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Lyons Review Threatens To Undermine Effect Of UK Tax Cuts

by Jason Gorringe, Tax-News.com, London

29 March 2007


British industry has warned that the Chancellor's efforts to improve the UK's tax competitiveness may be undermined at local level if certain recommendations of the Lyons Review of Local Government are put in place.

Speaking at a conference to discuss the implications of the Lyons Review, Richard Lambert, Director-General of the Confederation of British Industry (CBI) described the report as a "curate's egg".

"It's great in parts," he observed. "Business agrees with its overall message that local government needs to 'shape' communities where people will want to work and live. Where he recommends that companies should pay over and above the business rate to fund new infrastructure projects, however, Lyons runs the risk of ruining the good bits."

Lambert added: "The Chancellor has just accepted the need for the UK’s tax regime to compete with other developed countries. This could, however, be immediately undermined at a local level. There’s a big risk that business will be seen as a cash cow for local government spending."

Lambert congratulated the Lyons Review team for rejecting a proposal that power to set local rates be given back to local authorities, but warned that the proposals for supplementary business rates could "bring this re-localisation in through the back door". He also called for more democracy to be introduced into local taxation where the business community is concerned.

"Individual council tax payers get to vote, having weighed up the type of services they want money spent on. Businesses should get the same right to vote on whether they want to pay more in return for a new infrastructure project. It's a model that already works with Business Improvement Districts (BIDs), and this levy would be bigger in scope and geography than BIDs, adding several hundreds of millions to business rates," he argued.

"Statutory consultation is not enough. Too many existing consultations result in an authority pressing ahead with what it wanted to do anyway," he added.

On other fundamentals that must be met if the government introduces supplementary rates, Lambert observed:

"All those who benefit from infrastructure improvements should be asked to pay, be it through fares for public transport, central government funding, landlord as well as tenant contributions and general local government funds."

"As well as being for a specific purpose, funds raised should be ring-fenced and collected for a limited time only. Councils must make a clear case for any proposed new levy as there would be no surer way for local government to lose businesses' trust than for levies to become the norm rather than the exception."


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