Local authorities will be allowed to keep all of the revenue they raise from business rates under a radical proposal announced by Chancellor George Osborne.
But it also drew warnings that less-well-off parts of the country could get left behind in a race for investment and concerns from bosses that it could result in higher charges.
Osborne revealed in March that a review of business rates had begun in the United Kingdom, which would report back in time for the 2016 budget. Rates are collected locally, but then transferred to central government to be distributed back to local areas in the form of grant.
But Labour warned the change would start a “race to the bottom” with councils competing to cut their rates the most. “If you can grow your local economy, you are going to benefit from that by getting more in business rates which means you can invest in services or reduce council tax”.
Losers would include economically struggling urban metropolitan councils such as Newcastle (which raises £149m a year in business rates but calculates it would be a net loser), Knowsley, Lewisham and Barnsley, all of which have high levels of social need.
As for the general public, they care about the outcome-more jobs, more housing and better transport-but not about the process. “Combined authorities”, such as Greater Sheffield, are made up of the heads of adjoining councils, but they are not democratically accountable.
“But this must not be a way to increase rates without the consent of the local business community”.
But the Mayor added: “So we still need to hear how the Chancellor plans to avoid locking-in the regional economic disparities he says he wants to end”. Full devolution of business rates will give local government control over an extra £13bn by 2020.
He added: “More than half of IoD members were concerned devolution would lead to higher taxes”.
It (Other OTC: ITGL – news) is an agenda which will match the devolution of powers over welfare, business support and the NHS to localities such as Greater Manchester.
However he said “robust scrutiny” of powers to vary tax rates was needed “to ensure this money is spent wisely”. At the same time, the core grant from Whitehall will be phased out, and local government will take on new responsibilities.
“Unless we retain a few redistributive mechanism, there is a significant risk it will starve poorer areas of crucial support and allow wealthier ones to collect all the riches”.
Mr Osborne’s next firecracker was the abolition of the uniform business rate. So this is a step forward for local democracy.
Since 2013, the fastest growth in revenues as a share of spending is in the East Midlands, and second fastest was in Yorkshire, he highlighted.
Many working people, he said, “still voted” Labour in the last election because they “didn’t quite feel able to put their trust in us”. Fixing the current broken system of financing local government will be a huge boost to local growth, help attract business and create jobs.
Mr Osborne, who repeatedly described the Tory party as “the builders”, also pledged to press ahead with the creation of a “Northern Powerhouse”.
He said to supporters in Manchester: “Building doesn’t come easy and especially when it comes to new homes and infrastructure that the country needs”.
“I’m proud it is this government that is giving more than a million people the chance to have a house of their own”.