Growing pains: Property taxation and revenue incentives in English local government

Abstract

Devolution of business rate revenue to English local authorities has been cast as a far-reaching act of fiscal devolution, with the explicit aim of enhancing local economic growth by providing financial incentives to local authorities. The system is based on three tacit assumptions: that local authorities can systematically increase their business rate revenue via local policy decisions, that increasing business rate revenue correlates with growth in the local economy, and that the structural effects of the business rate system upon local authority behaviour and revenue outcomes are negligible. This article makes the first known attempt to analyse the outcomes of the Business Rate Retention Scheme since its inception in 2013, using previously unavailable data from the 2010–17 valuation list for England. Findings indicate that all three of the tacit assumptions can be challenged. Links between local policy and revenue growth are subject to macroeconomic confounders, links between rate revenue and economic growth are ambivalent, and the structure of the system has a decisive effect on individual authority outcomes. The system is not a game of chess, with outcomes based on skill; it is more akin to cards, where results are dependent in part on the cards dealt.