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The Progressive Policy Think Tank

Fair localism demands redistribution of business rate revenues

>The local government funding review should ensure reform to business rates goes hand in hand with a fair system of redistribution, according to IPPR North think tank in a new essay published in the latest edition of PPR

New analysis in the essay shows that a redistribution system is needed to ensure councils in areas with weak business bases and few prospects for growth are not left without enough to meet the needs of the people in their area.

The top 10 local authorities where business rates exceed level of need are:

  • In City of London every person would have £43,624 more than they need
  • In Westminster every person would have £3,676 more than they need
  • In Crawley every person would have £945 more than they need
  • In Hillingdon every person would have £824 more than they need
  • In Dartford every person would have £714 more than they need
  • In Camden every person would have £709 more than they need
  • In Watford every person would have £613 more than they need
  • In Kensington & Chelsea every person would have £599 more than they need
  • In North Warwickshire every person would have £536 more than they need
  • In Cambridge every person would have £524 more than they need

Bottom 10 local authorities where business rates fail to meet level of need

  • In Liverpool each person would have £372 less than they need
  • In Haringey each person would have £394 less than they need
  • In South Tyneside each person would have £411 less than they need
  • In Isles of Scilly each person would have £412 less than they need
  • In Lambeth each person would have £448 less than they need
  • In Greenwich each person would have £482 less than they need
  • In Lewisham each person would have £508 less than they need
  • In Knowsley each person would have £545 less than they need
  • In Newham each person would have £586 less than they need
  • In Hackney each person would have £726 less than they need

The essay argues that the current Formula Grant system for funding local government (the needs based grant from central to local government) is broken because it is too centralised, too complicated and open to manipulation by central government.

IPPR North has previously argued that councils should be able to raise 50 per cent of their revenue locally to give them greater financial autonomy. The essay argues that a proportion could be raised through business rates but this needs to be combined with a new system for redistribution.

The Formula Grant system should be replaced by one operated by an independent body which pools and fairly redistributes revenue according to level of need, learning from the Australian approach.

Katie Schmuecker, Senior Research Fellow at IPPR North and co-author of the essay said:

'While we welcome the review of local government funding, our research shows it is vital that it balances allowing council's to retain their business rates with a fair system of redistribution. A new strong and fair redistribution system is needed which should be run by an independent body that ensures all areas have enough to meet the needs of the people in their area.'

Notes to editors:

Business rates (or National Non-Domestic Rates) are a tax on business premises, which is collected by local authorities, and passed to the Exchequer to be redistributed through the formula grant system. Business rates currently constitute the vast majority of the funding for formula grant (4/5).

Business rates revenue compared to need is calculated by comparing the amount of business rates revenue per head to the amount of Formula Grant per head of population in a local area. Formula Grant is a needs based, and as such is used as a proxy for need.

The essay - Funding Fairness: Balancing incentives and resource equalisation to secure effective and sustainable localism - will be published in PPR, the quarterly journal, on the IPPR website.

The authors are Katie Schmuecker, Senior Research Fellow at IPPR North, and Paul Woods, Director of Finance and Resources at Newcastle City Council.

Contact:

Tamsin Crimmens, Media Officer, IPPR North - 0191 233 9051 / 07800 742 262 / t.crimmens@ippr.org