20 May 2009

Locally Controlled Business Rates - I'm Still Not Keen

One of the reforms recommended by the MPs on the Central and Local Government Committee is to return of Business Rates to local authorities, rather than having it collected and redistributed fairly evenly by central government [1]. The more I think about this idea, the more I’m convinced that, as things stand, it is a bad idea and without major structural changes, it will do little to achieve the goal of decentralising funding from central government to local government.

If we lived in Spencean self-financing parishes [2] and had been in that position for a considerable amount of time, it might work, but we aren't in that situation. We have a huge proportion of our infrastructure financed centrally and the investment tends to get concentrated in a few areas. Having a nationally set Business Rate ensures that those areas which benefit from higher levels of investment pay more back in return when the value of business premises increases as a result.

If we suddenly switched to locally set and retained Business Rates, the areas which have enjoyed the greatest amount of centrally funded investment and currently tend to have higher rates would gain, while the areas which have enjoyed least investment would find their revenues reduced. As a result, I think it would be inevitable that central government would try to rebalance the situation through central grants, which would negate the whole purpose of the change.

There's only one way I can see a move towards locally retained Business Rates being sustainable without ongoing central adjustment:

• Before moving to locally retained Business Rates, regional disparities in infrastructure investment would have to be equalised, by investing more in those areas which have had least investment and/or privatising the operation of infrastructure such as motorways [3] so that the value isn't rolled up into land prices.

• After moving to locally retained Business Rates, all central government funding of infrastructure would have to stop. Any new investment would have to be financed directly by the local authority or, when the infrastructure services more than one area, financed by agreement between two or more local authorities.

1. http://news.bbc.co.uk/1/hi/uk/8058676.stm
2. http://plockett.blogspot.com/2009/03/forgotten-single-taxer.html
3. http://plockett.blogspot.com/2008/10/is-it-time-to-privatise-operation-of.html

1 comment:

Vindico said...

Bang on. I too have had the same thoughts. The principle of pushing taxation and spending to local levels is a nice one, but the transition would cause major pains and gains as the national spending was phased out.