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A GOVERNMENT plan to allow English councils to retain all of their collected business rates would only increase inequality for poorer local authorities that rely on sharing funds, Labour says.
A new report published by the Institute of Fiscal Studies think tank warns against the plan which would see an increase in the share of business rates that councils keep from 50 to 75 per cent in 2020.
The government is currently piloting a scheme in which some councils keep all of their collected business rates.
Significant divergences could arise in just a few years under 100 per cent rates retention, the report says.
Under current rules, 50 per cent of business rates — council tax for commercial properties — from each council are paid to central government and the funds then get divvied out to all local authority areas in line with a population-based formula.
Councils which would keep most, or all, of their revenue were often not the councils that had the biggest increases in their relative spending needs that result from an older, poorer and sicker population, the report says.
Labour’s shadow secretary for communities and local government Andrew Gwynne said: “The government needs to take stock and reassess its approach to funding local government.
“There is a real risk that services and councils are reaching a financial breaking point.
“The sector needs clarity that there is an appropriate mechanism in place that will ensure sustainable funding and will not widen the gap in regional inequality.
“The next Labour government will empower our councils through a new brand of municipal socialism, supporting the sector to rebuild after years of Tory austerity.”
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