The Government will signal this week its willingness to give local authorities the power to raise extra business rates in order to fund specific infrastructure and transport projects.

Alongside a Treasury paper on regional development authorities, Alistair Darling, the Chancellor, is expected to pave the way for the change to local authority powers to enable them to fund projects such as city tramways and commuter systems.

Ministers’ readiness to devolve new tax-raising powers to councils through a “supplementary business rate” comes as Mr Darling faces an imminent decision on Crossrail, the proposed mainline train service to connect East and West London.

Both the Chancellor and Gordon Brown have made clear that they are eager to approve Crossrail - but only if the scheme, to cost up to £15 billion, is affordable. That will depend on whether there is a sufficient financial commitment, not only from the Treasury and from Transport for London, but also from business in the capital.

Mr Darling is considering whether to require businesses to commit themselves to the project through direct levies associated with Crossrail, or through an increase in local London business rates.

An early green light for new powers for councils to levy top-up rates on local businesses could provide a partial funding mechanism for Crossrail and other infrastructure projects nationwide. Other schemes that could benefit include plans to expand Greater Manchester’s tram system, and for Newcastle to extend its Metro.

Local taxes paid by business are determined in Whitehall through the “uniform business rate”, increases in which are pegged by law to inflation. However, in a report commissioned by Mr Brown, Sir Michael Lyons this year recommended a supplementary business rate to allow councils to levy a limited extra charge for capital projects. The extra levy would be limited to 4p in the pound, against the 44p in the pound basic level for the nationally set uniform business rate applied to business properties’ rateable value.

The additional levy could also be minimised if it were used to fund loans, permitting councils to borrow up to seven times as much as the annual income from the charge.

Any use of the power would be approved only after consultation with local businesses on planned projects.

However, although introduction of a supplementary rate may be supported by some sections of business, it is certain to be highly controversial.

The CBI and the British Chambers of Commerce are pressing for use of the levy to be possible only after a vote among firms that would be charged.

John Cridland, the CBI’s Deputy Director-General, said that, in a recent consultation with 600 company chiefs across Britain, the CBI found support for a local levy given widespread need for infrastructure improvements. Any support was based on businesses being allowed a deciding vote.

Mr Cridland said: “The CBI has long argued that more investment is needed in infrastructure and that it will need new forms of finance. We are open to it – but we think that the vote is the way to ensure that business is genuinely brought into the project and on board for it.”

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