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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 402-iii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE office of the deputy prime minister: housing, planning, local government and the regions committee
Tuesday 18 May 2004 MR CHRIS POND MP MR PHIL SHAKESHAFT, MR TIM JAMES and MR ANDREW SUGDON Evidence heard in Public Questions 389 - 514
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Committee on Tuesday 18 May 2004 Members present Sir Paul Beresford Mr Clive Betts Mr Graham Brady Mr Bill O'Brien Christine Russell Mr Adrian Sanders In the absence of the Chairman, Mr Clive Betts was called to the Chair ________________ Witness: Mr Chris Pond, a Member of the House, Parliamentary Under-Secretary of State, Department of Work and Pensions, examined. Q389 Mr Betts: May I begin by giving apologies for Andrew Bennett, who would normally be chairing this meeting. He is unavoidably away this morning. Could I invite you to the Committee, Minister. For the sake of our record, could you introduce yourself, then perhaps you would like to make an introductory statement or we could go straight into questions, whichever you wish. Mr Pond: Thank you, Mr Betts. My name is Chris Pond. I am the Parliamentary Under-Secretary of State at the Department of Work and Pensions and one of my responsibilities is council tax benefit. That is why I am particularly pleased that the Committee is including a consideration of council tax benefit in this inquiry because it is a very important element of the structure of council tax, ensuring some element of fairness in the way in which council tax is administered and the burden falls. Therefore, the challenge we are all trying to face, to make sure people get the council tax benefit which they need and deserve, I think will be assisted by the inquiry by the Committee. Mr Betts: We have joined-up committees as well as joined-up government. Q390 Sir Paul Beresford: Minister, congratulations. You are about the only minister I have seen who has not come along with an army sitting beside him for all the questions, so it is obviously going to be an easy morning, and I quite liked your opening shot. Quietly, within these four walls, we listened to you last week telling us how wonderful council tax benefit was and how the take-up was going, but our indication is that it is low and it is failing. Could you brief the Committee on what you are doing about it and how it is going to improve? Mr Pond: I think all of us would accept, Sir Paul, that take-up of council tax benefit is too low. We know that for pensioners we are talking about rates of take-up of between one-half and two-thirds, which all of us would agree is far too low, especially amongst pensioners who are also owner-occupiers. The question about what has been happening in recent years is, I think, a confused picture. Certainly the figures show that the take-up in proportionate terms has been falling. There may be a number of factors for that. One is the increasing proportion of pensioners who are owner-occupiers, who, as I say, are likely to have a lower rate of take-up than other groups of pensioners, let alone groups across the board. We have also seen increases in council tax benefit rates and applicable amounts which are above the rate of inflation. That has meant, with the other changes which no doubt we will have an opportunity to discus in this session, that the number of people eligible for council tax benefit has increased, and that will mean that the proportionate take-up figures are likely to fall, even if there is not a great reduction in the number of people who are actually receiving the benefit, because, as you extend the benefit to higher income groups, then by definition the take-up will tend to be lower amongst those groups who are not normally used to claiming means-tested benefits. Q391 Sir Paul Beresford: When I knock on doors in my constituency and in others and meet pensioners or people who ought to be claiming benefits and ask them, there are a number of responses. We have some of the responses from some of the witnesses: it is too complicated, too intrusive, they cannot work it out, nobody is really going to be able to help them, the council does not seem to know. This is a form that is 31-pages too long. Do you think it is too long and too complicated? Do you think you are being paranoid about fraud? Have you tried to fill it in yourself? Mr Pond: I do not think we are being paranoid about fraud support because we need to make sure that ---- Q392 Sir Paul Beresford: Too paranoid? Mr Pond: Too paranoid, because we need to make sure that we make the correct payments of the correct benefit to the correct people, and, indeed, at the correct time. We are pretty well focused on that, but at the same time we want to make sure that the system is as simple and as easy to understand as it possibly can be. Of course those two objectives are not necessarily contradictory. A simpler system, one that is easier to administer, is also one which is less likely to be subject to fraud and error. I would like to see a reduction in the size of the claim form. We have already made steps in that direction. The Pension Service is doing a lot of work to try to make sure that when people apply for pension credit they are told if they may be entitled to council tax benefit and they receive a copy of the form. Of course the home service for the Pension Service, the local service, will visit people in their homes if necessary and fill out the form for them. We are doing everything that we possibly can to make sure people understand the way the system operates, that people know if they are entitled to this benefit and that they are encouraged to take it up. We recognise that for many pensioners, especially, there is a feeling that perhaps council tax benefit is something they should not have to claim: they feel it undermines their independence and their dignity. That is why, through the council tax benefit awareness campaign which we launched a few weeks ago, we want to get across the message to pensioners that this is something to which they are entitled: they deserve it, they need it, and we want them to get it. Q393 Sir Paul Beresford: Have you tried to fill it in? Mr Pond: I have not tried to fill in the form, no. Q394 Sir Paul Beresford: It might help the officials. Mr Pond: I would welcome the Committee's assistance with that. I might have to turn to the local Pension Service's help as well. We recognise that it is inevitably too complex. There is certain information which we do require but we are trying to keep the form as simple as possible, despite needing that information. Q395 Sir Paul Beresford: Every department has targets and they like to impose targets. What is your target on this? Mr Pond: On take-up of council tax benefit we do not have a specific target. All I can say to the Committee is that we will not be satisfied until everyone entitled to that benefit is receiving that benefit, especially those pensioners, perhaps 1.7 million pensioners, who are entitled to this help but are not getting it. My target would be to say100 per cent. We do not want anybody to fall through the net. Q396 Sir Paul Beresford: I think we will note that. Are there any regional or local variations in take-up? Mr Pond: There are regional and local variations. There is often a problem where people are tending to be entitled to rather less in cash terms and that might mean that in areas like London and the South East there is an additional problem, but perhaps, Mr Betts, I could give the Committee a note on that point. I do not have the details here but we could look at what information is available on regional and local variations. Q397 Sir Paul Beresford: It is slightly more complicated when witnesses have told us that the council tax benefit