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Eric Pickles’ latest wheeze: ensuring poorer areas get left behind


2:03 pm - July 20th 2011

by Carl Packman    


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Communities Minister Eric Pickles has revealed that councils will be able to keep the rates they raise from local businesses, a change from the current system which sees councils collect rates on behalf of central government, which then redistributes it to councils according to population size.

But critics have pointed out that poorer areas will benefit the least, since they’re the ones having difficulties in attracting local business.

Pickles has promised central government will pay a fee to councils as a safety net, in case business rates fall – but this will not suffice to cover costs in area improvements or bids to attract businesses.

For the most deprived areas these changes, set to occur in 2013, will make local growth even more difficult – but then these places aren’t Tory hot spots anyway, so was Pickles really going to go out of his way to appease them?

In order to give areas what Pickles calls a “direct growth incentive” he is taking away from “councils which rely on business rates redistribution” without a plan of action for how those areas can attract growth too.

But thriving areas are incentives in themselves, and now local governments will have to compete with each other to attract business, without any change being done to how they set rates – which will still be set centrally by the Valuation Office Agency. The upshot of this will see a wider rich/poor divide between areas at a time when many services are being cut.

It’s hard not to see this is a typical Tory ploy: a deprived area is no longer a beneficiary of a re-distributive business rate system, it becomes less attractive to businesses looking to set up/invest/maintain residence in an area, the area loses out on rates, it relies on the new system of basic tariffs, and cannot afford to spend money on improvements to attract business. The poor stay poor, the rich get rich.

What chance does a deprived area have? Even if they were given control of how they set business rates, in order to attract business they would be forced to offer low rates which will have detrimental effects on how much they can raise anyway.

This is really the wrong direction for the empowerment of local councils, but is unsurprising of a Tory mindset (and championed by Nick Clegg – the yellow Tory) that wants to remove redistribution of wealth from affluent areas to ensure poorer communities don’t fall through the net.

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Carl is a regular contributor. He is a policy and research analyst and he blogs at Though Cowards Flinch.
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Reader comments


“[C]ouncils will be able to keep the rates they raise from local businesses, a change from the current system which sees councils collect rates on behalf of central government, which then redistributes it to councils according to population size.”

Carl, we need to be clear on detail here if we are to combat what are truly horrible proposals effectively:

a) the proposals are for councils to keep the GROWTH in business rates

b) business rates are not redistributed according to population size, but (broadly) according to what’s needed, so that richer places, where council tax revenue effectively makes up to 80% of all budget need (in the govt’s own calcs presented earlier this year), get less, and poorer places with lower council tax bases get more.

I’ll be doing more detail on this because you’re right that it is very bad news,. not just in respect of the ‘chance’ poorer authorities get (path dependency etc), but in the way power actually comes to lie MORE at the centre, with the ability to adjust ‘top up’ budgets in the worst hit councils resting ultimately on the minister’s judgment on whether these councils have ‘behaved’ (mini-ECB/Greece scenarios if you like.

In terms of the way the top up/tariff structure works, the devil is in the detail, and not least in the option presented (almost certainly Pickles’ preferred option) NOT to apply RPI annually to the top-up/tarrifs. The long and short of that is that poor councils most heavily dependent on top-up could then start to lose 3-5% of their core budget, every year, for ever, unless the minister decides to be benevolent.

There are lots of other issues at play here, including the way rural area economies may get stuffed, but I’ll leave it there on detail. Suffice to say we need to do detail on this, as the real devil is in the detail (and we also need to wake up Labour about this, as they’ve bought into the principles without looking seriously) at the knock on consequences for the long term way budgets happen, or indeed for the way local govt goes about its core business.

2. Charles Wheeler

“It’s hard not to see this is a typical Tory ploy: a deprived area is no longer a beneficiary of a re-distributive business rate system, it becomes less attractive to businesses looking to set up/invest/maintain residence in an area, the area loses out on rates, it relies on the new system of basic tariffs, and cannot afford to spend money on improvements to attract business. The poor stay poor, the rich get rich.”

