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Government reaffirms intention to reform business rates system

Following a six-month review into council finance, Communities Secretary Eric Pickles has reaffirmed the Government’s intention to overhaul the way councils are allocated income from business rates.

Under current arrangements, which have been in place since 1988, business rates charged on most non-domestic premises, including shops, offices, pubs and factories, are calculated and collected by local authorities and put into a central pool before being redistributed through a complex formula to all councils, where they are used to pay for services like the police and fire brigade.

However, the Government is now proposing an overhaul of this ‘formula grant’ system, to allow local councils to keep the business rates they raise. The intention of ‘localising’ business rates is to give councils more incentive to invest resources as they see fit to boost business and create jobs in their areas. In addition, councils will be able to fund major projects by borrowing money against future revenue from business rates.

Mr Pickles told MPs: "No more will proud cities or historic counties be forced to come to the national government with a begging bowl. Councils will have a greater control over the cash, helping them plan for the longer term."

Labour shadow Caroline Flint attacked the proposals on the grounds, saying: : "Cutting funding to areas of the highest need doesn't free councils from central control or empower them, it stops them from doing the things their communities need of them. Yes, we want a funding system that supports jobs and encourages enterprise - but not every area has the same ability to attract investment and new business, not everywhere can be Westminster or the City of London."

Currently, the amount raised via business rates varies widely from £1.8bn in Westminster to just £8.5m in West Somerset. However, Mr Pickles suggested that councils which raised the most could expect to subsidise those which raised the least, through a new system of tariffs and top-ups.

The Local Government Association has broadly welcomed the plans.