Memorandum by Cheshire County Council
(SBR 3)
The House of Commons Communities and Local Government
Committee has announced an inquiry in which it will examine the
case for Government to introduce a power for local authorities
to levy a supplement on the business rate within their area, including
addressing the following issues:
THE RATIONALE
FOR INTRODUCTION
OF A
SUPPLEMENTARY BUSINESS
RATE
The intention of allowing authorities to levy
a supplementary business rate is to increase local flexibility
and support the continued investment in infrastructure which both
businesses and local authorities have called for.
Business Rates contributed about £17.5
billion—about 20% of local government spending in 2006-07.
The most pressing need in the Lyons Report is seen as developing
better relationships between business and local government with
greater engagement on economic development issues.
In two tier authority areas like Cheshire, business
rates are collected by the districts, passed over to central government
and redistributed on a per capita basis. For Cheshire, in 2006-07
£254m was raised locally in Business Rates and handed over
to the central pool, with £112m being allocated back to the
districts and the county (an additional £54m being allocated
to Cheshire Police Authority and Cheshire Fire). For the County
Council this income represented 22% of total spending of over
£336m, or £73m. The proposal in the Lyons report would
be for a supplement on the current rate which would be retained
locally.
ACCOUNTABILITY AND
APPROVAL MECHANISMS
FOR THE
INTRODUCTION OF
A SUPPLEMENTARY
BUSINESS RATE
AT A
LOCAL LEVEL—THE
ROLE OF
BUSINESS AND
THE WIDER
COMMUNITY
Our concern is that any mechanism for a supplementary
business rate must be transparent, simple—easy to administer.
It could merely represent a "tinkering around the edges"
of local government finance in terms of orders of magnitude. The
Lyons Inquiry suggests that for Cheshire a £0.01 supplement
on business rates would raise over £5m but that this would
increase the cost of property occupation in the short term and
may result in potential reductions in the capital value of property.
In the longer term, business rates are likely to be passed onto
owners in lower rents and could lead to a reduction in rateable
values. This may mean the national tax rate will have to increase
to continue to raise the same amount of national revenue. We would
want to see full exemplifications of the potential impact of this
in order to be sure that the introduction of a supplementary business
rate would be beneficial overall and that any additional income
would be material. However the opportunity to expand the tax base
and open dialogue with business is welcome.
CONSIDERATION OF
IMPLEMENTATION ISSUES,
INCLUDING THE
IMPACT ON
LOCAL AUTHORITY
TAX BILLS
AND DECISION-MAKING
IN TWO-TIER
LOCAL AUTHORITY
AREAS
The proposal is for upper tier authorities to
set the rate for the supplementary levy, but in 2 tier areas,
the proposals should be the subject of discussion and agreement
between county and district councils with joint plans for the
use of revenues raised to meet the overall needs of the area.
This already happens with Business Improvement Districts where
supplements as high as 4p have been levied in some cases. However
there will need to be some flexibility with setting the level
so as to allow new arrangements to develop. In a two tier area
like Cheshire, would one rate need to be set for the whole of
the County—the impact of this on the different districts
would need to be carefully assessed to ensure none of them would
be adversely affected. There would need to be negotiation and
cooperation between the county and the district councils in how
the retained business rates would be used.
THE IMPACT
OF A
SUPPLEMENTARY BUSINESS
RATE ON
EQUALISATION
To maintain current levels of equity under a
localised business rates system, around 70 authorities would need
to pay some of their local tax revenues to central government
to support other authorities. This would not provide any incentives
for growth or help build relationships between businesses and
local authorities, as the taxes raised locally would be reallocated
elsewhere in the country.
THE APPROPRIATE
SCALE OF
THE SUPPLEMENT
Sir Michael Lyons suggests authorities should
have some flexibility over which sizes of business would pay the
levy. We would want to retain this flexibility.
THE THRESHOLD
FOR PAYMENTS
AND WHETHER
SMALL BUSINESSES
SHOULD BE
REQUIRED TO
PAY
A discount or exemption for smaller businesses
is unlikely to substantially reduce the overall yield for the
supplement; however larger businesses may feel it is unfair that
they are effectively subsidising smaller businesses. This should
be managed at a local level taking into account local economic
conditions. There would need to be some form of flexibility within
the system to allow smaller businesses to be exempt from the additional
rate if necessary. LABGI, BIDS etc are all aimed at promoting
business growth and levying a supplementary rate must be carefully
assessed to ensure there is not a negative impact.
The Chancellor does agree to bring forward proposals
to reform LABGI before the summer to improve incentives for increased
local economic prosperity.
General view is that Treasury is more sympathetic
to reforming and expanding the Local Authority Business Growth
Initiative than moving to a local business rate supplement. It
likes the idea of councils receiving extra income in return for
stimulating business growth, thus providing incentive for development.
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