Memorandum by London Councils (SBR 50)
1. London Councils is pleased to respond
to the request from the Communities and Local Government Committee
to provide a memorandum on the proposals in the final report of
the Lyons Inquiry into Local Government for a power for local
authorities to levy a supplement on the business rate within their
areas. Our memorandum responds to the specific issues identified
by the Committee.
2. It is important to emphasise that this
memorandum represents London Councils initial views on the proposal
for a supplementary business rate. We understand that there is
unlikely to be a consultation paper from Government on the issue
until late Autumn at the earliest. London Councils will want to
have comprehensive discussions and debate with member authorities,
with the Mayor of London, and with representatives of London business
organisations and other non domestic ratepayers—at both
regional and local level—before determining our final views
on the range of issues identified by the Committee. Sir Michael
emphasises the importance that any arrangements for a supplement
to the business rate should be introduced in a transparent and
accountable way, which enables businesses to have greater trust
in the desire and ability of local authorities to prioritise issues
of greatest concern to them. We agree. It is therefore essential
that in forming London Councils' views on potential options for
the supplement in London we should take full account of business
views, and we are developing a programme of meetings and discussions
with all interested parties.
THE RATIONALE
FOR INTRODUCTION
OF A
SUPPLEMENTARY BUSINESS
RATE
3. London Councils welcomes the proposal
for the introduction of a supplementary business rate (SBR) but
continues to support the full re-localisation of non-domestic
rates. We believe that a SBR would give London boroughs increased
flexibility to respond to the needs of local businesses and other
non domestic ratepayers as well as helping to promote substantial
improvements to the relationships between local authorities and
their local business communities. These improvements are key to
developing and enhancing the place-shaping role of local authorities.
The introduction of a SBR should help local authorities to re-engage
with and involve the business community in local policies and
decision making. It should also give local authorities more flexibility
to deliver economic development and other services for the benefit
of their non domestic ratepayers. On a practical level, the introduction
of a SBR should be a straight forward and efficient way to introduce
a new source of local revenue into the local finance system. Local
authorities already administer and collect NNDR and have the systems
in place to implement a local variation to business rates. We
are undertaking some preliminary work to assess the administrative
issues arising from the introduction of a SBR.
ACCOUNTABILITY AND
APPROVAL MECHANISMS
FOR THE
INTRODUCTION OF
A SUPPLEMENTARY
BUSINESS RATE
AT A
LOCAL LEVEL—THE
ROLE OF
BUSINESS AND
THE WIDER
COMMUNITY
4. The introduction of an SBR will require
new mechanisms and processes to ensure that local businesses are
fully consulted on the introduction of an SBR and can have a major
influence on the priorities for using the SBR. Transparency in
the consultation process will be crucial. Local authorities will
need to set out how much additional revenue an SBR would provide,
how these revenues could be used at a local level, and the potential
benefits that they will provide to both local businesses and the
wider local community. Local businesses will need to be given
the opportunity to raise concerns, and suggest alternative projects
which could be funded from SBR revenues, for consideration by
the local authority. The consultation process should also include
details of any proposed local exemptions and variations in the
SBR for different types and classes of business. Where local authorities
are considering a range of possible supplements, local businesses
should be consulted on all possible outcomes with the marginal
benefits of alternative projects and higher SBR rates clearly
set out so that businesses can make informed decisions.
5. The consultation process should be accompanied
by guidelines regarding the method by which local authorities
will consider business responses, with clear procedures for communicating
decisions regarding the SBR to the business and wider communities.
However, as far as possible, national prescription should be avoided
about the nature and form of the consultation process.
6. A key issue for the consultation with
business is whether a formal process of voting should be mandatory
(as is required to agree a business rate supplement under the
current Business Improvement District legislation). A process
of voting could be difficult to organise, costly and the results
could be problematic to interpret—certainly on a regional
basis. On the other hand, business organisations strongly support
a mandatory vote. We will want to have detailed discussions with
business organisations and others on this. Our initial view is
that it should be up to individual boroughs, in consultation with
their local businesses, to determine whether or not to use a formal
voting system.
