London could be able to invest more money in its local public services and vital infrastructure following the announcement by the Chancellor of the Exchequer in today’s Budget that will see London local government, the Mayor and the boroughs, retain more of the money the capital’s businesses pay in business rates.
Today’s announcement means that London will be able to retain any additional business rate income that is generated next year in the capital - excluding revaluation related growth. This growth is forecast to be in the region of £240 million in 2018/19.
Last Spring the Government published a devolution deal for London that challenged the 32 boroughs, the City of London and the Mayor, to agree between themselves a scheme for the distribution of additional business rates. In October London Councils - which represents the 32 boroughs and the City of London - and the Mayor agreed a scheme to distribute the additional income from business rates from next April.
The Chancellor’s announcement marks an important step towards bringing London in line with most other global cities by allowing the capital's local government control over a much wider range of taxes, in exchange for lower levels of government grant. At present New York local government has control over around 50 per cent of locally raised taxes, but in London the figure is around 7 per cent.
While welcoming today’s announcement, the Mayor and the boroughs will continue to lobby Government for a fairer business rates system, following last April's revaluation. That revaluation meant that some businesses were hit with rates increases of as much as 45 per cent, with London businesses facing a collective business rate rise of up to £1.2bn, which will fund an equivalent tax cut for businesses in the rest of the country.
Cllr Claire Kober OBE, Chair of London Councils, said:
"This is an essential step towards more sustainable funding of the local services upon which Londoners and London’s businesses depend. It will enable further investment in vital infrastructure to support economic growth and create more jobs across London.
"Agreeing a business rates scheme for London, between the Mayor and all of the boroughs, has been key to the Treasury agreeing that London can keep more business rates revenue and shows our collective ambition to better serve London's residents and businesses by gaining more control over our city's finances."
The Mayor of London, Sadiq Khan said:
"Today's announcement on business rates is welcome news for London as it means we will now have more control to spend more money on the things that matter most to Londoners, including infrastructure investment and support for businesses.
"This is an important step in devolving more control over the use of the capital's tax revenues to London government. It also highlights what London’s boroughs and the Mayor can achieve working together for the benefit of the entire city.
“What we really need is for Government to agree to full devolution of business rates to London, combined with genuine protection for business, so we can act in the interests of Londoners and their businesses."
Notes to Editors:
1. London Councils represents London’s 32 boroughs and the City of London.
2. The total sum collected in business rates in London is expected to be around £8 billion following last April's revaluation. Under the current scheme, London's 33 local authorities and the Greater London Authority would retain £4.3 billion, with the remainder paid back to the Government (in central share and tariff). Under the pilot, £5.1 billion (64% of the business rates collected) will be retained and London will continue to pay around £2.8 billion to fund local services elsewhere in England.
3. London will keep all of the growth in business rates in the capital and will not pay a levy on growth that tariff areas currently pay. Combined, this could be worth an additional £240 million in 2018/19, compared with the current 50% retention scheme.
4. London has agreed to distribute any additional resources in ways that balance the need to support public services, incentives for promoting growth and investment to help drive future growth. All 32 boroughs, the City of London Corporation and the GLA have agreed to establish a pilot pool to enable this distribution for 2018/19.
5. The Business Rates revaluation of 2017 was the first time Britain's property had been revalued since 2010. The revaluation was designed to spread the burden of business rates according to economic prosperity. The revaluation had a disproportionate impact on London due to large property price increases in the capital. The Mayor has warned that some businesses in London could be forced to close down as a result of their rates increase.