Examination of Witnesses (Questions 382-399)
MR MICHAEL
ROBERTS, MR
STELIO STEFANOU,
MS JULIA
PENFOLD AND
MR CHRIS
WILLIAMS
THURSDAY 11 JULY 2002
Chairman
382. I welcome you to the Committee. Do any
of you want to say anything by way of introduction, or are you
happy to go straight to questions?
(Mr Roberts) I should like to make a
few headline comments because I am conscious of the time. The
White Paper which foreshadowed the draft Bill very much emphasised
the need to improve the relationship between local government
and business. Our respective submissions are based on the elements
that we think contribute towards that, and I wanted to emphasise
the areas where there is common ground between us. Firstly, we
all share a sense of the value of the current arrangements for
nationally set non-domestic rates, particularly when it comes
to setting the poundage. We do regard BIDS as an opportunity to
add to the existing arrangements to tap into private sector resource,
but we do not regard BIDS as a panacea; they do need to be applied
sensitively, and it is important to get the details right. There
is an element of scepticism we share about the particular method
chosen in the draft Bill to support SMEs through the proposals
on rate relief, on the basis that we see little evidence of the
benefits that might offset the costs, and a concern that the scheme
may not be funded through the Exchequer support. I think there
is a shared sense between us that the arrangements for non-domestic
rates are deeply complex, and even specialists find them difficult
to understand. There may be an opportunity in the Bill to shed
some light on them through some simplification of what is a complex
picture.
Mr Betts
383. You have commented in particular on the
national non-domestic rate and merging that revenue stream in
with the Revenue Support Grant, and you have concerns about it
because of the impact on relations between business and local
authorities. Would you like to tell us a bit more about that?
(Mr Roberts) Our main concern would be that in the
event that the non-domestic rate were merged into a general grant
to local government, that the transparency which is currently
afforded in terms of the contribution that business makes to local
government revenues, would be lost. Business in England contributes
about £15 billion a year and clearly wishes to see some returns
in service quality from that. We would regard it as a missed opportunity
if that separate entity was lost.
384. Is not the reality that there is very little
relationship between the amounts that business pays in the locality
and what the local authorities receive? The local authorities
do not see the link; they just see a national determination of
the business rate and money going to the Treasury, and then it
is given out by another mechanism anyway. While you are publicly
expressing concern, are you not privately thinking that at least
it stops the business rate ever going back to local authorities
for them to set, which is much more important to you, is it not?
(Mr Roberts) The benefits of the nationally set rate
are as follows. Firstly, the link with the RPI cap very much facilitates
business planning and puts an element of a limit on change to
the rates. The fact that the poundage is nationally set is particularly
helpful for those companies, which are not necessarily the largest
but can be medium size firms, which have sites in more than one
local authority. Those are very much the benefits we would like
to see retained. There is an issue about the extent to which the
revenue raised from business within the local community then goes
into a pot which is distributed in other ways, and there may be
some opportunity there to change the system in a way that the
revenue raised from the local business community is then returned
to the benefit of that local community in terms of the services
provided.
(Ms Penfold) I agree with what has been said. The
point that local accountability and understanding of what they
are receiving from business is important, but more important for
businesses is the certainty and ability to plan going forward.
Something along the lines of local authorities retaining some
of the centrally-set rate poundage could be a benefit, and there
could be other benefits with that if it gave local authorities
incentives to bring properties into rates and make sure that full
rates were levied.
385. Are there any circumstances at all in which
any of you would support localising the business rate again? That
is your major concern, is it not? The proposals in the Bill make
that less likely now.
(Ms Penfold) By merging the two, yes, but we still
do not agree with the merger. We want to see that separate.
386. The best of all worlds.
(Ms Penfold) Yes.
Chairman
387. Turning to BIDs, we have had a lot of evidence,
and there is controversy about it, but what about the question
of including property owners in this system, and do you have any
views on that?
(Mr Williams) We believe that the British Property
Federation are keen to contribute. Experience tells us in many
of the city centres that the key drivers and motivators for regeneration
are property owners. We see this as a real opportunity to get
them bought in, almost sponsoring the BIDs around the country.
388. How do the property owners benefit from
the BIDs?
(Mr Williams) My personal view is that
as the environment improves and becomes more attractive to customers,
they come to the locations increasingly. That makes it a more
commercially viable location and drives up rents. Today, as opposed
to twenty or thirty years ago, there is a much more collaborative
partnership approach between retailers and property owners in
regeneration of city centres and town centre schemes. 389. But
if you have got a BID scheme, an individual shop makes a contribution
and it can see that because it makes the area more attractive,
more people use the shop, more money comes in, so it is getting
the money in in a relatively short period of time. The money is
coming in and it can go out and pay the BID. The property owner
may well not see that benefit for quite a considerable period
of time. Property values or rental values are often only renegotiated
after quite a long period of time, so someone may have to put
up quite a bit of money upfront before they are going to get anything
back from it.
