Examination of Witnesses (Questions 600-619)
MICHAEL ROBERTS,
LUCINDA TURNER
AND SIMON
PARKER
25 MAY 2004
Q600 Christine Russell: If you have got
research which separates out leases and rental costs from business
rates, I think that would be quite helpful.
Mr Roberts: Certainly we can try
to furnish you with some numbers.
Q601 Christine Russell: From our researches,
there was a study done in the mid nineties, I think, which seemed
to show that a mere 2% of trading figures was business rates?
Ms Turner: The thing to remember
about business rates is it is a tax on inputs, so regardless of
profitability businesses will be paying a proportion, so the proportion
of profits will vary quite significantly. That was important,
I think, last time under the localised system, because significant
increases affected very much those businesses which perhaps did
not have the margins and were not as profitable as others. I think
that is an important point to remember.
Q602 Chris Mole: Not linked to the ability
to pay?
Ms Turner: Absolutely.
Chris Mole: I think we have heard that
before.
Q603 Christine Russell: Can I ask you
to give your views on why you think businesses should have protection
from rises which the individual council tax-payer does not have?
They have no protection against increases, whereas you are protected
by this inflation-linked rise only?
Ms Turner: There are a number
of issues there. It is important to remember the wider context
within which business is operating, and if there is not some level
of stability or ability to plan for cost increases that can have
a major impact on the ability of businesses to trade. It is an
incredibly competitive environment and without those increases
there could be significant implications for local economies. I
think it is important also that businesses generally are not being
protected. This is one element of business taxation. I think that,
where businesses have the confidence that where they are paying
more there is extra quality delivered, or it is going towards
specific, agreed objectives, as in Business Improvement Districts,
or as in charges that councils levy on businesses, planning fees,
for example, have increased by 14½% and there is a look at
increasing those further, business is engaged on that process
because they can see some benefit from paying more to deliver
the quality of service. I think it is a mixed picture. Where there
is confidence the local authorities are spending efficiently,
where there is confidence that there are shared objectives and
agreed outputs, business is joining with local authorities to
input greater resources, in finance and time and expertise, to
deliver those objectives in partnership.
Q604 Mr Betts: You may have picked up
that there is some pressure for change, at least of some kind.
If faced with a choice between localising the business rate once
again and accepting that it remains at the national level but
the percentage year-on-year increase is somewhat higher than RPI,
which would you prefer?
Mr Roberts: We have asked that
question of our members directly and they see it as a false choice.
They would not be happy with either.
Q605 Mr Betts: Basically, what they want
is to pay a lower and lower percentage of local government costs
as time goes on?
Mr Roberts: I think that is not
reflecting my earlier comments about the fact that business pays
in other ways towards local government.
Q606 Mr Betts: No. As a direct contribution
to local authorities, compared with a council tax-payer, business
wants to pay a lower and lower percentage. That is the inevitability
of linking business rates to RPI, is it not?
Mr Roberts: I think what business
is looking for is good quality service—
Q607 Mr Betts: I know what they are looking
for. That is the inevitability, is it not? If you link business
rates to RPI then as a percentage the business rate-payer will
pay a lower and lower percentage as council tax-payers pay more
over time?
Mr Roberts: The straight question
you asked me was whether business is looking for that outcome.
Frankly, no, in a sense, business is not particularly concerned
about the outcome. The outcome it is concerned about is about
getting good quality service from the amount that it contributes
at the moment.
Q608 Mr Betts: Fine, but we are looking
also at the total contribution to local authorities' expenditure,
wherever the revenue comes from. If business rate-payers' revenue
contribution to local authorities is linked to RPI then over a
period of time it is inevitable that they will pay a lower percentage
as the council tax-payers pay more. That is true, is it not?
Ms Turner: That inevitability
comes about only if councils are spending over and above FSS,
where they are spending beyond, and where Government perhaps is
not fully funding its commitments that it is asking local authorities
to deliver.
Q609 Mr Betts: You are assuming also
that Government carries on paying a bigger percentage of inflation.
You talked about efficiency. The reality is that we can all believe
in greater efficiency from local government but the main spending
areas for local authorities still are education and social services,
with very high labour inputs and very little scope for productivity
increases in those areas. What Government has been doing is trying
to get lower class sizes rather than get teachers to teach more
children, so productivity increases in the traditional sense is
difficult. It is likely that local government expenditure will
go up by more than RPI. If that is the case and business rate-payers
have their annual contribution linked to RPI, they are going to
pay a lower percentage, are they not, that is inevitable?
Mr Roberts: I think, in terms
of the scope for efficiency gain, we are a little bit more optimistic
about the potential for gain there. I think, across Government,
delegation will be used when looking at what is possible and what
is not possible, and we think there are significant areas for
improvement. In terms of whether or not business will be willing
to contribute more, I think there are signs that business might
be willing to contribute more where the conditions and the parameters
are clearly set, which refers to my earlier comments about BIDs.
