Fiscal devolution could lead to a ‘fragmentation' of local authority credit rating, lending criteria and rates, two university researchers have warned.
In a blog, Kevin Muldoon-Smith and Paul Greenhalgh from the University of Northumbria warned about the consequences of the Government's decision to transfer 100% of existing business rates and potential growth to local areas.
They wrote: ‘The turn towards fiscal decentralisation and civic financialisation means that local authorities will henceforth be measured by their own characteristics with regard to lending security, which may well provoke a fragmentation of local authority credit rating, lending criteria and rates.
‘Those local authorities able to exploit the growth potential in business rate retention will get stronger credit ratings and have an advantage over their counterparts.
'Those with weak credit ratings – typically locations already suffering from financial exclusion – will be regarded as greater risks and exposed to increased cost of borrowing, which, of course, they are less able to afford.
'Local authorities will be expected to fend for themselves through a new model of civic financialisation and entrepreneurialism.
‘There is real doubt about the uniform ability of authorities to exploit this civic financialisation to fund public services, generate local investment and react to the new needs of our times.'
The researchers also questioned the democracy of the Government's fiscal decentralisation plans, with elected mayors wanting to raise business rates having to rely on the agreement of a majority of private sector local enterprise partnership members.
