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

Examination of Witnesses (Questions 480-499)


18 MAY 2004

  Q480 Mr Betts: Businesses do not pay for policemen or fire engines, so there are certain things. Do you notice the difference in different authorities?

  Mr Sugden: Absolutely. The Chamber of Commerce operates an award on an annual basis which we call "Best for Business" and the only candidates for that award are local authorities within the north east region. The entries for the award have just closed this past week, and what is encouraging is how positive and how much engagement and awareness of the business community there is from a small number of local authorities, and something that we recognise as a Chamber of Commerce is that, of course, issues around crime, environment, cleanliness, and the ability for employees to be able to get from A to B are services that are provided by local authorities in the district.

  Mr James: And, indeed, those local authorities now have local strategic partnerships and many of the groups, Crime and Disorder, for example, have members involved and members do appreciate—because we consult with Northumbria police in Tyne & Wear, and the other local authorities—how much police are doing to streamline, improve efficiency and fight crime. So we do not ignore the fact that there is a lot of good work going on.

  Q481 Mr Betts: The Local Government Act 2003 gave authorities new freedom to borrow, track business, to trade, and charge for services. Has there been any noticeable impact from that freedom in terms of your members?

  Mr James: Yes. I think you have seen charges go up in local authorities, and we do not have an argument with people charging the true cost of providing services, so we have seen evidence of that. We have seen evidence I think of people starting to look at prudential borrowing and using that as a mechanism for investment.

  Q482 Sir Paul Beresford: Do you not fear that local authorities as municipal traders are at an unfair advantage over business? They do not have to make a profit, they do not pay business rates or taxes, they can absorb their overheads and cannot go bust because they are supported by public subsidy.

  Mr James: I was referring to the services that only local authorities can provide. There is another element to the services they provide in that they have public works departments, and that might be a bone of contention, that our members might like to compete on more equal terms. But it is not a huge issue at the moment with the way the construction market operates in the north east.

  Q483 Sir Paul Beresford: But it could be if the local authorities decided trading was an in thing, and you suddenly found your members are competing with your local council.

  Mr James: It would be an interesting situation.

  Q484 Sir Paul Beresford: Well, you would go bust, would you not? Down the swanny? Your businesses would be at a distinct disadvantage.

  Mr James: They would suffer if there was an element of subsidy in the services that they were competing against, yes.

  Q485 Mr Betts: In 2005-06 the Local Authority Business Growth Incentive Scheme is expected to come into force and local authorities will be able to keep a certain proportion of the extra revenue that comes in from the growth of the business rate business in their community. Do you think that is a good idea, or do you see it as localisation by the back door?

  Mr Sugden: There is a lot of local sympathy for local authorities to be rewarded for their efforts in terms of economic regeneration and development. More broadly, the concern that we have is the disparity between the business growth rates and the business formation rates in the north east. We have areas such as Easington and Wansbeck which are very much at the bottom of the league table of business formation, and they are just a few miles away from very prosperous dynamic business growth areas such as the centre of Newcastle. We are concerned as the Chamber of Commerce that we do not want to see those authorities which are hamstrung by structural failings in their economy further hamstrung by a re-allocation of finance, but at the same time we do concede that some reward and some mechanism for being able to reward those well managed, well run effective authorities, is something our members are keen to see. There is a contradiction in that and it is one we do not have a robust solution for.

  Q486 Mr Betts: So you understand the contradiction is that the government can sort it out?

  Mr James: We think a lot of the problems will arise from the detail, and when you start getting into the detail it becomes very complicated.

  Q487 Christine Russell: Moving on to the rural areas and the impact of business rate relief, we know that agricultural land and buildings are exempt but there are quite a lot of schemes for encouraging the re-use of agricultural buildings, and there is rate relief for trying to retain post offices and community shops and facilities. Do you have any views on that kind of rate relief? Is it useful?

  Mr James: It is useful in helping farms find use for redundant buildings and for creating jobs locally. Obviously we welcome such rate reliefs and in rural areas and, indeed, urban areas undergoing regeneration.

  Q488 Christine Russell: That was going to be my next question. So you think it has had a beneficial impact in the rural areas. How would you like to see it extended? What do you think of the small business rate relief scheme that is coming in next year?

  Mr James: I am not familiar with the details of that, I am afraid, but any relief for small business is going to be a reward.

  Q489 Christine Russell: It is relief for where it is a very small business, probably a one-person business, where the rateable value of the property they are using is less than £8000.

  Mr James: This applies to a single unit business.

  Q490 Christine Russell: Yes.

  Mr James: Broadly we welcome that. We have discussed that at the Valuation Office Agency Panel. It would be a good thing and we would welcome it.

  Q491 Christine Russell: Do you think that would be particularly useful for the north west, that it might encourage a lot of younger people to have start-up businesses?

  Mr James: Any measures that reduce the burden on small businesses are welcomed by us.

  Mr Sugden: To reiterate some other points that Phil has already mentioned, a lot of local authorities already find some mechanism or another to try and stimulate enterprise in small units and small start-up businesses, and try and find creative incentives, so that the additional burden of not just business rates but the start-up cost burden is reduced in terms of providing additional communications facilities, rent relief as well rate relief, so there are a number of different mechanisms which are brought into play by a number of local authorities and, broadly, they are very welcome.

