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A new way to boost growth in the region; Opinion Zachary Wilcox.

Byline: Zachary Wilcox

THE Government will propose a new system of local government finance this summer in the Local Government Resource Review (LGRR). Readers shouldn't be fooled by the uninspiring name of this review - it is an important piece of policy which will radically reform how our local authorities acquire their budgets.

Deputy Prime Minister Nick Clegg said in late June that under the new system, local authorities will be able to retain some of their locally-raised business rates - a business property tax. Under the current system each local authority collects business rates, sends it to the Government, and then receives a grant from Government based on a very complicated needs-based formula.

Whilst this current system focuses strongly on needs, it lacks any incentives to enable local authorities to permit and benefit from more development within their area. If local authorities were allowed to retain some income from business development, this could provide them with financial benefits and tools to improve their communities.

It is important that we give cities like Newcastle more reasons to say 'yes' to development which can support economic growth.

That is why our report sets out recommendations for how these proposed reforms can be best introduced to incentivise cities to grow more. It recommends allowing each local authority to keep about half of the future growth of their business property taxes. In Newcastle's case, the city has seen a 40% increase in its business property tax revenues between 1999 and 2010.

Under the proposed new system, it is inevitable that some cities will fare better than others. Some local authorities currently benefit from the current system - receiving more money than they contribute to the central pot including Newcastle and South Tyneside. However, if Newcastle's business rate base continues to grow in the way it has over the last decade, then this position could change.

This raises the question of what Newcastle can do to enable this to happen. The answer is to continue to ensure the city remains attractive to businesses, investors and developers and that the city's planning system encourages and permits more development. If local authorities are able to retain their business rates, they will have more freedom to support businesses, deal with the downsides of development (such as congestion) and encourage growth.

According to Government data, the city of Newcastle has a higher approval of major developments than the English average - 90% for the 2010-11 financial year, compared to 85%. This suggests that the city is already pro-growth. Allowing Newcastle to keep some of the money from future growth will further strengthen the pro-growth perspective and provide the city with the financial tools to provide additional services and infrastructure - schools, libraries, roads - in line with growth.

The LGRR presents a fundamental shift in local government finance that can empower local government and allow it to support the business environment and growth as they see best fit.

Zachary Wilcox is economic researcher at the Centre for Cities think tank
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Publication:The Journal (Newcastle, England)
Date:Jul 14, 2011
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