Memorandum by the CBI (LGB 39)
1. The CBI welcomes the Inquiry by the Transport,
Local Government and the Regions Committee into the Draft Local
Government Bill. This legislation is important to all businesses
as major users and funders of local services, and increasingly
as partners to local government. The legislation also directly
affects and interests those firms delivering local services in
contractual partnerships with local government.
2. This submission focuses on:
ensuring the effective and fair operation
of the Uniform Business Rate;
making good use of Business Improvement
Districts to facilitate collaborative working between local government
and local business communities;
using the opportunities through the proposed
legislation to improve local authorities' ability to achieve Best
3. Improved legislation is only one element of
what is required to deliver effective local governance, high quality
local services and committed partnership working. Implementation
will be crucial. This includes support for councils and other
bodies to build capacity in making good use of the new opportunities.
NNDR should be retained as a separate stream of
local government finance
4. The nationally set and RPI-capped National
Non Domestic Rate brings significant benefits to business and
the whole economy by easing business planning. Since its introduction,
relationships between business and local government have been
improving. And because of how resource equalisation works, we
suggest that simply returning the business rate to local control
would not provide financial freedom for councils, except at the
margins. Therefore, the CBI is a strong advocate of retaining
5. However, the CBI opposes the draft Bill's
intention to merge Revenue Support Grant and NNDR into a single
stream. We object to the Bill's presumption that Business Rate
revenue amounts to simply one aspect of "Government support"
for local authorities. Revenue Support Grant constitutes Government
support. Redistributed National Non-Domestic Rates represent
a separate business contribution to local authorities' funding.
This tax should be transparent, and should be clearly separated
from revenue support. The effect of merging RSG and NNDR would
be to lose sight of the Business Rate contribution to local government
finance. This part of local government support is too often overlooked
by the media and by local authorities themselves, with the result
that the role business plays in supporting local authorities is
Business Improvement Districts need flexible legislation,
business friendly guidance and a major collaborative effort on
implementation to achieve some early wins
6. The CBI supports the draft Bill's proposals
for BIDs. The Government is right to use legislation to set the
broad framework and indicate the details that will be addressed
through guidance. Central and local government and the business
community are now working together to get these details right
in a good example of partnership working.
7. The CBI believes that successful BIDs could
serve a wide variety of purposes:
They could bring much-needed regeneration
into business districts which are currently in a poor state, and
which have a detrimental effect both on individual businesses
and the image of the locality.
They could bring private sector expertise
to bear on problems which affect businesses and the whole community.
They could greatly improve the relationship
between the business community and the local authority, by building
experience and confidence in partnership working.
8. There are several challenges to establishing
a successful BID:
BIDs must bring identifiably new money
and improvements. The draft Bill recognises that BID revenue must
be ringfenced and demonstrably used to fund new activity as opposed
to existing services to the business community.
BIDs will have a higher potential by
combining business and public sector funding. A "joined
up" approach should aim to tap into regeneration funding
Property owners have been involved in
voluntary BID-style arrangements to date. Their involvement in
schemes under this legislation should be encouraged. One mechanism
could involve the proposal, on which rate payers are asked to
vote, already including commitments from property owners and the
public sector. The draft Bill would allow this and provides for
wider flexibility on how BID revenue is raised. The Government
needs to raise awareness of this and highlight the benefits.
Both the aims and the physical extent
of the BID must be well defined. A BID proposition should be clear
and offer tangible benefits to those being asked to vote.
The BID framework must be flexible enough
to accommodate different models of BIDs by both area and circumstance.
BIDs must enjoy business confidence.
We welcome the dual lock voting mechanism, whereby BID votes will
not succeed unless a majority both of Business Rate payers and
of total rateable value properties vote in favour. Care will still
be required to ensure genuine support from firms of all sizes
and from all areas within the BID.
BIDs should be business-led. This requirement
will challenge many local business communities where capacity
is limited. It also challenges local government to work in business-led
partnership. The Coventry City Centre Company provides a powerful
example of how this can be achieved and the resulting benefits.
If a number of nascent BIDs can be established
and succeed, momentum will grow. The Government should provide
seedcorn funding for initial BID proposals. And consideration
is needed of how best to fund project development in the longer
BIDs are just one form of partnership.
Other successful mechanisms, such as community projects organised
by individual or small groups of employers, should not be displaced
or jeopardised. And BIDs will not always be appropriate, eg in
very deprived areas with a weak business presence.
