Driving local growth: the business case

Transcription

1 Driving local growth: the business case

2 contents 1 1. EXECUTIVE SUMMARY 2 2. INTRODUCTION 3 3. BUSINESS RATES REFORM: WELCOME BUT LIMITED 4 LIMITATIONS OF THE REFORMS 5 4. WHAT BUSINESSES WANT THEIR COUNCIL TO DELIVER: THE NEED FOR THE INCLUSION OF RATEABLE VALUES 6 5. A NEW COMMITMENT TO LOCAL BUSINESSES: BETTER COMMUNICATION, GREATER ACCOUNTABILITY 8 COMMUNICATING WITH BUSINESSES: A TARGETED APPROACH 9 MAKING COUNCILS MORE ACCOUNTABLE TO BUSINESS CREATING COMPETITION FOR BUSINESS CONCLUSIONS AND RECOMMENDATIONS 15 London Chamber of Commerce and Industry (LCCI) LCCI represents London businesses interests to the Mayor and the GLA, national government, opposition parties and other relevant stakeholders. LCCI s research focuses on business-related matters led by the views and experiences of our member companies and is characterised by its independence and solution-focused approach. Any data reproduced from the report should be fully referenced. LCCI would like to thank everybody that contributed to this report. For further information on this report, please contact: Dr Helen Hill Director of Policy and Public Affairs E: hhill@londonchamber.co.uk T: +44 (0) Iain Smith Public Affairs Manager E: ismith@londonchamber.co.uk T: +44 (0)

3 1. EXECUTIVE SUMMARY 2 The Local Government Finance Bill aims to put in place a new system of business rates retention at a local authority level. London Chamber of Commerce and Industry (LCCI) welcomes this reform because it will create a financial link between councils and their local business base, which will incentivise councils to focus more on business growth in their locality. However, the Bill as it currently stands only has the ability to go so far. To fully maximise its potential, the business case needs to be more properly examined. The government s decision to exclude rateable value increases from the business rates retention scheme means that councils only stand to benefit under the new system if they permit new forms of physical growth in their area. Councils that choose to improve the economic viability of their area in other ways, such as by investing in public realm or improving community safety, will receive no further incentives to do so because they will be prevented from capturing any of the resulting uplift in rateable values that these improvements generate. This report will show, however, that businesses want their council to be investing in these kinds of improvements. The government therefore needs to reconsider its decision to exclude all rateable value increases from the business rates retention scheme. Allowing councils to keep at least a portion of any increases in rateable values will further incentivise them to invest in those things that businesses want, such as infrastructure and public realm improvements. It is crucial to note, however, that by allowing councils to benefit from increases in rateable values this effectively means councils will benefit from a tax rise on businesses. 1 The success of Business Improvement Districts (BIDs) is proof that businesses are prepared to pay more in business rates, but only because firms know those taxes will go towards investment in their locality. If councils are permitted to keep a proportion of increases in rateable values, it is vital that they commit to developing a new relationship with their business community. This report will therefore also consider the current weaknesses in the relationship between councils and businesses and suggest practical ways for how it could be improved. It will be shown that a new dynamic between councils and businesses could go a long way to driving growth at a local level. In order to draw these conclusions, LCCI conducted a survey of 136 London businesses, together with interviews with representatives from eight businesses of different sizes and sectors and three local councils. 1 Business rates are calculated by multiplying the rateable value of a property by the business rates multiplier, so an increase in rateable values will lead to an increase in business rates.