What else would you expect. It’s what the Tory Party is for. Redistribution is anathema to the right. It acts against the survival of the fittest. Why is this even remarkable?

If Eric Pickles had announced that he expected Westminster business rates to be funnelled into deprived areas, that would have been a story.

“[C]ouncils will be able to keep the rates they raise from local businesses, a change from the current system which sees councils collect rates on behalf of central government, which then redistributes it to councils according to population size.”

Need to be clear here: a) the proposals are for councils to keep the GROWTH in business rates b) business rates are not redistributed according to population size, but (broadly) according to what’s needed, so that richer places, where council tax effectively makes up to 80% of all budget need (see govt calcs from earlier this year), get less, and poorer places with lower council tax bases get more.

I’ll be doing more detail on this because you’re right that it is very bad news esp but not only in respect of the ‘chance’ poorer authorities get but in a more convoluted way than you suggest (it is very clever in fact).

More later (lost last posted comment for some reason)

4. Flowerpower

Under the Pickles scheme EVERY area is a winner.

It guarantees that no area will receive less under the new scheme than it did under the old one.

critics have pointed out that poorer areas will benefit the least

…. ain’t that typical of the Left: …. more concerned about relative equality of outcome than absolute improvement.

Would you prefer a £10 a week pay rise conditional upon a banker getting a £10 pay rise too…

or

Would you prefer a £50 a week pay rise conditional upon the banker getting £100 a week?

I can guess the answer….

5. Leon Wolfson

@2 – “It guarantees that no area will receive less under the new scheme than it did under the old one.”

Yea, it’s just that inflation means that poorer areas will get left in the dust. It’s like all these “guarantees”, within a few years they’re meaningless.

6. Flowerpower

@ 3

inflation means that poorer areas will get left in the dust.

Only if there’s no growth there.

This new system gives councils an incentive to stimulate growth.

The old system incentivised degeneration and decay: the more run-down the council could make its area, the fuller its begging bowl would be…………

A dafter system would be impossible to devise.

7. Leon Wolfson

@4 – That’s a total mischaracterisation of the old system, and the sort of venom against areas still recovering from Thatcher which I’d expect from the nasty party.

When there are massive job losses in the area, you cannot rely on business rates to stimulate growth, since that relies on *spending* to generate the demand for the businesses in the first place.

When there are empty retail units on the high street, telling the council they can adjust business rates is just piling insult on injury. It only works in areas which are already healthy.

@2: I agree that at first sight it looks like everyone wins because of the tariff/top up structure, but in fact the scheme does not guarantee that poor councils will grow progressively poorer, either relatively or absolutely.

The key devil in the detail is the option (2nd bullet point of 3.19, and almost certainly that favoured by Pickles and the richer councils who will have their say), under which the top up to poorer councils will NOT be adjusted by RPI (and the tarrif paid by richers councils likewise). This means that in a council which depends for around 75% of its income on this top up (e.g Manchester) the top up will devalue on a compound basuis, so at current inflation, 10% or so of core budget would be removed in 3 years. Even the consultation is explicit:

“This approach therefore creates a strong incentive for growth, but offers less protection to authorities with low taxbases and high needs.”

The basic illogic is that the proposals ignore the proven concept of path depedency and attack poor councils’ problems from wrong end. Rich councils will accrue funds easily and draw in more business as they invest in infrastructure etc, while poorer councils (and rural ones) will be condemned by their starting point.