system assumes that they are able to generate an income of 10 per cent per annum on their savings. The best savings rates on offer are 4.5 per cent per annum. Why does the CTB system assume such a high rate of return on savings and would the Department support proposals to bring the assumed rate more closely into line with the real rate? Mr Pond: As you know, Sir Paul, we are already moving in that direction. The assumed income on capital, the £1 per week assumed income for every £250 of capital or part thereof, has historically been built into the system. Through pension credit we have made that twice as generous - so we are only now assuming £1 for every £500 of capital or part thereof - which reduces the assumed interest rate to 10 per cent. We recognise that is still too high and we are taking steps both to increase the generosity of the capital limits and also to ease the assumptions in terms of the income that is generated from that capital. We recognise that for pensions especially that is very important. Q398 Sir Paul Beresford: Targets on that? Mr Pond: No targets on that. The Chancellor has already given us the announcement that from April 2006 we will see a doubling of the minimum capital limits on the income-related benefits across the board to £6,000 which will be ignored altogether, and of course for pension credit guarantee recipients there is no upper capital limit. We are seeing what we can do to move in that direction further, but no specific targets. Q399 Mr Betts: We talk about the size of the form, which clearly is a massive undertaking for many people. You say that the Department and yourself are trying to get that down. Do you have a target that you have set, such as "Go away and produce me a form of, say, eight pages, or something much more reasonable"? Mr Pond: No, I have not done that, Mr Betts, partly because, as I say, there is certain information which we do need. We are trying to make sure that in bringing together that information the same people are not asked the same question several times. If we can get different parts of the Department and, indeed, different local authorities who administer council tax benefit to ask that question only once, then that will ease the process. It may mean that the form remains longer than any of us would wish, but the simplicity of filling out the form is increased as a result. But all the time we are looking to see whether or not we can reduce the size of those forms as well as make them easier to fill out. As you know, with pension credit we now have the mechanism whereby people can have the form filled out for them over the phone through the pension credit application line. It is then sent to them for them to check and sign. I would like to see us in the longer term being in the same position with council tax benefit. At the moment the Pension Service is able to send out the forms to people, and, indeed, for those who find the form difficult to fill in, as I say, the local service will visit people in their homes if they wish and fill it out with them. So we are doing everything we can to improve the system within the constraints of certain information that we need to administer the benefit properly. Q400 Sir Paul Beresford: I would suggest from past experience that ministers have a great advantage over officials: they have one foot in the office and one foot outside. If you sit down in the office with a big black pen to strike things out, and then ask them to argue with you on why it should go back in, you might get it down to five pages. Mr Pond: That is an exercise I often undertake, Sir Paul. Q401 Christine Russell: Minister, you have already answered a number of the questions I was going to ask you around the low take-up from pensioners and you have told us how you are encouraging the Pension Service to get their act together. What dialogue are you having with local authorities to try to persuade them perhaps to do more to promote the discount system? Mr Pond: In March this year we launched, I am told, the first ever national awareness campaign on council tax benefit. We are doing that by working with local authorities, because they are the bodies who have responsibility for administering that tax. I have to say that they have engaged in this campaign with enthusiasm. In my own county of Kent, for instance, all the local authorities are working together to coordinate the information they send to people about council tax benefit to try to increase awareness. We have our national advertising campaign, the campaigns through the regional press, the posters and the leaflets, and the information which local authorities can download in the form of standard information material which they can make available to people in their local areas. Q402 Christine Russell: What research are you looking at commissioning within the Department, looking at things like the savings limits, the thresholds? Mr Pond: We are looking at a range of different options. As you know, we have already introduced a number of changes to the way in which council tax benefit works and particularly the abolition of the restrictions on council tax benefit for those in higher banded properties above band E. We have also, as you know, changed the capital limits. As I said in response to Sir Paul, we have increased the capital limits, and for pensioners we have reduced the imputed income, and we are also now looking at a range of different options to see whether or not we could improve the take-up and perhaps get to people who should be entitled to this. I understand that the range of options has been shared with the Committee, and I have to say that none of the proposals is from the Department of Work and Pensions or the Government but they are the sorts of things we are looking at to see if we can increase the take-up of council tax benefit. Q403 Christine Russell: One of the witnesses that we have had has suggested that the responsibility for council tax benefit for pensioners in particular should be transferred to the Inland Revenue. Do you have any views on that? Mr Pond: I think this is probably the proposal from the New Policy Institute which they undertook in their commissioned report for Help the Aged. That was certainly a report which we welcomed because it made a number of important points and it is something we are looking at very carefully. In that report there are a number of important recommendations, including: to raise the take-up of council tax benefit through the awareness campaign - we have already launched it; to reform the capital limits - as you have heard, we have already done something on that; removing the rules on the CTB restriction - as I have said, we have just done that. The radical proposal from the New Policy Institute, which is that there should be a maximum liability (in other words, that you would turn this from the council tax benefit into a maximum council tax as a means of reducing perhaps the stigma and increasing take-up) is one at which we are looking with interest. I have to say that it does not change the calculation of the benefit and does not necessarily reduce the complexity of it but it does change the appearance and give an opportunity for everybody to understand what the maximum council tax would be payable for people in certain circumstances and that would assist local authorities, voluntary organisations, government departments in getting the message across to people of what help they are entitled to. So it is an interesting proposal. It is certainly not one that I could say we can adopt wholesale, and certainly not in the short term, but it is one that we are looking at carefully. Q404 Mr Sanders: Before you started the take-up campaign, there were a number of pilot take-up initiatives in different parts of the country. What were the results of those? Is there a clear increase in take-up