Memorandum by the British Property Federation
(SBR 43)
We have read the Lyons report with interest
and in particular the proposals for a supplementary business rate
(SBR), summarised at the beginning of Chapter 8 of the report:
"to increase local flexibility and support
the continued investment in infrastructure that both businesses
and local authorities have called for, subject to detailed consultation
with, and a strong voice for, the business community".
While we do support the general thrust of the
Lyons report in relation to improving fund-raising powers for
local government for the specific purpose of enabling local government
to bolster local economic growth and performance, we have significant
reservations with both the desirability and practicality of the
recommendation for a supplementary business rate.
SUMMARY KEY
POINTS
— The British Property Federation supports
enhanced fiscal powers for local authorities to enable them to
raise funding for specified infrastructure projects, but disagrees
that a supplementary rate alone is the most desirable option.
— A supplementary business rate would
raise substantive funds only for a few local authorities and therefore
would not benefit the vast majority.
— The supplementary business rate is
a `blunt instrument' that might be viewed by many affected businesses
as contrary to their interests.
— To be accepted by a local business
community, a supplementary rate will need substantial and appropriate
checks and balances, possibly along the lines of the Business
Improvements Districts model.
— The supplementary rate would upset
the certainty and predictability of business rates that has become
so prized by the business community and its investors.
— Alternative financing arrangements
for local authorities such as Tax Increment Financing and better
use of existing local authority borrowing powers are more suitable
tools for the purposes of public infrastructure investment.
IMPROVING THE
FINANCIAL POWERS
OF LOCAL
AUTHORITIES: SOME
GENERAL COMMENTS
The BPF believes that there is great potential
for the financial powers of local authorities to be enhanced.
We agree this would help councils to play a greater role in enhancing
the local economy. The introduction of a supplementary rate is,
however, a blunt instrument that will impact all ratepayers without
necessarily receiving their support or indeed providing additional
benefits to all.
This would suggest that checks and balances
should be introduced to protect the interests of ratepayers who
otherwise may regard themselves as being unfairly levied. A supplementary
rate will also undermine to a degree the benefits of certainty
and predictability cherished by the business community and its
investors. This may be a price worth paying if the benefits of
a supplementary rate can be seen to overcome such concerns.
On the evidence presented within the Lyons inquiry
as to how many councils may gain significant benefit from a supplementary
rate alone, we are not convinced that this is the case. Indeed
to achieve significant funding it appears to us that the supplementary
rate will need to be coupled with tax increment financing in order
to provide sufficient funds.
This will in turn require a long term view to
be taken by both the local authorities and their ratepayers as
to the economic benefits that a supplementary rate might achieve
This implies a change of culture among authorities to achieve
better long term strategic economic planning and a commitment
from politicians to long term tax and borrowing arrangements that
will probably be controversial and, under current arrangements,
perhaps difficult to achieve.
SPECIFIC COMMENTS
ON A
SUPPLEMENTARY RATE
What should the supplement be used for?
We agree that additional sources of local authority
finance are needed but do not believe that a supplementary business
rate is the best means of financing these. Where additional funds
are raised, then they should be for specific, clearly defined
purposes. The obvious need is infrastructure provision and we
would support the use of, say, tax increment financing for this
purpose.
Business Improvement Districts are of course
an existing system of Supplementary Business Rate but they are
limited vehicles in terms of the scope of ratepayers and geographical
area affected and they are for very specific and limited purposes.
Moreover the amount of money raised through BIDS is small and
cannot make more than a small dent in the budget needed for enhancing
local infrastructure.
Will the supplement raise enough money?
We believe that in order to be acceptable, a
Supplementary Business Rate would be so small as to be ineffective
in making a realistic contribution towards infrastructure needs.
The Lyons report indeed identifies only around 20 local authorities
(out of the 150 upper tier authorities it is suggested receive
SBR powers) who might be able to achieve additional income of
£5 million per year.
And this may well prove to be an over-estimate
once the impact of relief for small businesses, hardship and transitional
arrangements is factored in. This level of funding is unlikely
to provide for significant infrastructure developments in most
authority areas and coincidentally, almost certainly not in the
local authority areas that can raise this level of funding from
its supplementary rate.
Lyons appears to accept this and suggests the
SBR may be best used to enable local authorities to borrow against
the SBR revenue stream—in other words a form of Tax Increment
Financing. The BPF believe this proposal offers greater merit
than the supplement on its own.
Would the money be used equitably?
Equitable distribution will always be an issue
for any rate based system but we do not believe this should stand
in the way of a local authority being able to raise funds for
those large projects that will benefit the whole borough/district.
On the whole, the business community would be
likely to want to support a system which raised money for particular
projects provided it did not impose a disproportionate burden
on those very businesses it was in the long term trying to support.
The property sector would prefer to see a system that allowed
a local authority to benefit from the increased prosperity that
development brings to an area—which would be likely in turn
to make that local authority more welcoming of the development
in the first place. Finding an up front way of tapping into that
future wealth seems to offer a more attractive option than raising
local taxes.
SUMMARY
In summary, we believe the proposal for a supplementary
business rate is the wrong way to go about raising extra finance
in local authorities, except possibly in some very limited situations
where there is a wealthy business rate tax base and a very specific
project that the business community is prepared to buy into. We
do not believe that it will raise enough money; it will break
the benefits of certainty and predictability for business ratepayers;
and it will need costly accountability procedures if it is to
be accepted by the business community. There are better ways of
funding infrastructure and we believe these should be explored
more fully before resorting to a Supplementary Business Rate.
ABOUT THE
BPF
The British Property Federation is the voice
of property in the UK, representing organisations owning, managing
and investing in property. This includes a broad range of businesses
comprising commercial property owners, financial institutions
investing on behalf of life assurance and pension funds, corporate
landlords, local private landlords, developers in the commercial,
residential and mixed-use sectors, as well as all those professions
that support the industry, such as law firms, surveyors and consultants.
The property industry is a vital component of
a successful economy. As an industry, commercial property contributes
5.6% of UK GDP, which makes it larger than the financial services
industry and combined with residential property, the sector employs
2 million people. In 2001 net investment in productive property
was £45 billion—30% of total investment in the UK.
BPF members are key contributors to the economic
and social well-being of the UK. Our commercial members provide
the workspace for business and fund the regeneration of our towns
and cities. Our residential members focus on the private rented
sector, providing housing choice to meet the needs of a mobile
workforce, a prerequisite for achieving higher growth in our economy.
And our investor members use the performance of £250 billion
worth of investment in property to fund pensions. Just over 20%
of commercial property in the UK is held by UK-based pension and
insurance funds, meaning that most people in the UK have a stake
in our industry as pension fund members.
| 
