APPENDIX 1
Supplementary memorandum by the British
Chambers of Commerce (BCC) (LGR 12(b))
INTRODUCTION
The British Chambers of Commerce (BCC) welcome
the opportunity to participate in this debate. Business plays
a key role in wealth creation in local communities and should
have a central voice. Chambers of Commerce are the only business
organisation with a strong local base, representing 135,000 businesses
across the country. We have consulted the entire network on this
issue and the opinion of that network is represented below. We
trust that our opinions will be given commensurate weight in the
deliberations of the Government on this matter.
SUMMARY
The British Chambers of Commerce is very concerned
about these proposals, that aim to make complex, uncalled for
changes to a system that is working relatively well as it is.
Furthermore our concerns also extend to taxing businesses and,
instead of using the money to finance projects to benefit wealth-creators
(such as transport or other infrastructure), permitting local
authorities to spend the money on other projects. This is especially
worrying given the poor performance of certain local authorities
who could use businesses' money to prop up their other service
failures or avoid rises in Council Tax before an election. Business
rates should be spent only on economic development.
— The BCC is as committed to the regeneration
of deprived areas as the Government. The desire to fulfil the
economic potential of every area of the UK is one that Chambers
can share and are already striving towards achieving. Indeed this
was a central theme of our Budget submission from earlier this
year. [1]Reducing
levels of crime, tax and red tape whilst improving skills and
transport in deprived areas would release business to regenerate
these areas and we strongly urge the Government to direct its
attention to these issues rather than propose gimmicks such as
this one.
— The Government may contend that the
local government finance structure does not reward authorities'
contribution to economic growth but it also does not penalise
those authorities that do not take the matter seriously enough.
If rewards are to be offered then sanctions have to be proposed
too.
— The current system protects local
businesses from poorly run local authorities. If this protection
is removed then sanctions have to be in place to ensure that local
authorities are encouraged to keep businesses in the forefront
of their policy-making decisions.
— We are concerned at the aim in the
Foreword to encourage local authorities to address the "enterprise
gap" in their areas. It would be far better for Chambers
of Commerce to be given this role, perhaps financed by a small
part of the business rate. Local authorities are in no position
to address the subject of enterprise.
— As around 75% of council funding
comes from national Government the argument advanced that a local
aspect is needed to the accrual of economic benefits is not relevant.
— The BCC would again suggest, as we
have in other similar consultation responses, that if all levels
of Government taxed business at a lower level the resultant extra
money for businesses would create more economic growth than any
public sector scheme ever could. Interference will achieve precisely
the opposite.
— Point E.11 in the Executive Summary
highlights the blinkered approach being taken on this proposal.
There is no analysis of the potential pitfalls in this consultation
document that must also be considered.
— Given that business is to be given
the vote for Business Improvement Districts (BIDs) this should
also be the case for each local authority before proposing to
use this scheme. It is businesses' money, they should have a say
in how it is spent.
— This scheme is too complicated for
businesses to understand and also this complexity will, we fear,
lead to increased costs on bureaucracy at the local level, eating
up more money than will be spent on improving local areas.
— Point E.27 is indicative of the whole
consultation paper. Not one section is devoted to how this will
help companies create the wealth of the UK economy. It concentrates
on local authorities, tax and national Government. Business is
the only factor to need addressing when looking for growth in
local areas but it is ignored in this consultation. As the national
voice for local business we are very disappointed in this approach.
RESPONSE FROM
THE BCC
Chapter 1
1.2 We are concerned that the Government's
desire to increase economic development in all localities is concentrating
on local authorities and not on business. Government policy should
concentrate on business if economic growth is the aim.
1.3 We would prefer it if the public sector
did not interfere in the running of businesses. If energy was
concentrated on improving skills provision, cutting tax and red
tape, reducing crime and improving transport links to these areas,
the economic growth would follow without the need for public sector
schemes that can do more harm than good.
1.6 Business ensures economic growth in
the regions, not Government. We are very concerned that the Government
has not yet realised this. The extra burdens placed on business
through tax and regulation to achieve these schemes hold back
economic growth and work against the Government's aims.
1.8 The concern of costs accruing at a local
level is not actually the case given the 75% of local authority
financing comes from national government funds.
1.9 The current system is one with which
business is generally comfortable. It protects them from the consequences
of a badly run local authority and is not a system that needs
to be changed to benefit business. As companies are the drivers
of economic growth, if this does not benefit them it will not
improve growth. This idea should therefore be dropped.
1.10 We are disappointed that there is a
great deal of talk of rewarding local authorities with no mention
of how they will be penalised. To ensure that this does not become
an automatic reward scheme, requiring little improvement in Local
Authority performance, we insist that a stick should accompany
any carrots in this scheme.
1.11 The above therefore currently answers
in the negative point three of 1.11, it is not intelligible or
transparent. The only way in which this scheme could be acceptable
is if business has the right of veto in each local area. As business
voting is being introduced via Business Improvement Districts,
the same mechanisms can be introduced here.
1.12 We appreciate that this will not cost
business any more in tax but it may well cost them more in lost
services. This must not be allowed to happen. If a service provided
for businesses is run down to bail out another service provided
for non-business users in the same local authority businesses
are losing out. This will be doubly so if they then have to resort
to a BID to regain that service once the baselines have changed
in the future.