Other major problems in brief (I’ll do a full post later):

a) Incentives for councils to bash on with big edge of town retail devts etc (low wage economy) at expense of smaller, higher economic value start-ups. This is the perfect way to encourage a race to the bottom economy, and discourage high-end start ups etc. which bring decent employment. If localisation is to happen, it should be on basis of lowest decile employment wages, for example, not on crude basis if business rates.

b) Obvious planning compromises with bigger businesses, on whom esp poorer councils will become dependent for core funding, leading to compromies in other areas of service, esp where Enterprise Zones are also involved.

c) Rural authorities’ needs largely ignored esp around agriculture as urban-style incentives apply (see Pickles’ wording in the foreword for the clue here).

d) Focus on new build rather than on more efficient use of existing build e.g in upper floors of town centres or more busy offices etc.

e) Councils devoted to business growth at all costs, but for one business type at expense of non-revenue generation infrastructure focus

f) Damage to small/rural/non-profit business who depend on discretionary reliefs that till now have been in holsitic interest of council to provide but are now disincentivised

g) border conflicts with other authorities around attracting new business leading e.g to inappropriately staged capital developments. It is no suprise that in the the chart at para 2.2., the countries with the most devolved finance arrangements for local govts are by and large the biggest ones where there isn’t the kind of highly integrated economy that we have in the UK, such that states/counties can safely do their own thing. The interdependence here just makes it unreasonable to divvy up revenues to population areas of 100,000 or less, when lots of that 100,000 live and work in different places, for example.

h) Idea that Local Enterprise P’ship will pool is fanciful, given lack of strength/cohesion of most LEPs

i) Most serious of all, I suspect, though detailed paper only to appear in August as part of bad news drip-drip (para 3.36), ultimate control of safety net will come under subjective control of minister, who – if s/he is Pickles-like – will require mini-Greece/ECB type scenarios as pre-condition for safety net application.

Overall, these proposals will be disastrous if implemented. They will remove councils’ core ethos and duty (as set out in LG Act 2000) to serve whole of community. Councils do not need incentives to help business grow appropriately if they have appropriate people running them with public service, in widest sense, in mind.

FP @2: I agree that at first sight it looks like everyone wins because of the tariff/top up structure, but in fact the scheme does not guarantee that poor councils will grow progressively poorer, either relatively or absolutely.

The key devil in the detail is the option (2nd bullet point of 3.19, and almost certainly that favoured by Pickles and the richer councils who will have their say), under which the top up to poorer councils will NOT be adjusted by RPI (and the tarrif paid by richers councils likewise). This means that in a council which depends for around 75% of its income on this top up (e.g Manchester) the top up will devalue on a compound basuis, so at current inflation, 10% or so of core budget would be removed in 3 years. Even the consultation is explicit:

“This approach therefore creates a strong incentive for growth, but offers less protection to authorities with low taxbases and high needs.”

The basic illogic is that the proposals ignore the proven concept of path depedency and attack poor councils’ problems from wrong end. Rich councils will accrue funds easily and draw in more business as they invest in infrastructure etc, while poorer councils (and rural ones) will be condemned by their starting point.

Other major problems in brief (I’ll do a full post later):

a) Incentives for councils to bash on with big edge of town retail devts etc (low wage economy) at expense of smaller, higher economic value start-ups. This is the perfect way to encourage a race to the bottom economy, and discourage high-end start ups etc. which bring decent employment. If localisation is to happen, it should be on basis of lowest decile employment wages, for example, not on crude basis if business rates.

b) Obvious planning compromises with bigger businesses, on whom esp poorer councils will become dependent for core funding, leading to compromies in other areas of service, esp where Enterprise Zones are also involved.

c) Rural authorities’ needs largely ignored esp around agriculture as urban-style incentives apply (see Pickles’ wording in the foreword for the clue here).

d) Focus on new build rather than on more efficient use of existing build e.g in upper floors of town centres or more busy offices etc.

e) Councils devoted to business growth at all costs, but for one business type at expense of non-revenue generation infrastructure focus

f) Damage to small/rural/non-profit business who depend on discretionary reliefs that till now have been in holsitic interest of council to provide but are now disincentivised

g) border conflicts with other authorities around attracting new business leading e.g to inappropriately staged capital developments. It is no suprise that in the the chart at para 2.2., the countries with the most devolved finance arrangements for local govts are by and large the biggest ones where there isn’t the kind of highly integrated economy that we have in the UK, such that states/counties can safely do their own thing. The interdependence here just makes it unreasonable to divvy up revenues to population areas of 100,000 or less, when lots of that 100,000 live and work in different places, for example.

