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24 October 2011

Ill thought through local development will damage regions

Reference number: PR/2011/62

FSB News Release

PR 2011 62

Issue date: Monday 24 October 2011

Ill thought through local development will damage regions

A rush toward ill thought out development simply to generate quick revenue will damage regions in the long run, the Federation of Small Businesses (FSB) has said in its consultation response to the Local Government Resource Review, which closes today (Monday 24 October).

The Review, which looks at the way that local authorities in England are financed, proposes that councils will be able to keep the additional business rates they generate through economic growth. More businesses would mean a greater amount of income for the region.

While the FSB is supportive of a system which incentivises local councils to prioritise business growth, it is imperative that any incentive encourages small business growth, not just large scale developments especially out of town developments. This should be done through robust planning protections for the high street and town centres by looking at the Review in the context of the National Planning Policy Framework to ensure that it supports town centres and the overall goal of long term sustainable growth.

However, the FSB is concerned that the incentive system could actually deter local authorities from promoting and utilising the reliefs available to small businesses such as small business rate relief, rural rate relief and hardship relief.

The current proposal suggests benchmarking the amount of relief a local authority currently grants at the start of the scheme, with councils then receiving the same amount each year after until the system is reset, regardless of how much extra they award to help small businesses.

It would mean that a local authority would lose out on income if it increased the proportion of businesses that received rate relief or would make money if the number of businesses able to get reliefs fell.

To avoid such perverse effects, the FSB has proposed that there should be an annual rebate process, where the amount awarded would be reconciled with the year one baseline figure. The local authority would then either receive payment for the additional relief it has awarded, or have to pay back any excess to the Treasury if it awarded less.

To further encourage councils to promote small business growth, the FSB would like to see councils rewarded for increasing the number of small businesses in their area by creating a Small Business Bonus scheme - similar to the proposed New Homes Bonus. This could be funded out of the business rates revenue surplus projected to emerge from 2012.

John Walker, National Chairman, Federation of Small Businesses, said:

"We have said from the start that the reliefs that are available to small businesses must continue to be funded by the Government so that local authorities still have a reason to promote them. While this is happening, we are concerned that the current proposals would see them receive the same amount each year – irrespective of if they had increased the number of businesses that could claim rates relief.

"We also need to make sure that the high street is protected. With latest national figures showing that one in seven shops are vacant, local authorities must support the Town Centre First policy and not just allow large scale development, and especially those out of town, to generate more income as they attract a higher level of business rates. The whole focus of this scheme should be to encourage councils to promote long term sustainable economic growth. This can only be done if it is built upon a bedrock of stronger small businesses and through encouraging the creation of new firms."