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Politics & Law Series: Expert Comment

Decentralisation and council business rates: More of the same from Whitehall?

Dr John Stanton, Senior Lecturer in Law at The City Law School, looks at concerns around giving councils the potential to earn greater amounts of revenue, as recently announced by George Osborne, Chancellor of the Exchequer.
by John Stevenson (Senior Communications Officer)

By Dr John Stanton

Dr John StantonGeorge Osborne’s announcement on the 6th October to the effect that councils will, from 2020, be able to keep business rates raised in local areas appears, at first glance, to offer two things. First, the potential for councils to derive greater funds from local sources; and second, greater local authority control over the sustainability and development of a local area. It has been welcomed in some quarters as effecting a meaningful decentralisation of power. There are concerns, though, and more work is perhaps needed to ensure that the objectives sought are achieved appropriately. Historically, in the UK, just 25% of councils’ funds have come from local revenue; the rest has come from the centre. This reflects broader issues relating to centralised control, not for discussion here, but when it is noted that other European states such as Denmark or Sweden rely on as little as 15% of central money, the extent to which UK local government has been controlled and restrained by Whitehall becomes clear (see: M Ryan, ‘Central-local government relations and the UK constitution’ (2009) 14(1) Coventry Law Journal 20). 

The opportunity now to keep all of the monies paid as part of this business rate – potentially up to £26 billion across the country – means that councils will, in theory, have greater income. As Osborne has said, ‘[u]nder the new plan "attract a business, and you attract more money; regenerate a high street, and you'll reap the benefits; grow your area, and you'll grow your revenue too”.

‘Survival of the fittest’

This leads us to our second point. At the heart of local sustainability (see: Democratic Sustainability in a New Era of Localism) is a commitment to the promotion of local economies. By ostensibly affording councils the opportunity to reap the rewards of business performance in their area, it means that there is potentially so much more that they can now do – and an added incentive – to attract businesses, to develop local spaces and to look after local communities. Indeed, and more broadly, the freedom that this potentially gives councils means that they can exercise greater autonomy in local areas and sever some of the unwanted and unnecessary ties with the centre.

There are, inevitably, some concerns though.

The policy seems to promote the ‘survival of the fittest’. Whereas in the past, monies taken from local business rates was paid to the centre and redistributed across local councils countrywide, this new policy could have the effect of isolating those areas with few businesses or lacking thriving local economies. Meanwhile those communities with booming businesses will reap financial reward as a consequence. Local freedom and autonomy is to be welcomed, but greater care needs to be taken to protect councils in poorer areas and with fewer businesses. There is a balance to be struck: Councils have had the lion’s share of financial restriction in recent years, what with the government’s measures aimed at tackling austerity; whilst this new policy might promote local ownership and protection of businesses, it does run the risk of telling councils to ‘sink or swim’.

Northern Powerhouse

A heap of British pound coinsIndeed, following on from this, there is also a sense that the reduction in business rates is an ‘add on’ to the Northern Powerhouse policy. Announced by George Osborne back in May, realisation of the Northern Powerhouse could see councils coming together across England to form ‘combined authorities’, overseen by a directly-elected mayor, and consequentially fashioned with an apparent increase in authority. Aside from the fact that the cities currently forming these “Powerhouses” (so far Manchester and Sheffield) are generally areas rife with business activity; that councils adopting a directly-elected mayor will be given the power to raise business rates by 2% (councils not adopting the model will only be given the power to lower business rates) suggests that the government is seeking to incentivise the adoption of the new model. More decentralisation and local empowerment on centralised terms, perhaps?

The policy in one sense, then, is to be welcomed. Decentralisation is a valuable enterprise and is crucial to the pursuit of localism in the UK. Giving local councils the potential for greater revenue and encouraging (and empowering) them to do more for local businesses and economies is, in one manner, positive. The prevalence of the ‘one size fits all’ approach, however, is still evident and suggestive of a need for more fundamental change if objectives of decentralisation and local empowerment are to be both achievable and sustainable. Such change will take time but will hopefully and ultimately ensure that local authorities enjoy greater freedom, less centralised control, and the power to lead and govern local areas appropriately.

Definition
Regeneration

Regeneration refers to concerted social, economic and physical action to help people in neighbourhoods experiencing multiple deprivation reverse decline and create sustainable communities.

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