The current dependency of councils on central grant allocations makes planning difficult, weakens accountability, and stifles local innovation. In the future, Government is keen to move to a radically different system of funding and support for councils that is built on strong incentives, is driven by local decision-making and breaks this dependency. This would include looking at business rates staying local. This would make a huge difference to raising money to invest in better infrastructure to attract business.

The review of local government resources will consider how we can recast the distribution of business rates and Formula Grant to deliver a more effective income stream for councils. The focus will be to free up as many local authorities as possible from dependency on central government funding, as well as develop better incentives for local authorities to promote economic growth in their areas and to benefit financially from that growth. The first phase of the Review will deliver proposals for reform by July 2011.

The review will include consideration of changes to the business rates system and will take account of the responses made to the questions in Local growth: Realising every place’s potential. It will also conduct extensive engagement with interested parties, including businesses of all sizes, to ensure that all views and perspectives are taken into account. In developing the proposals, the Government is clear that businesses should not be subject to locally imposed increases in the burden of taxation that they do not support.

Following the announcement at the Spending Review and through introduction of the Welfare Reform Bill that Government will localise Council Tax Benefit, the Review will also consider the design of the new scheme (to be launched in 2013-14) and what flexibilities local authorities should have to help keep overall council tax levels down.

The first phase of Review will conclude by July 2011, followed by the necessary steps to implement the concluded reforms. The second phase of the Local Government Resource Review will commence in April 2011 and will focus on community budgets. It will be taken forward in parallel with the continued roll out of these Budgets.