Infrastructure levies are sneaking up again. How much will companies have to fork out over the coming years?
Will an infrastructure tax become a permanent fixture in London businesses’ financial calculations?
There is a levy to pay towards the Crossrail project – even for businesses in boroughs nowhere near the line – and another will be imposed on developers close to the planned Northern Line extension to Battersea. Where next?
London Overground’s extensions slipped through while public funding was still available, but the Hackney to Chelsea line (dubbed by some as “Crossrail 2”) has been awaiting funds for 40 years. And in May this year, Transport for London quietly published a map showing potential Docklands Light Railway extensions to Victoria, Kings Cross, Forest Hill and Dagenham.
Who will pay? Having got London’s businesses used to paying extra for Crossrail, might politicians assume that firms would not notice paying a bit more towards other infrastructure works – whether transport or not – and expect them to keep paying once the original projects are complete?
Tony Travers, an expert on public finance and director of the London School of Economics’ Greater London Group, thinks this is pretty much inevitable.
“It is almost certain that once it is established, this levy will be used again, because government is always looking for new ways to create tax sources and this is in effect a ring-fenced tax one, and they are easier to secure agreement to than a general tax whose purpose is not specific,” he says.
The Crossrail tax works in two ways. A community infrastructure levy designed to raise £300m would, subject to consultation on the charging mechanisms, be imposed on new developments across London
“So once it is there they will be reluctant to give it up.”
The businesses lobby group London First favoured, and indeed helped to organise, the Crossrail levy, but is wary of open-ended infrastructure taxes.
A spokesman says: “Larger businesses are easily persuaded of the economic value of transport infrastructure and see the argument, but it is not as if they pay nothing in tax as it is.
“Our members’ concern is that if these levies became permanent, the visibility of their being tied to specific infrastructure would go and it would just become part of local authorities’ general income and disappear into their finances.”
Smaller firms are also concerned. A spokeswoman for the London region of the Federation of Small Businesses says: “Our view was that Crossrail was necessary and businesses will benefit from it, but paying the levy is different if you are a multinational commercial firm than a corner shop.
“It would be unlikely that we would support a levy to extend the DLR or something, as it would be a hard sell to our members. We would not want an infrastructure stealth tax.”
The Crossrail tax works in two ways. A community infrastructure levy designed to raise £300m would, subject to consultation on the charging mechanisms, be imposed on new developments across London.
This is based on the assumption that Crossrail will bring benefits to every borough, but reflects the fading of these benefits with distance from the line.
It will be charged at £50 per square metre in central and inner west London, and £35 in the rest of the capital, except for an outer zone of boroughs remote from Crossrail, such as Havering and Sutton, where the charge will be £20.
A similar charge has been proposed by mayor Boris Johnson for the area around Battersea Power Station and Nine Elms, which would benefit from the Northern Line extension from Kennington.
In addition, larger London businesses face a 2p supplementary rate contribution towards Crossrail, if they have a rateable value in excess of £55,000.
But once politicians have discovered a source of money they rarely let go, even when the original purpose is passed
This is designed to raise £4.1bn towards Crossrail’s £16bn cost and remain in place for up to 31 years. The £55,000 threshold weights payments towards businesses in the City, Westminster and Canary Wharf.
How might similar taxes be imposed for other essential infrastructure? Travers says: “There will be a need for territorial equity in these projects. Crossrail does not much benefit, say, Barnet or Croydon but something else will and that will have to come along next.”
London First feels it would be hard to argue for a London-wide tax on businesses for something purely local, like a DLR extension to Dagenham.
But once politicians have discovered a source of money they rarely let go, even when the original purpose is passed.
The ‘Road Fund’ licence, after all, is still here – 75 years after it ceased to be devoted to roads. Who would bet against a permanent infrastructure levy?