4 2. INTRODUCTION 3 Since coming into power in May 2010, one of the recurring themes in the coalition government s reform agenda has been the issue of localism. The desire to decentralise power away from Westminster and Whitehall has been a policy area where the leaderships of both coalition partners have been able to find common ground. As part of this localism agenda, the government is aiming to create a new dynamic between local authorities and their business base to stimulate growth at a local level. This can be seen in various government policies, such as the Localism Act, the National Planning Policy Framework and Local Enterprise Partnerships. However, this report will concern itself with one piece of government legislation: the Local Government Finance Bill. 2 As part of the Bill the government will introduce reform of the current business rates system. It proposes a new model of business rates retention whereby local authorities will be able to retain a proportion of any increase in business rates generated in their area. The intention is to create a system that, put simply, means councils will be financially better off if they are able to successfully put in place policies that grow their business rates base. Business rates retention: a system of tariffs and top-ups At the outset of the new system, which the government plans to have in place for the beginning of financial year 2013/14, each local authority in England would have their funding requirement set against a baseline position. This baseline would be within expenditure control totals set out in the 2010 Comprehensive Spending Review, and would be used to calculate either a tariff or top-up amount for each local authority. Those that collect business rates in excess of the baseline level would pay a tariff to central government, whilst those that collect less than the baseline level would receive a top-up grant from central government. Tariffs and top-ups would be fixed for a set period of time so that any physical growth that takes a council s business rates income above the baseline would be retained, thus creating a growth incentive for councils. Although central government would aim to only reset the system every ten years, it would retain the power to reset the system in exceptional circumstances, such as if the spending needs of councils were out of balance with the funding they receive. The system would still be adjusted to take account of the five yearly revaluation process, meaning that councils can only benefit from new business premises being built rather than being able to benefit from increases in rateable values. 2 The Local Government Finance Bill was laid before Parliament in December At the time of writing the Bill was still progressing through Parliament. A copy of the Bill can be found at

5 3. BUSINESS RATES REFORM: WELCOME BUT LIMITED 4 Implicit in the government s desire to create a financial link between councils and local businesses is the recognition that the relationship between the two could be improved, and that, if provided with the right financial incentives, councils could do more to help their local business community. LCCI agrees with this analysis. Our own research shows that there is currently a disconnect between councils and businesses. For example, when asking businesses about the current business rates system we found that many firms are not fully aware of which tier of government is responsible for setting, collecting and redistributing business rates; and that many firms think that local authorities have greater control over business rates than they actually do. More than half (53 per cent) of businesses surveyed thought that councils are responsible for setting business rates; whilst only 40 per cent knew that the responsibility lies with central government (see Figure 1). A much higher percentage (84 per cent) of respondents were aware that local councils are responsible for the collection of business rates. However, only 48 per cent of London firms were able to correctly identify central government as being in charge of redistributing business rates once collected, with 40 per cent attributing this responsibility to local government. Figure 1: Businesses understanding of responsibility for setting, collecting and redistributing business rates according to tier of government 100% 80 84% 60 53% 48% 40 40% 40% 20 7% 7% 9% 12% 0 Setting the level of business rates Collecting busines rates Distribution of business rates once collected Central government Local government Don't know

6 These misperceptions on the side of businesses presents a situation whereby the government is trying to reform the business rates system to establish a direct financial link between councils and local industry, but many firms already believe that link exists. After all, if a firm is under the impression that councils both set business rates and are responsible for their redistribution once collected, then it is safe to assume that they also believe that council budgets can be directly affected by fluctuations in the local business rates base. 5 Further evidence of misperceptions that exist within the business community were revealed by the unprompted answers that firms gave when asked what one thing their council could do to help their business. By far the most common response was some variation of reduce business rates. 3 This situation undoubtedly affects the relationship between local authorities and businesses, as well as the demands and expectations they place on each other. It is for this reason that we welcome the government s decision to reform the business rates system. First of all, it will mean that firms perception of the system will be more closely aligned with the reality of it. More importantly, by providing councils with financial incentives to concentrate more on their local business community we are hopeful that a new and more productive relationship can begin to develop between the two. However, LCCI believes that these reforms could have gone further. LIMITATIONS OF THE REFORMS Councils that will be able to benefit from the new business rates retention scheme are those with the ability to increase their business rates base, i.e. those with the space and demand for new business premises to be built. LCCI has long believed that councils need to be provided with more incentives to allow development so this is certainly welcome. However, it does mean that the benefits of reform will be limited only to those areas of the country with the capacity for physical growth. The reforms also assume continuous capacity to grow yet many areas of the country, particularly in central London, have little capacity for such growth. This means that the business rates retention scheme, as it currently stands, offers no further incentive for councils to focus on economic growth in areas such as these. For example, were a council to decide to regenerate an area by investing in the public realm, tidying up the streets and making the area safer for visitors, they would see no direct financial gain from that investment, even though they have clearly made the area more attractive for businesses and pushed up rateable values. They would only see a direct financial gain, under these reforms, if they were to permit new physical growth. Thus, rather than incentivising councils to consider the interests of all local firms, it is more likely that councils will focus on either those businesses with the ability to expand their premises or those with the ability to build new business premises. The vast majority of companies will not be in such a position and so are unlikely to see a fundamental change in relationship with their local council. This is a missed opportunity. Just because a company does not have the ability to grow physically does not mean it lacks the ability to grow overall as a business. LCCI believes that councils can and should play a greater role in nurturing that growth and business rates reform provides a unique opportunity to achieve that increased role. 3 In April 2012 councils were given the power to offer business rates discounts as a result of the 2011 Localism Act, but these will have to be funded by councils themselves.