Where business sees that it gets a clear return on those things
which are really important to it, whether it is the quality of
the planning system, or delivery of transport infrastructure,
or town centre improvements which help increase turnover, then
I think indeed businesses are willing to contribute more, over
and above the limits which are set through the RPI cap.
Q610 Chairman: Are not those fairly peripheral
to a lot of businesses? Is not the quality of the labour force
almost more important, given that the biggest amount most companies
pay is in wages? Is it not very important also that you get a
skilled labour force, so that an improvement in the quality of
education is more important to your members probably than almost
anything else?
Mr Roberts: Certainly they regard
education as being very important. I think, if they are looking
at local government as a service provider, they would regard the
provision of transport infrastructure also as a particularly important
element of what local government does for business, as indeed
they would through their use of the planning system, they would
regard that as an important area of what local government does.
Actually, we have been pushing for additional resource to be made
available to local authority planning departments precisely so
that they can improve the quality of their planning departments
in delivering the service of which businesses are major users.
We were very pleased to see Government make some additional funding
available for that purpose.
Q611 Mr Betts: Could you provide evidence
to the Committee then, from the research you have been doing,
that these efficiency improvements throughout local government,
and probably you can be specific about them, are likely to be
achieved, and answer if possible, to keep local government expenditure
down to RPI in future years?
Mr Parker: I am very happy to
talk through some of the work we have been doing there. At the
moment, probably we have not seen a great deal more than anyone
else. We have seen some details of the interim Gershon report.
That indicates a saving roughly of about 4½% across Government.
If local government were to make a similar saving that would amount
to £3 billion.
Q612 Mr Betts: That is a general statement.
Have you got evidence for us, from the research you have done,
to show that, in your view, local government can achieve those
sorts of savings? Have you got evidence so that we can present
it in a report; after this meeting, you do not have to give it
now?
Mr Roberts: The work is ongoing,
but, to answer your question now, the 4½% is a starting-point.
In very broad terms, that indicates what might be possible.
Q613 Chairman: Actually, that is based
on central government, is it not, not very specifically on local
government?
Mr Roberts: It is across the public
sector that Gershon was looking at.
Q614 Mr Betts: I was asking you about
local government?
Mr Roberts: Within that particular
field there are certain aspects of local government activity,
for example, council tax collection, business rate collection,
where we think there could be significant cost savings, in principle,
of the order of 30%, by introducing business best practice operations.
Q615 Mr Betts: Perhaps you can give us
all of the evidence that you have got about this?
Mr Roberts: Certainly we can provide
you with a memorandum. As I said, the work is ongoing here. I
think we are all learning, as indeed Gershon is, as indeed local
government is, but we think there are certain areas where there
is scope for significant savings.
Q616 Sir Paul Beresford: The question
talked about the private sector, but presumably you are aware
that the incentives for local government in the private sector
have been destroyed in the last couple of years, the rules have
changed?
Mr Parker: We have done some considerable
research on the environment for competition, and in some senses
that does tend to back up that statement. Certainly the Audit
Commission says that as many as 70% of councils are not making
the best use of competitive procurement. If you are not making
sure that your services are competitive, I think the chances are
you are not receiving best value for money.
Q617 Mr Clelland: This is on competitive
procurement. It all sounds fine, but, for instance, if local authorities
start getting together and buying all their goods from one big
supplier, they buy all their plants from B&Q, or somewhere,
what about all your members who are in small businesses who are
providing these services at the moment, they are all going to
go out of business, are they not?
Mr Roberts: I do not think that
need be the case.
Mr Parker: I think the exact structures
for perhaps sharing services will be for the determination of
local authorities. I do not think anyone is proposing to force
them into anything, although clearly there will be incentives
to make them move in that direction.
Q618 Mr Clelland: With this grand idea
of big procurement some businesses are going to suffer as a result,
are they not, they are going to go out of business?
Mr Parker: Local government and
its private sector partners clearly will need to think about the
kind of market that they wish to create and obviously they will
want to factor in elements about the competitiveness of that market.
In terms of SMEs and other local businesses, actually, in some
cases, with a lot of these big strategic partnerships there will
be back office work. The role for SMEs as primary contractors
is already quite limited because they do not have the capacity,
in many cases, so actually a lot of that is about local sourcing
and about sub-contracting. There is absolutely no reason why that
cannot be built into the system to ensure that they still have
a role to play, and of course we hope they will still have a role
to play. I am sure they will.
Q619 Chris Mole: It has been put to this
Committee that localising the business rate could strengthen the
partnership between local government and businesses and increase
accountability. Do you think this is a reasonable proposition?
Mr Roberts: I do not think the
linkage is anything like as straightforward as that. As I suggested
before, from talking to members our sense is that one of the reasons
why the context for the relationship between business and local
government has improved over the last 15 years is because the
local control over setting the rate has been removed. It is suggested
that the experience prior to the introduction of the national
non-domestic rate was not a happy one and that was one of the
reasons why the changes were made. Inevitably, there are a lot
of factors which go towards making up the quality of the relationship
between local government and business, but we think that this
was an important negative factor in the past, which is why we
remain to be convinced as to why it would help in this particular
case now.
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