Has the British government abandoned its fiscal devolution plans?

Poor George. Image: Getty.

The recent Queen’s Speech made no mention of the Local Government Finance Bill. That suggests that the business rates reform has been put on ice, at least for the time being – and that the UK will continue to be one of the most centralised countries in the developed world.

This is a concern for a number of reasons. Firstly, business rates devolution could play a crucial role in supporting the development of local economies. It would enable local authorities to capture the fiscal benefits of economic growth within their area, therefore giving them a greater incentive to take the right decisions to improve their economy.

There is no such incentive under a full-grant system of funding, because local authorities generally receive an amount of money that corresponds to their needs, regardless of how well they perform. In other words, fiscal devolution rewards good policy practices by increasing local revenues. So far the move towards a 50 per cent retention structure, in place since 2011, has not been substantial enough to generate this incentive.

Secondly, business rates devolution would give local authorities more control over some of their revenues and how they spend them. This greater control is important from a policy point of view, as it means local authorities can develop more tailored policies, moving away from the one-size-fits-all model.

From a political perspective, it also results in stronger accountability for local government. Currently in the UK local taxation only represents 5 per cent of total tax revenues, compared to the OECD average of more than 10 per cent.


But this also comes with challenges, which may explain why the government has been relatively wary about moving towards more devolution.

One difficulty is making sure the system is well-designed to incentivise and reward good policy decisions to the largest number of places across the country. The system as it is currently constructed mainly rewards the building of more floor space – but this isn’t an appropriate solution everywhere because of the varying economic performance of places across the country. Another challenge is to make sure that the weakest economies will still be supported by this funding mechanism, without hindering too much the growth incentive in more successful places.

Of course, cities already possess a number of tools to increase their revenues – with or without business rates devolution – as the Centre for Cities’ latest report on public assets illustrates. By adopting a more entrepreneurial approach to using the assets at their disposal, cities can support economic growth, increase their tax base, and attract more businesses and jobs.

Nonetheless, business rates devolution would be a hugely important step towards reversing decades of centralisation in the British political system and giving cities more of the control they need to boost their economies. Scrapping these plans now would be a backwards step by the government.

It is unclear if the plan to devolve business rates has been dropped or simply postponed to later. But given how far discussions went – pilot areas to experiment the new system had been launched and are to be maintained – seeing the legislation reintroduced is a conceivable option.

Our upcoming work will reflect on those issues set above, and will focus on how business rates devolution can be designed so that every city and local authority across the country can get the most out of devolution. Watch this space for more details in the coming months.

Hugo Bessis is a researcher for the Centre for Cities, on whose blog this article originally appeared.

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Liverpool looks to move hospitality industry outdoors

One of the industries that’s taken the most immediate hit from the Covid crisis is hospitality. Bars and restaurants have been closed for the duration of the lockdown; even once it eases, the need for social distancing will reduce the number of punters they can serve at any one time.

There’s not much that can be done about the former problem, but one city, at least, is taking steps to tackle the latter. On Monday Joe Anderson, the mayor of Liverpool, announced a £450,000 project to redesign streets and enable businesses to create covered seating areas outside. 

The goal is a streetscape that looks more like many continental European cities, where cafes spill out of their premises into the surrounding streets. So a restaurant that finds, post-lockdown, that it now needs to keep tables 2 metres or more apart will be able to make up for some of the lost capacity by expanding its footprint.

Liverpool council is working with designers, the Chamber of Commerce and the Liverpool BID Company, another business group, on the project. Details of the criteria for the fund are being finalised, reports the Liverpool Echo, “and the process for being part of the pilot project will be announced in mid-June, once the phased reopening of retail in the city has begun and the impact been assessed”. If all goes well, lockdown restrictions on bars and restaurants are expected to begin easing in early July.

There are unanswered questions about how all this will work – whether it will require pedestrianisation or other changes to street design, for example, or to local planning restrictions – and it’s not clear how far that £450,000 will actually stretch. But this is nonetheless a lovely example of solving a problem while actually making a city better. 

Something similar is happening across the North Sea, incidentally, where the Dutch city of Rotterdam is allowing all businesses to convert parking spaces to retail space without a permit, and even offering them a loan of some free decking with which to do it. More here, albeit in Dutch.