The Lyons Inquiry intro local government in March 2007 recommended the introduction of a power for local authorities to levy a business rate supplement.

First user of the new power will be the Mayor of London. He plans a 2p levy from April 2010 across London for between 24 and 30 years to help pay for Crossrail.

The power to impose the supplement (termed the levy in the Act) is given to the Greater London Authority, county councils, and district councils where there is no county council thus including unitary authorities outside London. In Wales the power is given to county councils and county borough councils. Two or more levying authorities may act jointly. Levying authorities must have regard to guidance issued by the Secretary of State (Welsh Ministers) in exercising their functions under the Act.

The levy however is considerably constrained and not only by the 2p cap and rateable value limits.

First it may only be used for expenditure on a project to which the levy relates.

Authorities must publish a prospectus setting out their proposal, consult business ratepayers, any lower tier authority and others they think appropriate. They must hold a ballot where the authority chooses or where the anticipated product of the levy is more than one third of the estimated total cost of the project. Where a ballot is held the levy is only approved if a majority of the persons voting in it by number and by rateable value vote in favour.

Second it may only be used for expenditure which would not have been incurred had it not imposed the levy – the additionality test.

The draft guidance says that the levy should be "spent on new projects or to add something extra to a project already underway i.e. spend money which would otherwise not be spent". For existing projects authorities must be able to demonstrate that the levy would add to the project for example by delivering it more quickly or with something extra that could not have been achieved without it.

More specific guidance on additionality and ballots was issued in May before the Act became law.

Third the levy may not be used for housing, social services, education, children's services, health services or services provided under the Planning Acts.

Projects in support of development will need to be carefully scoped to stay outside these areas. The additionality and mandatory ballot requirements are however disapplied for any levy proposed by the GLA beginning on or before 1 April 2011. This avoids the possibility of challenge to the Mayor's proposed levy since Crossrail is already underway and there will be no ballot. The initial prospectus nonetheless attempts to calculate the proportion of the cost of the Crossrail project to be met by the levy. It comes out with a figure of 21% but shows the complexity and difficulty of this calculation. No doubt the Mayor has been advised that he should consider exercising his discretion to hold a ballot in any event and failure to do so may lead to a challenge by way of judicial review.

The prospectus for each project will take time to complete. It will include an estimate of the total cost of the project and the likely impact on businesses and benefits of the project for the area. The Crossrail prospectus can be found at http://www.london.gov.uk/crossrail-brs/.

A prospectus may provide for the variation of the levy but otherwise a similar procedure to the one required to approve the original levy has to be followed before a variation can come into effect. The draft guidance proposes a National Project Panel to act as a critical friend and scrutineer of its proposals before they are put out to wider consultation. The government expects authorities who want to levy a business rate supplement to support economic development to develop a comprehensive assessment of its costs and benefits and overall impact on the area including business.

The levy can only be approved by full Council and is collected separately from the business rate. The prospectus may establish additional reliefs. Further regulations to deal with collection and enforcement have still to be made.

So where will the levy appear next?