Memorandum by Leeds City Council (SBR
26)
1. RATIONALE
FOR INTRODUCTION
OF A
SUPPLEMENTARY BUSINESS
RATE
Leeds City Council is fully supportive of the
proposal to introduce the discretion to levy a supplementary business
rate. It is well documented that business' contribution to local
government spending has diminished over time relative to the contribution
of Council Tax and this is a clear opportunity to redress the
imbalance which has developed over many years.
Increasingly cities like Leeds are facing significant
challenges in identifying funding sources for major infrastructure
investment, and whilst the introduction of the prudential borrowing
regime has given rise to greater flexibility, this has been restricted
by the capping limitations placed upon Council Tax increases.
We welcome therefore the opportunity to raise additional tax revenues
to support infrastructure investment linked to economic regeneration
in the city.
If investment was ring-fenced in this way it
is our view that the there could be significant economic benefits
which would arise through a multiplier effect. To illustrate this,
here are three examples in Leeds where this approach could usefully
be applied:
(a) Aire Valley Employment Area
This is a major regeneration programme in Leeds
covering an area of over 1,000 hectares, which has the potential
to be one of the most significant areas of new investment and
employment opportunity in the region. It includes over one third
of all land in West Yorkshire available for future industrial
use and includes a total of 400 hectares of land for potential
new development including 180 hectares of brownfield land. Total
infrastructure costs are estimated to amount to £300 million,
including Highways, Public Transport Infrastructure, Pedestrian/Cycle
facilities and work on land occupied by sewage treatment works
that requires investment to bring it to the necessary standard
for redevelopment. It is estimated that this area has the potential
to create 29,000 jobs over the next 10 to 15 years with over 1.3
million square metres of mixed development, largely industrial,
warehousing and offices. Once all development is in place, it
is estimated that it will generate additional business rates of
some £50 million per annum.
(b) Leeds and Bradford Airport
Leeds and Bradford Airport is a key economic
driver for the sub-region, and their recently produced vision
document forecasts passenger growth numbers of 2.5 million per
annum by 2015. However this growth is dependent on the development
of improved surface access to the airport, either through a link
road or a rail link or preferably both. The level of investment
required for these would be an estimated £65 million. It
is more difficult to quantify the economic impact of this, but
I think there is no doubt that the regenerative effects would
be substantial. By 2030, employment numbers, both directly at
the airport and indirectly in the subregional economy, would
be expected to increase by over 2,000.
(c) Holbeck Urban Village
Another example suggests the potential for this
type of approach to investment in the interests of added value.
The Holbeck Urban Village is the focus of a multi-million pound
regeneration programme of about 20 hectares in Leeds. It is expected
to create 5,000 new jobs and over 300,000 square metres of new
commercial business space for the area. This includes office space,
light industrial workspace plus leisure and retail development.
Estimated costs of public realm works are about £30 million
and empirical research is currently taking place to examine the
link between investing in a high standard of public realm and
the ability to attract high growth businesses. We would expect
to use this type of evidence to determine where this type of investment
would bring real returns. Based on putting in place the high quality
public realm works envisaged, growth in the business rates yield
is estimated to be around £18 million per annum when all
the projected developments have taken place.
2. ACCOUNTABILITY
AND APPROVAL
MECHANISMS
It is important that a supplementary business
rate has the support of the local business community. As set out
above it may be appropriate to ring-fence the proceeds of the
levy to a particular project or a programme of investment which
is specifically related to infrastructure development and where
business can see a direct benefit. We would support a process
which required the approval of both the local authority and the
business community, either through the Local Strategic Partnership
or the local Chamber of Commerce.
3. IMPLEMENTATION
ISSUES
We do not envisage any significant implementation
issues. Current systems should be capable of coping with a simple
change in the rate in the pound, although should there be exemption
from the charge for eg small businesses, this would require third
party software suppliers to make changes. In these circumstances
the most straight forward way of identifying a small business
would be with reference to rateable value.
Further changes would be required if the supplementary
levy was to be show separately on the bill, but it is not envisaged
that this would be a significant issue.
4. IMPACT ON
EQUALISATION
Whilst resource equalisation is a fundamental
principle of the local government finance system, we see no detriment
in separating this element of rate income. The supplementary business
rate provides welcome local flexibility which should be independent
of the general system of Local Government Grant.
5. SCALE OF
THE SUPPLEMENT
To make a significant contribution to the investment
needs of an authority, the supplementary rate needs to be of sufficient
scale. The Lyons Inquiry proposed a supplementary business rate
of up to 4p; however this would equate to an increase of around
9% on top of the normal annual increase, which may not be acceptable
to local businesses. It is suggested that businesses may not be
supportive of a supplementary rate of more than 2p. In Leeds,
a 1p rate would yield approximately £6.6 million. This in
turn over a 25 year period would fund borrowing of almost £78
million at current interest rates, and allow for a 4% Minimum
Revenue Provision. Consequently a 2p rate would give a one-off
investment opportunity for the city of between £150 million
and £160 million. This alone would not be sufficient to satisfy
investment needs in a large District Council, however it could
be a significant element of a larger and more complex funding
package.
6. THRESHOLD
FOR PAYMENTS
If the supplementary levy were hypothecated
to infrastructure developments which had a more general and longer
term economic impact, it may be difficult to gain the support
of small businesses who may not see any direct benefit, therefore
it may be appropriate to set a threshold which excludes small
businesses from payment.
In doing this, it may be preferable to use the
thresholds already in place for Small Business Rate Relief so
that large businesses with a number of small properties do not
avoid the supplement. A further advantage is that qualifying properties
are already identified on local authority rates systems which
would simplify implementation still further.
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