The Devil in the Detail: Designing the right incentives for local economic growth

November 11, 2011   By Lily Sommer and Daria Kuznetsova

The Devil in the Detail: Designing the right incentives for local economic growth, a new white paper issued this week by NLGN, presents a timely response to the recent government consultation on business rates reform. While acknowledging the Government must strike a careful balance between equity and efficiency, the report strongly recommends ensuring the system is geared towards a pure focus on business growth, avoiding recreating the complexities of the current grant settlement process.

The report was launched following the coalition’s planned introduction of a package of decentralist policies to designed rebalance local-decision making in favour of economic development. The Local Government Resource Review will allow local authorities to retain increases in business rates generated in their area. This represents a fundamental change in the way local government in England is financed. The report makes recommendations to ensure this business rates retention model achieves goals and reinforces a council’s ability to secure economic growth.

The report is guided by two principles.

  • Firstly, if the government is going to move to a system designed to incentivise business growth, then the system must be geared towards this goal. A change in the system should not become a complex replication of the current grant settlement.

  • Secondly, whilst we believe that a system of redistribution and equalisation is essential, we argue that it must operate outside the business rates retention scheme. We call specifically for a capital fund to be accessible by areas of lower business rates growth.

NLGN believes that the business rate retention proposals represent a unique opportunity for local growth. Through greater control of business rates local authorities will be able to establish better and more sustainable relationships with local businesses as well as design their own plans for growth. Nevertheless, the current proposals clutter a strong incentive for growth with complex redistributional mechanisms. The Devil in the Detail sets out clear recommendations therefore for bolder implementation of business rates reform and encourages a more dynamic discussion on granting local authorities greater self-sufficiency.

November 11, 2011
Authored by

Lily Sommer and Daria Kuznetsova
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