A little noticed Bill is nearing the end of its passage through Parliament. The Business Rates Supplement Bill has received little publicity, but if it were to be enacted in its present form it could inflict serious damage on companies.

The Bill would allow local authorities to impose on companies supplementary rates designed to pay for infrastructure projects that are deemed to benefit local communities. This sounds innocuous enough, and even laudable, but independent sources calculate that these new taxes could add as much as £800 million pounds a year to businesses’ costs. This would follow the expected overall five per cent rise in business rates already announced by the Government and due to cost a staggering additional £1.15bn, phased in over the next couple of years.

This new, double burden on firms comes at a time when they are struggling to cope with the rigors of the recession and could cost the Thames Valley economy an avoidable increase in redundancies and unemployment. It could make the difference between companies surviving or going to the wall.

Yet, local authorities in the region are refusing to say that they would not invoke these powers if they are granted by Westminster. At the present time, this is myopic, and could well backfire in its present form. Not only might it lead to more unnecessary bankruptcies, but it could mean that businesses will be taxed for projects that local communities may not need.

The ultimate success of the legislation will be judged on whether it leads to new projects that deliver enhanced economic activity.

In our view, the only way out would be to make every such project subject to a vote by the businesses that will bear the brunt of the supplementary rate, following detailed consultation. Not only will they have to pay the tax, but they are also in the best position to assess whether a project will lead to improved economic performance. A ballot after consultation would also establish a bond of trust and understanding between businesses and local authorities. In these circumstances, infrastructure projects would lead to job-creation instead of job-destruction.

But the Government really should have gone further and frozen the proposed rates hike of five per cent for a couple of years, instead of phasing it in! This increase is based on an inflation rate of five per cent back in September of last year.

Since then, the economy has slid rapidly and dramatically into recession and the inflation rate is going backwards equally quickly.

  • Contact Steve Rankin at the CBI on 01252 360420