Rates scheme runs 'damp squib' risk

Government plans to let councils retain business rates and borrow against future rate income should provide an incentive for authorities to encourage local business growth, according to the British Property Federation (BPF).

The BPF has welcomed the new proposals, but has called on Government to ensure councils have certainty about future income or the plan risks becoming a "damp squib".

The proposals, announced by Local Government Secretary Eric Pickles, are aimed at shifting councils away from their dependence on Government grants.

Councils would get access to a series of top-ups if their rates income falls below a baseline. Councils such as those in local enterprise partnerships, or districts and counties, could voluntarily pool business rates to enable the wider economic area to benefit from growth and reduce any volatility.

The Government said the scheme will mean no changes in rates charged to businesses or how they are collected.

BPF chief executive Liz Peace said the plans should "give councils a greater incentive to promote local business growth".

But she added: "It will only work if the system gives local authorities long-term certainty about the additional income they will receive.

"If those who achieve growth see their rewards watered down too much as a result of Government caution, this could end up as nothing more than a damp squib."

The Federation of Small Businesses also welcomed the review, but national chairman John Walker said: "Central Government must also ensure different types of relief — such as small business rate relief — remain fully funded, so there is still a strong incentive to promote them locally.

"Councils that increase the number of small businesses in their area and improve the take-up of relief must not end up worse off as a result."

The BPF also welcomed Government's commitment to introduce Tax Increment Finance, which is aimed at letting authorities pay for future infrastructure developments by letting them borrow against projected rate growth.

But the BPF has repeated its call for the policy to be introduced urgently rather than through the Local Government Resource Review, which will not come into effect for several years.