7. Any SBR scheme should run for a minimum
three year cycle, preferably timed to coincide with national Spending
Reviews. This would enable local authorities to consider medium-term
planning and budgeting when proposing SBR levels and projects
linked to SBR revenues. However, there may be a strong case—particularly
where the additional revenue is used to finance borrowing for
major infrastructural projects—for the SBR to last longer.
Many Business Improvement Districts last at least five years.
After each SBR cycle businesses will need to be consulted again
on whether the SBR continues, and whether any changes need to
be made to the level of the SBR and spending plans for the revenues
raised.
8. To strengthen local accountability, as
part of the SBR process local authorities should, in addition
to their normal discussions with business, plan to `report back'
to local businesses at the end of each SBR cycle. This report
should set out the local benefits and outcomes achieved through
the use of SBR revenues.
9. Revenues raised from a local SBR should
not be ring fenced and should be available for local use at local
discretion. Local authorities should not be required to spend
the revenues from a local SBR solely on business/economic development
related projects, although we recognise that it is probable that
a significant proportion of the revenues will be used to fund
economic development projects, as it unlikely that businesses
will consider supporting additional local business taxes if they
are used to fund existing spending priorities.
10. In relation to consultation with business,
the London position is complicated by the possibility, advanced
by Sir Michael Lyons, that a single-London wide SBR could be set
via agreement between the GLA and all London boroughs and that
a joint-plan is considered for the revenues collected from this
SBR to fund city-wide strategic projects. If a regional SBR were
introduced in London the consultation process with businesses
would need to be carefully constructed. There would be difficult
issues regarding the appropriate level at which the consultation
process should be carried out (ie should the GLA or London boroughs
be responsible) and whether this could confuse accountability
and transparency. For example, a local consultation process coupled
with a regional spending plan could provide misleading messages
to local businesses about accountability for spending decisions
and the potential local benefits of the revenues raised.
CONSIDERATION OF
IMPLEMENTATION ISSUES,
INCLUDING THE
IMPACT ON
LOCAL AUTHORITY
TAX BILLS
AND DECISION-MAKING
IN TWO-TIER
LOCAL AUTHORITY
AREAS
11. London Councils believes that it is
essential that London boroughs should be able to benefit from
the local flexibility resulting from a local SBR—if local
businesses in individual boroughs are willing to pay an SBR to
fund local projects then boroughs should be allowed to implement
an SBR scheme and spend SBR revenues locally. This would enable
boroughs to develop better and more accountable relationships
with local businesses, and to be more adaptable to local conditions.
London Councils does not accept the proposal from Sir Michael
Lyons for a single London-wide SBR scheme. A purely regional scheme
would mean that local authorities in London would be treated differently
from local authorities elsewhere in England, thereby preventing
them from enjoying the greater flexibility and enhanced place-shaping
role that a local SBR could provide. We consider that it is essential
that London boroughs have the same powers that have been proposed
for other upper-tier authorities in England, therefore allowing
local businesses and the wider local community to experience direct
local benefits from the implementation of a SBR.
12. In addition to a local SBR, it could
be possible for a regional supplement to be negotiated separately
by the GLA with business in respect of schemes that were clearly
London-wide. Equally, it would be possible to explore the option
of a joint system which has both regional and local elements.
Under such a scheme, boroughs would be free to propose a local
SBR and local spending plans and to put these plans forward to
businesses and other non domestic ratepayers through an agreed
consultation process. In addition to the local rate, there could
be an additional regional element paid into a regional pool for
London-wide projects. The regional element of the SBR would need
to be decided jointly, with both boroughs and the Mayor agreeing
on proposals for how much the regional element of the SBR would
be and what projects the revenues would be spent on. The regional
proposals would then need to be put to business organisations
for approval. This option could be further developed to allow
sub-regional approaches, whereby local authorities could collaborate
with neighbouring authorities to pool local SBR revenues to fund
cross-borough projects which would benefit sub-regional economies.
