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
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 wrongit 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
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
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
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
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
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
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?"