in those areas, carrying on from those pilots? Mr Pond: I think one of the reasons that we launched the campaign was on the evidence of those localised campaigns - and of course they have been running in different parts of the country for many years: many local authorities had taken the initiative themselves to try to increase take-up by getting information across to people. It was very clear that where the effort goes into increasing take-up, it has an impact. By introducing the national awareness campaign we wanted to learn the lessons of some of those local initiatives and apply it across the country. We have to recognise that we are dealing with local authorities who are independent and autonomous, who will pursue this campaign in different ways according to their local circumstances, and that is something that we welcome. Q405 Mr Sanders: What was the actual result of the pilots? How successful were they? Was it an extra quarter, third, half? Have the results of that continued beyond the period of those pilots? Mr Pond: Unless, Mr Sanders, inspiration comes to me from behind in the next few seconds, I would suggest that I provide ... Now I know why inspiration did not come to me before because the DWP itself has not carried out any pilots. I assumed you were referring to the work that was being done by local authorities and I do not think we have done a consistent assessment of that. Q406 Mr Sanders: There was one in my area and it was clearly a government department that was behind it. Mr Pond: That one was very successful. That was bringing together local authorities, voluntary organisations and, indeed, the Department for Work and Pensions, to make sure that all of us could provide a joined-up approach to ensuring that pensioners not only received help with council tax benefit but with a range of other support. That, I can tell, you was very successful. It is something which will help us in developing the Third Age Service which we are moving towards, which would be making sure that we work with voluntary organisations, local authorities and other stakeholders. So we have a holistic approach - and I am not sure I like that phrase, Mr Betts - towards the needs of older people. Q407 Sir Paul Beresford: When you were talking about the idea of a ceiling, one of the advantages in there being some form of local taxation - whatever it is: rates, council tax, poll tax, etcetera - is that the local authority members are very aware that sitting out there are people paying and also people voting, so it does tend to inhibit them. Would it not therefore be a disadvantage if the people were protected by a maximum? Mr Pond: When we launched the campaign, Sir Paul, we had to make it very clear that although it was important that we get the help to those people who were entitled to that help, that was not an alternative to local authorities taking a much more responsible approach to the setting of council tax levels than had been the case in the previous year, and I am pleased to see that the sort of levels of council tax increases now being proposed, which are averaging, I understand, 5.9 per cent, are very much more acceptable than the previous years' levels of over 12 per cent. We cannot see the council tax benefit awareness campaign as an alternative to local authorities taking that action, and I am delighted, given the extra resources which central government has put into local authorities - as you know, the 30 per cent increase in real terms in government grant over the past seven years - that that is being reflected in a more responsible level of council tax. That is one of the major contributions of course local authorities can make to easing the burden of council tax on some of their more vulnerable constituents. Q408 Mr O'Brien: On 17 March the Chancellor of the Exchequer made a very welcome announcement that he would pay £100 to help with council tax costs but it only applied to households with a person of 70 years of age or over. Why was the cut-off point 70? Mr Pond: One of the reasons was that there is evidence that older pensioners in that group tend to have a higher level of need than pensioners across the board. They tend to be pensioners who have very little additional income on top of their pension, very few of them are still working, and that is a group it was felt appropriate should be given special attention. In the context of our discussions this morning, I think it is also worth putting on record the fact that almost half of that age group, the 70s and over, are not claiming the council tax benefit to which they are entitled, and therefore we have to have a two-pronged attack on this, first of all, to make sure they get the help to which they are entitled from a council tax benefit but also recognising that the measures we are taking, such as the awareness campaign, will take some time to come into effect. That £100 announced by the Chancellor for that group was a very welcome, if you like, interim measure to ease the pain that some of those people had felt as a result of the rather large council tax increases the previous year. Q409 Mr O'Brien: How many pensioners are receiving the income guarantee? Mr Pond: I do not have the figures to hand in terms of the total numbers on the pension credit income guarantee. Q410 Mr O'Brien: How many under 70? Mr Pond: I do not have the figures with me. I could certainly make them available. Q411 Mr O'Brien: How much would it cost to extend it to all pensioners? Mr Pond: I do not have those figures with me again, Mr O'Brien. I apologise but I could certainly get those to you. Q412 Mr O'Brien: We understand it would cost in the region of about £250 million but, because of the lack of take-up to which you referred earlier, again we are advised that for the years 2001/2 there could have been £770 million not taken up. So there is no hardship through the Department if it were extended to all pensioners, would you agree? Mr Pond: It is an issue of balance and use of resources, is it not? There is a commitment that we should get that extra money, the £0.75 billion to £1 billion that is not being claimed in council tax benefit, to those people regardless. The announcement by the Chancellor of the additional £100 was on top of that - it is not a trade-off, one to the other - and the judgment was made that those pensioners over 70 were the group who were likely to be most in need, likely to have higher levels of fuel poverty, likely to be feeling a greater burden in terms of the council tax increases they had seen and other elements of expenditure, and the judgment by the Chancellor was clearly that that was an appropriate cut-off point. Q413 Mr O'Brien: But if there is money retained, saved, for the year 2001/2, that has not been spent. It was not taken up. Do we take it in the first instance that the £100 will continue or is it just a one-off payment? If it is just a one-off payment, then £250 million out of what was saved could have been used for all pensioners to receive the £100, because all pensioners had to pay the tax. Would you not agree that that could have been applied on this occasion? Mr Pond: In answer to the question: Is it a specific one-off payment? it was explicitly introduced as a payment for this year alone. The Bill, of which we had the second reading in the House last week, does give the option that similar payments might be made in future years, but it has been made clear that it is a one-off payment in terms of its commitment, and we would have to see what happens in future years. That would be a judgment for the Chancellor, taking account of the circumstances of the time. In terms of the saving on council tax benefit and other benefits, as I have said, the objective of the Government is to make sure that people get that help. We are not seeking to save that money and to transfer part of it across to