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Local authorities should be allowed to retain business rates

Aberdeen City Council receives the lowest funding of all local authorities per head in Scotland.

From the outside this may seem appropriate for a city that is widely reported as booming, but that misses the key point: that the existing funding allocation is leading to missed opportunities, lost growth and therefore reduced wealth across Scotland.

A simple example is the oil and gas business, driven from Aberdeen and delivered across the UK, which would benefit from public sector investment in the city. Good supply chain examples include FMC in Dunfermline and Wood Group in Lanarkshire.

However, for that to be realised, the centre of excellence has to remain focused in the north-east. It requires investment in Aberdeen to ensure it remains a global energy hub. It needs public sector funding to match the ambitions of the private sector.

The local authority might say the existing funding allocated through the Convention of Scottish Local Authorities (Cosla) does not allow that to happen no matter the ambition of the public sector. This is possibly a reason behind Aberdeen City Council's decision to hand in its notice to Cosla.

The existing funding approach means any additional non-domestic rates or business and personal tax generated in the north-east are returned to central government, either in Holyrood or Westminster.

Funding is reallocated again using the same formula, which compounds the issue. The local authority has no real incentive to grow revenue generated in the region, or cannot fully support growth, and so Scotland suffers.

The solution in this case is simple - incentivise local authorities to support economic growth but still deliver their statutory requirements. Central government should allow local authorities to retain some of the revenue generated through business rates, income tax and corporation tax - think of it as a performance bonus. These local authorities would spend the bonus locally on services or supporting growth and enabling private sector investment. This creates a win-win situation where reinvestment can be made at a local level but the Scottish and UK economies benefit through greater tax returns.

It happens every day in the world of business and in many public sector environments, so why not here?

l James Bream is research and policy director at Aberdeen and Grampian Chamber of Commerce

Contextual targeting label: 
Business

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