Industry welcomes Government’s business rates plans

Deputy Prime Minister Nick Clegg announced plans to allow councils in England to keep a proportion of business rates rather than handing them over to the Treasury in a move aimed to kick-start economic growth.

Speaking at a Local Government Association conference in Birmingham, Nick Clegg revealed that the government would introduce legislation in the current Parliamentary session which would overhaul local government finance.

Under the proposals, business rates will be collected and retained locally, allowing councils to borrow against their future income from the taxation to fund local services.

The government hopes the change will make councils less dependent on Whitehall funding and provide a "dramatic new incentive" for local authorities to encourage economic growth in their area.

Clegg also stressed that scheme would be 'fair' so the poorest boroughs, which lack a large economic base would not find themselves worse off than they are already are under the new system.

In the wake of the announcement, Andrew Gosnay, project finance partner at law firm Pannone in Manchester, said the plans could bring an end to the funding famine for many regeneration and infrastructure projects across the North West.

Gosnay said: "This transforms the landscape, if the legislation really does implement sufficient freedom.

"This is bringing the Government's Localism agenda firmly into the public finance arena in the North West at a time when raising all forms of Government debt is one of the most topical issues in Europe today.

"Ringfencing business rate income stream and assigning parts of that to funders of specific projects will release private sector funds to leverage public sector investment boosting much needed urban regeneration schemes in the North West that are currently becalmed by the funding famine.

"If properly implemented, it should help release the logjam in financing capital projects such as schools, social housing and transport infrastructure.

"Several schemes in the North West such as £700m Tithebarn project to regenerate Preston town centre are through the planning process and well into site assembly but need the finance in place to start work and create jobs.

"For example, those of us working on PFI/PPP funding for Building Schools for the Future and social housing projects saw the funding tap turned off. Then it was turned on again but only to drip limited funds into very few projects.

"The sector needs a replacement for PFI/PPP and this proposal may well release funding for projects in the run up to the next central government election.

"Local councils in the North West have had power to raise funds independently of central government but they are limited and in reality not fully utilised.

"The reality is that local authorities have traditionally been able to source funding more competitively from the Government's debt management office, an executive arm of the Treasury that conducts money market operations on behalf of government, than they could from banks and institutional investors.

"Competitive business rate setting will bring challenges and opportunities. We are used to regions competing for inward investment but this adds a new dynamic.

"Politically and economically the landscape has changed and now local authorities in the region will need to diversify their funding and market themselves as an attractive home for investment by funders in a tight market.

"This will bring a cultural shift in the roles and responsibilities of local government treasury and finance teams across the country which Pannone and the adviser community will be guiding them through over the coming months."

Ed Cox, director of IPPR North, has reacted to the announcement made on Wednesday with caution. Cox said: "This looks like a welcome step forward towards greater localism, giving councils more power over local taxation and spending, a move IPPRN has long been calling for.

"However, allowing councils to retain the money they collect from the growth of business rates falls short of complete autonomy.

"We are also need assurances on the detail of how councils in poorer areas will be protected. Many local authorities, particularly in the north, do not have a large business sector so they could lose out – and the government's record in this area has been undermined by the local government settlement which benefitted richer local authorities in the south over poorer ones in the north.

"We also need to know what the implications will be for super-rich councils, like Westminster, which collect large sums in business rates. Under this scheme, they might be able to set the council tax at zero – good for their residents perhaps, but unfair on others in more deprived parts of the country.

"The Deputy Prime Minister has laid out some interesting ideas today, but we need to see how they relate to the Local Government Resources Review. Hopefully, the review will develop this agenda of giving councils more control over local taxation."

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