Over £300 million to encourage business growth

Published	27 February 2007

328 Local authorities across England are to be awarded £316 million for encouraging business growth, Local Government Minister Phil Woolas and Treasury Minister John Healey have announced.

The Local Authority Business Growth Incentive Scheme (LABGI) sees councils who have encouraged business growth in their area receiving an unringfenced reward from Government. This is the second year of a three year scheme which expects to see up to £1billion allocated to local authorities by 2007/08. Authorities have received more than two and a half times the £126m of grant paid last year, and 50 more authorities have received LABGI grant this year.

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.

Minister for Local Government, Phil Woolas, said:

"We're delighted to announce the grant payments for the second year of this scheme. LABGI provides substantial rewards for local authorities who encourage business growth in their areas.

"Government is committed to devolving further power to local authorities, which will in part help them encourage business growth in their areas. Councils should use their role as place shapers to encourage inward investment in their communities and this grant is a boost to that work."

Financial Secretary to the Treasury, John Healey MP, said:

"If we are to draw on the full economic potential of our country, promoting long-term growth, enterprise and jobs, as well as tackling the disparities in economic performance between and within the regions and nations of the UK, local authorities have a vital role. That's why since 1997 the Government has introduced reforms to local economic policy, providing new powers for local authorities to improve the economic well being of their areas.

LABGI ensures every local authority has a direct financial incentive and reward to do more to promote enterprise, employment and the growth of local businesses."

Details of the grant payments to individual authorities, and of the LABGI scheme, can be found on the Communities and Local Government website at Local government finance

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. In year one (2005/06) LABGI payments totalled £126.6 million. The allocations in year two will consist of at least £316 million and will be paid on 26 March.

3. In September 2006 Ruth Kelly and John Healey announced abolishing the 70 per cent scaling factor and ceiling in LABGI to make the scheme simpler and more rewarding for local authorities. The Government remains committed to that aim, but due to current Judicial Reviews brought by Corby Borough Council and Slough Borough Council, has scaled back payments to 70 per cent of their value to protect the important incentive this scheme creates for authorities this year and next year. The Government today reiterated its commitment to the principle of removing the scaling factor, but because of these authorities could not rule out retaining it to deal with the conclusions of the Judicial Reviews. This threat of litigation from Corby and Slough Borough Councils has additionally caused a delay in the timing of grant awards to authorities, due to the added complexity introduced to the methodology.

4. The main aspects of how LABGI grant payments are made more generally are as follows:

a. Business growth is measured in terms of the increase in a local authority's rateable value during a calendar year.

b. Payments are made under Section 31 of the Local Government Act 2003. Payments are 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).

c. The starting point for measuring growth for each authority in year two of the scheme is their rateable value at 1 January 2006.

d. 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).

e. For authorities that reached/exceeded their floor in year one, their starting rateable value (RV) for year two is the year one starting RV plus the year one floor. For those authorities that did not reach their floor in year one, their starting RV for year two is their year one starting RV plus year one growth (effectively their end of year one RV); data is available on the website at Local government finance link here.

f. The end of year two RV was calculated in the same way as for year one (gross of appeals and net of relief's). The VOA provided a 'gross of appeals' figure as at 31 December 2006. Authorities' 2006/07 empty and part-empty relief data was divided by the 2006/07 small business rates multiplier and subtracted to give an end of year two RV.

g. In year one, in two-tier areas LABGI revenues were shared out according to each tier's contribution to the ceiling, based on the Environment, Protective and Cultural Services (EPCS) element of the Formula Spending Share (FSS) from the 2005/06 Local Government Finance Settlement. Since the EPCS FSS does not conceptually exist from 2006/07, the tier-split is unchanged from year one.

h. As in year one, LABGI grant is entirely additional to the local government finance settlement and local authorities are free to spend the grant as they wish.

i. The future of LABGI will be subject to a more fundamental review of the role of local government in driving economic development, which is being undertaken as part of the Comprehensive Spending Review.

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