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Local councils to retain local business rates under Government proposals


Local councils will be able to retain taxes raised from local businesses under plans announced by the Government.

A new consultation contains proposals which will allow councils to retain business rates raised in the local area rather than returning any income to Government for central redistribution. It also proposes to make it easier for local councils to 'borrow' against future income from those business rates in the form of tax increment financing.

The new system will be "fair and benefit those who grow financially," Local Government Secretary Eric Pickles said.

Councils currently receive more than half of their income in the form of a grant from central government, according to government figures. Councils collect around £19bn in the form of business rates every year.

Business rates are currently collected by local councils from the occupiers of non-domestic properties such as shops, offices and warehouses, and paid into a central government pool. Funds are then redistributed according to local need in the form of a grant.

The Government is proposing to rebalance resources from the beginning of the new scheme. This will involve the establishment of a funding baseline with certain councils paying a 'tariff' to government and others receiving a 'top up'.

The baseline amount in the first year of the new scheme could be based on the amount of the grant that is paid to each council the previous year, the consultation suggests. Those councils whose business rate income is higher than the baseline figure will pay the difference back to government in the form of a tariff. Those whose business rates are less than the baseline figure will receive a top up grant.

These tariffs and top ups will remain fixed in following years, with possible adjustments for inflation, so that an increasing proportion of business rate growth in an area would be retained by that local council.

The Government would also create a levy to recoup a share of any disproportionate financial gain made by local councils, varying according to individual circumstances, the consultation says.

A system of tax incremental finance would also be introduced, allowing local authorities to borrow against future income from business rates to develop new local infrastructure projects.

The consultation runs until 24 October 2011. The Government hopes that the new rules will take effect in April 2013.

"Central redistribution weakened local authorities, gave councils no reason to promote business growth and meant local funding was dictated by bureaucratic formula not local need," said Pickles.

"Our proposals to repatriate business rate income are balanced, fair and equitable creating self-sufficiency, the right incentives for all areas to grow and protecting the most vulnerable places. This is what councils want and precisely what we mean by localism," he said.

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