Q1. Do you agree with the principles for
the scheme?
No we do not. The current system is a safeguard
to the companies that pay the business rate. The system is not
broken and so we see no need to fix it. Business, the major contributing
factor in economic growth does not want to see this change, therefore
there is no economic need to alter the system.
Chapter 2
2.2 We have concerns on the second part
of this point. Targets are becoming more and more discredited
as a means of measuring performance. The targets become the only
focus of schemes and ultimately lead to failure of the overall
programme.
2.4 We do not wish to see Local Authorities
given incentives to interfere in business growth. If these incentives
were offered to businesses instead then the attention would be
at least aimed in the right direction.
2.14 Improving skills and transport whilst
reducing tax, red tape and crime levels in deprived areas will
achieve much more than public sector interference, funded through
more tax, will ever produce.
2.17 Business taxes should be spent on public
sector projects that benefit industry, such as infrastructure
programmes. We are strongly against allowing money raised from
business locally to be used as a mechanism for avoiding increasing
council tax. Local authorities should not be given the opportunity
to use non-voting business taxes to placate voting taxpayers.
This is short sighted and will be counter-productive in the battle
against economic stagnation in certain localities.
2.23 The only way to incentivise local authorities
to respond to the needs of business is to give firms the vote
on this issue. Using the same guidelines as for BIDs votes this
could be done very easily.
2.25 The review of local government finance
must include business representatives and the Chambers are the
only business organisation with a fully fledged local and regional
UK network. Chambers of Commerce and the BCC should therefore
be a key partner in this review.
2.26 The scheme may well be bedded in current
policy but we contend that it is not bedded in reality. Business
growth is achieved without interference and as we have outlined
above, with the public sector addressing its failings in crime,
transport, education, red tape and tax, business can then prosper
to deliver economic growth on the back of this.
Chapter 3
3.6 We believe that the national model is
too inflexible; the regional model is unacceptable as it uses
arbitrary boundaries, the national historic growth model is not
sufficiently transparent, the sub regional model is flexible but
too complex and that the local authority model is preferred as
it is transparent and flexible.
3.14 However, predicting future performance
and growth is impossible to achieve with any certainty. We see
no value in the attempt and would urge public sector resources
be spent on addressing the real issues that we have already highlighted
above.
3.15 It is a concern that the trend in this
document is towards using either a one size fits all or an overly
complex model.
3.27 The intelligibility test is vital.
3.34 The Local Authority model passes the
test as every business knows which council to whom they pay their
business rates.
Q2. Do you agree with using an eight-year
period for setting the trend?
We do not agree or disagree. We would need more
information on why such an arbitrary figure were chosen and would
also require some reassurance that this would be sufficient to
take in a full economic cycle.
Q3. Are there models for setting the baseline
that the Government has not considered that need to be considered?
Not to our knowledge. The models proposed cover
several options although despite the transparency that we note
for the local authority model it is simply the best choice of
a bad range of options given that all are complex. We also object
to a consultation paper attempting to direct us towards choosing
from the range rather than trying to influence respondents.
Q4. Which of the baseline models is your
preferred option and why?
The local authority model is our preferred option.
It is the least complex, is tailored to local circumstances, is
transparent given that the area being used is widely recognised
but we are still to be convinced that predictions (that will invariably
be fallible) are to be used in such a scheme, especially when
the scheme is not necessary in the first place.
Chapter 4
4.9 The use of further formulas shows how
complex this scheme will become, leading to the need to employ
further public sector employees and increasing the burden on business.
We are concerned at the obvious impenetrability of this scheme
as well as its implications for future business taxation at a
national level to fund it.
4.18 The 95% scaling factor is far too high.
Allowing local authorities such a wide scope to use almost all
business rate funding where they see fit (when they cannot be
held to account by business) is a dangerous measure. We feel it
should be less than 50% if at all and that it should still be
ring-fenced to a list of areas that directly assist business growth.
4.30 We are concerned at the proposals to
include bodies such as the Greater London Authority (GLA) and
the shire counties even though they do not collect business rates.
We feel that the less public sector interference in business growth
the better and fear that more tiers involved in this the heavier
the burden on business to pay for the extra public sector workers
to monitor it.
Q5. Which of the two preferred options for
floors and scaling factors (high/high and medium/medium) do you
think provides the best balance between financial support and
financial incentive?
We do not prefer either model. If such a scheme
is to be introduced, and we do not believe that it should be,
then the amount of improvement that a local authority shows should
be high and that the amount of the business rate that it can spend
as it likes should be very low.
Q6. Do you agree with using formula spending
shares as in the measure for determining ceilings? Do you agree
that a 1% ceiling in year one of the scheme rising in line with
the scheme (ie reaching 3% in year three) provides an adequate
balance of incentive and cap on gains?
No system would be transparent or simple and
so we do not feel that this complex system is suitable but that
given that it is already used it is preferable to introducing
a new mechanism.
Q7. How do you think that benefits should
be shared between different tiers of local government?
They should not. This simply introduces too
many tiers into the equation, increasing complexity and the burden
on business.
1 The BBC Budget 2003 submission can be found at:
http://www.chamberonline.co.uk/pdf/Budget2003.pdf Back
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