Plans for a levy are part of a review of local government funding which is examining ways to devolve more responsibility for raising finances to town halls and prevent a repetition of this year’s row over double-digit council tax rises.

Business leaders fear, however, that they will be seen as a soft target by ministers desperate to keep council tax down before the general election.

“Property tax on UK business is already high by international standards; any further increase in rates would damage competition,” Lucinda Turner, head of infrastructure at the CBI, said.

“While we are behind all worthwhile attempts to improve relationships between local government and business, any move to bring in supplementary rates could undermine this and return rates to the adversarial relationship we saw in the past.”

The Government is keen for business owners who benefit from improved infrastructure, such as new CCTV cameras or better transport links, to contribute more to the cost.

Nick Raynsford, the Local Government Minister, has said that new powers for local councils to retain additional money raised from businesses setting up could be used to offset rising council tax bills for households. That has also antagonised the business community.

A programme that will let councils retain up to a tenth of rates from new businesses was enshrined by the Local Government Act last week. Normally all rates from businesses go back to the Exchequer for redistribution.

The programme was proposed as a way of encouraging regeneration of run-down areas rather than as a way of cutting council tax bills. Businesses will pay higher business rates from 2005 because of the scrapping of two forms of relief, according to rating experts. The average bill will rise by 2.5 per cent, the CBI said.

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