Should the North fear or welcome business rate changes?

Sunderland would lose £60m if business rates were entirely localised, but the government says that will not happen

The government's plan to localise business rates has sent shivers of terror up the spines of councils in Cumbria and the North East.

There have been some horrific figures bandied around about how much the region's councils could lose.

Some have talked about the North East losing £400m a year, with the likes of Sunderland Council losing £60m, and Durham £80m.

Derelict cities

It's hardly surprising then that there has been a concerted campaign against the plan by the region's MPs and councils.

North West Durham MP Pat Glass has even talked about the measure leaving the North East's cities as derelict as the likes of Detroit and New Orleans.

The problem for the region is that we generate far lower business rate receipts than other parts of the country.

While a wealthy borough like Westminster can generate £1bn in business rates each year, Hartlepool only collects £27m.

To equalise those discrepancies, business rates currently go straight to the Treasury before being redistributed on the basis of a local government funding formula which takes into account differences in wealth.

Ministers do want to change that, but this is not the Doomsday scenario that some have talked about.

The North East and Cumbria will certainly not lose hundreds of millions of pounds in one fell swoop.

Instead, the current funding formula will still apply when the localisation is introduced in 2013, meaning that total business rate receipts will still be shared around.

But in subsequent years council's funding will grow or decline depending on how much extra they generate in business rate receipts from that base.

Council fears

The government believes that would provide an incentive for them to attract new companies and jobs to their areas.

Hartlepool collects only around £27m in business rates each year

This has not assuaged the fears of Labour MPs and councils though.

Instead, they see this being a slow death rather than an immediate one.

North East Labour MPs gathered in force for a Commons debate about the issue recently.

They argued that it will be harder for regions with a lower business base to attract as much investment as already-wealthy areas in the south.

The MPs were concerned that the system would also benefit areas with large amounts of retailing, and punish areas like the North East which rely more on manufacturing.

Sunderland Central MP Julie Elliott said: "A hectare of land used for retail in the North East will yield £1m (in business rates), compared with £200,000 for manufacturing.

"It feels as if my region is being punished for manufacturing things.

"Business rates may value retail and commercial sites the most, but they just do not reflect the way our region's economy is made up, and with so many people out of work, increasing the number of shops is not the answer and would not be sustainable."

Business relocations

There is also concern that North East councils might be much more vulnerable to economic shocks.

Hartlepool MP Iain Wright said that 11 businesses in his constituency supply £11m or nearly 40% of the total business rate receipts. One alone provides £4m.

He said: "If one of those businesses were to relocate or cease trading, the effect on the finances of Hartlepool would be catastrophic.

"The minister must appreciate that it would be impossible to regain such revenue for many years in the event of such a large business leaving."

There are also concerns in rural areas.

Cumbria County Council says it will be much harder to generate extra business rate receipts in an area which has limited rail and road infrastructure.

The local authority says, many companies in Cumbria are run from home, and would not generate business rates.

It also says the planning restrictions in the Lake District would also put it at an unfair disadvantage.

Funding gain

The government has been consulting on the proposal so no final decision has been made.

Planning restrictions in the Lake District could make it harder for Cumbria to attract new businesses

But it doesn't accept that the North would automatically lose out to the South, or rural areas to urban ones.

During the Commons debate, the Local Government Minister Andrew Stunell said there was evidence that the North East might actually gain funding.

He said that between 2006-11, total business rate income rose by 5.1% a year in the North East compared to an average of 5% nationally.

He also told the MPs that there would be checks and balances. Areas that gained a huge windfall from the system would have money clawed back, while big losers would be compensated.

And that got the backing of Stockton South's Conservative MP James Wharton.

He said: "The government are pushing power back down to people, empowering local authorities and communities to take control of and responsibility for the areas in which they live, and incentivising councils to create and foster growth.

"That should be welcome in the North East, where we need to see greater private sector growth."

The consultation on the plan is now over, but given the government's enthusiasm for the idea it would be amazing if some degree of localisation isn't in place within the next two years.

It may take many more years though to work out whether Labour's fears are accurate or misplaced.

MPs have criticised the government for leaving people stuck in derelict communities

However, there has been more criticism of the government's approach to regeneration today.

A report by the all-party Commons Communities and Local Government committee says there is a danger the current approach will leave many communities in the north stuck with dereliction.

It criticises the sudden end of projects like the Housing Pathfinders that aimed to regenerate run-down parts of Newcastle and Gateshead.

There is also concern that a lot of expertise in regeneration could be lost with the scrapping of the regional development agencies, and that European money might be unspent because of the lack of matching funding.

The MPs also say the new enterprise zones, including the two in the North East, must be carefully monitored to ensure they don't just draw investment away from neighbouring areas.

The report does also talk about the mistakes made by the Labour government too, and does back the coalition's focus on devolving more power to local people.