Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 460-479)


18 MAY 2004

  Q460 Christine Russell: So how would you compare relationships between businesses and local authorities then with today in the north east?

  Mr James: We had really a once a year engagement with local authorities where we were given huge bundles of papers at very short notice for meetings where things went through on the nod, and businesses had no say really whatsoever in local authority finance. If you contrast that with today, we can have meetings with local authorities where the consultation is the contact for a wider discussion on education and other matters, that we can work with the local authorities on, so there is a much more positive situation now than there was before the nationalisation of business rates.

  Mr Sugden: And if you look at how supportive businesses in the north east have been for business improvement districts, there is an acceptance there that a contribution and a wide engagement on specific issues specifically tied to geography is broadly welcomed by the business community in those areas, but a generic pegging of business rates to council tax increases is something that would happen on an annual basis, would be very close to the financial year end for most organisations, and would be a destabilising influence.

  Q461 Mr Betts: Surely there has to be some way of ensuring that businesses do not every year pay less and less of the total share of local government finance, because that is what is going to happen. If the business rate is pegged to inflation, bearing in mind local government's costs are always going to rise by more than inflation, you are going to pay a lower and lower percentage, are you not? Is that right?

  Mr James: Many of our members would not accept that local authority costs have to rise—

  Q462 Mr Betts: Well, most of them are wages. It is difficult to see how education costs are going to rise by the inflation rate, is it not?

  Mr Sugden: It is, and there is a very persuasive argument there in terms of the balance of local authority funding. We are looking at this perspective in terms of the stability of the business base and the ability of those businesses to be able to plan effectively and be able to make investments which ultimately create the wealth and jobs for the north east.

  Q463 Sir Paul Beresford: What you are really saying is that local authorities have the opportunity to make savings but have not done so?

  Mr James: I think there is tremendous scope to reduce the burden of national control on local authorities, and that local authorities do more of the agenda setting themselves. They are responsible people but we have a situation where local government does not really mean local government. The local government people I talk to would say privately that they would like to see much more flexibility and local accountability for the money they are given to spend on the priorities as they see them.

  Q464 Mr O'Brien: What percentage of their income should be raised locally, do you think?

  Mr James: What you have raised locally at the moment is about 25% council tax and the product of national business rates is about 20.3% at this moment in time. It is true that that has dropped over the years, so you have 45%.

  Q465 Mr O'Brien: So you are saying that 45% would be sufficient for the local authorities to work in the capacity that you refer to?

  Mr James: I think if local authorities had more control over what they did with the money then we would have much better value for money. There would be far less money spent on process than there would be on other things, and it is perhaps time to have a wider look at local government and what it does and what its responsibilities are and what it should be doing and what it should not be doing, and our members would say that perhaps local government is doing more than it should be.

  Q466 Christine Russell: One of the biggest spenders in local government is education and education is the number one priority of the government, so should all the education expenditure just be taken away and spent in the Department for Education and Skills?

  Mr James: I think education is vitally important. We tell our members about it; our members know the importance of education and skills, so it is very important. But I think local authorities might feel that they have lost control over lots of things that they did before. I am not saying it is right or wrong—it is a matter of fact. We do not take anything away from the importance of education; it is vitally important to our members.

  Q467 Sir Paul Beresford: So the enormous effort put in by government and local authorities on best value means best value is misnamed?

  Mr James: I am glad you mention that because I notice that it was not in any of the witness statements this morning. Best value was one of the main planks of control of local government finances, but it seems to have died a death.

  Mr Sugden: If I can echo some of the points made by Tim particularly around economic regeneration, and looking at the regional development agency as an illustration of how finance has been loosened up around economic regeneration, originally the ideas were established with very rigid funding streams and the business community in the north east and in other regions supported the loosening of that regime into the single pot, and that has enabled the Regional Development Agencies across the country to make bold decisions around the priorities that fed their locality. To echo the points Tim has made, we would be keen to see additional flexibilities for local authority around areas like economic regeneration to allow those priorities to be realised.

  Q468 Mr O'Brien: Continuing with that, your organisations work closely with business and local authorities in the north east. First, what is your assessment of the level of understanding by local authorities of the needs and concerns of businesses?

  Mr James: If I am frank, I would say that there is a complete misunderstanding of the needs of businesses by local authorities in general terms. I do not mean on the economic development side but I do think there is a mismatch in the way businesses think. Businesses, even local businesses, compete in a much wider market place now, and the reality of the thing is that they have got to manage their finances to meet customer expectations for lower prices year on year, and suppliers' expectations of greater supply prices, so I think there is not a proper understanding of the way business operates by local authorities which is sad, and the gulf is widening, I fear.

  Q469 Mr O'Brien: What about the Regional Development Agencies?

