Disputed business levy 'dropped'

Tony Blair: business levy will only happen with backing from firms

The government has backed down from a controversial shake-up which would have allowed councils to levy billions of pounds from local firms.

Four years after the Labour Party published its Manifesto proposal to give councils additional powers over business rates, Prime Minister Tony Blair on Tuesday launched a watered down corporate levy for funding community improvement schemes.

The shift was "warmly welcomed" by business leaders who estimated that a compulsory local authority tax would have cost businesses up to £1bn a year.

"The supplementary business rate was ill-conceived from the outset, increasing the tax burden on business and threatening to ruin the relationship of business and local authority," said Ian Fletcher, policy head at British Chambers of Commerce.

Tuesday's announcement represented "a great example of the government listening to the voice of the business community", Mr Fletcher said.

Disappointment

But the move disappointed councils, which on Tuesday renewed calls for local authorities to be handed extra tax-raising powers.

"We wanted the full return of business rates to local control," a spokesman for the Local Government Association told BBC News Online.

LGA chair Sir Jeremy Beecham urged the government to introduce a local government finance system which allows councils "freedom and flexibility... to raise and spend money on local needs".

"A proper overhaul of the finance system... would be the most equitable outcome to the question of local business rates," Sir Jeremy said.

'Democratic reasons'

The Labour Party trailed a review of business rates in the Manifesto published ahead of its 1997 General Election victory.

"There are sound democratic reasons why, in principle, the business rate should be set locally, not nationally," the manifesto said.

Proposals for a supplementary business rate, proposing a local surcharge of up to 5%, were outlined in policy papers published in 1998 and last year.

The levy regime proposed by Mr Blair on Tuesday would allow councils, with firm's agreement, to raise a voluntary business levy to fund local projects such as park clean-up programmes and street improvements.

"Only where a majority of businesses agree with a proposal will councils be able to raise the extra revenue required to fund it," Mr Blair told a meeting of community leaders in Croydon, south London.

'Focused approach'

But the Department for the Environment, Transport and the Regions denied that the move represented a government u-turn.

The plans announced on Tuesday represented a more "simple and focused approach" to the SBR proposals.

While business leaders had raised fears over the cost of the proposal to industry, the SBR was never designed to be a compulsory measure.

"If businesses did not want the supplementary business rate, it was not going to happen," a DETR spokeswoman told BBC News Online.

The DETR had on Tuesday spoken to British Chambers of Commerce about its "misapprehension" over the SBR, she said.

Business reaction

An BCC spokesman said firms had been viewed by businesses as an "additional tax over which they had no right of veto".

"But the government has a point in that the SBR was always a... proposal," he said.

A spokesman for the Confederation of British Industry, on being told of the DETR's comments, said: "Is that what they said?"

"As far as I was aware, the tax was meant to be compulsory, although councils were obliged to consult beforehand," he said.