Secretary of State for Communities and Local Government, Eric Pickles has today confirmed Government plans to introduce a new income retention scheme for local authorities which promote business growth in their areas from April 2013.

As it stands income from national non-domestic rates is collected by local authorities and handed over to central Government. Central government then redistributes the income according to a ‘formula grant’ which effectively redistributes the income from wealthier areas to ensure core services can be afforded in less wealthy areas.

Reforms will not include any powers for local councils to set business rates, these will continue to be set by central Government according to the ratings provide by the Valuation Office Agency.

These new proposals will allow for any increase in business rates revenue over agreed baselines to be retained and reinvested locally. The aim is to provide a direct financial incentive for every local authority to work with local businesses to secure growth.

The scheme as proposed today sets out the following parameters:

A ‘baseline’ position will be established whereby

Areas collecting a high amount of rates income will be charged a ‘tariff’ that they will have to return to central Government

Areas not collecting enough rates to support their needs will receive a ‘top up’ from the redistribution

Once the baseline is established the tariffs will be fixed and businesses that experience growth in business rate revenue will be able to retain it

Councils with a disproportionately large business rates revenue base will be required to pay a ‘levy’ on any growth in business rates, that will be returned to central government that will be used as a safety net for areas that experience dramatic decline in business rate revenue

Government will reset the ‘baseline’ once the revenue collected and cost of services are too far out of kilter, the ambition that this will be no sooner than ten years

ACS Chief Executive James Lowman said: “We believe that this scheme as set out in outline today has the potential to significantly improve the relationship between councils and business and lead to better decisions that support the local economy.

“However we are concerned by the continued emphasis of Government on the role of planning in achieving business growth. The likely impact on income to the local authority from business rates must never be a determining factor in whether a development does or does not get planning permission.

“We will continue to argue for the express separation of planning decisions from financial considerations related to future rates income.”

“We welcome the fact that the retention does not include any form of localisation of the setting of rates. We believe that such a move would lead to significant inconsistency in rate bills from one area to another and in most cases significant increases in rate bills.”

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