The plans, the most signifiant overhaul of local government funding in a generation, will see the axing of the core grant currently received from the Westminster government with councils instead keeping all of the business rates collected in their area.
Local authorities will be able to compete against one another for jobs and growth by reducing the level of business rates they collect, potentially allowing worse off areas to attract major employers and boost their local economy.
Axing the current grant system at the same time as allowing councils to retain local receipts will ensure the new arrangements are fiscally neutral and matches proposals first made by the London Finance Commission set up by Mayor Boris Johnson.
Councils can increase the amounts they have to spend in future years by attracting more businesses to their areas.
In addition directly elected mayors, including Mayor Johnson, will be able to add a “premium” to business rate levels to pay for new infrastructure projects such as the proposed Crossrail 2 rail link.
Darren Johnson, Chair of the London Assembly Devolution Working Group, described the Chancellor’s announcement as “a welcome step” in improving London’s devolution settlement.
However he said “robust scrutiny” of powers to vary tax rates was needed “to ensure this money is spent wisely.”
Today’s announcement has also been welcomed by London First, the business group which promotes and lobbies for the capital.
John Dickie, Director of Policy and Strategy, said: “Devolution will give local authorities the incentive to support the investment in infrastructure and the public realm that will generate jobs and growth.”
He addd: “However the devil is in the detail. We need to be sure that councils are able to retain any increased revenues over time. And there need to be proper checks and balances if the Mayor or boroughs are to get tax-varying powers.”
Simon Walker, Director General of the Institute of Directors, commented: “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 their local economy.
“Businesses have been clear that they want enterprise to be put at the heart of the devolution agenda, and the Chancellor appears to be doing just that. More than sixty per cent of IoD members back local politicians being given the power to set business rates.
“We hope this new deal will pave the way for councils to use these new powers to attract businesses and regenerate high-streets. While businesses support devolution, they will not stand for local politicians using it as an excuse to hike taxes. More than half of IoD members were concerned devolution would lead to higher taxes.
“Councils must avoid the temptation to increase rates to raise revenues, and instead compete to attract businesses to the area, which will bring jobs and wealth.”
Mark Littlewood, Director General at the Institute of Economic Affairs, said: “For too long, governments have devolved spending powers without decentralising the power to collect tax. Today’s announcement to devolve business rates and allow councils to collect revenues locally is brilliant news.
“Not only will it create better incentives for councils to encourage local economic growth, it will also instill discipline as their decisions will affect where businesses locate and the wider prosperity of the area.
