March 3, 2011

FSB concerned over business rates reform

by Jan Harris

The Government has revealed plans to give councils the power to keep more of their business rates, with a view to becoming independent of funding from central government.

The proposals, which are part of the Local Government Resources Review, would see an end to the current system where rates are centrally pooled and redistributed to ensure that poorer councils don’t miss out.

The proposed localisation of business rates has caused concern among business groups, with the Federation of Small Businesses calling for the plan to be dropped.

The group is concerned that allowing councils to set business rates and retain the revenue generated could cause major differences in the cost of doing business in different parts of the country.

It could also lead to councils raising rates to offset funding cuts and, as rates are one of the largest overheads for small businesses, this could potentially cause some businesses to move, weakening local economies.

The government hopes that between a quarter and a third of local authorities will become ‘free councils’ by 2015.

There has been a mixed reception from councils to the plan, with even those councils who stand to profit from the plan expressing concern.

The London Borough of Camden, which would benefit substantially from the proposals, has warned that the plan is ‘a smokescreen for government withdrawing from national social policy around deprivation’.

Barnsley Metropolitan Borough Council, which would lose around £45m, called the proposal ‘absolutely catastrophic’.

Westminster City Council, however, welcomed the move and said it would encourage co-operation between local authorities and businesses and allow councils to be more responsive to local needs.

The Local Government Finance Review should have been launched in January but has been delayed because of disagreements between the Liberal Democrats and Conservatives.

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