Full Press Release below.
Cities need a wide range of fiscal freedoms to deliver economic growth. Business rate localisation is a welcome step, but is not without risk, and should be introduced as part of a programme of wider fiscal reform - new report from Core Cities UK and Metro Dynamics.
The two most pressing (and linked) problems facing our cities are the pursuit of stronger economic growth and the need to reshape the public sector to bring more people out of dependency and intro the labour market.
Cities are seeking the devolution of certain taxes, financial powers and budgets to enable them address these twin issues with locally tailored interventions, rather than relying on nationally determined priorities and policies. A new report to Core Cities UK from city strategists, Metro Dynamics, makes the case for this devolution to take place.
Government plans to devolve business rates, while an important stage towards fuller fiscal devolution, needs to be managed carefully as the rates are a volatile source of income that can vary according to how a local economy is performing with local authorities ill-equipped to absorb short-term economic shocks. For this reason, Metro Dynamics argue that business rate localisation should be part of a basket of fiscal measures devolved to cities.
Core Cities UK has responded positively to this report, saying that the first step toward financial freedom is to make sure a workable and fair solution is found to Business Rate localisation – which starts across England from 2020.
In a full response, it adds that any additional responsibilities handed down within the new system must focus on helping cities to tackle productivity and reform the public sector to achieve better outcomes, in ways that match the distinctive local needs of different places.
Metro Dynamics new report, A Call for Greater Fiscal Autonomy for Our Cities, argues that cities should be able to retain more of the money raised within them to spend locally and in the longer term should move towards fuller fiscal devolution - in line with cities across Europe and the rest of the World.
The report states that the Government’s immediate priority should be to achieve ‘sensible reform’ of business rate retention at a local level – making sure city finances are not disadvantaged in the short term.
The Chancellor, George Osborne, announced plans to fully devolve business rates to local authorities by 2020 in October last year and the plans are shortly due to be subject to formal consultation.
Sarah Whitney, a director of Metro Dynamics, said: “Fiscal autonomy is not about imposing new taxes. It is about giving local authorities greater control over their finances so they can produce better economic outcomes than are currently possible within the existing highly-centralised system of local government finance.”
“The only two taxes over which English councils have any degree of control are council tax and business rates. Most cities within the OECD countries have control over many more taxation streams and many receive direct allocation of national or federal taxes.”
“Business rate localisation is a welcome start – but we need to recognise that fiscal devolution poses significant additional risks and burdens as councils wrestling with the complexities of this reform are finding out. For this reason, cities need further fiscal freedoms to help them manage this risk.”
The report points out that the UK is actually an ‘outlier’ when it comes to fiscal freedoms for major cities. Adding, for example that Tokyo retains 80 per cent of the taxes it raises compared to an estimated nine per cent for English cities from 2020 even after business rate devolution. The OECD average is around 25 per cent.
The report goes on to recommend that:
- Central government, London and Core Cities UK, with representation from the Local Government Association, should come together to deliver a reformed business rate system.
- Government should commit to a longer term – but timetabled – programme of wider fiscal reform focusing on local authorities retaining more of their tax base.
- Government should initiate a series of events with city authority and private sector representatives, setting out the principles and operation of fiscal devolution.
- Government and cities should seek cross-party support for principles and progress of longer term fiscal devolution, ensuring space within any future legislative schedule.
Sir Richard Leese, chair of Core Cities UK and leader of Manchester City Council, said: “I welcome today’s report which again stresses the link between giving places more financial freedoms and improved economic and social growth.
“We believe that cities should retain more of the taxes they raise to spend how they like and we want to partner with Government to focus on creating a workable, sustainable, system of local government finance.
“Fiscal reform is complex. Business rate reform is just the start of this journey and the process of its implementation needs to be managed carefully to make sure that cities don’t lose out.”
The report, and Core Cities UK’s response is available at www.metrodynamics.co.uk.
Will Mapplebeck, Strategic Communications Manager, Core Cities UK – firstname.lastname@example.org, 07932 568571.
Sarah Whitney, Director, Metro Dynamics – email@example.com, 0203 817 7622.
Notes for Editors
- Metro Dynamics provides strategic advice to those leading, growing or investing in cities and metropolitan areas. For more information visit www.metrodynamics.co.uk
- Core Cities UK is Core Cities is a unique and united local authority voice to promote the role of our cities in driving economic growth and the case for city devolution. We represent the councils of England’s eight largest city economies outside London along with Glasgow and Cardiff. For more information visit www.corecities.com.