UK government ministers are exploring plans to devolve billions of pounds raised through business rates to regional authorities in England, in a move that could reshape local government funding. The proposal, which is still in early stages, would see revenues currently collected centrally redirected to combined authorities and mayoralties, giving them greater control over local economic development.
Potential Impact on Local Economies
Under the current system, business rates are pooled nationally and redistributed to councils. The new plan would allow regions to retain a larger share of the taxes generated within their borders, incentivizing local growth and investment. Proponents argue this could unlock significant funding for infrastructure, skills training, and business support, particularly in areas with high commercial activity.
However, critics warn that the policy could exacerbate inequalities between prosperous and struggling regions. Areas with weaker business bases might see less revenue, potentially widening the gap. To address this, ministers are considering a safety net or equalization mechanism to ensure all regions benefit.
Government Consultation Underway
The Ministry of Housing, Communities and Local Government has launched a consultation with regional leaders, business groups, and tax experts. Key questions include how to define the revenue-sharing formula, whether to cap or ring-fence funds for specific uses, and how to ensure accountability. A white paper is expected later this year.
Chancellor of the Exchequer has signaled support for the principle of devolution, stating that "local leaders know best how to drive growth in their communities." The Treasury is also examining how the policy might interact with ongoing reforms to business rates, including more frequent revaluations and relief for small businesses.
Reactions from Regional Leaders
Mayors of combined authorities have broadly welcomed the proposal. The Mayor of Greater Manchester called it a "game-changer" that could accelerate the region's transport and housing projects. The West Midlands mayor emphasized the need for flexibility, saying that "one-size-fits-all solutions from Whitehall have held us back."
However, some council leaders in less affluent areas expressed caution. The leader of Durham County Council warned that without proper safeguards, the policy could "leave left-behind communities even further behind." The Local Government Association has urged the government to ensure that any new system is fair and transparent.
The move comes amid broader efforts to level up the UK economy, with the government already devolving powers over transport, skills, and housing to combined authorities. If implemented, the business rates devolution could be one of the most significant fiscal transfers to regions in decades.