h) Idea that Local Enterprise P’ship will pool is fanciful, given lack of strength/cohesion of most LEPs

i) Most serious of all, I suspect, though detailed paper only to appear in August as part of bad news drip-drip (para 3.36), ultimate control of safety net will come under subjective control of minister, who – if s/he is Pickles-like – will require mini-Greece/ECB type scenarios as pre-condition for safety net application.

Overall, these proposals will be disastrous if implemented. They will remove councils’ core ethos and duty (as set out in LG Act 2000) to serve whole of community. Councils do not need incentives to help business grow appropriately if they have appropriate people running them with public service, in widest sense, in mind.

“It’s hard not to see this is a typical Tory ploy: a deprived area is no longer a beneficiary of a re-distributive business rate system,”

Umm, hang on a minute. You do recall who introduced the Uniform Business Rate and the central allocation of funds do you?

Thatcher?

Before then local authorities charged whatever rate they wanted and kept the money themselves. And I do remember the screams about how Tories are bastards for intoroducing the UBR: now they’re bastards for doing away with it as well?

11. Leon Wolfson

Tim;

The UBR, while not ideal, has in practice proved to work. The economic effects of doing away with it, at this time, are quite clearly negative for the areas being hit.

I don’t care WHO introduced it, honestly, when the alternative being discussed will clearly hammer poorer areas. If there was another proposal which didn’t do so, then I’d be happy to calmly consider it…

12. Limiting Factor

The answer to this is contained in Thomas Franks book, Whats The Matter With Kansas (swap Kansas for America for the Uk edition), in chapter four, Verns Then And Now, which details how Kansas essentially sold itself at firesale prices to attract big business, offering all manner of subsidies, only to end up discarded and broke anyway. This is the magic localism formula, how local communities can sell themselves to get services…. well, they`ll get something, thats for sure…

“has in practice proved to work. ”

Depends what you mean “work”. It was certainly adopted as a manner of redistribution under Blair and Brown. It’s not exactly a surprise that the richer areas of the country tend to vote Tory, the poorer Labour. And yes, the money was lifted from the richer areas and sent to the poorer: just astonishing that a Labour government would do that, isn’t it?

And really not all that surprising that a Tory one would reverse it.

14. Leon Wolfson

Yes, if you only have the interests of the people in the richer areas in mind.

Oh wait…

The butler trolls are out again defending their masters. They love it when the rich get richer at the expense of the poor. Why?

Because brownshirts love seeing the poor suffering. They get a pleasure out of others misfortune. It is not good enough to get to the top. It has to be done by kicking people in the teeth as you get there.

All in this together? Fucking liars. When is Clegg going to put a stop to this crap? Less than 4 years left Clegg. Then your party and you are gone for 100 years.

@ 12:

“Because brownshirts love seeing the poor suffering.”

The original brownshirts were mostly working-class, of course. Not that I expect somebody like you to know that.

Sally

There’s a hint of Clegg’s specific failure to tackle the Tory right on this area of policy in a Peter Hetherington article http://www.guardian.co.uk/society/joepublic/2011/mar/02/town-hall-finance-battle-free-councils

“To become self-sufficient, Westminster [City Council] now wants much of it back, arguing that other forms of compensation, and incentives, should go to less-favoured inner city and old industrial areas. Radical, free-market Tories would back such a plan. And Clegg? He wanted Pickles’s review to examine other revenue-raising measures, such as US-style local sales and tourist taxes. That has now been ruled out, with Pickles insisting that “repatriating” the business rate, by handing at least some control back to councils, will form the central plank of his examination.”

