Government Response
The Department for Communities and Local Government's
response to the Communities and Local Government Committee's Report
publishing the Government's response to its first report on Supplementary
Business Rates.
1. This memorandum provides the Government's
response to the Committee's publication of our written response
to its first report on the business rates supplement. The Committee's
second report makes no formal, additional recommendations to the
first report, but makes a commentary on our response both directly
to the Committee (November 2007) and through the White Paper:
Business Rate Supplements (October 2007).
2. Whilst welcoming the Committee's continued
interest in business rate supplements, we disagree with the Committee's
view that Government's approach to supplements is overly cautious
and that it will fail to deliver significant autonomy to local
authorities. Our approach will promote certainty for business
and provide additional flexibility for local authorities in meeting
local economic development needs. It will:
- Promote long-term economic
growth and productivity by empowering top-tier local authorities;
- Provide safeguards for business, including national
upper limit of 2p per pound of rateable value;
- Provide an exemption for properties with a rateable
value up to £50,000;
- Ensure statutory consultation with local businesses
and other stakeholders in all cases; and
- Give businesses a vote where the supplement will
raise more than a third of total cost of project
Ballots
3. The Committee recommends that there should
be no requirement for a ballot on proposals within the affected
business community, but rather that there should be a free ballot
"when local, specific circumstances warrant".
4. The Government's twin-track approach, requiring
consultation and ballots depending on the circumstances, is designed
to protect business and ensure a fair deal. It best suits the
real circumstances in which business rate supplements are to be
used, while maintaining the principle of strong accountability.
5. The Government made clear its view in both
the White Paper and our follow up memorandum in which circumstances
accountability to business and transparency should be based on
a consultation and when it should be based on a ballot.
6. Statutory consultation provides transparency
and accountability. But where most of the cost of a project will
be met by business, there is a risk that authorities will be less
inclined to ensure value for money and effective targeting of
spend. A ballot will provide a focus for authorities to ensure
that projects reflect productive and effective expenditure. By
contrast, giving business a vote in cases where supplement revenue
will form only a small part of the total cost of a project could
make it difficult to reach agreement, and opens up the possibility
of businesses voting against, in the belief that the project would
go ahead anyway.
7. Therefore, a requirement to hold a ballot
of businesses where the contribution supported by the supplement
exceeds a third of the total cost of the project provides a final
level of protection to local businesses.
8. This position was made clear in the White
Paper (paragraphs 2.56-2.59) and in our response to recommendation
3 of the Committee's first report.
Level of authority empowered to levy a supplement
9. The Committee recommended that:
- Upper-tier authorities should
be empowered to propose a supplement in co-operation with second-tier
authorities in their area;
- Second-tier authorities should have power to
propose a supplement, either individually or jointly with neighbouring
districts; and
- The Greater London Authority should have power
to initiate a London-wide supplement which could be blocked by
a two-thirds majority of London local authorities; but that
- Individual London boroughs and the Corporation
of London should also be able to initiate a supplement.
10. We share the view that all local authorities
have a role in promoting economic development. District councils
and London boroughs, as billing authorities, already have a key
role to play through the Business Improvement Districts scheme
(BIDs). This scheme has no upper cap and allows a levy to be added
to business rates in order to fund local improvements.
11. Districts also have a role in developing
policies to improve economic well-being. As we have already said,
shire councils will be required to consult their districts on
any new supplement proposals. However, as Lyons pointed out, there
would be additional complexity created in allowing district councils
to level supplements in two-tier areas, which would in turn have
an impact on business.
12. The Government believes that applying supplements
on a larger geographic scale will help to even out some of the
variation in tax bases and lessen the risk of disadvantaged areas
with weaker property markets failing to attract resources need
for investment in economic improvement projects with wider long
term benefits.
13. The Government carefully considered the Select
Committee's report in developing its Business Rate Supplements
policy, but concluded that it would not be reasonable for business
to be expected to pay more than one supplement simply because
it was in a two-tier area.
14. The case for the Greater London Authority
(GLA) setting a single supplement for businesses in London is
also clear. The GLA is a democratic city-wide authority whose
role is to take strategic decisions on economic development issues.
