Memorandum by London First (SBR 44)
1. London First is a business membership
organisation whose mission is to make London the best city in
the world in which to do business. London First delivers its activities
with the support of 300 of the capital's major businesses, representing
approximately a quarter of London's GDP, from key sectors such
as financial, professional services, property, ICT, creative industries,
hospitality and retail. We also represent the interests of all
of London's higher education institutions as well as many of the
further education colleges.
2. London First made a number of contributions
to Sir Michael Lyons' Inquiry into local government and we were
pleased that his final report included a recommendation to give
power to local authorities to raise a supplementary business rate
to fund infrastructure improvements, subject to agreement from
business. We are however concerned as to how these proposals will
be implemented in practice and therefore welcome the Select Committee's
inquiry into supplementary business rates and appreciate the opportunity
to contribute to the debate.
3. As with our original submissions, London
First's proposals have been framed with particular reference to
local government in London. However we believe that they are applicable
to local authorities across the country.
RATIONALE FOR
A SUPPLEMENTARY
BUSINESS RATE
4. Businesses are concerned about a possible
return to local authority control of business rates because of
their experience of large rises in the 1980s to fund increases
in spending on which they had no voice. The current arrangements
for payment of business rates provide two measures of comfort
and certainty to business—the RPI cap and Treasury's concern
about overall levels of taxation and public spending. New arrangements
should provide equivalent comfort and certainty. We therefore
welcome Lyons' recommendation that the RPI cap on the national
level of business rates and the existing national arrangements
for business rates should be retained at present.
5. Recent votes in favour of supplementary
rates on behalf of Business Improvement Districts (BIDs) suggest
that businesses are willing to contribute to improved local services
provided that:
— it is for a defined period;
— they approve the purposes of the
levy and see clear benefits; and
— they are confident that the funds
will be ring-fenced and used efficiently.
The City of London has the power to determine
the level of its Business Rate ... Following consultation with
business, it set a premium of 0.4 pence in the pound for 2006-07
raising £5.1 million, mainly for police and security. Its
unique electoral arrangements mean that business has a vote. This
creates a much greater incentive to take business issues seriously.
6. London First supports the objective of
increasing the amount of revenue that local authorities raise
themselves and reducing their dependence on Government grants:
7. to allow greater opportunities for raising
and spending revenue at a local and London level; and
8. to involve the business contributors
in the decisions about how and where that money is spent in such
a way as to encourage increased local accountability and efficiency.
9. We welcome Lyons' recommendation that
local flexibility to set a supplement on the current national
business rate should be introduced and his conclusion that in
order for this new flexibility to be used efficiently and effectively,
it is important that local authorities have appropriate powers
to use the revenues to support borrowing.
IMPLEMENTATION
10. In order to avoid too big an initial
impact and too heavy an administrative burden on businesses which
have national coverage, such as utilities and retailers, the new
arrangements should be phased in so they would apply to say a
fifth of authorities in the first year and progressively extended
to the remainder. It can be applied to new development from the
outset since the rent level should reflect the incidence of any
SBR.
TWO TIER
AUTHORITY AREAS
11. We proposed that in London a supplement
could be levied by boroughs and by the Greater London Authority
(GLA). Lyons however is concerned to minimise the number of supplements
to make the system as simple as possible. He is also concerned
about the big variation in the tax base between different parts
of the city and the need for city-wide action on infrastructure
projects. He therefore considers it would not be desirable for
all powers over business rate supplements to rest solely with
the boroughs and proposes an arrangement whereby a single, London-wide
supplementary rate would be set through agreement between the
GLA and the boroughs, and in consultation with the business community
with a joint plan for the use of the revenues.
12. We believe however that it would be
very difficult to achieve agreement between the GLA and the boroughs
collectively on a programme to be funded in this way, particularly
where they in different political control. There would be a high
risk of failure to agree on anything. If the authorities did succeed
in reaching agreement, it would be likely to be based on a stronger
emphasis on satisfying their respective aspirations than meeting
the concerns of the business community, resulting in an over-inflated
programme which would not command business support. Unless the
approval process contained strong safeguards (see below) we are
concerned that the views of business would be subordinated to
political convenience.
13. The current system of business rates
collection and distribution does not allow for a genuine linkage
between payment of rates and the local services provided. Powers
for individual boroughs to levy a supplementary rate on the basis
of a business vote would help to overcome this disconnect. For
these reasons we would be prefer the boroughs each to have their
own powers to levy a supplementary rate. The consequential issues
for the approval process and equalisation are considered below.
ACCOUNTABILITY
14. We strongly support Lyons' view that
the proposed supplement is intended to contribute to greater flexibility
for local communities—residents, businesses and their representatives—to
invest in themselves and in the future and that it is not intended
to provide greater powers for general taxation. It will be important
that the supplementary rate should not simply be a way of shifting
the cost of local services from residents to businesses. If businesses
are to be persuaded to vote for a supplementary rate, they will
need to be satisfied that the authority is providing a satisfactory
baseline level of service and using its existing resources effectively.
