Examination of Witnesses (Questions 620-639)
MICHAEL ROBERTS,
LUCINDA TURNER
AND SIMON
PARKER
25 MAY 2004
Q620 Chris Mole: When I was a council
leader I used to sit down annually for the national non-domestic
rate consultation meeting. We would have a great discussion about
the budget and the way things were organised, and none of that
changed the rate which businesses in Suffolk would be paying,
so what was the point of that exercise? No meaningful dialogue
about what we were up to.
Mr Roberts: I think that makes
my point. I think also in your previous session one of the witnesses
was talking about their concerns from a local authority angle,
about the potential impact on what had been actually rather good
relations which had built up over the recent years with their
local business community. I do not think this is just an issue
which is perceived by us as a potential negative impact, I think
some elements within local government also see the potential for
damage if it is not managed properly.
Ms Turner: I think the previous
experiences were that it was extremely bureaucratic, that business
needed to put time and effort into it, with little evidence that
actually that influenced local authorities at all, which is what
you were just saying, on the other side of the equation. Very
much the point of view of businesses which were previously involved
is that the arrangements did not work, it did not improve the
relationship and actually the focus on arguments about what level
might or might not be set distracted attention from tackling the
problems which needed to be tackled. To presume that taxation
brings about an accountable relationship I think is a strange
way of looking at it. I think taxation requires some form of accountability,
but accountability is not generated merely by taxation.
Q621 Chris Mole: Would we ever hear that
argument in the context of corporation tax? Businesses do not
have votes in the general election, do they, it is every citizen,
one person one vote?
Ms Turner: The arguments suggested
for local business rates are that it will bring about greater
accountability. We see absolutely no reason and no evidence that
should happen.
Q622 Chris Mole: The principal incentive
that local government has for investing in economic development
is that it would create employment and wealth in the area which
made the area a better place in which to live. Would it not give
them a double incentive if they could see a relationship with
what they are collecting in business rates rather than it being
nationalised and going somewhere else? If they create a new business
they do not get the benefit of that necessarily?
Ms Turner: I think, under previous
arrangements, they saw little benefit, because of equalisation
regimes, from generating extra business in their area. I think
a far more effective model is the Local Authority Business Growth
Incentives, which incentivises directly a local authority to expand
the business rate base. It is something we would like to see built
upon further to give greater incentives for local authorities,
but with equalisation it is very marginal for many local authorities.
It is from the impact of greater business growth within their
areas that they will benefit.
Q623 Chairman: You are happy to see that
localisation for the new-build, that they are going to get the
return from the business rate. Could they have a variable business
rate on that part of it?
Ms Turner: It is not the localisation
argument, it is the fact that the UBR still applies but they retain
some of the receipts of that.
Q624 Chairman: Yes, but you could argue
that they have put in particular effort to make it attractive
for those businesses. So what I am asking you is, instead of just
retaining the business rate, would it not be reasonable for them
also to be able to set the business rate for that, to take into
account the amount of effort that the local council have put in
to make that an attractive location?
Mr Roberts: I do not think the
appetite is there yet for that to happen within the business community.
What I think is interesting is, and this is broadly, because there
are differences by locality, that there is an issue of trust between
local government and business. I think the more that business
in general felt that local government spent money more effectively
on the things that mattered most to business then, this provides
the context within which discussions about localising the control
over the setting of the rate could take place in a more meaningful
way, so you have, if you like, a sort of a formula here. If driving
forward on efficiency of spend delivered improvements, if BIDs
were shown to be successful in terms of engaging business with
local government more effectively, if the broader tax context
within which business is operating was felt to be more business-friendly
than we perceive it to be at the moment, then you provide the
context for a conversation about locally-set rates which is much
more conducive to taking that agenda forward than the one we have
at the moment, as things stand now, I think the answer to your
proposition is, no. Will it always be like that? It depends.
Q625 Mr Clelland: Do the services which
local authorities provide to businesses vary? For instance, are
the services provided in Torquay by Torbay Council different from
the services provided by South Tyneside Council to Jarrow? If
they are different, should not businesses be paying different
rates to reflect that?
Mr Roberts: Yes, in some aspects
of service delivery, they are different. If I refer to planning,
in particular, there are big variations in council performance,
in terms of meeting targets for processing planning applications.
Do not ask me to give you chapter and verse on the particular
examples which you cited. Should that result in a differential
form of payment? If you did that, and it is an "if",
that might lead to some interesting, potentially perverse consequences,
in that you might end up with the worst-performing councils getting
even less revenue than is the case currently. I am not sure, in
terms of the wider agenda of dealing with gearing, or any of those
issues, that is a particularly helpful outcome necessarily.
Mr Parker: Of course, BIDs and
town centre management schemes have provided the means for business
to pay into those service variations, in the case of town centre
management schemes, for some time.
Q626 Mr Clelland: Can we turn to the
Local Government Act 2003, which gave local authorities new freedoms
to borrow, to attract business and to trade and charge for services.
Have you noticed any differences in local authority performance
as a result of this?
Ms Turner: Not yet. I think it
is still early days. I think they were measures which broadly
we welcomed. The prudential borrowing regime is something which
we have supported and the greater freedoms and flexibilities to
trade, as long as they are used effectively rather than perhaps
the fear that in some cases they may be used to disengage from
the private sector. As long as that happens effectively, I think
we expect to see some performance measures coming through, so,
I think, too early to say, but measures that we did welcome.
Q627 Mr Clelland: Are there any additional
measures you would like to see introduced? For instance, I think
somebody earlier mentioned the question of Business Improvement
Districts. Are these powers which you would like to see local
authorities be given in this country?