  Q492 Christine Russell: Are there any particular small enterprises that you would like to see specific relief going to?

  Mr James: Yes. I would like to see more done in the way of relief for small businesses that operate in areas undergoing regeneration. You know that the north east has a housing market pathfinder renewal programme, and in undergoing change in an area—and the west end of Newcastle is a prime example where the housing stock has been reduced because there is a renewal in process—the trick is to try and keep those businesses that provide local services and jobs in business while the area is being regenerated, so they both come out the other side of the regeneration.

  Q493 Christine Russell: Do you think it might be more useful if the relief was applicable to the location rather than a type of business?

  Mr James: I think selective relief in areas undergoing regeneration would be very valuable indeed. It is not just corner shops we are talking about; it is actually the small businesses that employ very local people and have done for some time. History shows that, if those businesses close and move or relocate, people do not tend to follow those businesses and it is very difficult to start new businesses in run down areas, so it is imperative that we retain the business stock in areas undergoing regeneration.

  Q494 Mr Betts: Moving on to regional assemblies, there is clearly a referendum coming along. If there is an elected regional assembly, should they have some role in the area in terms of local government financing? Should they be overseeing it in some way? Should they be looking at the distribution of central funding for local authorities within the region? Do you see any of that being appropriate?

  Mr Sugden: It may be appropriate in areas where there is a clear overlap between the remit of the elected regional assembly and the remit of local authorities. It is certainly a major concern of the business community in the north east that there will be a lack of clarity between national government agencies, an elected regional assembly, and local authorities, and defining that clarity and those clear areas of responsibility and who is statutorily responsible for certain services and certain delivery elements is something that we are pushing quite heavily to be finessed in the final Bill. As regards having any control or authority over the local authority financing, it is something we have not given a great deal of thought to in the White Paper, which we are currently lobbying to see strengthened and to see additional more effective powers for elected regional assemblies, if that is what to be available for the north east. We have not considered the local government revenue implications of that.

  Q495 Mr Betts: A more effective and powerful regional assembly might well have the power to fix the business rate?

  Mr James: It may well do!

  Q496 Mr Betts: That is something you would be lobbying against, is it?

  Mr James: I think you know our views!

  Q497 Mr O'Brien: We spoke earlier about the gearing within the financing and the balancing of funding in local authorities. One of the suggestions being made by local authority associations and other bodies is that we should be looking at other forms of tax raising in the area of local authorities. As you know, there has been a basket provided with all kinds of taxes including bed taxes for tourism, local congestion charges, local sales taxes, more charging for services, vehicle exercise duty locally—a number of suggestions have been made. What effect would this have on your members if there were to be introduced some other forms of tax raising for local services?

  Mr Sugden: The principle that we would like to reiterate here is we would not like to see an additional burden on businesses which is where, on issues such as congestion charging, there is a much more sophisticated argument, as you have seen played out in London, around reducing congestion and the ability that that may have in terms of reducing a congestion burden in return for increasing the charging burden. It is something that we would be very cautious about supporting, but there may be some very locally specific circumstances where elements such as congestion charging would be totally appropriate, and where those revenues were to be used or hypothecated for public transport improvements. Some of the other measures, issues like a bed tax for tourists, we feel very nervous about. Tourism is growing in the north east and we are very proud to see it grow at the rate it has, but at the same time it is very much emerging and to threaten that by levying additional charges on tourists is something we would feel very nervous about. Similarly, on some of the proposals around workplace car parking charges, there is a very persuasive argument about reducing the number of people who use their cars to travel to work and simply park outside the office all day and then drive home, but at the same time the proposals are seen as very punitive without any incentive in terms of using that taxation for improved public transport networks.

  Q498 Mr O'Brien: One of the issues you have raised is that of market forces. If local authorities have facilities available which could raise taxes like car parking and other areas, would you agree that that is a discretion that should be left with local authorities to use so they can cover their costs?

  Mr James: We support local authorities who use car parking charges to regulate the use of those car parking spaces as a method of managing them so people do not park in them all day, and some authorities very effectively use the revenues from car parking to improve the car parks. There is a public safety issue with regard to car parks, they should be lighter, airier, with CCTV, and where local authorities are doing that then we are highly supportive of that measure.

  Q499 Mr O'Brien: One of the points you made earlier when talking about education was the fact that a lot of services are ring-fenced by government taxation, and you scorned at that, but now you are saying that we are suddenly ring-fencing income from car parking for car parking services, and yet you are saying that some of the other charges should be hypothecated to make sure it goes into that service. Are you not facing two ways on this issue?

  Mr Sugden: Quite possibly! The main point is not necessarily that we would like to see 100% of that revenue used for a specific purpose, but we would see it as simply a punitive measure to introduce charges such as congestion charging or workplace car parking without any similar investment or any co-ordinating investment in public transport networks. We would see that as a sensible means of investing in an improved public transport network to reduce congestion, rather than necessarily ring-fencing one budget purely for that purpose.

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