ConDem plans to reward the South East and the City at the cost of the North

Local Government Finance Review Scrutiny Panel

I can see your eyes glazing over, just reading that, doesn't it sound terribly dreary and irrelevant?

But you know, this is probably the most significant change that will hit Local Government - and readers in Liverpool - in the next 20 years, and particularly northern cities like Liverpool.

As chair of the Finance and Resources Select Committee in Liverpool, I have constituted a scrutiny panel (a small group of councillors who examine an issue in fine detail over a series of meetings) to look at the Government's consultation about changes in the way that business rates are shared out amongst the country.

I shall try to explain this in the most easy to understand language that I can manage. Currently business rates are set nationally and collected locally, with the council acting almost as an agent on behalf of the Government. The money then being sent from the council to the government who put it all together in one big pot. They then redistribute funds from this pot around the country to those most in need of funds.

It's that good old Socialist principle "from each according to their means to each according to their needs".

So at the moment, of all councils, the City of Westminster collects the most revenue from its businesses as it has a lot of them in its patch, particularly financial institutions in highly expensive "city" property with high rateable values. Other councils with fewer businesses, retail, factories, hotels, banks and insurance companies etc, collect much less.

This money, together with any other grants that the Government pays to Councils, is redistributed according to a formula which considers population and need, each year, and it makes up the lion's share of the council's income, dwarfing anything collected from domestic rate payers.

The ConDems wish to change the way the money is distributed in future, introducing an "incentivising"  element where a council is expected to increase the business rates it collects by encouraging more businesses to set up in its area and pay rates. And an assumption will be made by the Government under their plans, that this increase has been achieved. The funds that come will depend on that.

The Government asserts in its consultation paper that the proposed changes have been designed to encourage and incentivise councils to grow their economy, to encourage more businesses and that they will be rewarded if they do and penalised if they dont. That is their stated aim for this change, to make us all more business friendly and receptive.

They are proposing that if the council increases its business rate take by a target percentage, it will find its funding for the following  year will stay the same. If it increases by more than that amount it will receive extra but if it fails to make that increase then the funding it receives will be net of that increase. So a council which collects more business rates from more businesses or businesses in more expensive premises will do best from this new deal. A council that fails to collect more rates will be penalised accordingly.

The detail is not yet clear, but it would be reasonable to suggest that we are expected to increase the amount of rates we collect by several percentage points each  year.

Liverpool City Council, Liverpool Vision and the Chamber of Commerce, to name but three, are all committed to growing the economy in the city and to encouraging new businesses to set up here. We have gone so far as to estimate that we ought to be able to create 50,000 new jobs in the next ten years. So that ought not to be a problem, right? We ought to be able to grow our business rates by a few percent each year, right?

Wrong!

Business rates are still payable on empty premises.

That is the kicker in the Government's plans.

So if we have empty shops on Prescot Road in Fairfield for instance, or on London Road - or the empty Rapid shops on Renshaw Street, empty factories on industrial estates, empty pubs etc, the business rates still need to be paid, to the same sum.

We estimate that we currently a massive 1.7million square feet of empty business premises in the city.

So if new businesses set up in those spaces, filling every single square foot with a successful new business creating new jobs and bringing life back to our city, (which would be great news for our unemployed workforce of course and would put more money into more tills etc) they would not be paying any more rates than they do now and our share of the national pot would reduce every year by at least a few percent even despite this.

The only way Liverpool could increase its business rate income would be to build brand new premises. And where would they go? We are bound by the river, we have other council areas right up to our boundaries. We dont have lots of green space to build new premises on. We are doomed to failure on this model, it can only result in a decreasing income from the Government as our share of the national pot goes down and down through no fault of our own.

The idea that this scheme will encourage councils to become more business friendly is a joke. It will most benefit rural areas who are prepared to build retail parks and factories on their green spaces. And of course the City of Westminster with its continual growth in the financial industry in particular - in ever taller buildings.

Incidentally, some businesses pay more than others, it is not only dependent on the size of the premises they occupy, it also depends on the type of business they are. Supermarkets pay the most rates, at £190 per square metre, while at the other end of the scale, small factories and pubs pay £75 per square metre. Banks and Building Societies pay £180 (hello City of Westminster), and larger retailers £175.

Just for interest you might be like to know that John Lewis pay the most business rates in the city, over a million pounds a year for their store in Liverpool One. Whilst Sayers on Dale Street pay a bit less than five thousand for instance for their small shop at a less fashionable address.

So if we were to set out on a policy of maximising our income from business rates we would need to encourage lots of supermarkets to set up, another new Tesco superstore anyone? We could put it on Calderstones Park perhaps? And encourage the building of another Liverpool One somewhere. A floating stage on the Mersey? You can see the problem.

There are additional complications in that many of the new businesses that are already successfully setting in Liverpool are run from home. I would estimate that a third of the businesses in the East Liverpool Business Forum for instance, of which I am a member, are home-run. We are helping to grow the economy in the city and making a small contribution to employment levels, but we don't pay business rates of course. So the success of home run businesses will not help the city's financial position one iota in terms of this funding.

The knowledge economy, based on the development of online services for instance, web designers and online businesses more generally are vital to the city and will help to grow our reputation as a forward thinking place, but wont contribute to business rates.

So you can see that we wont be in a position to grow our business rate take, despite a clear intention to grow the economy and encourage businesses to set up in our city.

And this will penalise the city, in an ever increasing way, year upon year, irrespecitve of our best efforts.

And you are probably still wondering why this should bother you?

Because it is the money we get from the Government, in redistributed business rates that pays for so many of the services you receive from the council. These are not services related to businesses, they are general services for everyone in Liverpool. Business rates are not spent on businesses when they come back to the city, they are spent on everything we do, across the board. These funds will fall by millions and millions each year and which will result in cuts over and above the ones you have already been told to expect.

Our Scrutiny Panel, which I am chairing, has been taking evidence from experts and preparing our response to the Government's consultation on these proposed changes. We have heard from the Chamber of Commerce, the Business Improvement District, Liverpool Vision, several experts from the Council's finance team, SIGOMA who represent councils outside of London, and we even invited the Government, in the shape of civil servants from the DCLG whose plans they are - but we are finding it difficult to agree dates with them, I cannot think why!

We will be formulating a response that will hopefully find accord with everyone in the city who represents interests in seeing our city grow, along with other councils in Merseyside and across the country in similar circumstances. I will put some links up to our final report, but interim minutes are all available here.