BIG firms will be able to blackmail North councils if a Government review of business rates goes unchallenged, city leaders have warned.
Ministers are to be told plans to change the way money is handed to councils will see millions of pounds wiped off North East budgets and hand large employers a big say in setting local business taxes.
At present the Government takes all business rates collected by councils and redistributes it to ensure poorer areas have enough money to pay for vital services. A shake-up announced by the Department of Communities and Local Government will mean well-off councils in London, the South East and other major cities with a large private sector are allowed to keep more of their businesses rates – a change which will mean considerably less funding for others.
And South Tyneside leader Iain Malcolm has warned handing back power over local business rates may actually make life worse for some councils.
He is concerned councils will be left with no choice but to reduce rates if large employers tell him they will move jobs away if taxes don’t shrink.
Such a situation would, it is feared, leave councils with no choice but to cut services further to close the inevitable budget gap the tax cuts would create.
“This will have a huge effect on the North, as bad as the Government cuts if not worse in the longer term,” Mr Malcolm said.
“My council collects some £25m in business rates, we hand this to the Government but we get back £75m. That makes a huge difference to us, it underpins everything.
“And if they say set the rate locally we will lose out more, because there will be nothing to stop a supermarket say coming to me and saying either you reduce the rates here or we go elsewhere.
“You effectively hand over control to the employers and there is a lot less money then to pay for services. And that on top of £35m in cuts handed to my council alone.
“There are big regional variations here as well, already it is clear that parts of the North East will be among the biggest losers. This goes against what tax is supposed to be for, about redistribution that helps everyone. The winners here will be the likes of Westminster Council or the City.”
Last month The Journal revealed there were worries in the run up to the changes from Durham County Council leader Simon Henig.
His council would be among the worst hit, losing £82.5m a year, with Northumberland missing out on £38.5m and Newcastle £8m. In Northumberland council leaders described the proposals as “ludicrous”, with the county council among those warning the Government not to scrap redistribution.
However, the proposals would see councils such as Surrey gain as much as £295m a year.
The figures are based on a 100% reduction in business rate redistribution.
Mr Malcolm said even if this higher figure is not used, there would still be trouble for North councils, with a 25% hit still worth millions of pounds.
A DCLG spokesperson said: “As we announced in October’s Local Growth White Paper, the Government is considering options to enable councils to retain locally-raised business rates.
“Such reforms have the potential to make councils less dependent on the whims of Whitehall funding and will give new incentives for councils to help local firms and back local job creation.
“Deprived areas will continue to receive additional central support.”