Creating new local revenue streams

Download Capital Gains: What does the Local Government Resource Review mean for London?

Changes to the way local authorities in London are funded could see councils financially rewarded for saying ‘yes’ to new development and business expansion. Research from Centre for Cities and Future of London, argues that reforms should be bold and allow councils to retain between 40% and 60% of future business rates growth to incentivise the development needed for economic growth.

The short paper, Capital Gains: What does the Local Government Resource Review mean for London?, published on the day of the consultation deadline for the Local Government Resource Review, builds on national research* published by the Centre earlier this year. The paper explains that London as a whole is set to fare well if the changes to local government financing go far enough to give local authorities a real incentive to grow. Places such as Tower Hamlets, Southwark and Camden, which have grown their business base significantly in the period up to 2010, would benefit from the reforms should such trends/performance continue.

The report also argues that boroughs should pool a portion of future business rates, which would then be allocated between local authorities for major infrastructure projects, such as transport upgrades like Crossrail, that would have city-wide benefits for London’s economy.

Joanna Averley, Interim Chief Executive of Centre for Cities says:

“The Local Government Resource Review is an incredibly important piece of legislation. It will have significant implications for how our local councils are funded because one of the proposals in the review is to allow councils to retain a portion of the growth of future business rates.  Currently, taxes on businesses are collected and sent to central government for redistribution. This new system creates an incentive for councils to support commercial development.”

“Inevitably, some councils will fare better than others, but the research found that in London, a greater number of boroughs would benefit under an incentive system. Pooling is one way to ensure that all councils gain from business rates retention by investing in projects that cross council boundaries and support the needs of London’s businesses and communities. This is an opportunity to radically alter the finance system to drive growth, but the Government needs to ensure that these incentives are strong, simple and long term to make a difference to London’s economic future.”

Ben Harrison, Chief Executive of Future of London says:

“The Local Government Resource Review will have big implications for Boroughs across London. By allowing London Boroughs to retain a portion of the growth of future business rates, authorities will have an added incentive to encourage growth in their area, and greater freedom to invest in the local and London-wide funding priorities required to deliver it.”

“Policymakers should now focus on developing arrangements to pool a portion of the Capital’s future business rates. Such arrangements must balance the need for local incentives to boost business growth, while ensuring that additional funds can be directed towards the major strategic investments needed to drive the London economy forward.”