How Labour can help councils be self sufficient

By Sarah Hayward / @sarah_hayward

Camden is an outlier for Labour authorities on its business rates. In fact Camden is just an outlier on business rates. We’re the third highest grossing authority in the country. Westminster (Tory) is top and by quite some distance, collecting – at the moment on behalf of Government – about £1bn per year in business rates alone. If they (or we) were allowed to keep it all, we may well be able to UDI from the Kingdom and start issuing our own passports. I exaggerate, but you get the point.

The things that Westminster and Camden have in common are: proximity to Parliament, proximity to the city. We’re both very well connected to airports and the rest of the country by our mainline stations. In Camden’s case we’re two hours from Paris and Brussels and soon to just an hour or two more form Berlin by train. I guess what I’m saying is, there’s an element of our business success that is nothing more than an accident of geography. But success breeds success, wanting to be near the action is as much as business trait as it is a human one. And well with the King’s Cross railway lands development it’s likely our business rate income will grow in the medium term. Westminster also have some big regeneration sites and are, in general terms less concerned with the trivialities like, I dunno, say social housing than we are. So are likely to have business rate growth too – regardless of the national framework for collection and redistribution.

Last week, the government released (some of) its proposals for retaining a portion of the business rates earlier this week. You might have missed it. I have to say, it goes a little further than I thought. Some of me and the comrades thought the government had spoken before thinking and when they looked at the figures would gulp and park the idea at the back of a dusty shelf.

The science bit is, that under the new proposals, they’ll pick an artificial baseline funding point – possibly next financial year. You’ll get this in the first year of the new regime, and then any additional business rate revenue you generate you get to keep and if your business rate revenue falls you’ll take the hit and have to make cuts. To a point, at which point a safety net will kick in so your cash for services can’t go below a certain baseline. Additionally if us fancy pants councils in Central London make just too much money, there may be a regional levy system to fund the safety net and possibly an additional, redistributive levelling off. And of course every so often the government might ‘reset’ the baseline to stop disproportionate growth getting out of line. Central London won’t just be set free to gallop ahead.

None of the detail of how this will operate has been released yet and will be the subject of nine (yes, indeedy, nine) technical papers to be pumped out over the summer. Without knowing this detail it’s simply impossible to tell who will be the overall winners and losers but it does raise some interesting issues. Not least, that currently it smells rather like the current system, but replaces national redistribution with regional redistribution. Did the Tories and Lib Dems look at the figures and shy away from wholesale change?

There are some things we do know now. Some councils are never going to be able to significantly increase their business base. Some areas of the country are simply too remote, or too poorly served to be able to attract significant extra business. They are stymied from the outset, and if the government, national government doesn’t invest in infrastructure this won’t change.

Some councils are heavily reliant on certain industries for their business rate income. If one sector falls on hard times this will disproportionately impact some councils. But the most significant challenge for Government will surely come where their decisions impact local business rate collection. Give Thameslink coaches to a German firm, Derby suffers. Under this new system of business rate retention will the government compensate the local authority for their decision – or will they have to absorb the cut?

We’ll know more when the government releases the technical documents, but the system of top ups and tariffs could result in very little change from the current centralised collection and redistribution. If it does result in change it’s possible (although by no means given) that places like Camden and Westminster could be laughing all the way to the bank while other authorities struggle to make ends meet and have to slash services further. Today’s growth figures don’t exactly inspire confidence either. Encouraging businesses to invest in new areas of the country is going to be very difficult so long as the economy overall is bobbling along the bottom.

The government hasn’t freed local authorities on business rates, and depending on the technical papers, the new system could end up looking rather like the current one. But for Labour there’s an opportunity. We have one of the most centralised systems of funding local government in the developed world. Business rates are but one source of income for local councils. The government wouldn’t have had to waste time thinking up a complex system of tariffs, and tops if they’d looked more imaginatively at how local councils might have more financial independence. Based on a range of different income streams that themselves could have a levelling off effect.

Labour should use the summer, and technical papers to look at ways that councils could be much more self sufficient, and have some genuine autonomy over the services they provide. This should include all current sources of income and looking at how councils could be freed up to generate new sources of funds.

Labour nationally professes to support a version of localism, but without more financial autonomy for local government, it’s an illusion. Labour could be innovative and steal a march on the coalition at the same time.