City of London

Osborne's business rate reform: deepening the north/south divide

By: David Walsh, Deputy Leader, Redcar and Cleveland Borough Council
Published: Thursday, October 15, 2015 - 17:04 GMT Jump to Comments

Love him or hate him, there can be no doubt of the ability of George Osborne to deliver a shock to the system at a time that you least expect it.

For most of us listening to the last budget, all the leaked and pre-announced policy boxes had been ticked - and then came the announcement on the new national minimum living wage. Ditto, his appearance at the Tory Party conference.

He could have wallowed happily in the adulation following the last budget and his role in May's election victory - but then, for local government, came the shock of plans to return business rates to local control. This burnished his "localist" credentials one stage further. A review of policy that affects everyone from the biggest cities down to the smallest and remotest rural districts is something else.

As a Labour Councillor for many more years than I really want to admit to, like a pig looking for truffles I go to ground to see where the gremlins lie. First up, I find, is that the announcement seemed to be as unexpected for DCLG civil servants as it was for me. 

I am told that the Chancellor's habit is to announce a big vision, and then leave the grubby work of policy-based evidence-making to the people working in the back offices. So is this real localism, or are there a lot of nasties waiting to emerge blinking into the daylight?

There is no doubt that many welcomed the announcement. The Centre for Cities were in bliss, saying that: "In London, for example, which is the only UK city which currently has this power, supplementary business rates have been agreed with business and used to fund important projects like Crossrail, which illustrates how significant this announcement could be for other cities."

“The Chancellor has indicated that only city-regions with mayors will be given this power," they continued, "but we would also like to see it extended to fast-growing places like Cambridge and Milton Keynes – places which are booming economically, but which face major infrastructure challenges if they are to sustain that growth in future."

So bully for areas experiencing growth - whether in Silicon Fen or on the distribution gateways of the M! But this isn't a country where growth is equal. For every Cambridge there is a Copeland, for every Milton Keynes, a Middlesbrough. 

Unfettered business rate freedom will not exist - otherwise a march past of English Councils will be headed by mile high giants like Westminster and the City of London, followed by smaller giants like Manchester and Birmingham, and then a whole army of rapidly shrinking manikins until we come to the infinitesimally small, rural and depopulated farming and tourist districts. 

So floors and ceilings will continue, and the arcane system of tariffs and top ups will still leave a residual underpinning of equalisation. But there are dangers here too. The existing level of transfers will be frozen, slowly reducing the value of those transfers. This will lead to an inevitable scenario; councils that experience economic growth will become wealthier as they retain more of their additional revenue.   

Given the distribution of growth in the economy, it will be clear to all where that incremental town hall affluence will be. The south will gain at the expense of the north, and it will be the areas of urban and business agglomeration who will gain at the expense of small rural shires in unfashionable parts of the nation.

There is also the worry of how councils, who suddenly get hit by economic shock, will be protected. I write here as a councillor in a Borough that overnight has lost a large chunk of assumed, stable, business rate income in the shape of a giant steel works suddenly stilled forever. CIPFA have already picked up this ever-present danger in their sights, saying that any new system must retain (and indeed enhance) the existing safety nets in place.

I suspect that, for the Chancellor, these are mere technicalities. As the undeclared son of Michael Heseltine, he can only revel in what he sees as the power to liberate what he thinks will be unelaborated growth.

Michael Heseltine, despite his flair and zeal, was coming from the mindset of someone living in the last days of an autonomous nation state economy. Today's world, where these boundaries no longer apply, have more power to generate wealth than the nation state could ever do.  

It can also bring immiseration. We know that only too well in Redcar.

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Information Daily, its parent company or any associated businesses.

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