7 4. WHAT BUSINESSES WANT THEIR COUNCIL TO DELIVER: THE NEED FOR THE INCLUSION OF RATEABLE VALUES 6 We asked businesses what areas of policy they would like to see their council prioritise in order to help their business to grow (see Figure 2). The answers to this question highlight the role that councils can play in developing their local economy beyond simply permitting new physical growth. Figure 2: Policy areas that businesses would like to see prioritised by their local council 4 Investing in local infrastructure 62% Improving community safety 40% Maintaining the built environment Improving communication with the business community 35% 35% Easing planning restrictions to support businesses' growth plans 29% Improving business support services 22% Improving regulatory services 18% Don't know 5% Other 1% As can be seen in Figure 2, the top three most popular answers for what a council should prioritise to help local businesses were investing in local infrastructure, improving community safety and maintaining the built environment. If local councils were to focus investment on any, or all three, of these options the result would be for rateable values in the area to increase. However, as the new system of business rates retention currently stands, councils would not stand to benefit from any of that increase in rateable values. Again, this is a missed opportunity. If local councils are to improve their offering to local businesses they need further incentives to invest in those things that local businesses want, such as better infrastructure. This incentive can only be created if local councils are allowed to keep a proportion of any uplift in the rateable value of business premises. We are fully aware that for some councils increases in rateable values cannot be solely credited to their investment activity so it would be unfair for them to keep all of the uplift at revaluation. However, if councils can demonstrably prove to the Valuation Office Agency that their investment in a particular area has led to an increase in the rateable value of business premises then those councils should be able to keep a proportion of the increase in business rates. 4 Respondents could pick up to three options

8 Going further, we believe that before a local council is able to keep any increase in business rates through investment, they should also demonstrate that they have actively consulted with the local business community about it. Any investment will ultimately increase taxes on business if it increases rateable values so it is vital that local businesses are supportive of the investment. 7 Such a new mechanism of consultation with local businesses would provide firms with a unique opportunity to influence those decisions that affect them. It would also contribute towards creating the kind of new relationship between councils and businesses that the government is keen to establish. Models such as that of Business Improvement Districts, whereby businesses are charged a supplement on their business rates in return for that money being invested in their locality, are proof that businesses are prepared to pay more in business rates but only if they can see where that money is going and are satisfied that the investment has improved conditions for their business.

9 5. A NEW COMMITMENT TO LOCAL BUSINESSES: BETTER COMMUNICATION, GREATER ACCOUNTABILITY 8 Even if provided with more incentives to prioritise economic growth, our research has uncovered an underlying negativity within businesses towards local councils that will still need to be addressed if a more productive relationship is to be achieved between the two. We asked firms whether they felt confident that the new business rates system, whereby council budgets are directly affected by fluctuations in the business rates base, would incentivise councils to focus more on local economic growth. The answers revealed a significant lack of business confidence towards local councils. Over half (55 per cent) of businesses surveyed were not confident at all or not very confident that the new system would incentivise councils to focus more on local economic growth (17 and 38 per cent, respectively), compared to just 42 per cent that said they were fairly confident or very confident that the reforms would change priorities (38 and four per cent, respectively) (see Figure 3). Figure 3: Businesses confidence in whether a system of business rates retention will incentivise their local council to focus more on economic growth 40% 38% 38% % % 4% 0 Very confident Fairly confident Not very confident Not confident at all Don't know This lack of confidence in business rates reform points towards a feeling within many firms that local councils, regardless of what incentives are put in place, will never sufficiently prioritise the interests of businesses. In order to address this situation, as one survey respondent explained, there needs to be a better balance between the needs of businesses with those of residents and better support and recognition of the local economic contribution of businesses. This view is shared by many within the business community and neatly summarises an argument that was made throughout the interview process for this report. The majority of council services are aimed at residents, which means it is their interaction with residents that comes first for many councils, sometimes at the expense of businesses. This is exacerbated by the fact that councillors are elected by residents and not businesses, which creates further

