Greater rewards for local authorities that promote business growth

Published	14 September 2006

Ruth Kelly, Secretary of State for Communities and Local Government, and John Healey, Financial Secretary to the Treasury, today announced that local authorities will stand to receive greater rewards for promoting local business growth.

The announcement marks the start of the second year of the three-year Local Authority Business Growth Incentive Scheme (LABGI), which in the last financial year awarded in excess of £126million to over 270 Local Authorities in England. LABGI delivers financial rewards directly to local authorities that promote the greatest levels of continued economic growth in their local areas by allowing them to retain increases in revenue derived from business rates. The money is genuinely additional and the scheme encourages local authorities to build partnerships with local business and promote long-term economic sustainability in their areas.

Changes being introduced for the second year will build on the success of the scheme in its first year making the scheme simpler and more rewarding for local authorities by removing ceilings on the level of payments that can be made. The awards for the second year of the scheme will be delivered to local authorities in February 2007, for growth achieved during 2006. Local authorities themselves will be able to decide how they use this additional money.

Secretary of State for Communities and Local Government, Ruth Kelly, said:

"The Local Authority Business Growth Incentive scheme recognises and rewards councils who grow the business base in their area. I am delighted to announce today that in future we are abolishing the ceilings and increasing the potential for greater financial reward. Every local authority now has a direct financial incentive to promote enterprise, employment and the growth of small and medium sized businesses in their local community."

The Financial Secretary to the Treasury, John Healey, added:

"We want to encourage local authorities to do more to boost jobs, growth and enterprise in their area. The changes to the LABGI scheme make it simpler and more substantial. The extra funds aim to reward councils whose business base is growing and promote stronger partnerships with the private sector. With almost £1billion to be spent in total over the three years of the scheme, councils' rewards from LABGI could as much as 3 times higher this year and in the next year."

Notes to editors

1. The LABGI scheme was announced by the Chancellor in 2002. A consultation on the principles of the scheme was held between July and October 2003, after which the Government conducted an 8-week administrative dry run involving 40 volunteer local authorities. Feedback to the dry run formed part of the second consultation held between August and October 2004.

2. The principles of the scheme are:

that the scheme should give all local authorities an incentive to maximise local economic growth;
that the scheme will give local authorities additional revenues to spend on their own priorities;
that the incentive should be consistent with Government aims for growth in all regions of the country and reductions in the persistent gap in performance between regions;
that the distribution of benefits must be fair, reflecting relative performance not relative circumstances; and
that the scheme should be as intelligible and transparent as possible.

3. The main aspects of the scheme currently are as follows:

Business growth is measured in terms of the increase in a local authority's rateable value during a calendar year.
The scheme is administered under Section 31 of the Local Government Act 2003. A single payment is made to each local authority in the final quarter of the financial year. It is based on actual changes to rateable values in the previous calendar year, provided by the Valuation Office Agency (VOA).
Each authority has a 'floor' - the target level of rateable value growth that must be reached to gain from LABGI. An authority's 'floor' is that baseline target level of growth minus a national adjustment factor (NAF).
Authorities' baselines have been calculated using a National Historic Growth Model (the preferred baseline model from the first consultation). Authorities are divided into eight baseline groups based on historical growth rate.
In two-tier areas, LABGI revenues will be shared out in the same proportions as year 1 (approximately two-thirds to the lower tier and one-third to the upper tier). In London, all rewards remain with the Boroughs.
Authorities that fail to retain money under the scheme are re-based, to give them a fair and meaningful challenge in the next year.

4. Changes to the scheme in year 2 are as follows:-

Ceilings will be abolished
The scaling factor of 70 per cent will be abolished.

These changes will make the scheme simpler and increase the reward available to local authorities.

5. Details of the grant payments for 2005/06 to individual authorities, and of the LABGI scheme, can be found on Communities and Local Government website at www.local.communities.gov.uk/finance/labgi.htm

6. Media enquiries should be addressed to the Treasury Press Office on 020 7270 5238.

7. Non-media enquiries should be addressed to the Treasury Correspondence and Enquiry Unit on 020 7270 4558, or by e-mail to public.enquiries@hm-treasury.gov.uk

8. This press release and other Treasury publications and information are available on the Treasury website at www.hm-treasury.gov.uk. If you would like Treasury press releases to be sent to you automatically by e-mail you can subscribe to this service from the press release site on the website.

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