(Mr Williams) They are, but property companies' funds
tend to be the long-term insurance companies, the people who are
looking after the pension funds and they do take a longer-term
view than most retailers. New retailers come and can go over the
period of a BID. Property owners tend to be, when they purchase
a property or decide on a regeneration scheme, looking at a five
or ten-year investment opportunity.
390. I can understand that for companies, but
surely in quite a lot of the BID areas that are likely to come
up, there will be one or two individual property owners for whom
it may be something of a problem?
(Mr Williams) I think that is a fair comment. I am
tending to direct my remarks more towards the big towns and city
centres where the ownerships are largely in a few hands.
391. So as long as the ownership is in a few
hands, then it is, in your view, perfectly reasonable for the
property owners to be included in. Now, what about the mechanism
for including them in the BIDs process? Do you think that would
be easily adapted in the Bill?
(Mr Williams) I suspect it would be difficult to legislate.
I think it is important that it is very clear that property owners
are invited to participate. I think we need to work out a mechanism
between the retailers and the property owners in detail as to
how that might work.
Christine Russell
392. Can I ask you about the proposals in the
draft Bill for relief for small businesses. What are your comments
on that? Do you think they will be of any help or do you think
the threshold, which is set incredibly low at only £3,000,
I believe, for 50 per cent mandatory relief, do you think that
will that be of any benefit?
(Ms Penfold) I think looking at small business relief,
first of all, in principle, we do not have a problem with the
principle of small business relief. The issue comes as to how
that is actually going to be paid for and obviously, as you say,
the threshold is low, so, therefore, the people who are paying
for the relief could still be termed small businesses right up
to the larger businesses. I think we do have a big issue in that
the relief is not Exchequer-funded, but it will be funded through
the rates system, and we do not agree with that proposal. Leading
on from that, obviously it is a bit difficult to comment on whether
the thresholds are at the right level because obviously if the
thresholds are higher, that actually puts more costs on other
businesses.
393. So you do not agree with the principle
anyhow?
(Ms Penfold) We do not agree, that it is right, in
terms of paying for the relief through the rates. The other thing
is what we have not seen, and we have not seen this for any rate
reliefs, is any cost-benefit analysis of the proposals and I think
that makes it very difficult to actually comment on whether it
would be good or not or would benefit small businesses.
394. Does the CBI share that view, that large
businesses should not help little businesses?
(Mr Roberts) I think we do have a concern on Exchequer
funding. We do think there are other ways in which one should
be looking to help SMEs, by which I mean dealing with the complexity
of taxes generally on business and issues about employment legislation.
The other point I wanted to make to back up what Julia Penfold
said about the lack of cost-benefit analyses was to refer to the
research which was done, I think, in 1995 which was sponsored
by the Government and is referred to in the explanatory notes
to the draft Bill. That suggests that experience tells us that
where rates are lowered, the landlords will in fact increase rents
to reflect the increased value of the property, so the net effect
upon the smaller-firm tenant is negligible or possibly even negated.
That, I think, underpins some of our scepticism about just how
far the proposals would benefit those it is intended to help.
395. So the CBI would like the Bill to tackle
greedy landlords? That is what you are saying, is it not?
(Mr Roberts) No, I do not think that is what I said.
I think that—
(Mr Stefanou) It is not encouraging the money to be
diverted towards them.
Chairman
396. But surely if there is a reason for the
council to give them relief, then surely the landlord has an interest
in letting that relief still continue to get through to the people
that the council intends to get it?
(Ms Penfold) If you look at historic precedent, you
could look at the Docklands as an example of an enterprise zones
where there was rate relief given within those zones and effectively
it is not greedy landlords, but it is the fact of distorting the
property market in the sense that there is evidence, and that
was quite clear, that when rent reviews came up inside the enterprise
zone, the rents were agreed at a higher level than those rents
outside and once you have one set at that level or somebody is
willing to take a letting at that level, it sets the tone for
all the rents, so it is not greedy landlords, but it is the way
the property market actually operates and there is evidence of
that having happened historically.
397. I am quite conscious of the time, but can
I take you on to the question of revaluations. Really the revaluations
have been coming fairly slowly. Should there be a transitional
relief scheme once the revaluations come in?
(Ms Penfold) Well, yes, I think there should be. I
think there have obviously been or over a five-year period there
can be some significant changes in rateable value and shifts within
the economy in terms of which sectors of property are actually
increasing in their burden of rates. I think it is stated in the
CBI paper that it can be seen as a necessary evil if you want
to actually make sure that businesses can continue and can plan
and deal with such increases.
398. Have most of those businesses actually
been having full relief for the two or three years prior to revaluation?
(Ms Penfold) Yes, I understand that obviously some
transitional schemes for some businesses have actually continued
throughout, so I think that the proposals—
399. No, what I am saying is that if the revaluations
have been slow coming forward, those companies that are likely
to get a big increase have actually enjoyed one or two years before
that revaluation occurred, so they have done pretty well out of
it. Why should they then do well once you start on the new valuations?
(Ms Penfold) The valuations have been every five years,
yes. I am sorry, I do not quite understand the question.
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