At present, income from business rates generated by local authorities is returned to central government, and then redistributed to councils on the basis of population. The new scheme provides an incentive for local authorities to promote economic growth by allowing them to retain a proportion of any increase in revenue, above a certain level (see previous article in the Knowledgebase).

In a written statement to Parliament, Local Government Minister Phil Woolas announced the final shape of the scheme and publication of the results of a recent (second) consultation on its technicalities.

Mr Woolas said, "This announcement underlines the Government's commitment to providing more freedoms for local authorities to influence local outcomes.

"The scheme offers substantial rewards for local government. It will be for local authorities to decide how this additional money is spent - whether to provide even better public services for local communities or to reduce council tax.

"This is an exciting opportunity and incentive for councils to build partnerships with local business and promote long-term economic sustainability in their areas."

Financial Secretary to the Treasury John Healey, said, “This scheme underlines the central importance the Government places on economic growth both nationally and regionally. Councils have a big role to play in the success of their local economies and this scheme will give authorities a strong incentive to tackle barriers to enterprise, employment and growth in their areas."

The final announcement follows two consultations on the details of the scheme.

Careful consideration was given to all responses, and the final scheme provides a balance between simplicity and the need to ensure the scheme is equitable.

Responses to the second consultation, which ended in October 2004, broadly welcomed the proposals. The proposal to administer the scheme as a non-ring-fenced grant was particularly welcome. This will enable local authorities to spend the revenue on their own priorities.

Respondents also welcomed the proposal to rebase floors for councils that do not gain financially under the scheme in any given year. This will mean that local authorities will continue to have a fair and meaningful incentive to encourage business growth in their areas the following year.

The first reward under LABGI will be paid to local authorities in February 2006, for growth achieved during 2005.

Full details of the scheme can be found on the ODPM website at

www.local.odpm.gov.uk/finance/labgi.htm