The best business advice, opinion, news and expertise in Greater Manchester and further afield.

Tuesday, 28 February 2012

The Great Rate Debate

By Chris Fletcher, Policy Director at Greater Manchester Chamber of Commerce

"Last week I was fortunate enough to speak at an excellent event in London, put on by the Westminster Social Policy Forum on the subject of the new rules and opportunities arising from the local retention of business rates by councils.

"The new rules follow on from a consultation by government into local government financing and now seem to have been subsumed into the whole work and policy arena around the Localism Act and the drive to devolve power from Whitehall.

"In brief, the potential will be there for local councils to retain any growth in business rates from within their areas to help maintain local finances.

"Now I'm betting here that anyone reading this so far will be thinking what is the difference with what happens now?

"Therein lies one of the problems that I raised last week. Whilst on the surface nothing seems to have changed, the whole mechanics behind business rates have, and the result of that could be quite dramatic in years to come. It must be said, though, that this is not about allowing local councils to set the level of rates - assurances have been given that this is not on the cards - but it is more about what authorities fund with them.

"To be fair, I'm not sure many people understand what the current business rate system is and to be honest, I find the flow of money collected locally, which is then sent to Whitehall for it to come back again, quite baffling too. One of the real problems with the current system is that it destroys accountability between a business rate payer and the local council. The reason? Your local council doesn't have any control over what it collects or what it gets back from business rates. The new system potentially will change that.

"That sounds promising, but let’s just pause for a minute. If local authorities got control over business rates what would they be spent on? From last week’s conference it was clear that in an age of severe local cutbacks, some, if not all, of the funds would go to cover the cost of existing services. The job of balancing the books has to go on irrespective of where the money comes from; however the Government proposals are much more about encouraging business growth in areas rather than bean counting. The logic is sound behind this - if you were a local authority, then attracting more businesses to an area or encouraging more start-ups would see your business rate income increasing giving you more funding.

"So, I was somewhat perturbed that I seemed to be a lone voice last week putting the case that this money should be targeted on businesses and economic development.

"In our Chamber Views survey last week we asked members about what businesses thought the money would be spent on. The results showed a spread across the usual council services. When asked what it should be spent on not surprisingly there was a massive shift toward business support, local transport and economic development.

"The really frustrating thing about this is that at its heart there is a really good idea here about greater local financial control, potentially positive use of money, a golden opportunity to help catalyse economic growth at a real grass roots level and maybe greater accountability between local authorities and the local businesses that create the wealth of this country.

"I may have been a bit of a lone voice last week, but I was your lone voice in putting across the business side to this issue; a voice that I feel has been ignored for too long with regard to business rates. Let’s see if we can change that."

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