02Would businesses pay more tax to fund investment in their city?

The question of whether businesses would pay more tax for local investments is, unsurprisingly, controversial. As we have seen, nationally, firms were supportive of more fiscal powers being devolved to the local level. However local polls show that the principle of paying supplementary charges to fund local investments is viewed less favourably.

While London businesses directly contributed to the funding of Crossrail with a supplementary charge, the businesses polled across the three city-region areas did not support similar measures in their cities. This opposition to extra charges could pose a significant challenge for cities looking to make use of the 2p business rate supplement available for directly elected mayors, which is only available with the express consent of businesses on the LEP and only then to invest in infrastructure.

There were some differences between city-regions in our local polling. In Greater Manchester fewer businesses (15 per cent) were strongly opposed to contributing towards local funding, whereas in Greater Birmingham and the West of England this was closer to one in four (23 per cent and 24 per cent respectively).

However, during the roundtable discussions it became clear that attitudes to additional tax are more nuanced, with businesses more willing to pay if they are confident in local leaders and about what taxes will be used for. So once questions around taxation move from principle to practical delivery and the tangible benefits of infrastructure are clearly laid out, then business responses change. For example, in Birmingham, business leaders made the point that they would be uneasy about local leaders in the area having the right to increase business rates by 2p to fund infrastructure generally. But if local leaders proposed raising business rates to fund specific improvements at problem junctions on the M6 or M5, that would receive a different response.

In other roundtables, business leaders were clear that supplementary local taxes would have to be very carefully ‘sold’ to businesses, especially for investments at the city-region level. A respondent in Glasgow highlighted that the business view on such a charge would be very different for a tram stop in front of a workplace rather than a tramlink from the airport to the city. While the latter may have more gains for the city as a whole, the former has a more direct and visible impact on the businesses themselves.

This sentiment was echoed by another participant who warned that while there was precedent for businesses to pay for improvements in their operating vicinity through Business Improvement Districts, this may be harder to achieve for city-wide spending. It was also felt in Manchester that city decision-makers were still feeling the effects of the failed attempt to introduce a congestion charge in the city.