10 incentive for business interests to come second to those of residents. The response from a member of staff at one council, when asked how much interaction elected councillors have with their local business base, highlights this point: 9 I m not sure many would go out of their way to engage with businesses but no doubt when businesses write to them to complain about something it certainly finds its way here to be dealt with. Certainly though, when they re knocking on doors at elections clearly it focuses on residents rather than businesses. Businesses quite simply do not have the same opportunities as residents to influence a council s decision-making process because they do not get a vote in local elections, undoubtedly the best opportunity for influencing a council s policies. This is not a problem when the interests of residents and businesses coincide, or when the council is clear about the important contribution firms make to their area in terms of job creation and economic growth. So much so that when we asked one planning consultant why his relationship with one particular local council was good, he replied without hesitation, (because) it s a regeneration area and they understand the need to balance economic growth which leads to job creation with the genuine concerns of local residents. However, when that political will does not exist businesses often find councils to be less responsive to their needs. Residents in many areas do not want to see growth and expansion and are, in fact, firmly opposed to it so this inevitably is what councils have to listen to. The planning consultant quoted above comes into contact with many local authorities and, commenting on a less constructive relationship with a council, he said, the members are pleasant and understanding but whenever it comes to a public decision they are always unbelievably cautious, and not prepared to make a decision that they believe will go against what we believe to be the minority of people who object. This example serves to illustrate the influence that local residents can have over the decisionmaking of councils and how this can sometimes be to the detriment of growth in the local economy. This is not to say, of course, that local residents should not have this influence. It is completely right that local people should play a leading role in the development of their local economy. Moreover, this should not be seen as a call for unrestrained development at the expense of local residents. Yet, it serves as evidence that more needs to be done by both councils and businesses to demonstrate the link between a successful business base and the well-being of a local community as a whole. COMMUNICATING WITH BUSINESSES: A TARGETED APPROACH It is clear that many businesses lack confidence in local councils, and not even the financial incentives provided by a new business rates model appear to be enough to convince them that councils will focus more on their interests. We therefore asked businesses what councils could do to make themselves more aware of the concerns of local industry (see Figure 4).

11 Figure 4: Businesses support for ways local councils can raise their awareness of the concerns of local industry % 43% 43% 44% % 37% 37% 33% 38% 27% 29% 20 12% 10 7% 7% 5% 5% 4% 0 2% 2% A regular forum that businesses can attend to voice their concerns and needs to their council A council commitment to ringfence any increase in business rate revenue for services to local businesses A vote for all business ratepayers in the local election of the area where their business is based Regular council reports to businesses outlining how business rate revenue has been spent A council liaison that regularly visits local businesses and reports their concerns back to the council Local councils are already aware of the concerns of local businesses Don't know None of the above Other All businesses 1 to 19 employees The first thing to note is that only 12 per cent of firms felt that local councils are already aware of the concerns of local businesses, a figure that falls to seven per cent amongst the smallest firms (1 to 19 employees). This serves to emphasise the need for councils to both increase and improve their communication with local businesses. This engagement though cannot rely on current means of communicating and on the good will of businesses because the latter s time is scarce and, in some cases, they are mistrustful of their council. In the words of a representative from a London-based Business Improvement District, the council is admittedly poor at talking to businesses. They seem to think it s a case of we ll send out an into the ether and some kind of information will come back. They do try to sell it that there will be some benefit to businesses in terms of their engagement, but the benefit is more often than not actually for the council. Over a third of respondents (38 per cent) therefore supported the idea of a regular forum where companies representatives could voice their opinions and concerns. However, any such communication and engagement activity between the council and its local business community has to have clear objectives and structure, add value for those taking part and result in clear actions which benefit the participants. Given the time-constraints that companies face, interest amongst business leaders in such meetings will quickly decrease if they are not seen as valuable. 5 Respondents could pick up to three options

