The Local Government Finance Act 2012, which will transfer economic power from Whitehall to local councils and could potentially grow the economy by over £10bn, gained Royal Assent on Friday, having been passed by the Commons on 31 October.
The Act will support growth by directly linking a council’s financial revenue to the decisions they take to back local firms and local jobs. Local Government will receive a fifty percent ‘local share’ of business rates and then keep any growth they generate on that share for a seven-year period, providing a strong incentive to go for growth.
Under the Act, councils will keep an estimated £11.5bn, half of all business rates levied within their area, as a ‘local share’. The other half, the ‘central share’, will be taken by the Government and redistributed in full to local authorities in the form of needs-based grants.
Last year £19bn in business rates collected by local councils was taken by the Treasury and redistributed back out through a complex grant system, which was ranked as one of the most centralised in the world.
Local Government Secretary Erick Pickles believes that the Act could deliver over a £10bn boost to the wider economy and generate more business rate income for councils to help pay off the deficit and support frontline services that protect vulnerable communities.
It is hoped that the Act will create a new, fairer system of council tax support that will help to reduce the deficit by saving £470 million a year in benefits. While from next year councils will run local council tax support schemes, thereby giving them an incentive to reduce fraud, promote local enterprise and help people back to work and off benefits.