COMMUNITIES
AND LOCAL GOVERNMENT COMMITTEE
LOCAL GOVERNMENT FINANCE: SUPPLEMENTARY BUSINESS
RATE
GOVERNMENT RESPONSE TO INDIVIDUAL RECOMMENDATIONS
The Government's conclusions were different from
the Committee's in some respects, but overall we are confident
we have achieved the right balance, including between the interests
of business, of local authorities, and of the wider community.
Recommendation 3.
Local businesses' acceptance of levy proposals and spending
plans, secured through a ballot or demonstrated through consensus-building
consultation, should be achieved before any SBR is imposed. Sir
Michael Lyons' recommendation was that there should be no requirement
for a ballot on SBR proposals within the affected business community.
We agree. Local Authorities should, however, remain free to hold
a ballot when local or specific circumstances warrant.
The Government has specified the circumstances in
which accountability to business and transparency should be based
on a consultation and when it should be based on a ballot. The
reason for this is to best align the incentives with the accountability
arrangements.
Where the private sector will be meeting most of
the costs of a project, there is less of an incentive on the local
authority to focus on value for money and to ensure that spending
is effectively targeted. With less of its money 'at risk', there
is a greater chance that the authority will commit to less productive
expenditure. In these circumstances, a ballot can provide a better
alignment of incentives. Businesses can effectively weigh up the
balance of costs and benefits. There is no incentive for business
to attempt to 'call the bluff' of the authority in the belief
that they can benefit from the investment without contributing
to a supplement.
For larger projects where revenue from the supplement
is only one small part of a number of funding streams that need
to be lined up, the uncertainty of a vote could make it extremely
hard to reach agreement. There is also the risk that business
would vote against, in the belief that the project would go ahead
anyway. In those cases, transparency and accountability will be
provided through statutory consultation. Businesses and other
stakeholders can clearly see the costs and benefits associated
with a project, and can assess the proposal fairly. They will
have the assurance that the local authority will stick to its
stated plans.
We will therefore require a ballot of businesses
where the contribution supported by the supplement exceeds a third
of the total cost of a project.
Recommendation 5. We
recognise the additional difficulties and complexities that may
be involved in securing agreement to levy a county-wide SBR in
two-tier areas. We recommend that upper-tier authorities should
be empowered to propose an SBR in co-operation with second-tier
authorities in their area. We also recommend that second-tier
authorities have the power to propose an SBR, either individually
or jointly with neighbouring districts; and that specific arrangements
should be determined by the local authorities involved in conjunction
with the local business community, case by case.
The Government intends that only the highest tier
authority in any area should be entitled to levy supplements to
avoid businesses in two-tier areas potentially paying two supplements,
for the best fit with economic entities and to avoid complexity.
Districts have a key role in establishing partnership, gathering
information and developing policies to improve economic well-being
in the towns, cities and localities they represent. Shire counties
will be required to consult their districts on any new supplement
proposals. Authorities with supplement powers will be able to
work jointly within the existing statutory framework.
Recommendation 6. We
agree with Sir Michael Lyons that special arrangements for London
are justified on the grounds of its unique governance arrangements
and economic circumstances. We do not agree that powers to levy
an SBR should rest with the Greater London Authority only. We
recommend that the Greater London Authority should have the power
to initiate a London-wide supplementary business rate which could
only be blocked by a two-thirds majority of London local authorities.
In addition individual London boroughs and the Corporation of
London should be able to initiate a supplementary business rate
either individually or in co-operation with other boroughs.
In London, there is a clear case for the single supplement
that business should be required to pay being set by the GLA.
It is a democratic city-wide authority whose role is to take strategic
decisions on the economic development issues that a business rate
supplement is for. In this context there is no case for the London
Boroughs to be able to block a GLA decision to set a supplement.
Recommendation 7. We
recommend that the SBR rate should not be capped by central government
but determined locally and that where SBR proposals contemplate
a local variation, upwards or downwards, of more than 10 per cent,
a ballot of the business community should be the norm.
A national upper limit on the level of supplements
that can be levied by local authorities will provide important
security for businesses and will also serve to protect ratepayers
from the impact of cost overruns. A maximum limit will 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.
Recommendation 8. Local
authorities should not be able to exempt or discount the liability
of public sector buildings for a supplementary business rate.
Recommendation 9. We
recommend that any decisions on exemptions and discounts, other
than in relation to the public sector's liability, are made at
local rather than national level.
A standard exemption 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.
Recommendation 10. We
recommend that where a supplementary business rate is introduced
in an area which includes an existing business improvement district
there should be an off-set for BID contributors against their
supplementary business rate liability.
The Government supports BIDs and shares the Committee's
view that they should not be undermined or discouraged by the
introduction of BRS. We agree with the Committee that provision
should be made for an offset for BID contributors against their
BRS liability and the legislation we will be introducing will
cater for this. However, we consider that the decision whether
to have an offset is a matter that should be determined locally
on a case by case basis rather than being imposed centrally. In
many cases, those businesses paying a BID levy will not be liable
to pay a BRS due to the £50,000 rateable value exemption
we have announced. In other cases, it should be left to local
authorities developing proposals for BRS to consider whether there
should be an offset for those ratepayers contributing to a BID.
In doing so, authorities will need to consider the benefits that
those particular businesses are likely to derive through the BRS
as well as from contributing to the BID.
Recommendation 13. We
recommend that the Government monitor the long-term impact of
supplementary business rates on the rateable values of business
properties.
As part of the process of consultation or voting,
local authorities will be required to make an assessment of the
impact of a supplement on local business and to show how this
relates to the benefits that will be delivered from projects supported
by the supplement. In addition, rateable values are regularly
updated by the Valuation Office Agency.
Recommendation 14.
We recommend that local authorities and local businesses should
be free to determine jointly their own investment priorities.
We agree with the Committee's recommendation, subject
to the safeguard that supplements should only be used to finance
additional investment in economic development. We announced in
the White Paper that we will consult on how best to deliver the
additionality requirement.
Recommendation 15. We
recommend that SBR proposals include a clear timetable pegged
to project milestones rather than absolute time periods where
this is more appropriate. The timetable should include safeguards
for both ratepayers and council tax payers against project overruns
and, in the case of council tax payers, against any long-term
financing costs arising from SBR projects.
As the Committee acknowledges, infrastructure projects
of the type that might in future be financed in whole or in part
through BRS can extend over many years and overrun their original
estimated deadline for completion. In view of this, we consider
that setting a national maximum limit on the duration of supplements
could put projects at risk. At the same time, we agree with the
Committee that certainty and predictability are key factors in
ensuring the success of BRS. We consider this can best be achieved
by local authorities setting out their plans for expenditure,
including timescales and how the supplement is intended to operate,
as part of the statutory consultation with local businesses and
other stakeholders. This will ensure that those affected by a
supplement have a good foundation for assessing the merits of
particular projects.
