Councils will be given more powers to retain business rates and use tax increment financing to fund local infrastructure, it was announced today.
The government has set out proposals to devolve greater financial powers and freedoms to councils, allowing them to keep a greater proportion of the taxes raised locally and giving those that can grow their economy a “direct boost to their coffers”.
Last year, councils passed £19 billion in business rates to the government, which redistributed it back out through a grant.
The government said in the past, local authorities have not been able to undertake TIF schemes - where local authorities can borrow against future growth in business rates to finance infrastructure development such as roads and transport projects - because they have not been able to retain business rates and therefore could not leverage monies against any predicted increases in these rates.
The proposals are part of the government’s response to the Local Government Resource Review on business rate retention, and will be introduced under the Local Government Finance Bill, which will come into force from April 2013.
Eric Pickles, secretary of state for communities and local government, said: “The response puts forward a strong scheme that I believe will provide a strong financial incentive for local authorities to grow their local economies with the necessary safeguards to ensure authorities with high need and low tax bases are still able to meet the needs of their areas.”
The report says: “We know that local authorities are keen to grow their local economies. We know that they can have a big influence on local economic growth through planning, investment in local infrastructure and through building strong relationships with their local businesses. We have a real desire to make sure that local authorities see a clear financial benefit from doing so.”
The bill will enable authorities to undertake TIF within the existing prudential borrowing rules. And it will allow a limited number of TIF projects to be exempted from any levy and reset for 25 years. Further details will be announced in the new year.
There are also proposed changes to provide more flexibility on the council tax local authorities can charge on empty properties.
It follows announcements on other new financial measures, including over £430 million of funding under New Homes Bonus, up to a £1 billion in Community Infrastructure Levy, access to the £2.4 billion Regional Growth Fund and the £500m Growing Places Fund (through Local Enterprise Partnerships).
The reforms being announced today aim to:
· enable councils to directly retain a portion of their business rate growth;
· introduce tax increment financing, giving councils freedom to borrow against future income from business rates to pay for roads and transport projects alongside other local priorities;
· ensure a stable starting point for all authorities. No authority will be worse off as a result of their business rates base at the start of the scheme;
· establish a national baseline alongside a system of top ups and tariffs. Councils with business rates in excess of a set baseline would pay a tariff to government whilst those below would get an individually assessed top up from government, to provide a “level playing field”;
· create a levy to take back a share of growth from those councils that gain disproportionately from the changes. This money would be used to fund a safety net providing financial help to those authorities who experience significant drops in business rates, for example caused by the closure or relocation of a major business.