Memorandum by Head of Corporate Finance,
Hambleton District Council (SBR 4)
1. INTRODUCTION
1.1 The district of Hambleton is situated
in North Yorkshire. It is one of the largest rural districts in
England covering an area of 131,158 hectares, and is 40 miles
long (north to south) and in parts 30 miles wide (west to east).
It is sparsely populated with half of the estimated 86,000 residents
living in the market towns of Northallerton, Thirsk, Stokesley,
Bedale and Easingwold which provide a focus for their surrounding
villages.
1.2 Unemployment in the area is low (circa
1%+) and the economy is dominated by small business. Significant
employers in the area include the County and District Councils.
Approximately 75% of businesses employ less than five people.
Tourism is significant (but seasonal) and generates income in
excess of £50 million for the local economy.
1.3 Hambleton District Council is one of
238 Shire Districts in England and as such is responsible for
the administration of the business rate within its area.
2. RATIONALE
FOR THE
INTRODUCTION OF
A SUPPLEMENTARY
BUSINESS RATE
2.1 Local government faces many pressures
in relation to the services that it provides. These pressures
come not only from Government and local Members, but also from
residents and businesses. Expectations about both the quantity
and the quality of local government services are increasing rapidly.
2.2 However, what is not increasing as quickly
is the level of funding available. The Council's funding of the
2007/08 revenue budget is shown in Table 1:
Table 1
| Central Government:
| | | |
| Revenue Support Grant | 793,646
| | 7.96 |
| Business Rates | 4,729,135 |
| 47.42 |
| | 5,522,781
| 55.38 |
| Hambleton District Council: |
| | |
| Council Tax at £80.38 | 2,837,098
| | 28,44 |
| Contributions from Reserves | 1,613,456
| | 16.18 |
| | 4,450,554
| 44.62 |
| | 9,973,335
| |
2.3 The ability of the Council to raise additional funds
for service improvements is restricted to Council Tax and reserves.
An increase of £1 in Council Tax will only raise £35,300.
The current Government expectation is that Council Tax should
not rise by more than 5%. The Council has an excellent record
for setting a low Council Tax, which means that a 5% rise would
only produce £142,000. With a 2007-08 salaries budget of
£10.8 million this would not be enough to cover a 2% pay
award. In terms of reserves, the current commitment cannot be
maintained forever.
2.4 The principle of raising additional revenue through
a supplementary business rate is therefore supported.
3. ACCOUNTABILITY AND
APPROVAL MECHANISMS
FOR THE
INTRODUCTION OF
A SUPPLEMENTARY
BUSINESS RATE
3.1 If a Supplementary Business Rate is to work effectively
there must be trust between the Council and businesses. This can
only happen if there is a dialogue with the business community.
3.2 The Lyons report suggests two possible ways forward.
The first is a voting mechanism. Whilst this is possible it would
raise a number of issues:
— Would each business receive one vote or would
they receive more votes according to a band of size?
— What would the bands be?
— How many bands would there be?
— Would voting be undertaking every year or
only once in the life of a Council (four years)?
— How would a voting system for businesses
tie in with the views of the electorate?
— Would the Council be bound by the decision
of the vote?
3.3 The second proposal involves consultation. As there
is already a duty placed upon Council's to consult with the business
community on its Council Tax and spending plans, it would seem
sensible to extend this to include consultation on spending proposals
for a Supplementary Business Rate. Such consultation should be
part of an ongoing dialogue with the business community.
3.4 Consultation with the business community as the mechanism
for deciding upon spending plans is supported.
4. IMPLEMETATION ISSUES,
INCLUDING THE
IMPACT ON
LOCAL AUTHORITIES
TAX BILL
AND DECISION
MAKING IN
TWO-TIER
LOCAL AUTHORITY
AREAS
4.1 Administration of the system should be kept to a
minimum.
4.2 There should be no impact upon the Council's Council
Tax Bill as all funding of expenditure will come from the Supplementary
Business Rate. However, in order to be transparent, the amount
of the supplement must be clearly shown on the Council's Business
Rate Bill. This will require changes to computer software with
the associated costs.
4.3 Regulations will have to be made allowing income
from the Supplementary Business Rate to be withheld from payments
into the National Pool and the necessary accounting arrangements
will have to be in place.
