Labour MPs in the North East have been asked to draw up fresh proposals for helping the region’s economy grow, after a high-profile policy launched by their party leader Ed Miliband came in for criticism.
Mr Miliband set out plans to let combined authorities such as the North East Combined Authority keep additional business taxes generated by economic growth, as part of a package of measures to back regional economies.
But the proposal was criticised by council leaders and Labour’s own MPs in the North East, who warned that the measure would only benefit areas with the fastest-growing economies - which tend to be wealthier in the first place.
Business rates are currently collected by councils, taking in £26.1bn each year nationwide, and most of this is then passed on to the Treasury, which distributes the cash back to local authorities based on where the money is needed.
This means funding is redistributed from wealthier parts of the county to areas with the highest need, such as the North East.
Earlier this year, the party leadership backed plans drawn up by peer Lord Adonis to let councils keep 100% of extra business rate revenue generated from economic growth.
The announcement was made despite warnings from the Association of North East Councils that it could leave the North East worse off.
Labour has now told councils they will be free to opt out of the policy if they believe it will disadvantage them.
And the region’s MPs have met Shadow Business Secretary Chuka Umunna and Shadow Local Government Secretary Hilary Benn to discuss their concerns.
Labour officials said the MPs had been asked to draw up alternative proposals for how a Labour government can help the North East’s economy grow and create jobs in the region, including plans to back specific key industries in the region.
Party officials also stressed that retaining business rates was only one of a number of policies announced by the party in June. Others included devolving more than £30bn in funding from Whitehall to local authorities, to boost housing, transport, business support, employment and adult skills.
Newcastle East MP Nick Brown said he was concerned about allowing councils to retain business rates.
He said: “The business rate as a tax collects money across the country on the basis of a universal formula, and distributes it on the basis of need.
“The North East receives more than it pays in, and that’s because other parts of the country are more prosperous than we are.
“Therefore if you localise it, it disadvantages the less wealthy parts of the country, which includes us. That is our concern.”
A Labour Party spokesperson said: “The Adonis Review recommended devolving £30bn of budgets to local areas, supporting them to grow jobs, boost growth, and to help tackle the regional imbalances which have got worse under the Tory-led government.
“Our proposal on business rates would mean that revenues would still be re-allocated across the country.
“However, we would enable combined authorities to keep 100% of extra growth in business rate yields where this increases over and above what is currently expected, so that all areas can be rewarded for spurring new business growth. At present, authorities are only able to keep 50% of this.”