this £100 payment, but part of the consideration might well have been that in order to try to get that help to this particular age group - and I have said that 48 per cent of them are not claiming the council tax benefit to which they are entitled - the quickest and most effective way of getting that help through to people would be the £100 payment. I think that was probably part of the consideration. Q414 Sir Paul Beresford: Would you accept that many people outside see this as another problem booted into the long grass, and if you walk into the long grass you will stumble over an awful lot of problems? Mr Pond: Nicely put, Sir Paul, but the fact is that we are dealing with the level of council tax, as you acknowledge. We are seeking to make sure people get the council tax benefit to which they are entitled. There was a particular problem for the most recent round of council tax increases which we recognised did place a burden particularly on older pensioners. We do have the awareness campaign; it will take a while to bite. We do have the extensions of eligibility for people, which inevitably will take a while to bite. We do have the measures now to get council tax levels down to a more acceptable level, but that did not help people paying the 12 per cent plus average increase in council tax, and I think that is why this measure was taken. Q415 Sir Paul Beresford: The council tax rise you are talking about, it is not very often it becomes negative, so next year it will still go up. Mr Pond: It will still go up, but it will go up by a much more acceptable amount, and the £100 will help towards that, by which time we hope we will have had even more success in getting council tax benefit to the people who are entitled to it. Q416 Mr Brady: If it were to become a one-off payment, would it not be more straightforward, more logical and easier to administer just to increase the level of the basic state pension for over 70s? Mr Pond: It is going to be fairly easy to administer because of course it is payable through the normal winter fuel payments mechanisms, and it simply means that households in which there is somebody over 70 will receive £300 instead of £200; those with somebody over 80, £400 instead of the £300. It is a straightforward mechanism, easy to understand. We expect the take-up is going to be pretty universal. There is an argument about whether or not resources should be added to the basic state pension. We have increased the basic state pension by more than inflation over the years, as members of the Committee will be aware. If we had added this money to the basic state pension, those on whom we are focusing attention this morning, the very poorest, would not have been helped by that, because of course those on the guarantee credit would have lost most or all of that increase. This makes sure it goes to the people who need it in a simple and straightforward way and it contributes to the additional £10 billion that we will be spending this year on pensioner incomes in comparison with the position in 1997 when we took over. Q417 Mr Betts: How do the accountancy practices work in terms of council tax benefit inside your Department. Does the Treasury assume each year that you have a certain take-up of council tax benefit and if you are successful and the take-up goes up you have an overspend in your Department? Mr Pond: No, I think the assumption would be that the council tax eligibility is there and the Treasury has been very supportive in our campaign to make sure people get that entitlement. Q418 Mr Betts: So if you increase the take-up by 20 per cent, if the take-up is really successful that is extra cost. Mr Pond: Yes. Q419 Mr Betts: Where does it come from? Mr Pond: The Treasury would provide those resources. Q420 Mr Betts: Automatically? Mr Pond: Yes, automatically. Q421 Mr Betts: It would not come out of central contingency, then? Mr Pond: I do not think it would have to come out of contingency, no. Q422 Mr Betts: Could we have a note on that, do you think? Mr Pond: Certainly. Q423 Mr Sanders: I want to tease from you, if possible, your real commitment to changes within the council tax system. You referred earlier to the changes to pension credit and the treatment of savings, and you explained the differences there, the very welcome differences. Why are these new rules for pension credit not extended to all pensioners? Would not more generous rules for all pensioners at least protect them from some of the large increases in council tax? Mr Pond: It is something at which we are looking, Mr Sanders, to see whether or not we could extend, for instance, to the savings credit recipients the same treatment in terms of capital as applies to the guarantee credit pensioners. We are looking to see whether or not we can ease the burden across the board in terms of the treatment of capital, the imputed income from savings for all pensioners, and we are looking at a full range of options, as we shared with the Committee. There is a balance with the different options which we have to take into account. Some of them will extend the eligibility, will draw in more people from higher up the income scale; others will increase the amount which is received by those who are currently eligible for council tax benefit and therefore may increase take-up amongst that group. We therefore have to balance those and see whether or not there is a mix of options which would be more appropriate. But I have to underline the fact that at the moment we are considering a range of options. We do want to make sure the system works more fairly and gets to the people who need that help, but until the balance of funding review is complete there is really not much we can do to progress this, because, of course, if the structure of council tax or of local government funding itself changes then there will be consequential effects on the council tax benefit system. Q424 Mr Sanders: Of course there will. But there is always some review being undertaken somewhere that seems to stop a simplification of the tax and benefits system in this country and it seems odd that you have different rules for essentially the same thing - and here we are talking about people's savings. If you want joined up government and people to understand government and to engage with government, should there not be some sort of simplification audit being undertaken across all government departments that says, "This is how we treat savings, whether for tax purposes or benefit purposes, irrespective of the tax concession, irrespective of the benefit," and then the public more readily will understand and not be frightened away from 31-page booklets. Mr Pond: I think that is a very powerful argument, Mr Sanders, that we have to see the extent to which we can simplify the system while at the same time making sure that we maintain the fairness and equity of the system, because very often the complexities are there because they recognise different circumstances and because they seek to address one particular inequity or another. But there is certainly a drive within my own Department to see to what extent we can remove the unnecessary complexities in the system. Some for them will be structural changes. Some of them will have knock-on effects for other parts of the system. For instance, the changes we make in council tax benefit we have to take alongside the administration of housing benefit, both of which are administered by local authorities and, therefore, if we move one out of line with the other, we could increase the complexity of administration. One of the things we are trying to do is to improve the efficiency of administration by local authorities. That is why we have the £200 million performance improvement fund applied to both housing benefit and council tax benefit, to make sure people get their awards as quickly as