The Government is consulting on two related proposals - (i) allowing councils to retain a proportion of the business rates collected in their areas, and (ii) the introduction of tax increment financing.
As to the business rates proposal, the Government claims that "enabling local authorities to retain a significant proportion of the business rates generated in their area will provide a strong financial incentive for them to promote local economic growth. Councils can have a big influence on growth through planning, investment in local infrastructure, managing the local environment and developing a positive relationship with the private sector. Business rates retention will help to incentivise local authorities to take action to promote growth." Commentators point out that it those areas most in need of additional financial resources are the ones likely to find it most difficult to raise significant sums through business rates. The consultation invites views, and the current plan is to introduce the change so that the new rules take effect in April 2013.
The other focus of the consultation is the related question of tax increment financing, a concept popular abroad and which allows councils to "capture the value of uplifts in local taxes that occur as a result of infrastructure investment. In effect, tax increment financing allows that uplift to take place by borrowing against the value of the future uplift to deliver the necessary infrastructure." The consultation considers different ways of introducing tax increment financing into the business rates retention scheme referred to above.
The consultation runs until 24 October.