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Business rates retention: local companies’ case for reform

Category : Business

The local government finance bill returns to the Lords, but we must stimulate links between councils and small businesses

Today sees the local government finance bill receive its second reading in the House of Lords. It is fair to say that this will not seem of huge significance to most businesses, many of whom will understandably see more pressing concerns during these tough economic times.

However, the bill is important as it seeks to introduce a completely new system of business rates retention, whereby local authorities will be able to keep a proportion of business rates growth in their area.

The coalition government argues that this reform will provide councils with a “strong financial incentive to promote local economic growth”. Implicit in that statement is that councils could be doing more.

Although there are many excellent examples of councils and businesses working together to stimulate growth, London Chamber of Commerce and Industry (LCCI) believes that an even better and more productive relationship could be achieved if the right conditions are put in place.

The key question is whether the bill will create these conditions. In our report released today, Driving local growth: the business case (pdf), we conclude that the bill does not go far enough to create the right financial incentives for councils to fully engage with their local business base.

The government’s decision to exclude rateable value increases from the business rates retention scheme means that councils only stand to benefit under the new system if they permit new forms of physical growth in their area.

This is a missed opportunity, because it means that the majority of businesses, who do not have the ability to grow physically, will not see a change in relationship with their local council.

In order to incentivise councils to engage with, and deliver for their entire business base, the government should reconsider its decision to exclude all rateable value increases from the business rates retention scheme.

We surveyed firms on what they would like to see their council prioritise and the top three answers were investing in local infrastructure, improving community safety and maintaining the built environment. All three of these have the potential to raise rateable values in an area.

Where councils can prove that such investment has led to an increase in rateable values, they should be allowed to keep a proportion of the resulting increase in business rates.

We know that businesses support the principle of business rates retention and are willing to pay more in rates in return for investment in their local area, as the success of business improvement districts show.

What the business community is looking for is a financial link between local councils and firms that is so strong, it will force a relentless focus from the former on local economic development. As things currently stand, that financial link does not exist, a point we will be making as the local government finance bill completes its passage through the House of Lords.

Colin Stanbridge who is chief executive of the London Chamber of Commerce and Industry

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