possible. So we have to take account of all those considerations but, as a general principle, you are quite right, we must make sure that we have no unnecessary complexity built into the system. Q425 Mr Sanders: I have never fully understood why the housing benefit and, indeed, the council tax benefit is administered by local government. Why is it not dealt with with all other benefits by your Department? Mr Pond: Historically it has been administered by local authorities, the feeling being that they know best the circumstances of their local areas and therefore ---- Q426 Mr Sanders: They do not have any local discretion, do they? The rates are set nationally. Mr Pond: The rates are set by the Rent Service in each area. You will know that we are moving towards a system in the private rented sector where we have a local housing allowance which will be standard for a type of household in each area. Q427 Mr Sanders: That has nothing to do with local government; that is to do with the valuers who are independent of local government. Mr Pond: Indeed. But, in terms of making sure that the system is administered efficiently, albeit that the rates are established by the Rent Service and by implication by national government, local authorities know their areas best in terms of making sure this gets most efficiently to the people who need it. That is an important principle, I think. Everything we are doing in partnership with local authorities is a partnership: it is trying to make sure that we move together in providing better service for people locally. Q428 Mr Sanders: Your argument is therefore to move other benefits to local government, surely, because they know their areas, their local economies, their demographies. Surely, then, all benefits should be administered by local government and we could do away with the presence of many of your departments. Mr Pond: Those are the two options. Because housing benefit and council tax benefit is related to locally generated costs through the local housing market and, indeed, decisions by local authorities, housing benefit and council tax benefit are a particular case. There is a debate about whether or not it should be administered by central government, as members of the Committee will know, but that is not something which is on the agenda at the moment. Q429 Mr Betts: Could I bring up two points about the whole approach to benefits. The pension credit, I think, has been generally welcomed - and you made the point about the helpline, which, again, has been generally welcomed, and the ease of people filling in forms for applicants, which I am pleased to hear you say you might extend to council tax benefit. But there has been a problem, has there not, in that some people have applied for pension credits where they have some savings and found that their council tax benefit has been reduced, despite what they have been told by the helpline? Is that an issue your Department is now addressing? Mr Pond: It something at which we are certainly looking. We tried to bring into line both the council tax benefit and housing benefit eligibility limits with the pension credit, to raise, for instance, the eligibility of some council tax benefit to the level of the savings credit limits. That is one of the reasons why we have almost £2 million more people, most of them pensioners, entitled to the extra help under council tax benefit simply as a result of the changes we made in introducing pension credit last October. So people have not lost out, but there is a perception that they are losing out as they move forward week by week. That is something we are addressing. One of the proposals we submitted to you in the written evidence is looking at ways in which we could perhaps discount, for instance, the savings credit as a form of income to make people feel that there was not a trade-off between the two benefits. Q430 Mr Betts: One of the problems is people get the extra pension credit and it is a little time afterwards that they suddenly find their council tax benefit has gone down. Mr Pond: Yes. We recognise that. We try to explain to people that overall they are not worse off; they are actually better off if you take the overall income for the year. But we understand that people do not necessarily look at things in that way and will budget on a week-by-week basis. Q431 Mr Betts: Is one of the issues you are addressing - and I know it is not really part of our inquiry this morning - the whole issue of housing benefit as well. The cumulative effective benefits can lead to what is quite a high rate of marginal taxation for people who are on housing benefit and council tax benefit. There is a feeling of: "Why bother with it? We earn an extra £5 and suddenly we find we are hardly any better off." Mr Pond: Yes. The problem with marginal deduction rates - what we used to call the poverty trap - is real and something we are grappling with, because of course we are seeking to help as many people as possible to move into employment and in that process we need to make sure that that transition does not face them with effectively very high marginal rates of tax. Again, it is something we are addressing. We are trying to introduce as many of the transitional measures as we can to ease that move into work but we recognise that there is a problem with high marginal tax rates. The tax credits to some extent address that problem but we recognise that there is more to be done all the time. Q432 Christine Russell: Could I press you a bit on what more there is to be done. We have focused rightly this morning on pensioners, but what about the low paid? Some of the evidence we have had seems to indicate that you only have to be just above the minimum wage with a couple of kids and you have no entitlement to council tax benefit at all. What are you doing to try to make things better for that group? Mr Pond: An issue rather close to my own heart, having worked for 20 years for the Low Pay Unit. That is the group where perhaps there is the biggest problem, where you have a family with children. Of course the minimum wage will help that group in particular. The new tax credits are a substantial additional help to ensure that there is a real gap between what people will get in work, even on the minimum wage, and what they would receive out of work and on job seeker's allowance or income support. The fact is that as people's income increases, by definition they are going to see things like help with council tax and housing costs reduced. Again, it is something we are seeking to address. There is a trade-off here between targeting the help on those who need it most, those who are just around the minimum wage level, and of course extending the targeting further up the income scale, which has not only cost implications but does mean that you extend the high marginal deduction rates to which Mr Betts just referred to a larger number of people. So there are trade-offs here, and over time we want to make sure that people are lifted off dependence on this sort of help and that may be the best way of improving their living standards. Q433 Mr O'Brien: On the question of the administration of council tax benefit, which is a benefit on a tax at a cost of £240 million per year to administrate, is there something fundamentally wrong when we are costing this money to refund a tax. Could it not have been done in another way? Mr Pond: I am sure there are other ways of doing it, Mr O'Brien. We are looking at those other ways. I think it would be fair to say of the local authorities who administer this that for the most part they are pretty efficient in the way they do it, and getting more efficient all of the time. We do have fairly stringent performance targets for local authorities in terms of the administration of both housing benefit and council tax benefit. I mentioned the £200 million