Contact: Nick Gibbins, (01962) 84 7544; [email protected], John Rees-Evans, (01962) 84 6628; [email protected].

1 Introduction

1.1 The Government introduced the LABGI scheme in 2005 for a three year trial period to provide an incentive for local authorities to encourage local business growth. The scheme was designed to pay a proportion of the increase in business rateable value directly to local authorities rather than into the national business rate pool. A cap of £935m was set to cover payments in England over a three year period 2005/06 to 2007/08.

1.2 The Government confirmed in the 2007 budget that it intended to bring forward proposals to reform the scheme in the light of recommendations made by the Lyons inquiry and has now published a consultation paper seeking views by 12 December 2007 on the principles that should underlie reform of the scheme. The Government then intends to produce a further consultation paper in the Spring of 2008 containing firm proposals and options for a revised scheme. The Comprehensive Spending Review 2007 (CSR 07) confirmed that the new scheme is not expected to be in place until 2009/10 and is expected to distribute less of the growth in business rates than the current scheme - £150m over the remaining two years of the spending review period, compared with £935m over three years for the current scheme. There will be no LABGI in 2008/09.

1.3 The appendix to this report suggests responses to the 28 questions posed in the consultation document, while the main issues are highlighted in the remainder of the report. The full document is available on the Government's Communities and Local Government website at www.local.communities.gov.uk/finance/labgi.htm.

1 Recommendation

1.1 Subject to any comments the Leader and Cabinet may have, to approve the response to the Government's consultation as set out in the appendix to this report.

2 Main issues raised in the consultative paper

2.1 The main issues raised in the consultative paper are:

· whether or not any financial incentives are required on a permanent basis within the local government finance system to encourage local authorities to promote economic development

· what lessons should be drawn from the current LABGI scheme about the relative importance of simplicity, fairness, predictability and timeliness

· whether the growth in business rateable value should continue, with adjustments, to be the measure of business growth

· whether the allocation of grant should have regard to factors other than the extent of business rate growth, for example whether it should take account of population and the relative size of the business sector as well

· whether the scheme should continue to have regard to historic growth rates in each local authority area and also to other factors such as levels of deprivation and whether a ceiling should be applied to cap the maximum payment made to an authority

· whether grant should be fixed based on the three year grant settlement or payment agreed on a year by year basis

· how LABGI should be split in two tier areas and whether it should be ring fenced.

2.2 The response contained in the appendix is based on the following principles:

· that the scheme should be relatively simple and transparent so as to provide a direct incentive for the local authority to support the health of the local economy, and to recognise that local authorities need additional resources to finance infrastructure costs arising from development

· that supporting a LABGI scheme does not preclude continuing to argue for the relocalisation of business rates

· that no business growth incentive scheme can be entirely fair in being able to recognise those authorities who have made the biggest contribution to business growth and have the biggest infrastructure needs. Reducing the scale of the growth in business rate income being distributed by LABGI in the new scheme proposals is a recognition that this is not necessarily a fair means of allocating a major component of local authority funding.

· that a more predictable flow of grant than within the current scheme is desirable enabling its use to be better planned but that does not necessarily require a three-year allocation to be announced in each three year grant settlement. An alternative approach is proposed which reduces the extent of the time lag, in which grant is allocated on a year by year basis well before the beginning of the relevant financial year based on a rolling three year rate of growth in business rateable value.

· that comparison with historic trends in business rate growth in the area is the best basis for assessing what incentive grant to pay in each area and that the argument for taking account of the level of existing deprivation is not borne out by the current evidence on rates of business rate growth

· that the current split of LABGI in two tier areas should be revised in view of the bigger service impact that development has on upper tier authorities and their role in developing skills and providing infrastructure in support of the local economy. LAGBI should continue to be an non-ring-fenced grant.

3 Impact assessment

3.1 The response to the consultation has no adverse impact on equalities.

Section 100 D - :Local Government Act 1972 - background documents

The following documents discuss facts or matters on which this report, or an important part of it, is based and have been relied upon to a material extent in the preparation of this report.

NB: the list excludes:

1. Published works

2. Documents which disclose exempt or confidential information as defined in the Act.

None.