Resourcing London - a model for retained business rates

For years, successive governments have grappled with the question of how to improve the way in which local services are funded. Nowhere is this more pressing than in the debate around the collection of business rates. The present system, widely recognised as unwieldy and overly centralised, involves councils collecting the money from businesses in a local authority, passing the money to Whitehall, and then receiving some of the money back in the form of formula grant funding. The system is not only bureaucratic, but also creates no incentives for local authorities to engage with business to drive growth.

A window of opportunity now presents itself to reform the system. Since taking office, the government has expressed a clear desire that councils should not only be financially more self-sufficient and less dependent on central government funding, but that they should engage with business in a more proactive and collaborative way. With the government focused on delivering sustainable economic growth and enterprise, local authorities have an important role to play. In return, the government wants to provide a ‘framework of powerful incentives’ to reward local authorities who regenerate their local economies and support local business.

The Local Government Resource Review (LGRR) provides local government with an important opportunity to consider its long-term funding goals and how it might best benefit from business rate retention.