GOVERNMENT proposals to overhaul the funding system for councils will leave Northern cities “derelict”, it was claimed yesterday.
Durham North West MP Pat Glass spoke out as Communities and Local Government Minister Andrew Stunell insisted the North East could see a cash boost from changes to the business rates system.
Councils collect money and send it to the Treasury. Cash is then redistributed under the formula grant system, which is supposed to be based on need.
But ministers want councils to keep most of what they collect, sparking cross-party fears the region, with a smaller tax base, faces a financial black hole.
And the Government’s plans yesterday came under fire as more than a dozen North East MPs attended a Parliamentary debate on the proposals, secured by Sunderland Central’s Julie Elliott.
Speaking in the debate, Ms Glass said: “Would she agree with me that the Government’s proposals are exactly what happened in America in the 1980s, where cities like New Orleans and Detroit became derelict cities with anyone who could, moving out of the cities to be able to acquire the services that they need?
“And what the Government is proposing will create derelict cities in the North?”
Ms Elliott said there was “an absolute danger” of that – which was the debate was so important.
Sir Alan Beith, Liberal Democrat MP for Berwick, expressed concern for rural areas like Northumberland that had “greater difficulty” in attracting companies paying high business rates.
He also said the county faced the potential loss of its biggest single industrial business ratepayer in the form of the Alcan plant at Lynemouth.
Ms Elliott said: “The problems are not just within the cities, but the rural areas of Northumberland and County Durham are as badly affected by this.”
She warned the gap between the formula grant and business rates collected in the North East was about £400m.
“No one is arguing that the formula grant could not be improved, but what the Government is proposing with the localisation of business rates has the potential to make things worse,” said the Labour MP. She said unlike the current system, the Government’s proposals did not even attempt to be fair – taking no account of councils’ ability to generate business or their needs.
An area like South Tyneside could raise £427 per person where Kensington and Chelsea could raise £795 per person – but under the current system the difference was just £3 per person, said the Labour MP. She also warned the new system could encourage retail developments over manufacturing and stressed the need for it to be able cope with shocks such as the loss of big local firms paying large amounts in business rates.
Former minister Iain Wright, Labour MP for Hartlepool, claimed the changes “discriminate” against the North in favour of the South.
Communities and Local Government Minister Andrew Stunell said the current system was passed its “sell-by-date” and “impenetrable” even to council finance chiefs. He insisted a baseline would be set ensuring councils would not see current funding fall and that they could see growing budgets once the current comprehensive spending review (CSR) period had ended in 2014-15.
Mr Stunell said business rate income in England rose by 5% a year compared to 5.1% in the North East Between 2006 and 2009 – higher than inflation or any grant under the existing system.
“So this is not a zero sum reform. There will beyond the CSR period be every prospect of the North East doing well out of this system, of having an increasing flow of business rate,” said the Lib Dem minister.
