From the Blue-Yellow Corner: Councils in England will be allowed to keep the business rates they collect rather than paying them into Treasury coffers, under new government plans.
Deputy PM Nick Clegg said councils had no financial incentive to boost growth and prosperity in their areas. But he said changes would be "fair" and poorer areas would not get less money than they do under the current system. Business rates are charged on most non-domestic premises, including warehouses shops, offices, pubs and factories.
This is a very good idea, as I explained when The Morbidly Obese one suggested it back in March (it was of course in the UKIP manifesto as well, and I should know because I wrote those bits).
From the Red Corner: Caroline Flint MP, Labour's Shadow Secretary of State for Communities and Local Government, responding to Nick Clegg's speech at the LGA Conference, said:
"Nick Clegg must explain how he intends to localise business rates without pulling the rug from beneath the finances of councils in Britain's most deprived areas. If business rates were completely localised, Westminster Council would gain over a billion pounds*, the City of London would gain half a billion, but many other areas would lose hundreds of millions in vital funding."
That's the easy bit.
Remember that local councils get (say) 75% of their funding from Whitehall and 25% from Council Tax, so keeping it 'fair' is quite simple; on Day One of the transition, each council's central grant is reduced by the amount of Business Rates it could or should be collecting and in future years, the grant is kept constant and it's up to the council to collect as much in Business Rates as possible (any further 'equalisation' makes a mockery of the whole thing, of course).
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So far so good.
What former Housing Minister Ms Flint overlooks is that her successor-but-one, John Healy applied the same good logic to social housing receipts (please read my crash course for an overview of the topic) as the current lot apply to Business Rates, and proposed that instead of councils collecting rents and handing over the proceeds to Whitehall, only for Whitehall to hand it back to pay for the running costs, he would simply allow councils to keep their own rents and pay their own running costs.
So we could do the same exercise with social rents - deduct the amount which councils could or should be collecting in rents and deduct the notional running costs to arrive at a net figure**, which they also knock off each council's current grant and then it's up to each council to maximise rental income/minimise running costs.
As it happens, Council Tax, total (potential) rental income from council housing and Business Rates are of the same order of magnitude - about £25 billion a year each, which would mean that local councils are about 75% self-funded - and all out of taxes and rents on or from land and buildings. If we then doubled Council Tax we could reduce the central grants to more or less nothing and we'd be half way there.
* City of Westminster is a special case, its annual expenditure appears to be about £1 billion a year anyway, in other words to keep things even on day one, if it were allowed to keep all Business Rates receipts (£1.1 billion, as it happens) its theoretical central grant would be negative, so in future it would then have to hand over a net figure to Whitehall, or even better to Transport for London.
** Whether you count 'Housing Benefit' as a reduction in income or as an expense is a separate topic (at present, it's an expense to one government department the DWP and income for another branch of government, local councils), but as far as I am concerned, they might as well scrap it completely and leave it up to local councils to charge below-market rents if they so choose but at their own cost.
Put On Your Big Boy Pants, Maybe?
3 hours ago
9 comments:
Sounds OK, but...Local politicos will seek to buy votes by raising business rates and lowering domestic rates. However if local taxes are switched to LVT this would not happen.
L, common sense says that the % rate and valuation method has to be set nationally to avoid exactly that problem, i.e. we just plough on exactly as present, this is largely a book-keeping exercise.
Another way of doing it is to align business rates and council tax - so if councils increase the rate for businesses (who don't have a vote) then they have to increase Council Tax for households as well (who do have a vote).
These basic observations apply to the current system, the logical conclusion is to replace the whole lot with LVT at same rate for business or residential, but I would say that, wouldn't I?
I don't think the coalition is proposing to allow councils to vary the business rate, but even if it did surely competition would keep levels from varying too much?
I remain unpersuaded about LVT but the general concept of allowing councils to keep business rates is attractive.
The problem I have with it is that we need to ask what councils will do with the money.
The power-base in large local authorities is not the councillors, it is a highly-paid bureaucracy comprising a small coterie of paid Counsellors (usually called a "cabinet") and a team of full-time bureaucrats.
While that remains the structure the amount of money raised is an irrelevance, it will be diverted towards bureaucrats' wet dreams - the wettest of which is an ever expanding bureaucracy.
BE, I hope they aren't allowing it.
TFB, councils will probably do the same with the extra BR they get as they would have done with that part of the central grants which they now do not get.
Councils' budgets will neither increase nor decrease as an immediate result of this.
And if the Tories had their way, council budgets would be reduced - that is a completely different topic, surely you can see that?
The basic principle is that taxation should be raised by authorities as closel accountable to the taxpayers as possible. In that case probably 80% of taxes are local taxes. The other 20% being defence, basic law and order and some modest infrastructure.
Does anyone seriouly think that the blue or red authoritarians will voluntarily move to that system?
Thereby streamlining the whole administrative process, costing money and putting taxpayer funded admins into more productive areas.
L, 80/20 seems about right. Only a small bit of expenditure is truly 'national' (defence, immigration etc) and the rest is, by subtraction, local.
JH, don't you mean "saving money"? The council could do even better by haggling a letting fee of 5% of gross rents collected or something and handing the keys over to local letting agents. They normally charge 10%-plus, but I'm sure there are bulk discounts, esp. if the tenants are very long term.
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