Announcement

New incentives for councils to support local firms and create new jobs

This news article was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

New proposals unveiled today could give Councils a renewed incentive to grow their local economies and attract new businesses to their areas…

New proposals unveiled today could give Councils a renewed incentive to grow their local economies and attract new businesses to their areas.

Ministers have set out radical new proposals to look at ways for Local Authorities to keep the business rates they collect locally, thereby reducing central redistribution. However, the Government is clear any change must be to encourage growth and not lead to an increased tax burden on business.

The announcement was made as part of a White Paper on Local Growth published today that seeks to rebalance the economy and drive sustainable growth.

Under the current system over £20bn of business rates collected by councils are pooled by central government and redistributed across all local authorities. The result is that councils have a vital role supporting the local economy but the cash return for doing so is limited.

The plans to localise the business rates would introduce genuine incentives for local economic growth. By giving councils the ability to retain the money they raise in business rates, councils will have a more direct stake in the future of their own economies and access to funding to deliver the services their communities need.

Importantly, businesses should not be subject to locally imposed increases in the burdens of taxation that they do not support. Businesses that contribute financially to their local area can remain confident that the reforms will not lead to an increase in the tax burdens they face, without their support.

Secretary of State for Communities and Local Government Eric Pickles said:

We want every community to be open for business and every community to share in the benefits of economic growth. We intend to radically change the way local business taxes are allocated.

By scaling back central government’s control and redistribution of this local business tax it will give them a genuine financial stake in their economy so local policy makers actively encourage growth and new businesses in their area.

The changes will introduce new incentives for councils to support local firms and create new jobs. It is what councils have been calling for, what government means when it talks about putting communities in control and what is required to grow our local economies.

The Government also remains committed to providing more freedom to local authorities by introducing new borrowing powers against their business rate revenues to carry out Tax Increment Financing. Councils can use that borrowing to fund key infrastructure and other capital projects which will further support local driven economic development and growth.

Following consultation on the White Paper these proposals will be considered as part of the Local Government Resource Review in January 2011. Before proposals can be taken forward the Review will need to consider:

  • how to fund councils where locally raised funding would be insufficient to meet budget requirements and control council tax levels, as well as councils who do not collect business rates, such as upper tier authorities
  • the position of councils whose business rate yield would be significantly higher than current spending
  • how to ensure that proposals retain a genuine incentive effect and reward for promoting growth.

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