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


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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