Concerns have been raised about whether allowing councils to retain 100 per cent of business rates income will meet its goals of promoting self-sufficiency and supporting economic growth.
The Department for Communities and Local Government (DCLG) has made progress in designing the scheme for 100 per cent retention of business rates by local authorities, but the scale of the remaining challenges presents clear risks both to the timely delivery of the initiative and to the achievement of its overall objectives, according to the National Audit Office.
DCLG’s core objectives for the scheme, due to start in 201/20, are to drive local economic growth and to promote financial self-sufficiency for English local government.
Today’s report, however, raises questions as to whether the current planning approach is best configured to deliver a scheme capable of meeting those objectives fully. Furthermore, the report also highlights the substantial challenges still facing DCLG in the context of an increasingly tight timetable and reduced staffing levels in its core delivery team.
The hope is that the moves will incentivise local authorities to grow their tax bases by adopting pro-development planning practices which in turn will support economic growth. But tax base growth does not necessarily mean economic growth; new developments might lead to the relocation of existing economic activities rather than the creation of new ones, for instance.
DCLG needs to understand the link between business rates and economic growth, but the report finds that these issues have not been fully examined. Crucially, the Department has not looked in detail at whether the current scheme, in which authorities retain 50 per cent of business rates, has promoted pro-growth behaviour.
The report also reflects the context for local councils in which their spending power fell in real terms by 25.2 per cent from 2010/11 to 2015/16 and will fall by a further 5.4 per cent by 2019/20.
Meg Hillier MP, chairman of the Public Accounts Committee, said: “Changes to business rates from the latest revaluations are not only making life difficult for hard-working businesses, but, for many, threaten their future.
“At the same time, the Government is making plans for local authorities to retain 100 per cent of business rates income. But there are real concerns over whether the Government can deliver a reliable scheme on time and how this will affect funding for cash-strapped local authorities which have to balance support for local businesses with collecting the money needed to run public services.”
However, the report does recognise that DCLG has managed a complex project, involving extensive sector engagement, and made good progress.