Therefore, we do not believe there is a case for London boroughs
have powers to block a decision to set a supplement.
15. The Government has set out its position in
respect of this issue in the White Paper (paragraphs 2.65-2.70
and 2.75-2.76) and in response to recommendations 5 and 6 of the
Committee's first report.
The maximum level of the supplement
16. The Committee has recommended that there
should be no cap on the supplement rate determined by local authorities.
In its commentary on our response to its first report, it argues
that setting a cap on the level of supplement reflects a failure
to trust local authorities to take effective decisions and demonstrates
a lack of vision. We do not agree with this view.
17. As stated previously, we believe that, far
from reflecting a lack of trust in local authorities as the Committee
suggests, a national upper limit on the level of supplements will
provide important security for business and protect rate payers
from the impact of cost overruns.
18. The White Paper reflects this view and sets
our view that a maximum limit will also ensure an appropriate
level of protection of national economic and fiscal interests
given the increased ability of local authorities to borrow for
capital purposes that will result from the supplement.
19. This view was set out in the White Paper
(paragraph 2.32-2.42) and in our response to recommendation 7
of the Committee's first report.
20. We do not agree with the Committee's view
that such a cap will limit local authorities ability to "make
a meaningful contribution to the economic development" of
an area.
Exemptions and discounts
21. The Committee has recommended that any decisions
on exemptions or discounts should be determined at a local level.
22. We believe that it is appropriate for a national
standard exemption to be applied to give businesses—and
particularly small businesses—certainty. We have stated
the view that a standard exemption across England for hereditaments
with a rateable value of £50,000 or less will provide consistency
for businesses and protection for smaller businesses which the
economic evidence suggests can be disproportionately affected
by changes in business rates. The legislation we will be introducing
will also enable authorities to provide more generous safeguards
for local businesses, including whether to introduce a taper above
the £50,000 threshold.
23. We provided our views on this in the White
Paper (paragraphs 2.51-2.54) and in our response to recommendation
9 of the Committee's report.
The degree to which authorities will benefit and
further financial devolution
24. The Committee considers that the Government's
proposals are likely to be of significant benefit only to a relatively
small number of authorities.
25. The White Paper explained that the decision
to place the power to raise supplements with only the highest
tier authority avoided businesses in two-tier areas potentially
paying two supplements, avoided complexity and fitted best with
economic entities.
26. The Committee's latest report repeats their
view that restricting the supplement levying power to upper-tier
authorities is unnecessary in London or elsewhere across the country.
27. The White Paper recognises that local areas
will clearly have different investment priorities based on different
local economic needs. Although circumstances and decisions will
vary from area to area, supplements will provide the opportunity
to finance investment in economic development that would not otherwise
have taken place. It will enable decisions about investment and
management of spending to be brought closer to the local communities
affected, with resources being locally owned and controlled.
28. The Government's decision to restrict the
supplement-levying power to upper-tier authorities has prompted
the Committee to reiterate their view that Ministers should consider
and bring forward alternative measures alongside a supplementary
business rate to allow local authorities and local business communities
seeking additional funds for local investment to choose a means
which is suitable for their specific local circumstances. They
comment that there is no sign of any such measures and that the
Government has not seen fit to make any formal response on this
recommendation. The Committee also consider there is little sign
of the Government looking beyond the supplement to any "next
steps" in financial devolution to local authorities.
29. However, as the White Paper made clear, the
Government's review of sub-national economic development and regeneration
identified other means to strengthen local authorities' role that
are being taken forward in parallel to business rate supplements.
30. These include:
- The creation of a focused statutory
economic development duty for local authorities;
- Reforms to the LABGI scheme;
- An expectation by Government that RDAs will delegate
responsibility for spending to local authorities or sub-regions
wherever possible; and
- The development of options to lever in additional
finance to invest in regeneration and growth.
31. In addition, more than £5 billion of
grants will be mainstreamed over the Comprehensive Spending Review
period, removing ring-fencing and other controls, to provide additional
flexibility to respond to local priorities. This reflects the
Government's commitment to giving local authorities the power
to make local decisions.
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