Brian Connell is a Westminster City Councillor where he is Cabinet Member for Business, Enterprise and Skills. He argues here that since a new approach to economic growth will involve a stronger relationship between the private sector and councils, businesses should get a better deal from local authorities.
The economic mire that Britain is in has been caused by a decade of government favouring public spending over private investment. A radical rebalancing of the economy is required from one built on centralised targets delivered through public spending by far-off quangos to one that is based on local growth driven by private enterprise. But if we are to expect businesses to pick up the baton and take responsibility for driving economic growth, we must give them a larger stake in the communities in which they operate.
Last week I submitted Westminster City Council’s response to the Government’s consultation on Local Growth. Ministers have sought views on Tax Increment Financing, a business rate growth scheme and, potentially most liberating for councillors, the local retention of business rates.
Local authorities can play a crucial role in making the business environment in an area successful and attractive for investors. However, they currently have no incentive to do so. Whilst the education standards, planning policies and transport links impact on our residents, local businesses and their profit margins can be even more affected by the decisions taken in town halls.
At present local councils act as tax collectors for central government. Like any tax collector, we can be unpopular and businesses often rightly ask what they receive for the business rates they pay to us. Of course, the answer is that as we have to pass on all of that money to the Treasury. Businesses don’t receive anything specifically for the thousands of pounds many of them pay to councils all over the country. Not only does this cement the subservient relationship local authorities have to government, it also preserves the unhealthy disconnect between locally elected politicians and the businesses that employ our constituents and contribute so much to the vitality and wealth of an area.
Reform of the business rate regime would go some way to engaging business interests and reconnecting councilors and local MPs with local economic growth. A new system should be built on four key principles:
1. Competition: Councils should be geared up for growth and compete with each other for new businesses to come to their area. Rewarding them financially is the only way in which councillors will gradually realise that they have a role in increasing the economic health of the area. For instance, authorities might compete so that councils in less traditionally attractive business locations offer discounts to start-ups.
2. Accountability: Councillors should be more accountable to the local employers and the wealth creators that are so important to the local economy. It should no longer be an excuse for local politicians to claim that business rates are outside their remit. The reformed system should allow councils to state clearly how much they receive from each business and account for how that money is spent. Councils will have to answer for their priorities so that while some will spend money on promoting tourism, others will choose different objectives. For example, businesses harmed by persistent failure to fix potholes will be well within their rights to question where their money is being spent.
3. Localism: Rewards for growth should be delivered at the most local level possible. The previous government’s experiment with a Local Authority Business Growth Initiative dispersed rewards amongst councils within the same region and allowed for ‘free-riders’ to benefit from the hard work of their neighbouring authorities.
4. Fairness: Some authorities will always generate business revenue than others and this should be reflected by a more limited redistribution mechanism. There must also be fairness for businesses to protect against councils who will see this as an excuse to milk a cash cow by imposing punitive increases in rates. I am confident that with the right safeguards this will invigorate localism without heralding the return of the bad old days of local authority militancy.
For the business leaders who inherently distrust councils and worry about the impact of giving local authorities more responsibility for local growth, I would point to Westminster’s very successful Civic Enterprise Fund, financed by the far from perfect LABGI system. We reinvested income from businesses to support services for businesses. Revenue was used to support Business Improvement Districts which despite our very small early investment now collectively contribute more than £5 million in additional investment in the area every year, we funded a business advisory service and a Welfare to Work programme. We will also soon be providing affordable workspace to local entrepreneurs.
Because businesses don’t have a vote at the ballot box, there can be a tendency to assume they don’t matter, but private investment is essential for our economic wellbeing. If done right, this change will not just replace one funding source with another; it won’t merely cut out the middle man, it will bring about a fundamental change in the way councils work. Suddenly investment in high speed broadband will be in the interests of local authorities in rural areas hoping to gain an edge over their rivals; businesses will have a stake in the local educational standards; and work with private partners to tackle the tragic under-utilisation of talent caused by worklessness in our communities. Local employers, MPs and councillors will, for the first time, form real partnerships that build growth and increase employment opportunities for residents.
We await the Government’s final decision on the future of business rates. However, it is obvious that the current system penalises councils that work hard to promote and encourage local business interests. More businesses require more services which are funded either by our residents through council tax or by the ongoing reliance on Government handouts. We again ask ministers for the opportunity to stand on our own feet, deliver the services that our residents and businesses deserve and support the private sector in growing and developing the local economy to the benefit of Westminster and the whole of the UK.