Daniel Goodwin

Business, taxation and representation

The suggestion this week that councils may be allowed to retain business rates (LGC 19th May) may seem a little dry. However it could mark the beginnings of a significant change not only in the dusty world of local government finance, but more importantly in the discussions that can take place about how local economies and the communities they support ought to develop. The replacement of centralised tax setting and redistribution with a more flexible, locally set framework, has been called for by many councils including my own.  Such a system could flex to reflect the infrastructure, skills, facilities and services required to make the economy work, and consider what level of taxation would be needed to do so.

If one accepts that there is a remaining need for some form of progressive national redistribution, as these proposals seem to do, it is inevitable that there will be some restriction on flexibility. There would also need to be an acknowledgement by local businesses that to do more in their area would probably involve some increase in taxation for the time being. It would also be tempting for any future government to reduce grants to local authorities further if it identified that some local economies were bearing a higher rate of taxation than initially envisaged. Notwithstanding this reservation, I think there are three points which would need resolution if the proposed Bill becomes law.

Firstly, what is the route for liaison and representation by local businesses? Local business leaders that I meet are concerned that the routes into meaningful dialogue with local politicians can seem bureaucratic and unwieldy. However much more consultation on spending proposals than currently occurs would be necessary in order to gain local businesses’ confidence. They understand that local partnership working isn’t easy, but feel it is often over complex, sluggish and unsophisticated when it comes to understanding their concerns. On the other hand, local public service leaders sometimes struggle to get across what the added value might be of good strategic or preventative services in terms of eventual public benefit. To bridge this gap there needs to be a meaningful place at the table for business in key local partnerships, with a careful eye kept on the productivity and meaningfulness of any engagement. If the proposals are enacted will any local authority offer a place at the executive table to local business representatives?

Then there is the need to review what really adds value to the local economy and its public services. I think this requires the kind of accounting that should have been a by-product of Total Place or a more ambitious Community Budgeting initiative. As it is, neither of these produced the kind of financial overview that would be necessary for a productive discussion. Such an account could lead to debates about local priorities and the impact of spending by the range of different public agencies without the complexity of the creation of merged budgets. This is an issue which remains unresolved and which, by its absence stifles debate about local needs. I’m going to try and revive some of my work on this locally and test it in discussions with partners.

Finally, the discussion so far has not included the role of the emerging Local Enterprise Partnerships and how they might have, or desire, a role in the decision-making relating to funding derived from local businesses. Fending off accusations of gumminess, the LEPs are now gaining one or two teeth in the shape of Enterprise Zones, it’s likely they will be looking further for some funding to help deliver their key projects. This is a potential minefield as economies are no respecters of administrative borders, either local or national. Yet there is also the impact that upward or downward changes in local taxation can have on businesses’ overhead sensitivities, which can make a place more or less attractive.  Local councils will need to carefully consider their response to approaches from LEPs on this issue, bearing in mind the potential similarities and differences between their respective priorities. Making sure that elected members and business leaders are in discussion and on the same wavelength on this issue is critical.

As always, the above are questions which local government needs to consider, because there is important community leadership ground to claim. Ours could be a very welcome contribution if we can be nimble in our response and clear in our engagement with business. We need to be ready to work with local partners to consider what our response should be to this emerging legislation and, as always, help set the agenda rather than wait for the guidance.

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This entry was posted on May 22, 2011 by in Constitution and community, Local Government Futures.
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