Businesses attack plan for new 'stealth tax'

The government faced fresh "stealth tax" accusations last night after companies warned that plans to raise local business rates would cost them £2.75bn.

The government faced fresh "stealth tax" accusations last night after companies warned that plans to raise local business rates would cost them £2.75bn.

The British Chambers of Commerce (BCC) said its members would be crippled if ministers went ahead with proposals to allow councils to levy a supplementary rate to fund regeneration.

Under plans drawn up by the Department of the Environment, Transport and the Regions, town halls would be allowed to impose an extra tax of up to 5 per cent of the national business rate. The proposals are expected in the Local Government Finance Green Paper next month.

Ministers stress the money is intended to benefit businesses as well as the community. Projects will be drawn up in consultation with traders locally. However, the BCC said it was concerned that companies would have no right of veto over the taxes and that an obligation to consult them would only apply once a tax had been imposed.

The Green Paper is expected to announce that local councils will have to introduce the rates gradually, increasing them by no more than 1 per cent of the national rate each year over the next five years.

The staggered introduction would result in an additional burden on businesses of £170m in 2001-02, £350m in 2002-03, £530m in 2003-04, £740m in 2004-05 and £950m in 2005-06, the BCC has calculated.

Christopher Humphries, director general of the BCC, said he had written to Tony Blair to protest that local businesses should be given the right to block such tax rises. "We support the Government's wish to see local authorities and their business communities working together," he said. "However, increasing the tax burden on business will not help. At present, the Government's proposals... [give] local authorities the power to impose an additional levy without first agreeing with business the purpose for which it will be used.

"Unless businesses have the right to refuse a local rate where they do not think it adds value, these proposals will be seen for what they are - yet another new tax on business. This works best where business is treated as an equal partner, not as a cash cow."

John Redwood, head of the Tories' parliamentary campaigns unit, said increasing charges without consent was unacceptable. "This is yet another example of the stealth taxes of which this Government is so fond. It would be a savage blow to local firms."

Labour sources suggested that the Government was working on ways to ensure that consultation was meaningful.