Business leaders have attacked a proposal by former council leader Sir Michael Lyons, which would allow councils to raise a supplementary business tax.

They say extra charges would hurt small firms and spell disaster for business improvement districts, which have taken root in Sussex.

The Lyons Review of local government finance ruled out a return to the unpopular local business rates, which were scrapped in 1990, but recommended giving local authorities the power to raise a variable levy on top of the uniform business rate.

The aim of the review was to make council tax fairer but business leaders fear it will mean more expense for already hard-pressed small firms.

They fear a supplementary charge would spell the end for business improvement districts (BIDs), which have been embraced by traders. BIDs involve firms agreeing to a small levy on their business rates to pay for specific projects, such as security, marketing or graffiti removal.

In May last year, traders in the centre of Brighton voted to establish the first BID in Sussex and only the second in the South East outside London.

Mark Froud, chief executive at Sussex Enterprise, said supplementary business rates were "relocalisation by the back door".

He said: "They would set a dangerous precedent for the future and there is no guarantee they would be used for the good of businesses.

"We need investment in transport but this is common to business and domestic users and the costs of upgrading our infrastructure should be shared. It should not fall to businesses that are already overregulated, overburdened and face growing global competition.

"What is being proposed will give local authorities the ability to levy an extra rate on businesses without any accountability and no guarantee the extra revenue raised will be spent on projects that actually benefit those paying for them.

"BIDs are the way forward. They give businesses an accountable and voluntary means of raising additional funds for specific projects, set and funded by businesses."

According to the Brighton and Hove Economic Partnership, a supplementary tax of 4p in the pound would mean a typical shopkeeper in North Laine paying a further £800 on top of the £9,000 they already pay.

Executive director Tony Mernagh warned supplementary business rates would "sound the death knell"

for business improvement districts.

He said: "Unlike the £300 BID levy they pay, the additional tax would not be something businesses could vote to endorse.

"And unlike the BID levy, it might not be something that resulted in tangible benefits to their bottom line - but it would be a compulsory tax.

"Many businesses may be turned against voting for a BID simply because the cumulative overheads will be too great."

Carol Undy, of the Federation of Small Businesses, which has 12,000 members in Sussex, said: "We are pleased there will be no return to setting business rates at local level.

"But allowing a variation on top of the business rate and other variable service charges will lead to even more complexity for businesses to deal with on top of existing initiatives."