Business rates alone can’t finance devolution

It would seem that business rates aren’t the cure-all cash cow that many in Government – local and national – assume.

According to a report commissioned on behalf of Core Cities UK, existing proposals to devolve business rates don’t go far enough, with a budget shortfall inevitable if full fiscal devolution doesn’t follow.

It is a well-known fact that the English system of local government is one of the most centralised in the developed world with local authorities only retaining around £50bn each year – or one tenth of the overall of the country’s tax yield.

The report says that business rates devolution needs to be followed by devolution of other fiscal powers, including property tax, the power to introduce new charges, and potentially even income tax and National Insurance.

So, is business rates devolution just the start of a slippery slope towards full fiscal devolution? But doesn’t that also pose significant risk to LAs who may not have the kind of expertise needed to deal with such reform complexities. It sounds like manna from heaven for management consultants to me.

Other areas of concern include the cost of business rates reduction proposed in the latest budget; the need for top-ups and tariffs to compensate for differences in business rates across local areas, and the cost of appeals being shouldered by businesses.

There is also a lot of uncertainty about whether business rates devolution alone will leave councils better off at all.  Proposals in the 2015 Spending Review to devolve additional responsibilities to councils such as public health, the administration of pensioners’ housing benefits, and Transport for London projects, could cost more than the measures save – according to the same report.

Fiscal reform is undoubtedly complex and business rate reform is just the start of a journey that will take years to complete and no-one seems really sure where the end point is actually going to be.