  Mr Shakeshaft: There are a number of different approaches from local authorities to business development in the region, depending on access to resources. At least one local authority funds economic development from parking charges throughout the borough and it is very variable. In some places it is very good and straightforward to access, and easily understood, but in other areas there is very little delivery by local authorities, so if you like a post code lottery of almost where your business is depends on what you might benefit from, ranging from initial reductions in industrial rents to subsidies for taking on additional workers. It varies across the piece.

  Q470 Mr O'Brien: Do you think that local authorities should be more accountable to local businesses, to your Chamber?

  Mr Sugden: We try to assist local engagement with local authorities and the shire counties and others to try to engage our member businesses with their local authorities, and those relationships have often been very positive and fruitful. The issues around accountability are clouded by, traditionally, accountability with local government meaning another round of committees and bureaucracy for business people to be taken out of their profit-making enterprise to engage in, and we find that a frustration. There is no easy answer as to how you introduce that accountability and that engagement with the wider business community without those sorts of structures.

  Q471 Mr O'Brien: We just heard there should be no tax without representation, so what you are saying is that that would mean having meetings with members of local authorities to add that accountability, and you do not want that.

  Mr Sugden: There is no way round it. We already have a system of engagement with local authorities—

  Q472 Mr O'Brien: But what about accountability? You have meetings, but when you leave a meeting then everyone goes their own way. Should there be accountability with local authorities?

  Mr James: I think we have greater influence than we had ten years ago, much greater influence, but more than that we have some influence.

  Q473 Mr O'Brien: What would be the risk then, if you have got this greater ability to meet them? What would be the risk to your members if the non domestic rate was collected by and levied by the local authorities?

  Mr James: Loss of jobs.

  Q474 Mr O'Brien: Even though you have this relationship with local authorities?

  Mr James: We are talking about a situation in the economy at the moment where we have a fluctuating exchange rate with Europe, which is our main trading partner; rising oil prices ,which we have not seen come through in the travel industry at the moment because they are holding on to the cost but they will come through; and we are competing against others in the world who can make things more cheaply and provide services more cheaply than we can, and the evidence is all around us. We just do not want to see that situation made any worse for our members, and I think to answer your question it will translate in loss of jobs. It is inevitable. We cannot raise our prices because our customers will not pay so we have to make cuts in other ways, and traditionally that tends to be trying to do things with less people.

  Q475 Mr O'Brien: So what you are saying is that because businesses do not have any votes on the position of businesses in a community, they should not be responsible to that community but to government?

  Mr James: I think they should be responsible to that community to create jobs and wealth. That is their main role, and if they do that successfully then the local economy benefits more greatly than it would by businesses sitting around talking to councils about the business rate they could not affect.

  Q476 Mr O'Brien: So what you are saying is the only responsibility you have is to generate jobs in the area?

  Mr James: I think that is industry and commerce's main and primary role.

  Q477 Mr O'Brien: What about the environment, and the question of skills and education?

  Mr Sugden: Absolutely, and our members would say that keeping their business running and creating jobs and wealth in their local areas is their prime responsibility, but the enlightened masses of our membership do see themselves as very much part of the community and embedded within their communities. Those businesses cannot function unless they have the employees, and the goodwill of their community to exist.

  Q478 Mr O'Brien: It is more of a problem in the north east because of the businesses that have left the area, particularly the mining and other heavy industries and the blight that that left, and therefore business should contribute to ensuring that the environment is not allowed to be left like that in the future. Surely you agree with that?

  Mr James: The best way they can do that is to stay in business. Our members do want to employ local people and make big efforts to employ local people, but there are a number of problems and skills issues that need to be solved, and we have to chip away at those. Businesses are concerned with creating wealth but they also have a great deal of social responsibility, most of them.

  Mr Shakeshaft: I think it is a little difficult to compare current industrial structures in the region with those that obtained, say, fifty years ago, particularly following the industrialisation and the large paternalistic structures, structures of employment, and I think local business recognises its responsibilities particularly in respect of environmental matters. I would not want the Committee to get the idea that there is a fragmented approach in the region. In fact, I would say there is a very powerful partnership between business, the public sector, and the third sector, and many private sector members prominent in their own fields will be chairs or board members or trustees of local charities or business development agencies or whatever, so they make their contribution in a number of different ways. The problem is the weak and low position from which we start.

  Q479 Mr Betts: Are you quite content with one business rate throughout the country, so all businesses throughout the region are tied into the one business rate, and do your businesses in the region not receive different levels of services from different councils? Have you noticed the difference?

  Mr James: Businesses pay for the services they get. They have the bins emptied and they pay for it, and for the disposal of industrial waste, and many businesses would say, "What do we get in tangible terms?"

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