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Local Government Finance

Volume 545: debated on Thursday 17 May 2012

Today, I am publishing a series of documents which underpin the policy behind the Local Government Finance Bill.

The current flawed system of Government handouts to local authorities encourages a begging bowl mentality, with each council vying to be more deprived than its neighbour. Our reforms will allow councils to stand tall, and reward them for supporting local jobs and local firms. All councils, including the least prosperous areas, will have the opportunity to gain under this system.

Economic analysis by my Department, which I am placing in the Library of the House today, shows that these new laws and reforms deliver an opportunity for a £10 billion boost to the wider economy, generating more business rate revenues for councils.

The Local Government Finance Bill will enable local authorities across England to keep a share of the business rates they collect, giving them a strong financial incentive to promote local economic growth and directly linking a council’s financial revenue to the decisions they take to back local firms and local jobs. The bigger pot will mean there is more money to support frontline services, help pay off the deficit and still protect vulnerable communities.

In addition, the Bill gives local authorities autonomy in helping provide for the most vulnerable in their areas through designing local schemes of support for council tax.

Business rate growth will be shared evenly between central and local government. The “local share” will be retained in full by councils and will be set at 50% for the seven year period. The full “central share” will always be returned in grants to local government.

The Bill will support the success of the 24 confirmed enterprise zones across the country by enabling the uplift in business rates on those sites to be retained locally and invested back into growth projects across the local enterprise partnership area.

In addition councils will get to keep 100% of the business rates from new renewable energy projects. These will not count against the local-central shares. A centrally run safety net will provide support should a council’s income drop below a set baseline, protecting areas which suffer a downturn.

The technical documents being published today cover:

Business rates retention—to strengthen the incentive for councils to support local firms and local jobs.

Statements of intent covering renewable energy; the central and local shares of retained business rates; and the safety net and levy.

A technical paper setting out proposals on pooling arrangements for local authorities.

An analytical paper: “The economic benefits of local business rates retention”.

Localising support for council tax—to strengthen the incentive for councils to help their residents get back into employment.

Statements of intent setting out the detail of policy to be covered in forthcoming regulations on the prescribed requirements for schemes—including those for pensioners and the default scheme; transitional arrangements; council tax base adjustments and risk sharing of financial pressures; and the procedure for making local schemes.

A consultation on the funding of localised support for council tax

These will provide the details local authorities need to bring forward their own proposals for local schemes. I will also shortly be publishing guidance to help local authorities take account of work incentives and the needs of vulnerable people.