performance improvement fund which is available to local authorities to find new ways of doing this and of course there is support from both the benefit fraud inspectorate and the Department of Work and Pensions to local authorities to improve the way these things happen. So it is a pretty efficient operation at the moment but that is not to say that there may not be other ways of administering that help. Q434 Mr O'Brien: Could it be done nationally, from the top? Mr Pond: It is not automatically the case that it is more efficient if it is done nationally. There may be some cost savings through a centralised system; on the other hand, because local authorities for the most part do provide this service pretty efficiently, we cannot assume that there will be overall cost savings. Q435 Mr O'Brien: If it were applied as a tax credit, would the take-up be better, do you think? Mr Pond: It is very possible that it would be, Mr O'Brien. Q436 Mr O'Brien: Are you considering that? Mr Pond: That is one of the things we are looking at carefully. Mr O'Brien: Thank you. Mr Betts: Minister, thank you very much indeed for coming before us this morning. Memorandum submitted by British Chambers of Commerce Examination of Witnesses Witnesses: Mr Phil Shakeshaft, Head of Strategy, One North East Regional Development Agency, Mr Tim James, Area Manager, Tyne & Wear, Mr Andrew Sugdon, Director of Policy, Chamber of Commerce in the North East, examined. Q437 Mr Betts: Good morning. Welcome to the Committee. Perhaps for the sake of our records you could introduce yourselves. Mr Sugdon: I am Andrew Sugdon. I am Director of Policy and Representation at the North East Chamber of Commerce. The North East Chamber of Commerce represents 5,000 businesses in the North East of England with a remit to achieve more business, secure better conditions for business and enable our members to do more profitable business. Mr James: My name is Tim James. I am the Area Manager for the North East Chamber of Commerce for the area of Tyne & Wear. My responsibility is to look after the representational interests of 230 members. I work with five metropolitan authorities. I also work with the police and the fire authority. I have been with the Chamber for 21 years and I have 10 years experience in local government consultations with the business community. I am also familiar with the situation that prevailed before the national non-domestic rate. I am a member of the Valuation Office Agency Panel for Newcastle and Gateshead, which is engaged with making sure businesses understand the revaluation process. Our policy is really to have constructive engagement with local authorities, bringing the private sector view to bear. Mr Shakeshaft: I am Phil Shakeshaft. I am the Head of Strategy with the Regional Development Agency One North East for the four counties Northumberland, Tyne & Wear, Durham and the Tees Valley in the North East of England. Q438 Mr Betts: Do any of you have anything to say by way of introduction or can we go straight into questions? Mr Sugdon: We particularly welcome the opportunity to contribute to the Committee from the North East Chamber of Commerce's point of view, representing the views of a large number of businesses in an economically challenged part of the world. Q439 Mr O'Brien: Could I put to both your organisations the question of the economic development in the North East. What are the main problems facing the region? Are they helped by the present system of local government finance and organisation, do you think? Mr Shakeshaft: There are a number of problems but the seriously significant ones are the lack or low levels of business stock in the region and the low rate of growth. The national rate of growth of the business stock is about 5.7 per cent and in the North East it is 1.7 per cent. In some areas it is nearly 20 per cent. Q440 Mr O'Brien: Is that not what the Regional Development Agency is there for, to improve the ----- Mr Shakeshaft: That is exactly what we are there for, Mr O'Brien. We start from a very low base and the biggest single determinant of new business stocks is the business stock, so starting a new business in the North East is more difficult than it is anywhere else because of the low levels of business and low competitive environment. In addition to that, on the other side of the coin, one of the main problems of the regional economy is the low participation rates. In employment, of a working population of potentially 1.1 million, 25 per cent is outside of the participation rate and equates to about 240,000 people. Q441 Mr O'Brien: Do the Chamber find that? Mr Sugdon: In most parts, yes. We see, amongst our membership, a lower level of companies in the North East of England than you would expect to see with comparable Chambers in other parts of the country, and we do know that there are a number of challenges that our members face, certainly issues around infrastructure and the remoteness of the North East of England and its connectivity to some more prosperous markets. Similarly there are emerging issues, which are becoming more apparent as the North East becomes more economically confident, around skills and skills development, which are frequently a real challenge for many of our members. Q442 Mr O'Brien: Are there particular reasons why the North East is worse than some of the others? I know you have referred to skills and some of the earlier problems that you had to face but the North East has the same opportunities as many other regions. Mr James: We have a long tradition of larger industries. Over the last 20 years we have made significant changes. The North East economy is growing. Our start-up rates are lower than we would like. They are half the national average. There are growing new sectors, like, for example, the conference business and tourism, which are growing very well. Q443 Mr O'Brien: My first question was: Does the system of local government finance and organisation have any impact upon the development? Could I put to you now: Does the current system of local government finance or local authorities back from allocating resources for economic development in the region? If it does, what can be done to change that situation? Mr James: In the North East at the moment there is a big debate with regard to business support and the number of players in business support. Amongst those are local authorities. It is more of a question to us in the North East who would be most appropriate to carry out that work, and that debate goes on at the moment. There is a review of business support. Whether local authorities are best to do that, they are best in many respects with regard to industrial property, etcetera, because they can make things happen, but in terms of other issues there are perhaps other people better placed to do the work. Q444 Mr O'Brien: The Regional Development Agency allocates resources to local government regions to help develop the urban regeneration which in turn would bring forward private finance to generate jobs and job opportunities. What is happening in the North East with that? What is the return on the investment? Mr Shakeshaft: The return on investment, in broad terms, I would go back to your earlier question about enterprise development. The rates of new company starts in recent times have risen. From a very low point five years ago, when the agency was set up, there is a turnaround in a number of indicators in industrial development terms, but some of the problems remain intractable, largely due to a lack of a long-term entrepreneurial culture. Mr James: There is massive investment in the North East, which has been inspired by significant PFIs in the fire services with local schools, which is acting really as a generator of jobs in the constructions industry. My colleagues alluded to the skill problems which are going to come from