Memorandum by the Institute of Directors
(SBR 20)
Thank you for giving the Institute of Directors
(IoD) the opportunity to respond to the new inquiry on Local Government
Finance: Supplementary Business Rates which was announced on 8
May 2007. This paper presents our response to your call for evidence.
Issues surrounding Business Rates are of considerable interest
to the United Kingdom business community in general and to the
IoD in particular. We are therefore pleased to participate in
the consultation and present our response for your consideration.
ABOUT THE
IOD
Founded by Royal Charter in 1903, the IoD is
an independent, non-party political organisation of 55,000 individual
members. Its aim is to serve, support, represent and set standards
for directors to enable them to fulfil their leadership responsibilities
in creating wealth for the benefit of business and society as
a whole. The membership is drawn from right across the business
spectrum. 92% of FTSE 100 companies have IoD members on their
boards, but the majority of members, some 70%, comprise directors
of small and medium-sized enterprises, ranging from long-established
businesses to start-up companies.
IOD RESPONSE:
KEY POINTS
In December 2006, the Institute of Directors
compiled a tax policy comment[16]
(not printed) on the Business Rate system, which it was hoped
would inform the proposals of the Lyons Inquiry's report. The
IoD paper noted the existing issues with the Business Rate system
in the UK and concluded that of all the options available, business
interests would be best served by retaining the existing system
of Business Rates.
Instead of following the IoD's advice, Sir Michael
Lyons' report proposed the introduction of a system of Supplementary
Business Rates, which could be collected and retained by local
authorities in order to deliver additional services for the business
community.
The IoD believes that under a system of Supplementary
Business Rates, local authority provision deemed to be of significant
benefit to the business community will undesirably be used to
justify increased contributions.
In essence, the introduction of a system of
Supplementary Business Rates will lead to ghettoised local authority
spending on areas of business concern; where before a larger community
of business and residential citizens had responsibility for a
broad range of social, economic and commercial revenue and subsequent
spending.
The IoD asserts that such measures will be likely
to lead to lower levels of spending on areas of business concern
using non-business precepts. In other words, the introduction
of Supplementary Business Rates will allow local authorities to
free up council tax precepts for largely non-business use and
utilise the proposed Supplementary Business Rate to fund the majority
of services required by business.
Aside from the increased financial burden of
such a move, the "ring-fencing" of revenues will contribute
to a perception that business issues are distinct from wider societal
concerns. Whilst being a clear fallacy, this is also an unwelcome
fragmentation which will not improve citizen, business and local
authority understanding and interaction.
Rather than offering local authorities greater
revenue raising powers, the emphasis of Sir Michael Lyons' report
should have focussed on ensuring that spending is committed more
efficiently. It is the case that throughout the country large
sums of money are being wasted on elaborate and ill conceived
schemes that, if scrutinized more rigorously at the outset, could
save taxpayers significant sums of money.
If the Government insists on proceeding with
Supplementary Business Rates, the IoD is insistent that such supplements
should be governed by very tight thresholds for their application.
In addition the IoD proposes that a mandatory vote should be required
of local authorities prior to implementation as a means of ensuring
that businesses are not dragged through a process of "fait
accompli consultation".
SUMMARY
— The proposal to introduce Supplementary
Business Rates should be dropped on the basis of the financial
and societal implications of such a move.
— However, if Supplementary Business
Rates are introduced, the IoD calls for:
— The imposition of very tight thresholds
on the application of local authority supplements.
— A requirement to conduct a formal
vote amongst the local business community requiring a majority
(in favour) before the introduction of such a supplement.
16 R Baron, Business Rates: Tax Policy Comment, Institute
of Directors, December 2006. Back
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