Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 382-399)




  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.


  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.


  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.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 30 August 2002