Birmingham City Council’s financial problems could be eased by a dramatic reform of the way local businesses pay rates.The Government is to change the law to allow councils to keep millions of pounds they collect from local firms.The move ends a controversial scheme introduced by Margaret Thatcher in 1988.
Councils lost out when she insisted that rates cash had to be sent to the Treasury, with only a portion being redistributed to cities like Birmingham.
Deputy Prime Minister Nick Clegg announced the change at the Local Government Association conference at the ICC in Birmingham.
He said allowing councils to keep all of the rates would act as an incentive to attract new firms and jobs.
Birmingham will also be given freedom by the Government to borrow money to pay for schools, roads and transport projects – using the income from business rates to meet the repayments.
The system, known as Tax Incremental Funding, will be extended across the whole city and not limited to the boundaries of a city centre enterprise zone.
It’s thought as much as £1 billion could be generated, enabling the council to press forward with schemes like the Midland Metro tram network.
Mr Clegg said Britain was unique in the developed world because only five per cent of money spent by councils was raised through local taxes.
Addressing LGA delegates, he said: “We will give you the freedom to borrow against projected future business rates and raise money for infrastructure projects.”
Birmingham Chamber of Commerce spokesman John Lamb said: “This is something we have been campaigning for and it is very good news indeed.
“We are delighted that tax incremental funding has been adopted by the Government and is to be extended across the entire city.”