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3 July 2014
The Greater London Authority is using new powers to force London businesses to stump up cash for the Crossrail project. It couldn’t have come at a worse time, says Duncan Field
Crossrail is expected to open in 2017 but businesses in London will start paying for it well before then and will continue to pay for decades to come.
Consultation on the Mayor of London’s Initial Prospectus for the Crossrail Business Rate Supplement (BRS) ended in October. The prospectus proposes a BRS of 2p per £1 of rateable value on individual business properties with rateable values of more than £50,000, with effect from April 2010. This is also the date when the 2010 National Non-Domestic Rates (NNDR) revaluation takes effect, and the Crossrail BRS will be calculated on these higher values. Once this revaluation is taken into account, the Crossrail BRS is likely to affect around
20-25 per cent of businesses in London.
The Mayor intends to levy the Crossrail BRS for up to 30 years. It will be used by the Greater London Authority (GLA) to repay the £3.5bn of borrowing that it will draw down between 2010 and 2015 to finance its contribution to the estimated £15.9bn capital cost of Crossrail. The precise duration of the Crossrail BRS is dependent on the interest that the GLA has to pay on its borrowing, but the target revenue from the BRS is approximately £7.7bn (£3.5m capital, £3.6bn in interest and financing costs and a £600m surplus payable to Transport for London during the eight-year construction programme).
The Business Rate Supplements Act
This is the first example of an authority using its powers under the Business Rate Supplements Act 2009, which came into force on 19 August.
Upper-tier English local authorities (county councils, unitary authorities and the GLA) now have the power to impose a BRS on the NNDR to fund projects that promote ‘economic development’. There are a number of provisos:
- The BRS revenue must be used only for new projects that promote local economic development and not services that an authority is already obliged to provide, such as housing, education or health services.
- The authority determines the duration of the BRS.
- The national upper limit to the BRS is 2p per £1 of rateable value.
- All properties with a rateable value of £50,000 or less are exempt from BRS.
- The authority can introduce relief from BRS and can allow Business Improvement District (BID) levies to be offset against the BRS.
- The authority must first publish an initial prospectus setting out its proposals for the BRS and consult with ratepayers and district councils. This is followed by a final prospectus before the BRS is introduced.
#If the BRS revenue will exceed one-third of the total cost of the project, the authority must hold a ballot of the ratepayers who are potentially liable to pay the BRS; in other cases the authority may also hold a ballot if it wishes. For the BRS to pass the ballot there has to be a majority in favour by reference to both the number of votes and the aggregate rateable value of the voters’ properties.
There will be no ballot for the Crossrail BRS as the GLA estimates that it will raise only 21 per cent of the total cost of the project. In any event, the 2009 act introduced an exemption for the GLA from the ballot requirement in relation to any BRS that takes effect by 1 April 2011. In the initial prospectus, the GLA has decided that BID levies will not be offset against the Crossrail BRS (there are about 20 BIDs operating in London) and has provisionally taken the view that the Crossrail BRS should be payable on empty properties, unless they are exempt under NNDR.
This is not the only measure that the Mayor is consulting on to secure private sector funding for Crossrail. The Mayor is looking to raise £300m from contributions under planning obligations (also known as Section 106 agreements).
Contributions will be sought from office developments involving net increases of more than 500 square metres in Central London (£160 per square metre), the northern part of the Isle of Dogs (£218.30 per square metre) and, where appropriate, in other areas of London. In addition, the Mayor is expecting to raise a further £300m for Crossrail from the proposed Community Infrastructure Levy.
In the longer term, all this may be palatable for London businesses, but with the economy still in a fragile condition, the timing could clearly be better.
Duncan Field is a partner in the planning and environment group at SJ Berwin