by Michael Dugher
It’s fair to say that local government finance is not something that sets hearts racing. The complexity – or incomprehensibility – of the subject turns off even the most ardent policy wonk. In fact, some of you reading this article are already thinking about abandoning doing so, with a view to logging on later when hopefully Dan Hodges has written something more interesting. So when Eric Pickles made a statement in Parliament about local government business rate retention during the height of the phone-hacking frenzy, it was not surprising that the majority of the media gave it little attention. However, despite the lack of interest, these proposed changes that have slipped under the radar are extremely important and could be the government’s most damaging reforms to date.
At the moment, local businesses pay rates to the council, which are then pooled nationally before being redistributed to less affluent local authorities using a complex formula. This system generated over £19bn last year and is used to pay for crucial public services like the police and fire brigade. The government wants to change this. From 2013, it wants to “re-localise” business rates, meaning that councils will get to keep the money they receive from local businesses within their patch.
The government says this is all about “localism”. Eric Pickles claims that enabling councils to retain what they gather from businesses within their area will incentivise them to foster a more competitive business climate. The idea is that councils will try that much harder because they will be the ones that reap the rewards. Pickles has gone as far as saying that it will empower poorer councils to stop having to use their annual “begging bowl” in Whitehall.