12 An alternative means of communication might be through a council liaison who regularly visits local businesses and reports their concerns back to the council, and vice versa. This was supported by over a quarter of firms (27 per cent). Nevertheless, no council, no matter how pro-business, would be able to start and maintain communication with all the businesses in its area, and neither should they be expected to. Many local authorities, particularly in London, cover huge populations with thousands of businesses within them. As one council explained: 11 We ve got thousands of business ratepayers. We can t obviously have a relationship with everyone. If we were a smaller authority and we knew our top ten businesses, no doubt we d have them round the table every six months. We can t possibly do that for all of our business ratepayers. This reality presents local councils with two dilemmas. First, it appears that it is the smallest firms (1 to 19 employees) that would welcome more interaction with their local council (see Figure 4). But it is also these firms that are the hardest to reach for councils simply because there is so many of them. A second, conflicting dilemma for local authorities when dealing with the business community is that not every business actually wants better or increased interaction with their local council. Or as the Managing Director of a small architectural visualisation practice put it, I don t want the council to help me, I just want them to get out of my way. This is a perception shared by a member of staff at one council: We think that the vast majority (of businesses) just get on with their lives, they don t have any interaction with us, we don t have any interaction with them and actually life goes on perfectly fine and actually our best job is to stay out of their hair. All we do is collect their business rates, keep the streets clean outside, empty their rubbish and so on. In other words, some businesses do not want to see a council commitment to better communication with businesses, but a genuine commitment to creating a better business environment for them in general. However, as already explained, the currently proposed reforms to the business rates system will not reward this type of behaviour. The challenge for councils, therefore, is both how to engage more with those businesses that want to and how to be aware of the needs of those that do not. For the former, councils should begin a process of data collection for their entire business base to find out how much further interaction they would like with their council and, if so, what is the best means of communication for making contact with them. A one-size-fits-all approach to communication with businesses will not work. It must be more targeted and, in the words of a business owner in Wimbledon, councils need to make use of all potential routes. I wouldn t be at all surprised if in some Merton publications there is something useful that I ve just thrown away. We are all bombarded with paperwork. Whilst to better understand the concerns of those businesses that do not want more interaction, local authorities must increase their engagement with business representative groups, such as chambers of commerce, BIDs and trade bodies. As one planning consultant put it, I don t think individual businesses do get consulted but to be fair individual businesses often find it very, very difficult to respond, that s why they rely on chambers of commerce to do it. A) because they don t have the time; and B) businesses tend to be very parochial, just like residents. If they have a problem with parking they ll bang on about parking. Some businesses are sensible enough to know they can t do these things themselves, and they want you to take a more active role on their behalf. To make those difficult decisions about priorities and to think wider.

13 The benefits of councils developing relationships with business representative groups were confirmed by a member of staff at one council, when talking about its relationship with local BIDs: They pay a small levy and then decide how that is spent and it also gives us a representative body to talk to. At the moment if we go to a business, we don t know whether what they re saying is indicative of the wider business community or just their point of view. BIDs are more representative of the area. 12 MAKING COUNCILS MORE ACCOUNTABLE TO BUSINESS As mentioned above, some businesses do not necessarily need more interaction with councils. When asked whether he would be prepared to attend a council-run forum for local businesses, the same Managing Director of a small architectural visualisation practice, replied, I would be prepared to go but I think they know all this stuff. I wouldn t be saying anything new. What these firms would like to see is not a council commitment to better communication with them, but a genuine commitment to creating a better environment for business. It is unsurprising therefore that three of the four most popular answers when asked what actions could be taken to increase councils awareness of local businesses, were not those options that involved councils providing some kind of service to companies but were about putting in place procedures that increased the accountability of councils to the needs of local firms (see Figure 4). Almost two fifths of companies (37 per cent) would like to see business ratepayers given a vote in the local election of the area where their company is based, even if they do not live there. They considered that because the decisions taken by their local authority affect them directly, they too should be able to have the opportunity to reject or support certain policies. It is highly unlikely that businesses will be allowed to vote in local authority areas any time soon, but the level of support for this option does serve to demonstrate why there is a need for an improved relationship between businesses and councils. Clearly, these companies do not feel fully involved in councils decision-making processes, and would welcome further opportunities to influence them. Moreover, 33 per cent of respondents would like to see regular council reports to businesses outlining how business rates revenue has been spent. This would not only create the kind of accountability from councils that firms want to see, but it would also commit local authorities to justifying their investment decisions to local businesses. Finally, according to 37 per cent of firms surveyed, increased accountability could be achieved through a council commitment to ringfence any increase in business rates revenue for services directed to local businesses. This measure could be implemented once the new business rates model is in place in 2013 and would ensure that a new system is better placed to respond to the needs of business ratepayers. As we have already explained, firms do not mind paying more in business rates if they can see the benefits of such increases. Ringfencing any increase in business rates revenue would therefore increase councils accountability to their local business community, and ultimately go even further in creating the new kind of dynamic between councils and businesses that the government is trying to foster.

