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

Examination of Witnesses (Questions 620 - 639)



  620. So in terms of this review, you still believe that a proper balance can be achieved even with the business rate remaining determined by central government?
  (Mr Raynsford) What we want to do is explore the arguments and they are interesting, complex and quite difficult ones, about the balance between the two, the gearing consequences for local government, and whether there would be benefits in terms of greater local accountability as a result of changes, and to look at ways in which the balance might be altered if the conclusion is that this is the right thing to do. It is an open-ended review; we will not approach it with any preconceptions; and we certainly will not be ruling out the possibility of increasing the proportion of funds raised locally if it is concluded that that is the right thing to do as a result of the review.

  621. Is there a time period for that?
  (Mr Raynsford) We are doing preliminary work at the moment looking at the technical issues that need to be covered so that when the review is constituted it has the basis of proper research on which it can consider the issues and reach decisions. I would expect to be able to make an announcement later this year about when the review will be constituted.


  622. In the interests of fairness, since looking through the evidence I do not think more than perhaps one authority possibly there by accident thinks it is a good idea to merge these two. Can you give us one reason why they should be merged?
  (Mr Raynsford) Administrative efficiency.

Mr O'Brien

  623. Do you refer to the NNDR as a grant to local authorities?
  (Mr Raynsford) It is one of the streams of revenue which is crucial to local authorities for discharging their functions.

  624. Is it a grant?
  (Mr Raynsford) It is a revenue stream, and under any foreseeable framework we would want to ensure an equalisation between authorities because, as all members know, some authorities have got very much larger non domestic rate basis than others and it would be unfair if they benefited from that advantage and those with a relatively low non domestic base suffered.

  625. Some spending assessment is a revenue stream but this is a grant, is it not?
  (Mr Raynsford) The consequence of a spending assessment framework is that a grant is then awarded to local authority.

  626. The NNDR is not a grant, is that what you are saying?
  (Mr Raynsford) The NNDR is an income stream but—

  627. SSA is an income stream.
  (Mr Raynsford) No. SSA is a mechanism used to distribute grant between authorities. It measures the need to spend authority by authority.

  628. The redistribution of the NNDR obviously is what is referred to but, if they come together, will there be a grant?
  (Mr Raynsford) If the two are administered together there will be savings in terms of administrative efficiency and that is the reason for doing it.

  629. Will it be a grant?
  (Mr Raynsford) It will be an income stream to the local authority—

  630. Will it be a grant?
  (Mr Raynsford) Whatever it is called, a grant or an income stream, I am not particularly concerned.

  631. Why I raise that is because in the Finance Act 1988 there is no such reference to the NNDR being a grant and I would not like to think that, once we set this legislation in place, the thing is going to be challenged because we have not made the proper assessment in the first instance, but I take note from you that if they come together it will be a grant?
  (Mr Raynsford) It will be income stream comprising the revenue support grant that flows from the formula and the appropriate element of the national non domestic rates.

  632. As part of the consultation exercise that you launched, and obviously there will be a great deal of response to that, if the overwhelming evidence is that people do not want to see this emerge, will you accept that?
  (Mr Raynsford) We obviously will listen to that because, as I said in response to the Chairman's earlier question, we see some administrative saving from doing this without in any way pre-empting future policy decisions on the future of the NNDR.


  633. Can you put a figure on the savings?
  (Mr Raynsford) I cannot offhand but I can write to you with estimates.

Christine Russell

  634. Moving on to business improvement districts, some of our respondents have suggested and I think it is ruled out of the Bill that perhaps the Department would like to provide a little bit of funding or certainly some advice in order to get business improvement districts off the ground. What is your response?
  (Mr Raynsford) I have never known local authorities that have not been seeking additional sources of finance but I have to say the purpose of the business improvement district (BID) is agreement between the local authority and the businesses within its area about how additional revenue raised from business might be applied to improve not just the business prospects of the area but the general environment and the quality of life in the area.

  635. But will your Department be happy to provide the practical advice to the local authorities?
  (Mr Raynsford) We are committed under this draft Bill to produce guidance, and we will be doing so, certainly.

  636. How do you answer what is perhaps contradictory in that the people who will contribute to the success of a BID will be probably the tenants and retailers in the city centre; but yet those who will benefit in the long term will be the property owners?
  (Mr Raynsford) This is the inevitable consequence of the different structure of business taxation in the UK to America, where the business improvement district idea was originated, where it is the property owners who pay the local taxes. Unless we were to devise a new taxation system, there is no way that we could raise the finance from the property owners. Therefore, our view is that the right way forward is to use the existing business taxation framework, which is the rate which applies to the tenant, but to encourage a voluntary participation by the land owners, a number of whom have advised us that they would be very happy to do so. We think that if they come in at an early stage and indicate their willingness to make voluntary contributions this will help to build confidence among the tenants, the retailers, and will make a yes vote in any referendum more likely and therefore the success of a BID more likely.


  637. How many of these do you think you are going to have in place in, say, five years' time?
  (Mr Raynsford) I do not want to give a forecast.

  638. A hope?
  (Mr Raynsford) I am not someone who plucks figures out of thin air. I would be disappointed if we did not have a significant interest in a number of different areas in the country. Talking to both business and to local authorities in many, many different areas, I am reasonably optimistic that there will be a real take-up for this new concept.

Christine Russell

  639. Can I move on to the transitional relief scheme for the non-domestic rate payers? Why do you think the self-financing scheme will prove any more popular this time than it has in the past? It was tried by the previous government in the early 1990s and abandoned.
  (Mr Raynsford) The problem about any scheme of this nature is that people want to have a rebate scheme or a transitional relief scheme and then do not want to have to make any contributions, so they expect the general tax payer to make the contribution. However, if they are presented with a request for an increase in tax, they take a very different view. If we want to see a proper framework that does ease in the introduction of revaluation, the right way to do that is the same way that we applied with the floors and ceilings in the case of revenue support grant to local government, the thing being self-financing with the assistance to those who otherwise would lose being paid for by those who otherwise would gain very substantially. It does not seem to me to be an unreasonable principle.

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