Local Government - July 2009

Business Rates Supplement Act 2009

The Business Rates Supplement Act 2009 received the Royal Assent on the 2 July (although the operative provisions will be brought into force by Order). Local Government Minister Rosie Winterton expressed delight. Otherwise, the general reaction to the Bill has wavered between determined apathy and outright opposition to an additional burden on businesses. Its origins lie in the 2007 Lyons report, which failed to recommend the return of business rates to local authorities and instead offered the power levy a supplementary local business rate for specific projects. The Government had taken away our football, and refused to give it back, but offered us a tennis ball instead.

Perhaps it is fairer to describe this as a good idea which had the misfortune to emerge at the wrong time. The prospect of paying extra local taxes is hardly likely to commend itself to businesses just now, so any project that the supplement is designed to make happen would have to have a remarkable degree of local support. Most authorities will put it away in the same drawer as the papers on the Community Infrastructure Levy and hope forlornly for happier times. In London, though, the GLA have announced that they intend to adopt a 2p supplement from April 2010 in order to fund Crossrail.

Some of the details are important. The CLG consultation paper summarised at the end of this note illustrates the complexity of the administrative and financial arrangements. Levying and collecting a business rate supplement (BRS) is neither simple nor cheap. It explains that some of the administrative costs have to be bourn outside the BRS income. Also, the power to levy a BRS is restricted to top or single tier authorities. This is, perhaps, another indication that the Government does not trust district councils with economic development. But the districts will have to collect the BRS, and may have to run a ballot. Although in principle the county council will meet the district’s costs, the consultation paper stops short of promising the district complete cost neutrality (for fear, for example, that it will not try hard enough to collect arrears).

This is what the Act says. Top or single tier authorities may, singly or jointly, impose a BRS to raise money for expenditure on a project that the authority is satisfied will promote economic development in its area. The authority must make sure that the income is only used for the project, and that the expenditure would not have been incurred without the BRS. It cannot be used for housing, social services, education, children’s services, health services or town and country planning. Regulations can alter this list.

Before imposing a BRS the authority must publish an initial prospectus, consult “relevant persons”, hold a ballot (if there is to be one) and then publish a final prospectus. The prospectuses must contain specified information and (outside the GLA) be approved by full Council. There is a power to issue a revised prospectus. Amongst other things, the prospectus will include details of:

the amount to be levied
the duration of the supplement
any exemptions or reliefs
how the expenditure is additional to the authority’s existing plans
how the authority will deal with differences between the planned and outturn expenditure for the project being supported via the BRS
an assessment of the impact of the supplement on local businesses and how this relates to the economic benefits that will be delivered from the project.

“Relevant persons” for the purposes of consultation are the people who will have to pay the BRS, any lower tier authority and anyone else that the authority thinks appropriate.

A ballot is required if the amount the authority expects to raise is more than one third of the cost of the project. Otherwise it is optional. The people who will have to pay the BRS will vote in the ballot, including some of those with an exemption. The ballot will only approve the BRS if a majority of those voting approve it and the aggregate rateable values of the hereditaments of the BRS payers who support the BRS is greater than that of those who oppose it. There will be Regulations on holding ballots.

There are complex provisions permitting the variation of a BRS in certain circumstances. A ballot may be required for a variation.

No BRS can be levied before 2010. BRS levied before 2012 in England can relate to a project started before the Act comes into force. The GLA can levy a BRS before 2011 even though the project would have gone ahead anyway, and without a ballot.

National non-domestic rate (NNDR) payers must pay any BRS imposed on them. Owners of unoccupied properties can be exempted, and they must be exempted if they are charities or sports clubs. There is a further exemption for so long as the rateable value of a hereditament is below a limit prescribed by regulations, subject to a pro rata calculation in for a part-occupied hereditament. As with NNDR, liability is reduced for small businesses, charities and sports clubs, rural shops and post offices and unoccupied property, and for discretionary or hardship relief. The authority may include additional reliefs in its prospectus if they are based on rateable values and apply uniformly in the area.

If there is a Business Improvement District (BID) levy in the authority’s area, it must publish rules to offset the BID levy against liability for BRS and there are detailed formulae to work these out.

If the levying authority is not the billing authority (ie in two tier areas), there is a system of notification not unlike the arrangements for precepts and levies. The billing authority can recover its administrative expenses.

The Secretary of State and the Welsh Office can cancel a BRS, and require repayments to be made, if the levying authority has acted in a way that is materially inconsistent with information provided by it in a prospectus or variation or during consultation or a ballot. The Act contains the usual provisions allowing them to seek information, to make Regulations and to issue guidance.

