentives for local councils to build with the appropriate discipline to make sure homes and jobs are delivered."

Lord Richard Best, president of the Local Government Association and vice-chairman of the All Party Urban Development Group, said, "Granting local authorities a part of their business rates would be a big undertaking, but it is definitely something worth exploring. Issues such as equalisation would need to be ironed out so that areas that don't have as much local business are not under-funded, but it would encourage councils to become more competitive in their approach to attracting new developments. This would benefit local economies and the country as a whole."

Dermot Finch, chief executive of the Centre for Cities, said, "Control over business rates should be handed back to cities to invest in local infrastructure. The UK is one of the most centralised countries in the developed world. Local authorities raise only one fifth of their revenues, compared to an OECD average of over half.

"Returning the business rate to local authorities will give cities more financial freedom, and crucially, provides a clear incentive to increase local business activity - and grow the number of private sector jobs."

Andrew Ludiman, head of consultancy, King Sturge said, "The increased localisation of business rates would provide a major shot in the arm for regeneration projects. Whilst it is clearly not a panacea, it is a very important part of the jigsaw and it is encouraging politicians are willing to back radical measures to support regeneration in this difficult market."

The report's full recommendations include:

Targeting public sector investment on the areas that need it most

Introduce tax increment financing (TIF)

Limit planning reform after the first year of the next government and increase the use of planning performance agreements

Focus on increasing the housing supply and adjust stamp duty to encourage greater investment in the private rented sector

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