4.4 Consideration will also have to be given to apportionment
of income from businesses in the event of non payment or arrears
of payment. Will income be apportioned first to the national rate
element of the bill or the supplementary rate element?
4.5 The Lyons report recommends that the levying of a
Supplementary Business Rate should be restricted to upper tier
authorities. This is not supported. In a large County area such
as North Yorkshire it will not be possible to ensure that income
from the rate is spent equally or proportionately across the County
area. It could lead to the frustration of business seeing their
contributions being spent in other areas and not locally. In addition,
it would mean that their voice within any consultation process
would be diminished by involvement of businesses from such a large
area.
4.6 It is essential that the scheme is kept as local
as possible. Allowing District Councils the ability to set a Supplementary
Business Rate is the only way of ensuring that this happens. In
two tier authority areas, therefore, it would be necessary to
find a way of allowing each tier to levy a rate, perhaps on a
50:50 basis.
5. THE IMPACT
OF A
SUPPLEMENTARY BUSINESS
RATE ON
EQUALISATION
5.1 The return of the national business rate to local
authorities will have an impact upon equalisation of resources.
However, this is not the proposal in question. The proposal is
for local authorities to have powers to levy a Supplementary Business
Rate with the sole purpose of being able to raise additional money
to be spent locally.
5.2 If the power to levy a Supplementary Business Rate
comes with the added complication of the income being included
in the calculation supporting the principle of equalisation, it
would defeat the aim of transparency of purpose. Authorities would
find that income raised by local businesses is passported to and
spent by other authorities.
5.3 Income raised by a Supplementary Business Rate should
not be taken into account when considering equalisation. Income
from this source should be raised locally and spent locally if
the system is to have both accountability and transparency.
6. THE APPROPRIATE
SCALE OF
SUPPLEMENT
6.1 The Lyons report uses examples of the national yield
of a 1p and 4p supplement. In the context of Hambleton these figures
would raise the amounts shown in Table 2:
Table 2
| Amount of Supplement | Yield
£
| Proportion of 2007-08 Revenue Budget %
|
| 1p supplement | 488,000 |
4.9 |
| 4p supplement | 1,952,000 |
19.6 |
6.2 Table 2 shows that a 1p Business Rate Supplement
would give the Council an additional 4.9% increase on its revenue
resources. A 4p increase would give the Council an additional
19.6% increase on its revenue resources. The increase in Band
D Council Tax necessary to raise these amounts is shown in Table
3:
Table 3
| Amount of Supplement | Yield £
| Increase in Band D Council tax £
| Percentage increase in Council Tax %
|
| 1p supplement | 488,000 |
13.82 | 17.2 |
| 4p supplement | 1,952,000 |
55.29 | 68.8 |
6.3 Clearly the increases in Council Tax necessary to
raise the equivalent Supplementary Business Rate income would
be unacceptable to both the local taxpayer and the Government.
6.4 In terms of the increase in business rates a 1p or
4p rise would represent a 2¼% or 9% increase over the current
national rate multiplier. A Supplementary Business Rate of anything
up to 4p is supported. d.
6.5 However, it is recognised that a 4p raise for businesses
is substantial and therefore the proposal to put a cap on the
supplement is also supported.
7. THE TRESHOLD
FOR PAYMENTS
AND WHETHER
SMALL BUSINESSES
SHOULD BE
REQUIRED TO
PAY
7.1 The impact upon small business of a Supplementary
Business Rate may be quite substantial. Many of these small businesses
may be new businesses and it would not be helpful to put their
viability in jeopardy by the burden of extra costs.
7.2 The concept of a Rateable Value threshold below which
small business would not be required to pay the Supplementary
Business Rate is supported. A threshold of below RV £15,000
would also be supported.
7.3 In the case of Hambleton such a threshold would reduce
the number of businesses by 80% as shown in Table 4 below:
Table 4
| Rateable Value | No of Assessments
| Gross RV £ |
| Under £15,000 | 2,784
| 14,004,767 |
| Over £15,000 | 697 |
40,269,422 |
| Totals | 3,481 | 54,274,189
|
7.4 This significant reduction in numbers would also
assist with the administration of the scheme.
7.5 However, Table 4 also shows that the impact on the
yield from the Supplementary Business Rate would only be reduced
by nearly 26% which is acceptable.
Mr Dave Simpson, Head of Corporate Finance.
| 