“Yes, if you only have the interests of the people in the richer areas in mind”

“Political party shovels money to those who voted for it” is hardly a headline now, is it? Either way, the original redistribution or the reversal.

“Political party shovels money to those who voted for it” is hardly a headline now, is it?”

But call me Dave said the tory party had changed. Just another lie then from the liar called dave?

20. Leon Wolfson

@15 – Regardless, its hurting the poor. That’s what I care about, not party political games.

Regardless, its hurting the poor. That’s what I care about, not party political games.

So what are you going here then? Party political games is where it’s at.

@1

Redistribution is anathema to the right.

No, they’re fine with redistribution, as long as it is redistribution from the poor to the rich. It’s only redistribution from the rich to the poor which is an anathema to them.

23. Planeshift

There are other ways to adopt a re-distributive mechanism though, other than the current ways of financing local government, which are a mess and a recipe for a further 30 years of degeneration.

My main problem with pickles is that it isn’t radical enough, far more of local government finance should be raised and spent on a local level (I’m surprised Tim hasn’t started mentioning Denmark yet), with fewer functions performed at UK level. Currently the south east is the richest region, and I guess places like the north east are concerned they will lose out from less re-distribution. But if they were able to control finance, and had political power to go with it, then in the longer term poorer areas will have far more of a chance,

24. Leon Wolfson

@18 – Against the party which feels as you do.

Planeshift – Again, minus the rest of this? Perhaps. But their economies are currently being crippled by lay-offs, and that means less redistribution will simply lead to a spiral downwards. Again, when there are empty prime-location shops on the high street, financial “independence” is just another way of being able to lose even MORE businesses.

25. Planeshift

“less redistribution will simply lead to a spiral downwards.”

Yeah, but I’d be in favour of a radically different form of re-distribution. Currently local authorities have very few powers to stop this decline, and all re-distribution at the moment achieves is to enable local areas to put sticking plasters on massive problems. In fact i’d go further and say the centralization of the UK is the major cause of areas becoming depressed in the first place.

What I’d propose instead of the current system is that whilst local areas became far more responsible for raising and spending money locally, with the obvious reductions in central government taxation that would have to occur for this to be possible, they each paid a small amount – say 10% – of local taxation into a central pool (administered by a quango not party political) that would be responsible for identifying fixed duration infrastructure projects that could be used to boost employment Keynesian style. It would operate something along the lines of if a particular area hit a level of unemployment of over say 15% then that would automatically trigger the release of money to fund one of those projects in that area with exclusively local labour and firms used (hence money also used to train people, encourage local start ups etc). Such a thing I think would be more effective than the current system of using council tax money in kent to fund care homes in places like middlesborough whilst young talented people continue to leave middlesborough for decent jobs so they can end up paying council tax in kent.

There’s an implicit acceptance in the outrage here that poorer areas have already been left behind, so blame rests with previous governments for creating the current situation. Meanwhile every new howl increases the pressure for systemic changes.

Strange then that the opposition isn’t offering any alternatives.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

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  2. Susan Thorne

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  3. James Fry

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  5. Chris Horner

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  9. Rakesh Bungar

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  10. Pucci Dellanno

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  11. Emanuel Stoakes

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  15. Santokh Singh Gill

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  17. Paul Abbott

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  18. Rep in the Region

    RT @libcon: @Ericpickles latest wheeze: ensuring poorer areas get left behind http://bit.ly/r4MzpQ

  19. Jane Ayres

    RT @libcon Eric Pickles' latest wheeze: ensuring poorer areas get left behind http://bit.ly/r4MzpQ < + read comments for detail

  20. Scott Neil

    Eric Pickles 'ensuring poorer areas get left behind'; link also contains an appropriate dig at "yellow Tory" Clegg – http://t.co/GzcgyiI

  21. Rachel Lee

    Tory Pickles (with support of 'yellow Tory') sour business growth opps for all but well-off areas http://bit.ly/owIuQF





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