Ms Turner: Yes; absolutely. I
think there are a number of mechanisms which could make them even
more effective, for example, some models to involve property owners
rather than just occupiers, since in many cases it will be owners
who benefit directly from the measures taken. I mentioned Local
Authority Business Growth Incentives earlier. I think the more
that can be done to make that as meaningful as possible for local
authorities, to broaden that base and actually incentivise local
authorities further, we would like to see that. Definitely, Business
Improvement Districts we do support.
Q628 Mr O'Brien: When the Government
was considering introducing the Uniform Business Rate, the CBI
published a document and it says here: "The Uniform Business
Rate unhooks the local authority from business. Local authorities
will have no incentive at all to provide services to businesses
or to take business interests into account in planning new schemes.
Furthermore, the UBR represents a potential hostage to fortune
in that it could be used by some future administration to increase
the overhead burden of business rates." Do you agree with
that?
Mr Roberts: Clearly, that was
a fear at the time. I think the fact that, for example, the cap
became part of the final arrangements was a recognition that Government
at the time understood the concern and did something about it.
Q629 Mr O'Brien: Do you agree with the
fact that it unhooks businesses from the services which the local
authorities provide?
Mr Roberts: On reflection, I do
not think it does. I think businesses in the localities, to the
extent that they use or see themselves as direct beneficiaries
of local government services, actually do think quite hard about
whether or not they are getting a good deal for that.
Q630 Mr O'Brien: The Unified Business
Rate, because it was planned there, you consider, with hindsight,
that it was not a good thing to retain the connection between
local government and businesses, as it was pre-UBR, is that what
you are saying?
Mr Roberts: I think there are
other ways in which the connection between business and local
government can work.
Q631 Mr O'Brien: What are they?
Mr Roberts: There are individual
initiatives, regeneration initiatives, for example, which are
very specific vehicles through which private and public sectors
come together towards a common objective.
Q632 Mr O'Brien: UBR, you are saying,
regeneration?
Mr Roberts: I am saying there
are other ways, other than business rates, which provide an opportunity
for local government and business to get together.
Q633 Mr O'Brien: How would businesses
contribute to the regeneration?
Mr Roberts: Usually by putting
in quite a lot of money to remediate sites.
Ms Turner: And regeneration partnerships.
I think the one issue which is apparent in all the discussions,
and from the previous witnesses, is that there is a real need
for greater understanding to be developed of the local government
finance system. I think even within the business community there
is a lack of understanding of how their contribution is distributed.
I think the more clarity, in terms of what businesses pay, and
the fact that—what local authorities receive in the central
government grant, part of that is made up distinctly of contributions
from business will help.
Mr O'Brien: That goes back to the business
point, as to what business does pay, and you said you will let
us have some information on that.
Chairman: I think we need to move on
now to some of these issues.
Q634 Mr Sanders: Does the CBI consider
that the council tax is a viable and adequate source of revenue
for local authorities?
Ms Turner: Because it is personal
taxation, it is an area with which we do not tend to get as involved
directly, because really that is a matter between central government,
local government and the electorate directly. I think there has
been a lot of research, and to a certain extent property-based
taxes are seen as administratively efficient, in terms of collection
and identification. I think that is more one for the local authority
and their electorate to answer rather than business, seeing that
we do not have that direct relationship.
Q635 Mr Sanders: Has the CBI considered
the impact of the abolition of the council tax on house prices,
if any?
Mr Roberts: No, we have not.
Q636 Christine Russell: You have not
looked at that. Have you formed a view yet on one of Kate Barker's
recommendations about perhaps a windfall tax on the sale of land
for housing development?
Mr Roberts: We are aware of Kate
Barker's proposals. There is some element of uncertainty about
how exactly it might operate, because I think the detail is still
being considered as to whether there is an option to be pursued
here. I think we have a natural hesitancy and concern about what
some have said sounds like a revised form of development tax,
largely for the reason that previous attempts to use that form
of taxation have not been regarded as successful in the past.
We are concerned also because there are other initiatives in play
at the moment, a review of the so-called Section 106 Agreements
by which planning gain is extracted from developers, and so it
is not quite clear at the moment whether we are looking at the
prospect of two different vehicles for achieving the same aim
or two separate ones, only one of which we will be taking forward.
Naturally, we would be concerned if both were taken forward.
Q637 Chris Mole: You say in your submission
that you believe: "A high gearing ratio actually provides
a powerful incentive for local authorities to keep their bills
low through innovation and efficiency." The evidence to the
Balance of Funding Review does not show any particular connection
between highly-geared authorities' performance and that of others.
What evidence has the CBI got that gearing operates in the way
you suggest?
Mr Parker: I think there is the
commonsense evidence that, if you look at the way council taxes
have increased over the last few years, clearly when increases
have risen to what is perceived to be too high a level there has
been public outcry. Indeed, I do not think this Committee would
be here if it were not responding perhaps to last year's 12.9%
increase.
Q638 Chris Mole: Setting aside the question
of whether or not gearing is a powerful incentive, in making that
statement does the CBI have a view of what a particular gearing
ratio might be which provides the right sort of incentive but
without hurting too much?
Mr Roberts: No, we do not have
a view about how the formula might work.
Q639 Chris Mole: Alright, let us go for
another commonsense answer perhaps. Is it equitable that one authority
should have a gearing ratio of ten to one and another have a gearing
ratio of two to one?
Ms Turner: That reflects variations
which are in those local areas. If you look at localisation of
the business rates, that is one of the issues we have seen would
be a problem, because the business rate base varies according
to local authorities and obviously that affects their gearing
ratio. That always will be the case, which is why we have always
supported some form of equalisation arrangements. There are averages
but you will never be able to get to a situation where every single
local authority has the same gearing.
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