Chancellor George Osborne has named three areas that will pilot the government’s plans to shift local authorities towards financial self-sufficiency with the retention of business rates to fund core services.
In his Budget today, Osborne said Greater Manchester, Liverpool City Region and the Greater London Authority would test approaches to the financial devolution he announced at last year’s Conservative Party Conference.
The seismic funding shift is scheduled to be complete by the end of the current parliament in 2020, in conjunction with the phasing out of Revenue Support Grant, but Osborne said London would be in the vanguard of the devolution, following lobbying from current mayor Boris Johnson and would-be Conservative successor Zac Goldsmith.
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“I can confirm today that the Greater London Authority will move towards full retention of its business rates from next April, three years early,” Osborne said.
Details in the budget “Red Book” said Liverpool City Region and Greater Manchester would also “pilot the approach to 100% business rate retention” from 2017, adding that any English area that had ratified a devolution deal would be able to do the same.
November's Autumn Statement put the annual value of business rates at £26bn, and projected the amount of business rates collected was set to grow by £6.3bn over the course of the parliament. Under the current system, business rates are collected by local authorities on behalf of the government for central redistribution.
In today’s Budget, Osborne announced a package of reforms to business rates that will exempt hundreds of thousands of small firms from paying rates at all, and switch annual increases from shadowing the Retail Price Index to the traditionally lower Consumer Prices Index.
The Red Book said the combination of moves would reduce projected business-rates revenue by £6.7bn, but insisted that local government would be “compensated for the loss of income as a result of the business rates measures” via the government’s consultation on the move.
Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy said that while councils would welcome reduced costs for small businesses, they were likely to feel "stitched up" by the announcement’s implications for their own funding.
Also in the budget, Osborne announced new devolution deals had been struck that would see the creation of a new combined authority for East Anglia with a directly elected mayor, and a similar agreement for the West of England local enterprise partnership area, centred around Bristol, Bath and Weston-super-Mare.
Osborne added that city deals with Edinburgh and Swansea were in development, as was a “growth deal” for north Wales.