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Supplementary business rates

Lyons report calls for local supplementary business rate

The Lyons Inquiry into local government finance, which reported in March 2007, recommended that Government should consider giving councils the power to raise a supplement on top of the business rate to fund specific, local economic development projects. The Government has acknowledged that there is a case for giving councils this new power and will report back with more detailed proposals for taking the idea forward later in 2007. The Government previously suggested a local supplementary business rate (SBR) in the local government white paper 'Modern local government: in touch with the people' (July 1998). This was followed up with more detailed proposals in the green paper 'Modernising local government finance' (September 2000). (CBI responses to both are attached) In suggesting a local levy both the Government in 2000, and Sir Micahel Lyons this year, were motivated by the need to raise additional funding for local projects and specifically ones which would serve the business community, but also to engineer closer and more productive relationships between the business community and local government. While the Government's early proposals suggested rates of 1-5%, the Lyons Report suggested that rates could go to an upper limit of 10%.

CBI Position

While welcoming the overall tone of the Lyons Report, in particular the recommendation to retain the Uniform Business Rate (UBR), the CBI urged caution on the idea that councils should be able to levy a supplementary business rate of up to 10%. The CBI was concerned that a SBR could add significantly to the business tax burden and could lead to the relocalisation of business rates through the back door. The CBI argued that the relationship between councils and businesses had improved since the introduction of the UBR, aided by more recent initiatives such as Business Improvement Districts, but a critical degree of trust, on which the success of a levy would rely, was still lacking. Within this context businesses would only consent to a SBR if they were given a vote on each and every local proposal. Following consultation with CBI members, via regional council meetings, the CBI remains opposed to the idea of a SBR, as in 2000 when the idea was suggested in a local government finance green paper. However in recognition of the need for and benefits of investment in infrastructure, the CBI has developed a number of conditions that would need to be fulfilled before businesses could agree to a levy. These ideas and related views were presented as evidence to the Communities and Local Government Select Committee inquiry into supplemntary business rates in June 2007 (see attachment). The CBI's conditions include, first and foremost a business vote on each and every local proposal. Additional safeguards could include: a cap on how long and at what rate a levy could be raised, ring-fencing of funds raised and genuine business involvement in the management of the project funded.

Summary updated:08/14/2007 12:00 AM

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