The Communities and Local Government Committee published its report on “Local Government Finance - Supplementary Business Rate” today. It recommends that local authorities be given the power to levy an additional tax, over-and-above what is collected on their behalf through business rates.
The Committee says that the Government should look favourably upon proposals put forward earlier this year by Sir Michael Lyons in his report on the future of local government. The Committee says that allowing councils to vary local business rates would be a positive step towards financial devolution and would allow councils to take a stronger role in building the identities and distinctiveness of specific areas.
It stresses the need for the Government to set the basic parameters within which a supplementary business rate might operate to protect local businesses and support the local economic environment. These should include a requirement to secure the agreement of the local business community not only to the introduction of a supplementary levy but also upon the purposes to which revenue from the levy should be applied. The Committee also believes that where larger variations are contemplated, a ballot among the business community affected should be the norm. And importantly, that the rate and duration of any levy should be clearly defined at the outset. Within these basic parameters, however, as many decisions as possible - on operation, on rates and on investment priorities for example - should be made at a local level.
Upon publication of the report, Dr Phyllis Starkey MP, Chair of the Committee said "supplementary business rates would be a significant step forward in terms of liberation and local empowerment. If the Government gets the framework right, local authorities will be able to take forward these proposals in a manner closely tailored to the specific needs and individual circumstances of the areas they represent".
The British Retail Consortium (BRC), which opposes supplementary business rates, is seriously concerned, not only by the committee’s support for increased property taxes, but by the vagueness of the restrictions which would be placed on local authorities. Retailers would be effectively powerless to oppose the imposition of any extra levy of up to ten percent of their regular business rates. If applied across all retail businesses this would mean that local authorities could cream nearly half-a-billion pounds off retailers over and above the £4.5bn they receive in business rates each year.
BRC Director General Kevin Hawkins said: “The Communities and Local Government Committee is being spectacularly naïve if it honestly believes local authorities won’t use a supplementary business rate to raise extra revenue. Giving local authorities the power to directly tax businesses is like setting Pooh Bear loose on the honey reserves, only this time it is retailers that will get stung.
We do not support taxation without representation and supplementary business rates would give councillors the freedom to tax businesses without having to face them at the ballot box. That is not on.”
Many share the BRC’s concern that the introduction of Supplementary Business Rates would damage competition and create an uneven playing field between retailers. In some instances shops on opposite sides of the street could be paying different rates of tax. That would distort property values and inhibit investment in the areas where supplementary taxes were being levied.