13. Such an approach could mean that an
element of any SBR raised from local businesses would be retained
locally and spent on local projects, whilst the regional element
would be available to fund London-wide strategic projects to benefit
the capital as a whole. There are a wide range of issues with
a dual system that would need further consideration, including
the details of the consultation process with non-domestic ratepayers
and the possible complexity of dual structures of exemptions and
thresholds.
THE IMPACT
OF A
SUPPLEMENTARY BUSINESS
RATE ON
EQUALISATION
14. London Councils acknowledges that there
are wide variations in the ability of individual London boroughs
to raise revenues from a SBR. Westminster City Council would (in
2006-07 values) be able to raise some £26.5 million from
a 1p supplementary rate, while a number of other boroughs—for
example Lewisham, Barking and Dagenham, Harrow, Redbridge and
Waltham Forest—would be able to raise less than £1.2
million from the same rate. There would also be substantial variations
in the amount that could be raised per head of population. But,
we accept the view of Sir Michael that it would be perverse to
apply an equalisation scheme to a supplement designed to enable
greater local flexibility where there is local support for it.
It is also essential that any equalisation of revenues within
London should be carried out on a regional basis so that London
does not lose the benefit of its tax raising capacity to areas
outside the capital, as currently happens with NNDR.
THE APPROPRIATE
SCALE OF
THE SUPPLEMENT
15. London Councils agrees with Sir Michael's
view that that different levels of SBR would enable different
kinds of projects to be undertaken in different areas and that
"there is thus no right answer to this question"
(page 299) as to the appropriate scale of the supplement.
We recognise that a low level of supplement, particularly at the
inception of the scheme, could allow businesses to develop confidence
in the scheme. But London Councils does not accept there is a
case for a centrally prescribed maximum to be applied to the SBR.
If boroughs are able to set a local element, it would be appropriate
for a local decision to be taken about the proposed rate of the
SBR, depending on the views and spending priorities of local businesses.
In a regional scheme, the level of the supplement would need to
be agreed between all London boroughs and the Mayor, again dependent
on agreed regional priorities and spending plans, before being
put to business representatives.
16. In a scheme with local and regional
elements, the process of rate setting would become more complicated.
Local authorities would need to set the local element of the SBR
with reference to local conditions and local spending priorities
for the revenues raised. However, in doing so they would need
to consider how this might be affected by the proposed regional
rate.
17. An additional layer of complication
when setting SBR rates comes from the interaction of the SBR with
existing or proposed business improvement districts (BIDs). Local
businesses in BIDs already pay a supplement on their business
rates to fund projects/spending in their BID areas. There is a
clear risk that an additional layer of business taxation for these
businesses could result in a decline in the support for new BIDSs
or the dissolution of BIDs already in existence.
18. London boroughs have been very successful
to date with BIDs. There have been 16 successful BID ballots with
two more ballots due. 11 boroughs have one or two BIDs within
their area. So far, there have been no "no" votes. BIDs
in London typically have a five year term, and a 1% levy, though
there are examples of levies up to 2%. Most have specific exemptions—mainly
for small businesses or charities—and there are examples
of the payments being capped. The approach discussed above, including
a local, borough-based element, could make it easier to ensure
that any BIDs were included in decisions about the local element
of the SBR. For example, businesses within a BID area could be
exempted from the local part of the SBR.
THE THRESHOLD
FOR PAYMENTS
AND WHETHER
SMALL BUSINESSES
SHOULD BE
REQUIRED TO
PAY
19. Decisions regarding thresholds, exceptions
and discounts for the SBR will ultimately be dependent on how
the scheme is implemented. As a guiding principle, London Councils
believes that decisions such as these should be determined by
local authorities in consultation with non domestic ratepayers
and that the structure of a SBR is tailored to suit local economies
and local business conditions. This would further enhance the
place-shaping role of local authorities and enable them to assess
and react to local needs through the SBR. Local exemptions and
thresholds should be decided by local authorities taking into
account their spending plans for SBR revenues, their local circumstances
and any administrative implications.
| 
