Announcing the “biggest transfer of power to local government in living memory”, Osborne said that councils would be able to retain 100 per cent of local taxes by 2020. The reform will also mean local government retaining all revenue from business rates for the first time since 1990.
Osborne said: “It’s time to face the facts. The way this country is run is broken. People feel remote from decisions that affect them. Our cities are held back and there’s no incentive to promote local enterprise. It’s time we fixed it.
“So this is what our plan means. Attract a business, and you attract money. Regenerate a high street, and you’ll reap the benefits. Grow your area, and you’ll grow your revenue too. Money raised locally, spent locally. Every council able to cut business taxes. This new way in governing our country requires handing power to the people. Let the devolution revolution begin.”
The uniform business rate set in Whitehall will be scrapped. Local areas which successfully promote growth and attract businesses will keep all of the benefit from increased business rate revenues. At the same time, the core grant from Whitehall will be phased out, and local government will take on new responsibilities.
Clive Stevens, executive chairman of Kreston Reeves, said there had been a similar trend in the US, with some large cities having considerable autonomy.
Reeves said: “Osborne’s plans to let local authorities in England retain 100 per cent of the money raised from business rates really is one of the biggest transfers of financial power to local communities. All £26bn raised by business rates will be kept by local councils rather than transferred to Whitehall. Currently only 50 per cent is retained locally.
“Many will hope this leads to reduced costs given the pressure of local accountability. Perhaps this can be seen as the first stage to devolution for England?”
Similarly, Simon Walker, director general of the Institute of Directors, claimed that businesses are excited about the prospects for devolution, and the promise to devolve business rates will give local authorities a greater stake in the success of the local economy. Businesses have been clear that they want enterprise to be put at the heart of the devolution agenda, he said, and “Osborne appears to be doing just that”.
However, Melanie Roocroft, director in Cushman & Wakefield’s rating team, claimed that greater clarity was needed to understand the consequences of the reform.
“What happens about equalisation?” she said. “Will there still be some redistribution of rates revenues from urban councils with many high street businesses and high property values – especially in London – to councils without the tax base to pay for the current level of services provided? Clearly, that will need addressing to avoid many councils losing out substantially.
“Will council members be able to set their own multiplier or uniform business rate? Will there be central controls to limit variations of multiplier between councils or increases each year? Some form of business rates control may need to be introduced to ensure local authorities do not use punitive business rates in order to keep their council taxes low.”
Osborne also confirmed in his speech the setting up of a new independent body, led by former Labour cabinet minister Lord Adonis, to “shake Britain out of its inertia” and help push forward major long-term building projects such as roads, railways, airports and power stations.
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