West Midlands businesses could bear the brunt of the impact of the Lyons review of local government funding and finance due to be published in December, according to commercial property consultancy Lambert Smith Hampton (LSH).
The Government review will consider issues such as council tax, business rates and the provision of local authority services before presenting the most favoured options for devolving more financial control to the regions.
Currently local councils have a limited ability to raise their own funds through council tax. Meanwhile, business rates are collected locally but redistributed by the Government according to a formula.
Mark Clapham, director in Lambert Smith Hampton's Birmingham-based rating department, said: "The current restrictions have led to heavy limits on local authority expenditure and a depletion of local resources.
"The Lyons review is likely to recommend additional tax raising powers and possibly the return of rates to local control." The new tax raising powers likely to be endorsed by Lyons include the raising of funds through transport taxes, environmental levies and congestion charging.
"If business rates are also returned to local authority control this will have a severe regional effect on business profitability, particularly in the urban areas such as Birmingham and Wolverhampton where demand for local services is greater," Mr Clapham added.
Before business rates were nationalised in 1990 through the implementation of a single uniform business rate or poundage, local authority charges varied by up to three times depending upon the needs of the particular borough.
" The differences were politically, as well as socioeconomically driven," said Mr Clapham. "Any reversion to the local authority poundage may encourage businesses to relocate or develop new premises in areas which are perceived to be cheaper."
According to Mr Clapham, the relocalisation of new tax raising powers will, however, need to be accompanied by proper resourcing of council finance departments.
It may well be that the Lyons review goes part way to incentivising councils by allowing any increases in Rateable Value to supplement local authority finance between revaluations.
Mr Clapham explained: "If this is the case, council inspectors will be keen to follow up property improvements and request increases in assessment of the Valuation Office Agency, which is responsible for maintaining rating assessments."
With the council tax revaluation due in England in 2007 for dwellings, and following the publication of the 2005 Rating Revaluation for business, local taxes are likely to stay.
Mr Clapham said: " However, I do predict the greater change will be in the business rates as greater tax powers devolve to local government. We could well see a shift of the financial burden away from households towards businesses. This is likely to have repercussions for relations between local government and business unless rises in taxation are properly managed and the benefits of any increases are used to improve local infrastructures and are of tangible benefit to business."
