Local government is entering a new world
—The Tories have been fundamentally changing the roles and powers of local government since 2010. But perhaps the biggest change is still to come: by 2020 local government will be funded not by grants but by business rates. This could mean dramatic alterations to what councils do and how they do it, and to our relationships with both residents and businesses in our communities.
With the changes to business rates local government is set to get new responsibilities. We just do not know what they are yet. And this too means both significant challenges and opportunities for councils.
The risks are clear: councils can cut rates, but they can only raise them if an area has a mayor, and only then if businesses vote in favour – the receipts of any rise are currently only supposed to be spent on infrastructure. So it is not clear how councils will fund growth in demand for services, something being felt pretty much everywhere, or even how they will fund normal inflationary pressures.
The link between business rates and some local services is clear. In Camden we support business through a range of initiatives from transport projects to good public spaces to apprenticeships and more. The link between others is less clear. Our biggest spend by far is social care for adults. Are businesses really going to think they, and they alone, should pay for this?
But there are massive opportunities too. We will be able to vary rates to support (or discourage) certain types of business or behaviour. The options are potentially exciting, such as incentivising business to employ greater numbers of young people, pay the living wage and actively support parents and carers. Or we could use discounts to help business be greener or reduce transport use.
But incentives will come at a cost. Because councils cannot raise rates elsewhere to offer these incentives we will need to think carefully about the priorities we want to support. Some of this work will have a direct benefit to the Treasury – for example, helping to cut the benefits bill by getting people in to work or increasing wages. We must ask for a share of these savings as part of the negotiations about how business rates are localised.
There are also huge risks. The cap on growth means the only way councils will be able to increase budgets for services, as opposed to infrastructure, will be by growing the number of rate-paying businesses. Some areas will have to cut rates to get businesses to come. Other areas may have to make difficult choices about land use and whether sites are used for rate-paying business activity, or a way to tackle a local housing shortage. It is fair to say that attracting new business – and the level of development required to support it – is not always popular with residents.
This will create new tensions between residents, businesses and councils, particularly if we need business rate growth just to fund the provision of services at their current levels. Residents will see development and new businesses and no increase in the levels or quality of services provided by their local council. We will need to create a much more structural link between business activity and identifying local benefits like apprenticeships, and intervention in wages will be all the more important. Councils will need to build consensus between business and residents.
The key issue as the policy emerges is how to develop a set of priorities that match the aspirations of business and residents in an area. Labour councillors will feel this challenge more keenly as we are likely to be inclined to be more interventionist with both our businesses and our residents to tackle inequality and deliver social justice. How we bind businesses to that aspiration will be one of the biggest challenges we face as local leaders in the next few years.
Sarah Hayward is leader of the London borough of Camden
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