14 6. CREATING COMPETITION FOR BUSINESS 13 A potential consequence of local councils further prioritising the growth of their local business community could be the creation of an environment where local authorities compete with each other to attract businesses into their area. For example, a local authority that has neglected its business base would be more likely to change its behaviour if it notices an exodus of firms to a neighbouring local authority area that is offering better conditions for growth. As part of our research we asked businesses what would make them consider moving their operation to another borough (see Figure 5). Figure 5: Factors that would make a business consider moving local authority area 6 I would not consider moving from my current borough 48% Better infrastructure 28% Better built environment 6% Safer environment 11% Better business support services 9% Better regulatory services 1% A more pro-development planning authority 8% A business rates discount 21% Other Don't know 3% 3% The first thing to point out about Figure 5 is that 48 per cent of businesses would not consider moving their business to another borough. This is a significant number, but once you take out those respondents that answered don t know that leaves 49 per cent that would consider moving if the right offering from another borough was in place. It should be acknowledged that moving your business is a significant undertaking and so the proposition offered by another council would need to be particularly attractive, but there is no reason why local councils should not aspire to such standards. Again, proving that many firms want councils to get the basic environment right for business, the most popular answer was better infrastructure, which 28 per cent of respondents chose. The next most popular answer was a business rates discount, which 21 per cent of businesses said would make them consider moving their business. This figure increases further for businesses with only 1 to 19 employees, to 27 per cent. Given the budget constraints local councils are currently facing, it will be extremely difficult for most authorities to offer any discount in business rates in the foreseeable future. However, once the budgets of local councils return to a more sustainable footing this is a power that councils could utilise to attract businesses into their area. As one council noted, certainly we expect to be quite vociferously lobbied to offer business rates discounts once the word gets out that we ve got the power to do so. 6 Respondents could pick up to two options

15 Such a commitment though should not just be aimed at attracting larger businesses. SMEs are most likely to benefit from a business rates discount so that is where it should be aimed. During the height of the economic downturn for example, it would have been a very useful tool that councils could have used to support their SME community. 14 It is worth noting that only eight per cent of businesses would consider moving on account of a local council having a more pro-development planning policy. This does not mean that local councils should not see it as an important part of their offering to businesses. After all, when there are around 4.5 million businesses in the UK, eight per cent of those is a significant number. However, it does serve to reiterate the main premise of this report; that by focusing on new forms of physical growth the government s business rates reforms will have a limited impact.

