Businesses faces a double burden of unwanted extra taxes at the worst possible time if a new bill is passed by Parliament, the CBI warned today.
The Business Rates Supplement Bill has its third reading in the House of Commons tomorrow (Wednesday). It will allow local authorities to levy on companies supplementary taxes designed to pay for infrastructure projects which benefit local economies. The taxes could total £800m a year, according to the Lyons Review into Local Government of March 2007.*
These supplementary taxes would follow the overall 5% rise in business rates announced by Government, and set to cost £1.15bn, which is strongly opposed by business for being too large a rise at a very difficult time.The supplements would particularly affect manufacturers and retailers.
John Cridland, CBI Deputy Director-General, said: “These extra taxes on business could harm local economies by placing extra financial demands on firms when they can least afford it. They could make the difference between companies surviving the downturn or going to the wall.”
The CBI is calling for an urgent amendment to the Supplements Bill. It says firms should get a vote to approve or reject proposed tax supplements to pay for new infrastructure projects. This would:
- Help avoid white-elephant projects that business does not actually need, saving money and cutting waste
- Ensure that priority is given to the projects that are most likely to help local economies
- Avoid extra taxes at times when business simply cannot afford them, helping avoid business failures that cost jobs
- Make the system fair – if only business pays a supplement, business should get a vote
- Enhance trust and understanding between local government and business, helping local economies
Mr Cridland said: “The Business Rates Supplements Bill is designed to help fund projects that benefit local economies, but may back-fire in its present form. It risks placing extra burdens on firms that are fighting for survival, and could lead to more firms going bust. It also risks taxing business for projects that are not what local economies need.
“By amending the Bill to give business a vote, we can ensure that local economies get the right investments, which stimulate economic growth and create jobs, instead of threatening them.”
The Need for an Amendment to the Business Rates Supplement Bill
The success of the Bill will be judged on whether it leads to new projects that deliver increased economic activity across local authority areas. It is therefore essential that any revenues raised are used to fund credible projects and schemes.
The Bill includes some safeguards to ensure that supplements may only be levied for genuine “economic development projects”, and will enable businesses to have a vote where a supplement constitutes one third or more of a project's cost. Clause 26(2) enables the Government to publish guidance on which projects may, or may not qualify for funding, and Clause 3(3) outlines a series of services that supplements may not be used for funding. The CBI remains concerned, however, that no matter how detailed any forthcoming guidance notes may be, there will still be an ambiguity about which forms of infrastructure or services a supplement may fund, and whether particular projects will facilitate increased economic activity across particular local authority areas.
The most efficient means for resolving this problem would be a business ballot in all circumstances - not just when a business supplement constitutes one third or more of a project's cost. Businesses are best placed to inform and determine whether a particular project will deliver any long-term economic benefits. They will also have to pay the supplement.
The CBI’s English regional councils believe that a business vote on supplements would be necessary to provide a clear channel of trust and understanding between business and local government. Detailed consultation with business, followed by a ballot would therefore be the most effective means for distinguishing which services and projects will deliver benefits for local economies on a project-by-project basis.
Government Should Abandon the 5% Rise in Business Rates
The CBI is calling for business rates to be frozen for two years, instead of there being a 5% rise.
The Government has pledged to increase business rates levied on business by 5% from April, based on the RPI measure of inflation in September which was 5%. This is despite inflation having fallen sharply since then to 0.1 per cent in January, and the fact that it may fall into negative territory.
Although convention dictates that the rise in business rates be set at the level of RPI inflation in September, the CBI believes that an exception should be made because September’s figure was an unrepresentative peak in inflation, and also because of the severity of the recession.
*As currently worded the Bill will enable a 2p supplement to levied on non-domestic rate-payers, which is the equivalent of a 4% increase in rate bills. Were this to be applied throughout England then it would raise £800m for local authorities, according to Sir Michael Lyons’s Review into Local Government – Final report (March, 2007). This assumes, however that there is no £50k rateable value condition. The figure is likely to be an underestimate because more properties will be valued above £50k following the 2010 revaluation of non-domestic properties.
The CBI is the UK's leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. With offices across the UK as well as in Brussels, Washington and Beijing, the CBI coordinates British business representation around the world.