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The recent Green Paper, The Governance of Britain, contemplates "enabling local communities to take decisions about how to use local funds" and ensuring "that local priorities are being met". We believe that Sir Michael Lyons' proposal to allow local authorities to make marginal changes to the national non-domestic rate which businesses pay as their contribution to the provision of local services is entirely consistent with and an attractive step towards achieving this objective.
The Government offered, in both the March 2007 Budget and its more recently published Sub-national review of economic development and regeneration, an encouraging but general reaction, promising to give the matter further consideration and to make a more substantive response later this year. That response should, we argue, set in motion a process to enable local authorities, including upper and second-tier authorities in two-tier areas, to levy a supplementary business rate to increase or decrease the business rate paid by local businesses. While the majority of decision-making on the precise nature and purposes of individual levies should be left to the discretion of local communities, the Government should set basic parameters to define the operation of supplementary business rates and confine the purposes to which any revenue generated might be applied. These parameters should include requirements that
- local authorities secure the agreement of the local business community not only to introduce a supplementary business rate but also on the purposes to which revenue may be applied;
- where proposals for a local supplementary business rate contemplate a variation from the national business rate of more than 10 per cent, a ballot of the business community affected should be the norm;
- revenue from a supplementary business rate is spent only on genuinely additional projects deemed to benefit the local business environment and cannot be used to meet existing spending commitments on the part of local authorities;
- the rate, duration and purposes of each supplementary business rate should be clearly defined the outset;
- local authorities remain liable for any supplementary business rate operating in an area in which they occupy buildings, and
- where a supplementary business rate is introduced in an area where there is already a business improvement district, there should be an off-set for BID contributors against their supplementary business rates liability.
We recognise that the option of raising local funds for local investment through a supplementary business rate may be most attractive in highly urbanised areas. The Government should consider further options which would be more suitable in other areas. Such reforms to local government revenue should be regarded as a first step rather than the last word in a development process of financial devolution.
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