16 7. CONCLUSIONS AND RECOMMENDATIONS 15 Growth in the UK economy is the number one issue for businesses. If this is to be achieved, all those with the ability to affect the UK s growth prospects need to be pulling in the same direction. Growth will not be achieved by central government simply clicking its fingers. Whilst decisions made in Westminster and Whitehall are certainly important, all tiers of government need to be playing their part. If local councils are to be expected to contribute more to the UK s growth potential then they need to be given the tools to do so. However, any discussion about how to drive growth at a local level cannot simply be a dialogue between competing tiers of government. The biggest drivers of local growth businesses need the opportunity to present their case: the business case. It is local businesses that provide jobs and prosperity for an area. It is the taxes paid by local businesses that contribute towards the kind of public services that all of us want and expect. It is local businesses that often go beyond their day-to-day activities and invest time and resources into the wider community. It is local businesses that are integral to driving local growth. This report has made a number of easily achievable suggestions as to how growth can be achieved at a local level. The overriding theme being that businesses need to be fully involved in the reform agenda. If a better dynamic between local councils and businesses can be created, LCCI sees no reason why the decentralisation process cannot go further in future. If local councils can win the trust of their local business community and can prove that they have improved their local business environment, then further innovative funding mechanisms and powers should be forthcoming in future. Before councils can win that trust, however, the key findings and recommendations of this report need to be considered and acted upon. (i) The relationship between councils and businesses could be improved LCCI supports the government s assertion that a better and more productive relationship could be achieved between councils and their local business community. Our research reveals a disconnect between the two that could be improved if councils are given the right financial incentives to focus more on growth in their local economy. (ii) The current business rates reforms are limited The Local Government Finance Bill, as it currently stands, does not go far enough in creating the right financial incentives for local councils to commit fully to better engagement with their entire local business base. The Bill only goes as far as incentivising councils to concentrate on those businesses with the ability to offer new physical growth in their locality. (iii) Rateable values must be recognised in the business rates retention scheme In order to incentivise councils to deliver for more of their business base, the government should reconsider its decision to exclude all rateable value increases from the business rates retention scheme. Businesses want councils to invest in those things that will increase rateable values, such as infrastructure and public realm improvements. Where councils can prove that their investment has led to an increase in rateable values, they should be allowed to keep a proportion of the resulting increase in business rates.

17 (iv) Businesses must be fully engaged in the new system Including rateable values in the new business rates system will mean councils will benefit from increases in business rates. Business Improvement Districts are evidence of the fact that business are prepared to pay more in business rates in return for greater investment in their local area. Before councils are allowed to keep any increase in rateable values from the investments they have made, they must be required to prove that they have properly consulted local businesses on what investment they would like to see. 16 (v) Creating the political will for a new focus on business A much better job needs to be done at explaining to local residents the benefits that businesses bring to an area. Given that council budgets will now be tied to the success of local businesses this should be explained and publicised to local residents. It is businesses that ensure the long-term economic viability of an area. It must therefore be incumbent on all those with an interest in seeing local economic growth whether that be businesses, chambers of commerce and other business groups, local councils, or residents to do more to explain to local people the benefits that a thriving business community can bring to an area. (vi) Targeted communication When engaging with the local business community councils must recognise that it is not a homogenous entity. A targeted approach is needed by councils when dealing with local businesses. Some would welcome greater lines of communication, but many businesses do not expect more or better interaction with their local council. These firms just want their council to get the basics right in terms of setting the right environment for growth. Representatives of business must also recognise that many councils do already try to interact with their business community but struggle to get companies to engage. Councils and business groups such as chambers of commerce should therefore look to interact more with one another in order to aid those councils looking to communicate with local businesses. (vii) Greater accountability Where the government s reforms fall short in creating a new relationship between councils and businesses, local authorities should look to increase their accountability to local businesses voluntarily. For example, they could commit to ringfence a proportion of any increase in their business rates base and use the capital to invest in creating the right conditions for businesses to grow. Such a commitment would go some way to convincing firms that councils are fully committed to the local business community. (viii) Competition between councils is welcome An element of competition between local councils to attract local businesses to their area would be welcome and has the potential to improve the business services that councils offer. Better infrastructure, a business rates discount, a safer business environment and a more prodevelopment planning authority all have been stated as factors that could persuade a business to move their operation to another local authority area.

18 London Chamber of Commerce and Industry 33 Queen Street, London EC4R 1AP T: +44 (0) F: +44 (0) E: W: londonchamber.co.uk This brochure is printed on Forest Stewardship Council (FSC) certified paper. FSC is a non-profit international organisation promoting responsible forest management. FSC has developed principles for forest management which may be used for certifying the management of forest holdings, and a system of tracing, verifying and labelling timber and wood products which originate from FSC certified forests (Chain of Custody).