Guidance issued, and paving activity, before the Act comes into force is deemed effective. The Treasury consulted on draft general guidance between January and April 2009. The draft guidance covered:

The purpose of the guidance and an introduction to BRS.
When it might be appropriate to fund a project through BRS.
Ensuring a fit with local, sub-regional and regional plans and other Government policies.
The types of projects it might and might not be appropriate to fund– it suggested physical infrastructure projects, such as transport schemes, business support or vocational skills programmes, and marketing programmes to attract investment.
BRS is not to be used to fund existing services.
Expenditure which may not be met through BRS – initial scoping work cannot be recovered through BRS.
Levying a BRS – the project prospectus, and compliance with the condition that the money raised through the BRS is only used for expenditure that the authority would not otherwise have incurred (which it calls the “additionality” requirement).
Assessing when a ballot needs to be held and assessing project costs for the ‘one-third’ test.
The plan to establish a National Project Panel to provide expert advice.

The Treasury has already issued final guidance on two of these issues: the additionality requirement, and assessing project costs to establish whether a ballot needs to be held. This guidance draws attention to other options such as BID levies, section 106 Agreements and CIL. These can be found at

http://www.hm-treasury.gov.uk/d/business_rates_supplements230109.pdf

and

http://www.hm-treasury.gov.uk/d/business_rate_supplements_guidance_pu736.pdf

On the 13 May CLG published a consultation paper on the ballots and administration. The deadline is the 19 August. It proposes that the arrangements should resemble those for BIDs:

Only postal ballots should be used.
It will be the responsibility of the levying authority to ensure a ballot is carried out.
In single tier areas, the levying authority will be responsible for appointing a returning officer. In two tier areas, the levying authority should be able to delegate this to one or more of the districts.
The date of the ballot should be decided by the levying authority. It should notify the returning officer of the date between 118 and 70 calendar days before the ballot is due to take place. The levying authority should be able to delay the ballot by up to 15 working days, up to 42 calendar days before the day the ballot was originally planned for.
Between 90 and 42 calendar days before the date of the ballot:
The returning officer will need to prepare a list of those persons entitled to vote. Where the person eligible to vote is an organisation, the regulations should allow for that organisation to decide who will complete the ballot paper.
The returning officer will need to ensure that notice of the ballot has been given to those entitled to vote. The notice will need to set out the date and other details of the ballot, including how a copy of the prospectus setting out the details of the proposed BRS can be obtained.
There will be arrangements for proxy votes.
Ballot papers may be reissued if the originals are spoilt or lost.
Ballot papers should be sent out no later than 28 days before the date of the ballot. Where the levying authority is running the ballot, counting the votes will be a relatively simple process. Where more than one authority is running the ballot each returning officer should count the votes casting their area and pass their results on to a single returning officer nominated to collate them.
Levying authorities will be able to require relevant information from billing authorities – in particular in relation to rateable values and the addresses of ratepayers to be consulted.
The levying authority will be required to tell the billing authority: the class of ratepayers liable for the levy, the amount of the BRS, whether it is granting any BRS reliefs, and whether BID levies are to be offset. It will then be for the billing authority to calculate individual liability for BRS.
Levying authorities will want billing authorities to collect BRS as part of the normal billing round. Otherwise the levying authority must meet the billing authority’s costs.
Regulations will provide for:
Contents of demand notices
Payment by instalments
Revised demand notices if needed
Enforcement as part of the overall rate enforcement process
Joint liability and liability after death
Electronic communication.
Levying authorities will have to keep a BRS account. Billing authorities will maintain a BRS collection fund. Monies will be paid from the latter to the former, plus interest if delayed.
A calculation should be performed to work out what proportion of BRS has not been paid. There could be a formal mechanism for addressing any shortfall in BRS revenue to provide clarity for both billing authorities, but this would “need to strike the right balance between providing appropriate incentives and ensuring fairness”.
BRS income and expenditure should be excluded from Council Tax calculations.
Unspent BRS funds should be returned to the billing authority, who will return them to the ratepayers (and be paid for so doing) subject to ignoring sums less than £5.
“Billing authorities should rightly be able to cover the legitimate costs they incur in collecting and enforcing payment of BRS. Equally important is that these costs should be proportionate to the amount of BRS collected. While those paying the supplement will accept that any project will include some administrative overheads, business support for BRS will be diminished if significant sums are diverted away from the project itself into collection costs.” A number of options are explored.
Billing authorities and levying authorities should be able to reach an agreement about the way in which a billing authority’s costs of holding the ballot will be covered (although it should not be possible for them to be met out of any future BRS revenues).

Graeme Creer
Weightmans LLP