Examination of Witnesses (Questions 40-59)
MS KAREN
DEE, DR
JULIE GRAIL
AND MS
SUE ASHLEY
19 JUNE 2007
Q40 Mr Olner: This money is added
on to what the local authority should be doing anyway. How do
you get that benchmark established?
Dr Grail: With great difficulty.
There has to be some pragmatism. There is a very detailed process
during the development process, ahead of the ballot, between the
BID team and the local authority services to set out what the
obligations of the local authority currently are, what the expectations
are in each contract stream in relation to direct cleansing etc,
etc. That is all set out in the legal agreement that both parties
sign up to. There have been some very good examples where already,
since BIDs have been established, there was a threat to a reduction
of service and the existence of that agreement and the existence
of the BID has prevented that service from being cut or there
has been a reassessment of the delivery of service such that the
BID levy is still genuinely additional to that statutory minimum
and that is critical. That is why businesses vote for this. It
is new money and it is new money that they can direct into their
area.
Q41 Chair: If you could offset a
BID levy from the SBR and the SBR was introduced, would that ensure
that the BID survived?
Dr Grail: Possibly. I do not think
it is a guarantee. The next stage of that then does start suggesting
that we know BIDs are working because those that are paying are
governing. As we have already heard, the concern about SBR is
that it is money going in to the public sector with little reassurance
at the moment that businesses would be governing the direction
of that spend.
Q42 Mr Hands: I want to ask if you
have strong views on the merits of SBR versus the merits of the
re-localisation of national non-domestic rates. Sir Michael Lyons
seems to have excluded re-localisation as an option for all kinds
of reasons. I am just wondering what your views on that might
be.
Ms Dee: The CBI has been opposed
to the re-localisation and principally that is because of the
certainty that the UBR provides to business in terms of its planning
and what the rates bills are going to be. Over a number of years
we have supported the continuing use of the UBR. In terms of the
supplementary business rate, businesses are not particularly keen
to be paying additional contributions, but I think, as we set
out in our memorandum, there is a growing willingness, as we have
seen through the BIDs, to invest in specific projects where they
can see that there is a genuine value to the business in the local
community or to the local economic area. Out of the two, certainly
the supplementary business rate would be more acceptable to business
than re-localisation.
Q43 Martin Horwood: Is that not a
little contradictory? In effect SBRs are an element of re-localisation.
They are the ability for different areas to be paying differential
rates and they would contribute somewhat to uncertainty in business.
Ms Dee: I think the difference
for the supplementary business rate is that our view is that that
would have to be subject to a vote; it would have to be for specific
projects that are well defined, rather like the BID models. So
in our view it is not the same as re-localisation. It is there
for a specific purpose. It should not be seen as an across the
board additional tax on local businesses.
Q44 Mr Betts: But you would say that,
would you not? Businesses have a pretty good deal, have you not,
at present? All the council taxpayers are paying each year council
tax increases in whatever authority they are in, which are almost
without exception, beyond the rate of inflation and there is business
paying its business rate set at the annual rate of inflation each
year and every year businesses contribute a smaller and smaller
amount to local taxation. Is that fair?
Ms Dee: I would not comment or
whether or not it is fair. I think what we appreciate is that
you cannot just look at business rates in isolation. The overall
burden of taxation on corporate businesses has to be taken into
account.
Q45 Mr Betts: The council taxpayer
cannot look at their tax in isolation. They have to look at their
income tax and VAT and everything else as well. Why should business
be different?
Ms Dee: I am not here to speak
for the council taxpayers. We have supported the uniform business
rate because it provides certainty. We appreciate that the RPI
cap is relatively unique in terms of business taxes, but it provides
that certainty. The overall contribution of businesses not just
through business rates but to the Exchequer is a considerable
burden and that is not something that we would want to see challenged
or increased greatly without specific benefits.
Q46 Mr Betts: Is the reality not
that business now is becoming increasingly less and less interested
in what happens in their locality because the local council's
decisions do not affect how much businesses pay, so that divorce
is just growing wider and wider? Would an SBR not bring back some
connection between what happens in a local area, how much businesses
pay and the decisions of the local authority?
Ms Dee: I suppose to some extent
you could say there is divorce. I would offer the contrary view,
which is that taking those annual fights away from the localisation
debates has improved the relationship between businesses and local
authorities in some areas. It is not true to say that the relationship
is bad everywhere. It is better in some areas than in others.
You could foresee that a supplementary business rate would be
a mechanism for encouraging greater participation and that is
one of the benefits that we have seen through business improvement
districts. That is why businesses engage and that is why they
work, because there is a mechanism that everybody feels they have
a part in.
Q47 Mr Betts: You are saying there
has to be a ballot. The council taxpayers do not have a referendum
when their council tax is set. They go to the ballot box, but
they have no say in the amount of charge they are going to pay.
Why should businesses have a special arrangement where they can
determine whether they contribute? I can understand why they should
be consulted. Why is it necessary to have a ballot?
Ms Dee: The issue of trust and
engagement is key to the success of any of this. If we want to
avoid returning to areas where you just have a poor relationship
between businesses and the local authority then you need to build
that trust. In our view a vote would be the only way of achieving
that. I suppose you could also say that local council taxpayers
do have the opportunity to vote for their local council which
businesses do not have.
