Under new government plans councils in England can keep the business rates collected instead of having to pay them into the Treasury offices. Nick Clegg, Deputy PM said councils in their own areas had no financial incentive to increase prosperity and growth. He said that changes were to be fair and poorer areas would not receive less money than they do now in the current system. On most non-domestic premises business rates are charged including shops, warehouses, pubs, offices and factories.
Local authorities calculate them and collect them and presently they are placed in a central pool before redistribution to all councils as a grant. These grants are in turn used to help fund local services like the fire brigade and police. The governments’ idea is to make councils less dependent on funding from Whitehall which received a cut in the spending review of last year.
In a LGA conference in Birmingham Mr. Clegg said the system of taxes was too over centralized, with only 5% of tax revenue being raised locally. The localization of retention of business rates will be done. He believes most will agree that centralizing the rates in 1988 was a mistake, setting back meaningful localism by over a generation.
You are given a new incentive to work together with business and other institutions when retention of business rates is localized, in order to increase the economic prosperity in your specific area. He said that currently less than 50% of the income of councils is generated locally by them, but if they had to power to retain the business rates they could generate over 80% of their own monies.