that, but that is done. Local authorities are the people actually inspiring the work. There is other work going on like the Sage Gateshead, which has been inspired by local authorities' leadership, and that is where they play a crucial role: in getting capital projects off the ground. Q445 Mr O'Brien: What is the relationship between your organisations and the local authorities? Mr James: Our relationship, as the Chamber of Commerce, is frank, honest, open and a policy of constructive engagement. Mr Shakeshaft: Ours is robust and manifold, but largely through the single-pot resources, so roughly 75 per cent of the headroom in finances at the moment goes to local partnerships which are largely represented by the local authorities. Q446 Mr O'Brien: At the present time, the Government is looking at the balance of funding for local authorities, the gearing system. Do you consider that the relationship with your organisations and local authorities would be greater if they had greater control over their spending levels; that is if the raising of the money by local authorities to spend on economic regeneration, would that be a better relationship with your organisation? Mr James: Frankly, no. I can remember before, when local rates were localised and it brought a great deal of acrimony. Businesses now have had a substantial period of time with the national non-domestic rate. It has enabled jobs and growth to happen in the North East. For a number of years after the nationalisation of the business rate, Newcastle struggled actually to come to terms and put right the damage that occurred before, with businesses moving to other areas where the business rates were lower. So I think the national rate system is robust: it is not broken; we should not fix it. The equalisation seems to work very well and I think that is a very robust basis on which to continue. Q447 Mr O'Brien: It is broken because it is not working in the North East. For almost a decade now this system of national non-domestic rate being applied, the North East is still suffering with development, as you have told us, and regeneration. So it is not working, is it? Mr James: I think that North East economy is growing. It is a tender plant. We need to engage in new business disciplines in which we have not engaged before. We need new sets of skills. Some of our jobs are vulnerable to overseas outsourcing. Some of the jobs we have are as competitive as any other jobs. Our customers want more for less. We need a stable environment in which to create jobs and wealth and the national non-domestic rate gives companies the certainty to plan for the future and enables them to compete in the market place. Q448 Sir Paul Beresford: In the private sector, survival dictates, to some degree at least, that you become efficient. It does not really apply to local authorities, does it? I am opening the door. Do you think your local authorities could cut their taxation if they got their act together better? Mr James: If there was a closer relationship between council tax and the national inflation rate (RPA) I think there would be a much better relationship all round. Q449 Sir Paul Beresford: So they could cut their costs and produce the same. Mr James: I think there may be scope for cuts. Q450 Mr O'Brien: On that point, before a local authority levels any tax there is consultation in the Chamber on that issue. Have you raised this issue with the local authorities? Mr James: We raise it every year. Q451 Mr O'Brien: What is their response? Mr James: The response is quite understandable. Quite frankly, we are dealing with a local council tax but there are so many ring-fences and passports and other constraints that local authorities now really have responsibility for very little of their budget and all the responsibility for raising the extra revenues that are required. In some cases, passports for education require an authority to passport more than they actually get in national government grant. As a Chamber we would like to see an end to that and a more fair system where local authorities were not so constrained because in being constrained the process that is imposed on them by government is actually part of the problem. Q452 Mr O'Brien: Are your members prepared to continue to develop the skills that you are requiring? Mr James: We are prepared to work with local government to improve skills at any time. Q453 Mr O'Brien: Are there schemes being run by the businesses or the enterprises in the North East to develop skills? Mr Sugdon: Absolutely. Most businesses invest a good deal of their turnover and profit in terms of developing their workforce and additional skills. We are hearing from our business members that they value the stability that the current business rate system brings, but they are not blind to the fact that there are additional expectations placed upon local government without a contributing increase in resources. That is of concern, but, at the same time, the value they place upon the current national scheme in terms of an ability to plan and a positive relationship with local government, because it is not one that is soured at the funding round every 12 months, is one that is really quite highly prized. Mr Shakeshaft: Could I point to a more fundamental problem in terms of local authority financing on the North East of England. That is for the past 10 years at least, and I think longer, we have been haemorrhaging population from the region in net terms to the rest of the economy. The result of that is that a large proportion of people who are eligible to be in the workforce remain outside it for all sorts of reasons, incapacity benefit and a number of other things. What that has done is create a much greater pressure on local authority financing than in providing services particularly in relation to education and social services, and what that has meant in turn is that any attempt to raise additional revenue through rates requires much higher levels of rate increase, so that whatever system comes about for local authority finance has to take into account somewhere that we are starting from a much lower base in the north east than almost anywhere else in the country. That is not special pleading; it is not to make the case that we cannot solve our own problems, but the recognition that we are low in terms of company base and therefore opportunities for employment and that we have a large proportion of inactive people and generally lower educational standards means that we have a lot more catching up to do. Q454 Christine Russell: Can I return you to the fairness agenda? Do you accept that since 1990 businesses have got off very lightly compared to domestic taxpayers? In county Durham over the last three years there has been a 30 per cent increase in council tax, but what your members have contributed has been pegged to inflation. Is that really fair? Mr James: Yes, I think it is, because that environment has enabled our businesses in the north east to create more jobs and wealth to enable others to pay council tax. I think it is perfectly fair. Q455 Christine Russell: Do you think the levels of business rates as opposed to council tax rates are that important? Mr James: Yes, I do, especially for smaller companies where it makes up a larger proportion of their overall costs. Q456 Christine Russell: But what if the business rates were relocalised, if you like, but any increase in them was pegged to the increase in council tax? In other words, local authorities could not fleece businesses more than their local residents? There was a linkage between increases in council tax and increases in business factors. Mr Sugdon: There are a number of reasons why the current system is attractive to businesses. It is not simply that it is pegged to inflation and council tax is not; it is a national scheme. It enables businesses, both