Memorandum by Birmingham City Council
(SBR 33)
1. INTRODUCTION
AND BACKGROUND
OF LOCAL
AUTHORITY
1.1 Birmingham City Council welcomes the
opportunity to provide evidence to this Select Committee Inquiry.
1.2 Birmingham is the largest business rates
contributor of all billing authorities to the national pool outside
London for 2006-07. The City Council currently has three Business
Improvement Districts.
1.3 Birmingham City Council is strongly
in favour of the proposed introduction of a supplementary business
rate power.
1.4 The following paragraphs set out our
views in detail under the headings given as the terms of reference
for the inquiry.
2. RATIONALE
FOR INTRODUCTION
OF A
SUPPLEMENTARY BUSINESS
RATE
2.1 At present, billing authorities collect
business rates in their areas and pay them into a national pool
for redistribution as part of the formula grant. However, local
authorities do not receive enough funding to match the needs of
an area due to, for example, the damping mechanism in the formula
grant. Birmingham lost £24 million due to damping in 2007-08;
this is equivalent to the revenue of a business rates supplement
of three pence in Birmingham. [21]
2.2 During the budget planning process,
local authorities have to strike a balance between key service
spending, service improvements and keeping a reasonable increase
in council tax. However, given the extent of statutory requirements,
local authorities may have very little discretion over possible
areas of additional spending. Business ratepayers may therefore
not always be able to see the link between their contributions
and the benefits received in the area.
2.3 We believe that a supplementary business
rate could help to reinforce this link. In addition, there would
be greater flexibility for local communities to raise additional
resources to invest in themselves and strengthen their local economies.
2.4 The Lyons Inquiry suggested four principles
should be followed in the development of a supplementary business
rate:
— local, both in the decision to levy
a supplement and in the decisions about how it is to be spent;
— additional, with any new revenues
available to spend on new infrastructure or projects rather than
taken into account in central government grant allocations;
— transparent, so that businesses and
other local taxpayers understand how much money is being raised
and what it is being spent on; and
— agreed within the local community,
with the local business community having a strong voice in the
final decision on whether there should be a supplement, and the
purpose to which the proceeds are put.
We believe that the above principles should
also be considered in the context of City Regions.
2.5 Supplementary Business Rate should be
seen as one part of a wider package of flexibilities to enable
local authorities to make better use of assets and to invest more
locally-generated funding in infrastructure and economic development.
It should not be seen merely as a way to raise additional resources.
It should also be part of a general push to improve business engagement
in local government and in economic development generally.
2.6 We note that there is a possibility
that the Supplementary rate could be applied to the whole of a
local authority area, rather than in specific zones. We believe
that this is a feasible approach and the revenue generated could
be used to support the borrowing costs for capital developments,
which will benefit the business environments of the area; for
example, large development projects to improve transport links.
3. ACCOUNTABILITY
AND APPROVAL
MECHANISMS FOR
THE INTRODUCTION
OF A
SUPPLEMENTARY BUSINESS
RATE AT
A LOCAL
LEVEL—THE
ROLE OF
BUSINESS AND
THE WIDER
COMMUNITY
3.1 We recognise the importance of a formal
consultation with business ratepayers in the area before the introduction
of a supplementary rate. However, if the intention is to apply
a single rate across the City, then a voting mechanism such as
currently used in Business Improvement Districts (BIDs) may not
be applicable to the approval process, as it would be very time
consuming and costly. Moreover, it may be difficult to finance
projects which may not be in the short-term interests of those
affected, but which have widespread benefits in the long term.
3.2 There are two aspects of approvals to
be considered: first, the agreement of a specific supplement rate,
and second the use of the revenue raised.
3.3 We believe that these two aspects can
be approved via normal Council approval processes including our
regular consultations with the business community and then the
Cabinet and Full Council meetings, in a similar way to the process
of council tax setting. No interventions from Central Government
are necessary. We believe that local accountability can be preserved
in this way.
4. CONSIDERATION
OF IMPLEMENTATION
ISSUES, INCLUDING
THE IMPACT
ON LOCAL
AUTHORITIES TAX
BILL AND
DECISION-MAKING
IN TWO-TIER
LOCAL AUTHORITY
AREAS
4.1 The City Council is a Metropolitan District
and we have no views on this issue.
5. THE IMPACT
OF A
SUPPLEMENTARY BUSINESS
RATE ON
EQUALISATION
5.1 We recognise areas that are regional
business centres such as the Core Cities and central London authorities
may have greater powers to raise revenues than authorities with
a low business base. However, we strongly object to any suggestions
of special arrangements to be imposed by Central Government for
equalisation or a limitation on the use of the revenue to authorities
with a high business base. This will greatly erode local accountability
and penalise those authorities which take the political risk to
raise a supplement.
5.2 Any supplementary business rate should
be truly additional and should therefore not be included in any
of the equalisation calculations which form part of the Formula
Funding grant system.
6. THE APPROPRIATE
SCALE OF
THE SUPPLEMENT
6.1 Local authorities and local businesses
have the best knowledge to decide the rate of supplement in their
areas. Local authorities need to assess the impact to the local
economy in setting the supplementary rate; there is no need for
the Government to impose a cap on the level of supplement.
7. THE THRESHOLD
FOR PAYMENTS
AND WHETHER
SMALL BUSINESSES
SHOULD BE
REQUIRED TO
PAY
7.1 As recognised in the Lyons Inquiry,
small businesses pay a higher proportion of turnover in rates
than larger businesses. There may be a legitimate case to introduce
a discount or exemption to small businesses from business rates
supplement, although this may be seen as unfair to larger businesses.
7.2 We do not think there is a need for
Central government to set the overall framework on applying national
exemptions and reliefs to the supplement. Such issues are best
dealt with by local authorities and local businesses, taking into
account the purpose of the supplement and local economic conditions.
7.3 The Committee may wish to consider the
impact of the introduction of business rates supplement in areas
with a high level of industrial and commercial property vacancy,
especially in relation to forthcoming reform of the empty property
relief.
7.4 Birmingham was in the top deciles for
commercial and industrial property vacancy rates between 1998-99
to 2004-05 (see chart below).
Figure 1
COMMERCIAL AND INDUSTRIAL VACANCY RATES
Commercial and Industrial Property Estimated Vacancy Statistics (DCLG July 2006)
7.5 Local flexibility in setting thresholds/reliefs
etc is vital to allow a supplementary business rate scheme to
be adapted to different local circumstances.
21 Lyons Inquiry estimates that Birmingham could raise
£7.7 million by a one penny supplement in business rates. Back
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