15. We consider that those who pay the tax
should have an effective voice in decisions on how much is raised
and what it is spent on. Councils should be required to detail
extra spending requirements and the funds ring-fenced through
a separate fund with directors/trustees nominated by business;
with a report published on the outcomes.
APPROVAL
16. Business is sceptical of consultation
by authorities when in practice there is no leverage or redress.
Our preference would be for a model very similar to that of a
Business Improvement District (BID) ie where a private sector
company implements the activity. That may not be practicable for
borough-wide schemes, in which case we would like to see a majority
vote by value and number in the same way as for BIDs. In these
circumstances, while the voting would be similar to BIDs, the
implementation would be by the local authority.
17. Lyons did not accept our proposal for
BID style vote. He said it would be difficult to get support for
projects with long term benefits, would complicate financing arrangements
which involved other revenue streams, would be inconsistent with
the accountability mechanisms for other taxes and would carry
a high risk of abortive proposals. He therefore recommended a
statutory consultation process.
18. We remain of the view that statutory
consultation by itself does not provide a sufficient safeguard
against business views being carefully considered—and ignored.
We therefore maintain our view on the desirability of a BID style
vote for borough proposals. We do not think this would lead to
abortive votes. Experience with BIDs shows that pet projects which
authorities have long had in their bottom drawers will stay there,
while well-designed schemes addressing the real concerns of businesses
and their communities have earned support.
19. We believe that the Mayor should be
able to raise extra funds from business for exceptionally important
projects which serve a far larger area than that in which they
are based. We recognise however that majority support for a London
wide supplement levied by the Mayor would be very difficult to
achieve. It could be fatal to the ability to secure funding for
major projects if they were constrained by the terms of a general
power to levy a supplementary rate—particularly if this
required agreement on a wider package of measures with the boroughs.
20. Projects of this kind are likely to
be few and far between. Currently only Crossrail falls into this
category and it is likely that the business contribution to it
will exhaust the capacity of the London business community to
make such contributions for some time to come. The funding package
for any further project of this kind should be considered on its
own merits and should have its own legislation.
IMPACT ON
EQUALISATION
21. We recognise that business rates help
to support local government spending generally and that, given
the wide disparity between authorities in their non-domestic rate
base, the current arrangements for pooling business rates should
continue. But we consider that this should not be applied to supplementary
or incremental revenue. We therefore welcome Lyons' general conclusion
that all of the revenues should remain local.
22. So far as London is concerned, however,
as noted above, Lyons is concerned about the big variation in
the tax base between different parts of the city and this is one
of the reasons why he believes boroughs should not have the power
to raise supplementary rates individually. However we believe
there are positive advantages in boroughs having such a power.
We do not consider that differences in the tax base are an obstacle
to this. The need for authorities to raise supplementary revenue
for purposes that business would support, for example enhancement
of the public realm, is directly related to the extent of business
activity in the area. It would in any case greatly weaken accountability
and make it unlikely that businesses would vote for a supplementary
levy if part of it was redistributed outside the area.
23. Local authorities should retain the
rate income generated by new commercial development so that they
have a strong incentive to grant planning consents. In London
the additional revenue should be shared between the boroughs and
the GLA. The Local Authorities Business Growth Incentives scheme
is too complicated and delivers too little in most local authority
areas to make much difference to the way in which local authorities
behave. We accordingly welcome Lyons' conclusion that in the short
term, the Government should simplify the scheme in order to provide
sharper incentives and that reform should focus on providing transparency
and predictability through reducing the emphasis on distributional
objectives.
SCALE OF
THE SUPPLEMENT
24. Local variations in tax rates should
not distort business decisions (eg create incentives to relocate).
They should therefore be subject to a cap—for example a
5% addition to rate bills.
25. We are pleased that Lyons has accepted
our view that the proposal to introduce the supplement should
include a clear timetable and that for a supplement to run beyond
this period, the authority would need to gain new approval.
THRESHOLDS
26. We support Lyons' view that authorities
should have a degree of flexibility over which sizes of business
pay the levy. Similarly to BIDs, the liability to the levy could
be varied to suit local circumstances, for example the rules on
exclusions for smaller businesses. As with BIDs also it could
be applied to part of a local authority area or possibly across
parts of two areas eg where a local artery forms the boundary
between them. It would be for authorities to frame proposals and
to specify liability to the supplement—in terms of RV threshold
or area—in a way that that would maximise support.
TAX BASE
27. If SBR is introduced there will continue
to be a concern amongst rateable occupiers that they are paying
for benefits the financial value of which will, in many cases,
benefit landlords and freehold owners. It would be useful to explore
options for ensuring that part of the additional levy is borne
by property interests other than the ratepayer. A model achieving
this has been introduced for BIDs in Scotland and may be worth
exploring in England and Wales.
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