Since the arrival of our new Prime Minister, there’s been a new momentum behind devolving more powers to Britain’s towns and cities. This fresh impetus came to the fore last month in the government’s Sub-National Review, which endorsed the idea of Supplementary Business Rates (SBRs) - a local top-up to the business rate, with the proceeds earmarked for local transport or other infrastructure projects. Our research shows they could raise more than £10 billion over a thirty year period – if central government and businesses can reach consensus on the way forward.

SBRs would give local authorities the power to levy an additional supplement of between 5 and 10 per cent, or between 2p and 4p, on the national business rate within their area. However, while the national business rate is allocated from a central pot, SBRs would be retained locally – and the revenue generated could them be used to lever in significant new money for infrastructure investment.

The prospect of a new tool for city growth holds huge potential benefits for both cities and businesses. Key infrastructure projects, such as Crossrail in London and the expansion of Metrolink in Manchester, are being held up due to a lack of funding, and SBRs would allow cities to fill the gaps. SBRs could also be a stepping stone to wider devolution, which our research has shown to be beneficial for city economies.

SBRs would give businesses the chance to have more of a say in how their money is spent, and to have real control over how local funds could benefit their local economy. Central government and business representatives need to reach consensus on how businesses can be assured of proper accountability and involvement.

Our analysis suggests that SBRs could offer particular scope in Greater London, where a 4p supplement could generate over £400m a year. Assuming a 30 year commitment, this could provide the capital with the potential to borrow over £6bn for key infrastructure projects, including Crossrail, the proposed orbital Overground rail route, selected road improvements. or the Cross-River Tram.

However, their impact could go far beyond London if they were used to generate new funds for infrastructure investment in other English cities and towns. A 4p SBR in the Core Cities, and other major towns, could generate around £300m a year, which could be used to lever in further loans of around £4.5bn. This additional revenue could be put to good use in large urban areas outside the capital. Across Greater Manchester for instance, a 4p SBR could yield over £1bn over 30 years. This could provide significant support towards the completion of Metrolink Phase III and other transport improvements, connecting more people to sites of employment and key local services. Meanwhile in Birmingham , a 4p SBR could generate around £440m over 30 years, yielding funds to support the long-delayed New Street Station redevelopment or the extension of the Midland Metro tram system.

SBRs could have a significant, positive impact on urban infrastructure. However, SBRs are not an answer to all of our cities’ investment needs. They could help some to deliver one or two key capital projects – but larger-scale investment would require either greater local revenue-raising powers, additional central government investment, or both. And in some areas, SBR will not be a viable policy option – for example, in those parts of the country with small or fragile business bases.

Indeed, apart from a few high-profile exceptions such as Birmingham and Leeds , most individual local authorities do not have a large enough tax base to generate significant SBR revenues on their own. Implementing SBRs across a wider area – such as a city-region – would help to ensure that revenues collected are sufficient to underpin substantial infrastructure investment, as well as reducing the risk of business flight to adjacent districts unaffected by the SBR. This approach would fit well with the evolving ‘Multi-Area Agreement’ arrangements outlined in the recent Sub-National Review.

Our new analysis supports these arguments, suggesting that in Birmingham alone a 4p supplement would raise in the region of £30m annually, compared to the £70m that could be generated if an SBR was introduced across the former West Midlands metropolitan county.

However, administering SBRs across city regions could be challenging. Some of England’s city-regions and sub-regions are more easily identifiable and coherent than others, with stronger political institutions and a greater history of cross boundary political cooperation. For example, Greater Manchester has a strong track record in this area. In others, cross-boundary and cross-party governance arrangements have not developed as far.

And there are other issues that must be resolved before SBRs can be successfully implemented. Business support for the proposal is crucial, and the involvement of local business representatives should continue throughout the lifetime of an SBR. To facilitate this, revenues generated by SBRs could be retained locally and ring-fenced to specific infrastructure projects jointly identified and selected by councils and businesses. The finely-balanced arguments for and against a business vote on SBR must be directly addressed.

Real momentum is gathering behind Supplementary Business Rates – both central government and local authorities are keen, and many business organisations are broadly in favour. However, central government and city leaders need to work closely with business to reach agreement. SBRs represent the first concrete step toward financial devolution. Now is the time to ensure that they become one of the tools to help cities, and all those who work and do business in them, prosper.

Download ‘City solutions: Financing Local Growth' by Ben Harrison and Adam Marshall.