A bid for Business Improvement Districts

Colin Davey explains how the Local Government Bill could create business opportunities

The Local Government Bill, announced in the Queen's Speech, contains provisions that could result in new local taxation for businesses.

The Bill paves the way for the creation of Business Improvement Districts (BIDs).

The creation of a BID would enable projects to be carried out that would benefit those who work, live or carry on any activity in the area covered by the district.

The projects, which could include initiatives to improve the safety and cleanliness of an area, would be in addition to the standard services provided by the local authority.

How would a BID be funded? Essentially, there would be an additional levy on business occupiers within the BID area.

This would be collected by the local authority for the BID area and then remitted to a specially established BID vehicle that would be responsible for the delivery of suitable projects.

Thus there is an important contrast between the established uniform business rate, which is passed by the collecting local authority back to central government, and the BID levy, which would be ring-fenced to be used directly for the enhancement of services within the BID area.

The Bill does not contain detail on the administration of BID funds and the relationship between the BID vehicle and the local authority - these matters will be dealt with in separate guidance that the government is drawing up in conjunction with interested parties, including the British Property Federation.

For a BID to be created, business ratepayers in the district area must vote in its favour.

The Bill in its introduced form is likely to contain a double threshold - a requirement for a simple positive majority of those who vote, but with a proviso that the votes in favour must represent a majority by rateable value of the hereditaments of those voting.

The government's argument is that this will create the fairest balance between large and small businesses.

Once established, a BID would last for a maximum of five years (but with a further ballot possible to continue the BID).

History of BIDs

BIDs may be new to the UK but they have been established for some time in North America.

The first BID was set up in Ontario; however, perhaps the highest profile has been generated by BIDs launched in various parts of New York City, including Harlem and Times Square, where the result has been significant regeneration of the local environment.

In the UK, the BIDs initiative started with the setting up of five pilot BIDs in London, covering Bankside, Coventry Street, Holborn, Lower Marsh (Waterloo), and Paddington.

With projects funded from 4.6 million from the London Development Agency, the five pilot BIDs have been led by the Central London Partnership in a pilot programme known as The Circle Initiative.

Complementing this public finance has been a significant input of time and money by the private sector.

Indeed, a critical feature of the pilot BIDs is that they have been business-led, with backing coming from lawyers, accountants, surveyors, banks, property companies, and major corporate occupiers.

For example, law firm supporters of the Holborn Business Partnership include Farrers, Mishcon de Reya, Nabarro Nathanson and Olswang.

If you come out of Holborn underground station in London on weekdays, you will see the kiosk of the Holborn Business Partnership Street Rangers.

The Rangers greet business and tourist visitors, providing directions and information on local attractions and business locations.

They also patrol the neighbourhood and liaise with local businesses.

With immediate communication links to the police and to Camden Borough Council, the Rangers can quickly report behaviour problems, as well as noting build-ups of street rubbish that need urgent attention.

In the latter case, the partnership's team of dedicated street cleaners can then take over to deal with the problem.

For the pilot BIDs set up to date, the relationship between the local authority and the pilot BID has been critical to the pilot district's ability to develop projects.

Each pilot has its local authority represented on its board.

The relationship will become even more important where any formal BID is established.

Furthermore, the establishment of any formal BID will bring challenges to the local authority in terms of effective co-ordination of its own core services with those provided by the BID.

Versatility of a BID

A selling point of a BID is that the scope of its activities can be tailored to the particular needs of the BID area.

The profiles of the pilot BID areas vary substantially, and in theory there is no reason why the merits of a BID could not be considered in any location type or mix of uses.

BIDs are also not only best suited to London.

A key objective of The Circle Initiative has been to generate lessons that could be relevant and transferable to other areas of the UK.

Outside London, cities that are already looking at the potential for BIDs include Bristol, Coventry and Nottingham.

But there is one fundamental, and as yet unresolved, issue.

Improvements to any BID environment would probably increase commercial property values in the area, yet property owners (as opposed to occupiers) will not be subject to the BID levy.

So far, the government has been unwilling to contemplate the levy extending to owners, citing the practical difficulty of bringing in a new tax on property ownership and preferring to see voluntary landlord contributions incorporated into the operation of a BID.

Nevertheless, this is likely to be a live issue as the Bill proceeds through Parliament.

It is worthwhile pointing out that part of the success of BIDs in the US appears to have been the result of the US model of incorporating an element of local business taxation on property owners.

Where do law firms fit in?

Law firms may be involved in advice to business occupiers on the BID concept and the ballot procedures.

Firms with public sector practices may be consulted by local authorities on the ramifications of structuring a BID.

Some imaginative advice may be needed in the light of possible constraints within the guidelines.

Firms in any proposed BID area will be eligible voters, and payers of the levy if a BID goes through.

In some cases, there may also be opportunities for firms to provide some community benefit through using their skills and resources to support BID activities.

The first formal BID is potentially not far off the horizon; if the legislation and guidance preparation proceed smoothly, the first BID could be operational by April 2004.

BIDs could become a big business issue this year.

Colin Davey is the former managing partner of London law firm Nabarro Nathanson.

He is now an independent business and training consultant to Holborn Business Partnership, and also the director of post-qualification programmes in commercial property for the College of Law