local and national, to plan their investment and their cost base over a five year period. It is fair in the sense of being between authorities. There is not a competitive element between localities which, depending on how prosperous the economy is, can quite easily destabilise the cost base and the abilities of some businesses depending on where they are located. Q457 Christine Russell: What about regional variations? What about if there was an acceptance that you have more of a struggle in the north east than perhaps the south east? Mr James: We benefit from equalisation, which is a national non domestic rate pool. I think the north east, as people in this area will tell you, benefit greatly from busier areas elsewhere, and that has enabled us to have a very stable environment for business which has allowed the north east business stock to grow, albeit at a slower rate than elsewhere. Q458 Christine Russell: What about the arguments put up by those in favour of relocalising the business rates that say, "Ah, well, if they were relocalised, the local authority would be more accountable to local businesses". How do you answer that one? Mr James: I remember the situation before business rates were made national, and I do not think there was any consultation. There can be no taxation without representation and clearly, when you have that situation, all you end up with is acrimony, and local authorities and businesses not working together. Q459 Christine Russell: And was this previous existence in the north east too? Mr James: It was in the north east. 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 Sugdon: 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 Sugdon: 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 north east. 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 per cent council tax and the product of national business rates is about 20.3 per cent at this moment in time. It is true that that has dropped over the years, so you have 45 per cent. Q465 Mr O'Brien: So you are saying that 45 per cent 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 wrong -- it 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 Sugdon: 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 be realised. 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 of businesses? 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 Development Agencies? 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 your Chamber? Mr Sugdon: 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 Sugdon: 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 authorities? 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 area? 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 Sugdon: 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?" 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 Sugdon: 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 2005/6 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 Sugdon: 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 Sugdon: 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 Sugdon: 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 Sugdon: 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 Sugdon: Quite possibly! The main point is not necessarily that we would like to see 100 per cent 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. Q500 Mr O'Brien: It is a question of raising taxes and different taxes provide all kinds of services. What you are saying is that you would agree to charges being made provided it was ring-fenced, but you would not agree to the government ring-fencing moneys for education and social services. You cannot have it both ways! Mr Sugdon: We did not quite say that. Q501 Mr O'Brien: Well, we will read the transcript when we get it back! Mr Sugdon: There is a high degree of rigidity around local government revenue, and additional flexibility does not necessarily mean no ring-fencing at all. Q502 Mr O'Brien: Would you support a local income tax as an alternative to council tax? Mr Sugdon: We would see that as an overly complex means of raising revenue. Q503 Mr O'Brien: So you would not support it? Mr Sugdon: We do not particularly influence one means of raising revenue from the population compared to another. Our representation is for the business community. Q504 Mr Brady: Do you see a particular concern with local income tax in a region that has a relatively low number of people in work? Might you see the burden too heavily falling on those people, and might that lead to a flight of people from your region to an area where there are more people to share the burden of a local income tax? Mr James: I think we would need to see the detail. Mr Sugdon: Absolutely, and our perspective on a local income tax is the burden it would place on businesses in terms of administration, rather than necessarily how it might work in terms of a charging mechanism on the citizen. Q505 Sir Paul Beresford: What do you think will happen from the point of view of collecting through PAYE and the effect on your business and the difficulties of the variation, depending on where the PAYE employee is living? Mr James: We have a lot of Inland Revenue staff work living in our region and I am sure they would welcome the additional jobs! Q506 Sir Paul Beresford: But your private businesses would have to collect through PAYE, and that would add to your costs. Mr James: It may do. Q507 Mr O'Brien: But we are talking of funding services and the fact that the council tax is not very favourable so the government is looking at other alternatives and consulting on this, and one of the issues that is raised by our colleague, Adrian Sanders, who is no longer with us, is the introduction of a local income tax, and this is a serious matter being raised by the Liberal Democrats. I would have expected that the people in the north east would have been examining research in this issue as to its effect on local business. Is that not being done? Mr Sugdon: It is being done by the organisations of which we are a national member, the British Chamber of Commerce, and their view is that the additional burden on businesses would be of major concern. Q508 Mr O'Brien: Would the abolition of council tax have an influence on house prices in the north east? Mr Sugdon: Again it is not something we have studied Q509 Mr O'Brien: Do you not cover the estate agents and builders? Mr James: We do indeed. Q510 Mr O'Brien: So you do not have a view, if the council tax was abolished, as some are saying should happen, on the impact that would have on housing in the north east? Mr James: I think stamp duty might be more of an issue than the abolition of council tax. Q511 Mr O'Brien: So you think council tax does not have an influence on the price of houses in the north east? Mr Shakeshaft: It may have a marginal influence but the patterns of house price rises in the north east are fairly set in relation to the way they rise across the country. Mr James: Most of our housing stock fits in the middle bands. We do not have too many Gs and Hs, but we have lots at the lower end and lots in the middle. Q512 Mr O'Brien: How many deprived local government wards are there in the north east? Mr Shakeshaft: I cannot tell you the absolute number. I can tell you it is the highest proportion for any area. Mr James: In Newcastle I am sure we have early teens. Q513 Mr O'Brien: And the stamp duty is relaxed in those areas. Does it have an impact on the houses? Mr James: We have started to see some growth in house prices in areas like the west end of Newcastle, but until we know what houses are staying and what houses are going it is very difficult. Q514 Mr O'Brien: Is that where the stamp duty is relaxed at the present time? Mr James: It is very helpful in those areas. Mr Betts: On that point perhaps we can thank you for your evidence, and for coming today. Thank you. |