Yesterday the Druid swung his sickle at Anglesey County Council for not having done more to prevent the job losses at Anglesey County Foods and elsewhere. This may not have been entirely fair.
Why? Because the powers which Local Councils actually have to set the economic climate in their responsible areas are minimal.
Lets take an example: suppose a Council wanted to strategically attract more businesses to relocate into their authority area (or support existing businesses during a recession) - the obvious way would be to reduce business taxes so as to make their area more attractive financially than surrounding areas. And as more companies would be attracted to move there - employing more people in the process - even though the tax rate itself had gone down the Council would actually raise more revenue because there would be more companies paying it. Sounds like a good idea to the Druid.
So, what business taxes are there? In the UK, there are basically only two:
- Corporation Tax
- Business Rates
The rate of Corporation Tax, which has to be paid by all companies which turn a profit, is set and levied by central Government in Westminster so Local Councils have no power whatsoever to reduce Corporation Tax just within their region.
That leaves Business Rates. Now Business Rates are levied by Local Councils on all businesses within their authority area based on a valuation of their premises. This is how business contribute towards the provision of local services. So, surely Local Councils could make a strategic decision to reduce Business Rates in their region in order to make it more attractive to companies to move there, right?
Wrong. The problem is that even though Local Councils collect Business Rates locally they have no control over the actual rate they charge nor do they keep the money raised. In Wales the rates themselves are set by the Welsh Assembly Government and the money which Anglesey County Council raises from local businesses is also sent to the WAG where it forms part of the Business Rates Pool (which we discussed in my earlier post about Council Tax). The WAG then works out how much money each Local Authority should get from that pool according to the size of the local population within each authority area and by using other social indexes (such as the social deprivation index) and sends it back. So in the end Local Council’s have zero power through the tax system to either attract new businesses or support existing businesses - we are stuck with a one-size-fits-all approach administered jointly by Westminster and Cardiff.
You can see there might be advantages to this system as the the effect of pooling all locally collected Business Rates means that in theory areas which have lots of businesses subsidise areas which do not. But theory does not always work in practice - and as it is allocated back to Local Authorities according to population this does not help Anglesey, which has the smallest resident population of all counties in North Wales, and the second smallest resident population in Wales after Merthyr Tydfil (no doubt because of a migration of people out of the Island due to job losses and general lack of opportunities). Indeed, as per my earlier post on Council Tax in Anglesey, Anglesey County Council had to negotiate a minimum ‘floor’ of a 1% increase with the WAG or we would have received even less cash from the Business Rates Pool.
So what can be done about it? The Druid will return to this topic shortly...