North East councils 'face cash-loss' from business reform

Labour politicians claim £400m could be lost to councils in the North East under plans to reform business rates.

They said government proposals to change the way the rates are distributed could leave some town halls with a financial black hole.

However, the coalition disputes this and accused Labour of scaremongering.

The changes could see councils keeping most of the money they collect, which could mean more money for some authorities and less for others.

Shortfall 'remedied'

At the moment, councils collect business rates from their area and then hand them over to the Treasury.

The cash is then redistributed among local authorities according to levels of population and deprivation.

But under the new proposals, which could come into force in 2014, councils would keep most of the money they collect from business rates.

This, claim critics, would lead to some big winners and - in the north east - some big losers.

For instance, Newcastle City Council may lose around £15m-a-year and Durham £100m, according to calculations examining the difference between what they currently pay into the Treasury and what they receive back.

By contrast, some councils would gain from the change; Westminster City Council to the tune of over £1bn a year, figures from the Chartered Institute of Public Finance and Accountancy (CIPFA), placed in the House of Commons library, suggest.

The Labour MP for Washington and Sunderland West, Sharon Hodgson, whose home city stands to lose around £58m under the new calculations, said the proposals are deeply flawed.

She said: "Look at Westminster and the City of London. Under these proposals they will benefit - Westminster will benefit by a billion pounds and the City of London by half a billion pounds. How, under any formula, is that fair?"

But some parts of the region could receive a large boost. For instance, Stockton-on-Tees Council could gain half-a-million pounds and on the other side of the Pennines, district councils in Cumbria would all see their incomes rise.

Coalition politicians dispute claims that some councils will face losses, arguing that any shortfall from receipt of non domestic rates would be made up through other grants.

The government also pointed out the proposals would give town halls a big incentive to attract more firms to their area - thereby boosting town hall coffers.

Councillor Robert Oliver, leader of the Conservative group on Sunderland City Council, said: "What this intends to do is give a financial incentive to councils to try and actually grow business rates in the cities, because obviously North East councils need to have more business rates, they need to encourage more businesses to come into cities."

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