Councils incentivised to promote growth

December 19, 2011 5:34 PM

The Department of Communities & Local Government has today published plans for councils to keep a proportion of the revenue they collect in Non-Domestic Rates from businesses in their area. Many people will assume that this tax collected by their local council will be spent by that same council, in fact all the money collected is currently pooled and then reallocated according to “a complicated technical process.”

The aim behind this change is to incentivise councils to promote growth within their area. In order to ensure that everyone starts on a level playing field, there will be an amount of redistribution between councils via levies and tariffs but overall councils will benefit financially when business grows in the area. Unusually this change will not lead to higher taxes as there will be no changes to the valuation of properties or increases to the rates themselves so it will be completely transparent as far as businesses are concerned.

Eric Pickles, Secretary of State for Communities & Local Government says:

“This isn't simply about redistributing the proceeds of growth.  If these reforms lead to every council working as hard as it possibly can to help businesses thrive, then they have the potential to benefit individually and increase growth overall.  It's good news for communities - growth in business rates means more money to invest in local services.  And it's good news for local businesses, who can look forward to an even stronger partnership with councils.”


Our research shows that the average council in the UK is less than 20% self-funded with the rest is distributed from the central government pot. When taxation and spending responsibilities are so clearly separated it is no surprise that turnout is low at local elections and that so much money is wasted. As it stands councillors are able to lay the blame on central government when money is tight and avoid the electoral pain of a tax rise by demanding an increase to their grant from central government.

We would like to see councils fully self-funded in order to reinvigorate local democratic responsibility and for central government funds to be used only where it is impractical for a council to raise its own funding. Unfortunately there seems to be no suggestion that councils be allowed to set the rate of tax locally so there is no prospect of tax competition between councils on the horizon to help reduce the burden on business.

This announcement is an interesting start, it's clearly a localist step but the amount of money raised in Non-Domestic Rates was £19bn last year compared to grants from central government of £138bn over the same period. We need to go much further to even get close to self-funding councils, there are plenty of options including a local sales tax to replace VAT or a local income tax.

If councils are given more power over money they collect, in future they might be given more power over money that is spent locally as well, especially in areas like welfare which is delivered locally but controlled centrally.

Now that councils are able to keep more of the money they collect, in future taxpayers might be allowed to do the same.The Department of Communities & Local Government has today published plans for councils to keep a proportion of the revenue they collect in Non-Domestic Rates from businesses in their area. Many people will assume that this tax collected by their local council will be spent by that same council, in fact all the money collected is currently pooled and then reallocated according to “a complicated technical process.”

The aim behind this change is to incentivise councils to promote growth within their area. In order to ensure that everyone starts on a level playing field, there will be an amount of redistribution between councils via levies and tariffs but overall councils will benefit financially when business grows in the area. Unusually this change will not lead to higher taxes as there will be no changes to the valuation of properties or increases to the rates themselves so it will be completely transparent as far as businesses are concerned.

Eric Pickles, Secretary of State for Communities & Local Government says:

“This isn't simply about redistributing the proceeds of growth.  If these reforms lead to every council working as hard as it possibly can to help businesses thrive, then they have the potential to benefit individually and increase growth overall.  It's good news for communities - growth in business rates means more money to invest in local services.  And it's good news for local businesses, who can look forward to an even stronger partnership with councils.”


Our research shows that the average council in the UK is less than 20% self-funded with the rest is distributed from the central government pot. When taxation and spending responsibilities are so clearly separated it is no surprise that turnout is low at local elections and that so much money is wasted. As it stands councillors are able to lay the blame on central government when money is tight and avoid the electoral pain of a tax rise by demanding an increase to their grant from central government.

We would like to see councils fully self-funded in order to reinvigorate local democratic responsibility and for central government funds to be used only where it is impractical for a council to raise its own funding. Unfortunately there seems to be no suggestion that councils be allowed to set the rate of tax locally so there is no prospect of tax competition between councils on the horizon to help reduce the burden on business.

This announcement is an interesting start, it's clearly a localist step but the amount of money raised in Non-Domestic Rates was £19bn last year compared to grants from central government of £138bn over the same period. We need to go much further to even get close to self-funding councils, there are plenty of options including a local sales tax to replace VAT or a local income tax.

If councils are given more power over money they collect, in future they might be given more power over money that is spent locally as well, especially in areas like welfare which is delivered locally but controlled centrally.

Now that councils are able to keep more of the money they collect, in future taxpayers might be allowed to do the same.

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