Small Business Rate Relief is unlikely to deliver
the intended benefits. At a minimum, this scheme should be closely
monitored and the Exchequer should fund its costs
9. The CBI recognises that small businesses
need support to help them overcome particular obstacles. For example,
we welcomed the Chancellor's endorsement of our recommendation
that companies with profits of less than £10,000 should be
excempt from Corporation Tax. However, we do not believe that
the Small Business Rate Relief proposed here will give them noticeable
medium-term gains. As the draft Bill recognises, Government research
in 1995 found that "landlords tend to increase rents when
rates fall". It is likely that the only real beneficiaries
of this reform would be landlords. Therefore, if the Government
is determined to press ahead, we recommend:
Extremely close monitoring of the impact
on small firm profitability and rents, and a readiness to change
direction if the relief is not providing the intended benefits.
Exchequer funding for the relief. Business
taxation increased in the Budget and business property taxation
is already high by international standards. Increasing the rate
bills for 650,000 properties over the threshold by 2.5 per cent,
in order to fund a highly questionable scheme, would damage competitiveness.
There are strong economic benefits from action
to minimise the inevitable disruption caused by revaluations
10. The CBI was pleased to have been involved
in the review of experience of the 2000 Revaluation. We supported
the conclusion that five yearly revaluations should continue,
with effort going into helping businesses to prepare for the likely
changes to their bills. We were strong advocates of a permanent
Government commitment to having some sort of transitional scheme.
Transitional relief is really a "necessary evil", required
because of the fluctuations in the property market. By avoiding
the need for an artificial debate about whether a scheme would
be introduced, Government and business can make faster and earlier
progress in discussions about the optimum scheme. However, we
strongly recommend two changes to the draft Bill:
Primary legislation should not rule out
the possibility of Exchequer support. We can see why the Government
would prefer a self-financing scheme, but in practice, it may
well prove too punitive as it has done in the past. The Government
could indicate a strong presumption against Exchequer support
in policy terms without legislating against it. Given the huge
range of measures in the Bill where the Government gives itself
flexibility, rigidity here is odd and potentially counter-productive
to the economy and the Chancellor's freedom for manoeuvre.
The Government should make every effort
to estimate losses on appeal accuratelythere should be
no scope for clawing back the money later. Current arrangements
motivate the Government to make accurate estimates for losses
on appealsand indeed the estimates have been increasingly
accurate. Business places a high value on the current RPI-cap
on UBR increases between revaluations. Breaking with this principle,
by allowing variations to compensate for under-estimating losses
on appeals, would add uncertainty to business planning. It might
also lead to a less robust exercise on estimating the losses.
At worst, short term political issues could distort decision making,
as arguably occurred in 1990. The rate poundage is not adjusted
for other changes in the yield, eg extra revenue from new properties
coming on stream. If a claw-back facility must be introduced,
we suggest that it should also take account of these other factors
and take effect at the following revaluation when the NNDR rate
poundage needs to be re-set in any case.
11. We welcome the proposed changes to the structure
of the Valuation Tribunal Service. Both the Service and the Valuation
Office Agency play vital roles and must be adequately resourced
for the tasks they must undertake.
12. The CBI supported the introduction of Best
Value and corresponding changes, eg new roles for the Audit Commission.
While there are many success stories in terms of service improvements,
further improvements are needed in the approach of both local
and central government.
Better handling of "Challenge" is crucial:
giving voting rights to non-council members on scrutiny panels
sends a good signal about the value of external input
13. Better handling of "Challenge"
is crucial, particularly to encourage more external input. It
is worth encouraging more local people and business leaders to
become involved in council decision making. Therefore the CBI
supports the proposal to give voting rights to members of overview
and scrutiny committees who are not council members
Councils should aim for Best Value in borrowing,
trading and charges for services
14. Business recognises the case for relaxing
the rules on local authority powers to borrow, trade and charge
for services. Undue restrictions can block Best Value approaches
and culturally send an unhelpful message to local government about
its authority and power.
15. The CBI's main concern is to ensure that
these new powers will be used wisely. This requires a combination
of guidance and practical support, eg to spread good practice.
