Business rate devolution: a race to the bottom for local authorities?
They say you should never look a gift horse in the mouth, but following the Chancellor’s surprise announcement that by 2020 councils will be able to keep some £26bn of business rates, many of us in local government have taken a sudden interest in equine dentistry.
As with so many things relating to local authority finances, the devil will be in the detail and that we’ve yet to see. Of course it makes sense for local authorities to keep the money we raise to spend on what’s needed locally rather than acting as Whitehall’s tax collector. We’ve long campaigned for greater devolution, allowing us to take responsibility for the boroughs we run and providing the funds to do it.
Evidence shows that local initiatives to support people into work like the partnership we have with Lewisham and Southwark are far more successful than the national ‘one size fits all’ approach. Similarly, the Vauxhall Nine Elms partnership has seen Wandsworth and Lambeth working side by side to shape the vast regeneration of that area for the benefit of both boroughs and London generally.
We know that success invariably brings in funding, whether that’s for restoring Brixton’s historic markets or continuing the vital work we do in supporting troubled families. I take great pride in the results of healthy partnerships with business, developers and investors with whom we work to the benefit of all our residents.
Ambition is vital, but the challenge is to help people realise that ambition is creating opportunities for everyone along the way. That’s why our business community is so important.
In Lambeth, we raise around £130m in business rates each year and have a collection rate of 98.5%. Of that we get to keep 30% (£39m), with the GLA taking 20% and central government 50%. That extra £90m would certainly go some way to sweetening the 50% cut to our core funding which means that between 2010 and 2018 we will have had to find £200m of savings.
So, if we get to keep the money, what’s not to like? For one thing, there are more cuts coming, which we believe will be deeper and harsher than ever.
To a certain extent, Lambeth has been cushioned because of the growth and investment in the borough. Without that inward investment that brings new homes, jobs and business opportunities, as well as S106 and CIL funds, there is no doubt that the impact of the cuts would have been far, far worse. So what about boroughs that haven’t been so fortunate as Lambeth? How will they fare, struggling to provide essential services and attract businesses in order to raise fund for those services?
The government needs to be absolutely clear about how this decentralising process will work, and how those authorities who currently have a net reliance on central funding will be supported. We need to know exactly which services - such as community safety, public health and adult social care - we will be expected to fund from business rates.
In Lambeth, we work hard to support and encourage business – from the hugely successful Pop Brixton and Impact Hub ‘meanwhile’ space for start ups, to the big players like Shell and St James. We have more Business Improvement Districts than many boroughs, which are integral to making sure redevelopment and regeneration in areas like Vauxhall and Waterloo benefits everyone.
Lambeth is a hugely aspirational, creative and ambitious borough and that in part is due to the wide mix of businesses. We encourage business because we know it’s good for the borough, good for the local economy and good for the future. We also know, however, that success is a double edged sword which often brings insecurity, rising house prices and business rents that push out local people. London cannot afford to see what’s happened to housing happen to businesses.
My fear is that if we are solely dependent on business rates to fund essential services, there will be a constant churn of businesses looking for the best deal. Businesses need to be able to plan ahead just as we do, and uncertainty over their outgoings will inevitably have an impact on their growth and future strategy. In turn this affects property values, job prospects and investment decisions.
When he announced the move at the Tory conference, George Osborne said: “Any local area will be able to cut business rates as much as they like to win new jobs and generate wealth, it’s up to them to judge whether they can afford it. It’s called having power and taking responsibility.”
We are well aware of our responsibilities – 21,000 people on the housing list in Lambeth, an increasing demand for adult social care, a growing population that will place even more pressure on schools, health and transport to name but a few.
What we don’t need is a race to the bottom that will see some boroughs pimping out business space to try and keep afloat. That’s not good for business nor local people, and it will mean a hand to mouth existence for town halls in the very areas where investment in intervention is a sensible long term strategy for many complex problems.
So, a cautious welcome for sure but we need to see the details before we can truly celebrate.
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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