16. Two points are key. Firstly, councils should
be required to achieve Best Value when using these powers. In
particular, they should apply rigorous challenge in assessing
whether and how to borrow, trade and charge for services. This
entails, for example, assessing whether such action would make
the best use of managerial and financial capacity and whether
direct action by the council would really be more effective than
action by another organisation. Effective community leadership,
for example, does not simply require direct action but involves
encouraging others to plug gaps in service provision and to lead
17. And secondly, the powers should not be communicated
or seen as an escape route from having to do business with or
rely on the private sector. Too often, public private partnerships,
particularly PFI projects, are claimed to be "the only game
in town" even though PFI capital spending over the period
1997-2000 accounted for 9 per cent of publicly sponsored capital
spending in local government. And too often, the rationale for
allowing councils to borrow, trade and charge for services is
expressed simplistically in terms of "if the private sector
can do this, local government should also be able to do so."
18. Discussions during the Best Value Review
made it clear that all partieslocal authorities, employees
and trade unions, the private and voluntary sectortended
to feel that "the playing field was tilted against them".
We need to move away from this unhelpful climate towards one where
all parties are confident that they have a legitimate role which
is respected so long as their contribution genuinely achieves
19. This partly requires the exchange of good
practice and its results. Leading councils are using existing
freedoms and the Best Value regime to deliver high quality and
cost effective services to their citizens. For example, service
quality in Liverpool had been traditionally poor and council tax
high. The decision of the City Council to transform services to
meet rising customer expectations, coupled with an openness to
work with the private sector to combine increased investment in
key services with culture change and innovation, has yielded impressive
results. £105 million has been taken from the council's cost
base in three years, 72 per cent of Key Performance Indicators
are moving upwards and the council tax has not been increased
for three years and cut by 3 per cent in 2002-03.
20. The challenge to improve local services is
immense, and we would like to see the new freedoms being used
to develop new models and ways of working. Initiatives such as
the Strategic Services Delivery Taskforce should help here. We
recommend some specific steps in each of the areas to promote
good handling of the powers to trade and to charge for services.
The power to trade
21. The judgement to proceed with a trading scheme
should be based upon an objectively evaluated value for money
study (including a business plan and a volume sensitivity analysis
to assess the risk to the public purse). The "challenge"
exercise should be verifiable through external audit and inspection.
In the interests of public scrutiny and transparency, the accounts
for trading operations should be:
Signed off by the council's Chief Finance
Officer and external auditor and be held separately from the council's
Technically correct and comply with Generally
Accepted Accounting Practice (GAAP).
Included in an Annual Trading Report
(above a reasonable de minimus level), based on requirements under
the Companies Act.
Power to charge for services
22. Councils in England and Wales already raise
£6bn a year from charges (1999 figures, excluding housing
rents) but few have a systematic, organised way of looking at
the relationship between what charging policies and achieving
overall priorities. Prudent use of charging can develop services.
But councils will need to make sure decisions to charge businesses
for services do not damage the competitiveness of the local economy.
Staff should transfer consistently when local
authorities outsource work. Generally, good employment should
be at the heart of good procurement within Best Value
23. The CBI has been pleased to play a central
role in improving the handling of workforce issues in Best Value.
Whoever is delivering public services must have good people management
skills. Significant progress is already being achieved under
Best Value, which represents a shift away from the worst CCT excesses
of "bargain basement shopping at the expense of service quality
and employees' terms and conditions".
24. The CBI advocated statutory force within
local government for the Cabinet Office Statement of Practice
on Staff Transfers and the Treasury annex on pensions. We welcome
the intention to legislate. This will make it clear that staff
should transfer consistently when the local authorities outsource
work and subsequently when contracts change hands. It must be
supported with practical advice on handling the staff transfer
process and by ongoing efforts to raise awareness of the requirements
and good practice.
25. It is misleading to identify the staff transfer
issue under the headline of the "2 tier workforce",
where the debate relates to the terms and conditions of new starters.
The CBI welcomes the Government's intention to introduce a Code
of Practice requiring contractors to recruit new starters delivering
council services on fair and reasonable terms and conditions.
There needs to be enough flexibility in the Code to allow good
employers to adopt effective approaches to recruitment and retention,
which make sense in individual circumstances. But the Code must
stamp out remaining problems associated with CCT (lowest price
tendering and a failure to check the viability of bids). We stress
the important role of local authority clients in genuinely aiming
for best value and scrutinising the employment expertise and approach
of bidders. We have recommended that the policies on staff transfers,
recruitment of new starters and other aspects of good employment
practice should be branded as a "Respect for People"
strand within Best Value.