Q48 Mr Betts: The way the whole business
rate is structured in this country means that there really is
not that link between business coming into an area and the area
benefiting in terms of revenue. You see it in other European countries.
In Germany a local authority can give permission for business
development in its area and it gets a return through its local
financial coffers from that business being in the area. That means
that authorities are maybe more interested in going out and encouraging
and attracting in inward investment. Is there not a problem in
this country in that there is not that relationship, the authorities
do not get the financial benefit of attracting new development
in?
Ms Dee: I am not an expert on
that particular issue. It has been one of the criticisms. If my
understanding is right, the local authority business growth initiative
was one of those albeit smaller scale initiatives designed to
try and encourage local authorities by allowing them to do just
that.
Q49 Mr Betts: Has it had any effect?
Ms Dee: I could not tell you how
much it has raised, but certainly the general view seems to be
that it is, albeit small scale, a positive mechanism which probably
needs further debate.
Q50 Chair: Your suggestion about
a vote before the imposition of the supplementary business rate,
is that not just like an enormous BID?
Ms Dee: It probably is, yes.
Q51 Mr Olner: There is a connection
between what a local authority does and what business gains from
it. BIDs talk about if you want better infrastructure than is
there at the moment, but you have to get that infrastructure there
in the first place. How do we get this connectivity again with
business and the local authority in providing infrastructure?
Is it going to be through the SBR route or should business rates
come back to local authorities to levy?
Ms Dee: Our view is that we would
not support re-localisation. The supplementary business rate is
something that businesses might be prepared to consider for specific
projects, if they felt that it was a well-defined project in their
area and they had a vote on it.
Q52 Emily Thornberry: Certainly the
experience in my local authority is that my local businesses feel
that the local authority ignores their interests because it makes
no difference to them what happens and they complain a lot about
the fact they do not have a vote nor are they successful in making
any difference to my local authority. Surely it is not simply
the experience in Islington.
Ms Dee: I think that is true.
There is an issue about the relationship between local authorities
and it is something where a lot of businesses are keen to engage
further with their local authorities and they want to work together
in partnership to improve that local area. That is why we think
that these BID schemes are working.
Q53 Martin Horwood: Obviously one
of the things about BIDs is that they are run by the private sector
and you have welcomed the flexibility that that entails, so the
money can be spent on security and CCTV or it could contribute
to infrastructure projects. Would you like to see the same flexibility
for the SBR or would you like local authorities to be more restricted
in what they can devote monies to?
Dr Grail: I think it has to be
kind of cause and effect. Part of the concern coming from the
business is that if there is too much of a broad-brush approach
on SBR, and too much flexibility and no voting mechanism and it
is merely through consultation, then what businesses say during
the consultation either may not be listened to or may be listened
to but can be changed during the period of an SBR implementation.
Giving businesses a direct say in the development process and
delivery has to be critical and that is why BIDs work. You have
to be able to find a way of ensuring that either the SBR, once
established, can only be spent on predefined things or the businesses
can continue to have a direct say on the governance of that spend.
That is the only way that businesses are going to be genuinely
happy that their money is being spent on key priorities.
Q54 Martin Horwood: Let us assume,
as seems to be common throughout, that it is going to be on a
predefined project and that there will be some kind of formal
approval process, maybe a vote or something like that. Would you
then want to restrict SBRs or would you be happy to see them spent
on infrastructure or on security?
Dr Grail: You have to have some
flexibility to enable you to manage change. In the BID companies
we have governance arrangements which set out a set of variation
mechanisms such that against that existing business plan that
has been voted in certain variations year-on-year, usually 10
per cent against the budget themes, can be made to reflect that
changes are occurring due to external factors. You will not be
able to have wholesale change during that term because businesses
then are paying at the end of a term for nothing that they voted
for.
Q55 Martin Horwood: That is accepted.
For instance, the British Chambers of Commerce have said that:
" ... businesses would only consider an SBR for investment
in transport infrastructure". Would you disagree with that?
Do you think there should be more flexibility than that?
Ms Ashley: I think that with BIDs,
the key reason that business contributes to them is because they
are specific projects that are going to enhance their trading
environment and that money is totally ring-fenced and goes into
a private sector company. Part of my thinking is that I cannot
see at the moment how the local authorities would convince business
to contribute towards projects either on a localised basis or
on a broader basis.
Q56 Martin Horwood: Are you saying
you would not want it used on something like transport infrastructure?
Ms Ashley: I do not know just
at the moment. That could be a possibility but I do not think
that you would convince business to pay a rate towards that.
Emily Thornberry: You can have
other things. Businesses want local authorities to stop doing
things. Again, in Islington there was a huge row when they introduced
the parking restrictions, so that had a very bad impact on local
businesses, but they felt their voices simply were not heard because
they did not pay the local rates.
Chair: Emily, I think that is
getting beyond the discussion.
Emily Thornberry: We are talking
about accountability and the reason for a business rate is so
there can be some sort of accountability between local authorities
and businesses. There are both sides to it and that is why I think
that is interesting.
Martin Horwood: A select committee
is not the place to attack particular local councils.
Emily Thornberry: I just think
it is a very good illustration of something which is raised a
lot locally as a constituency MP.
Q57 Martin Horwood: Can I move on.
If, as you seem to be saying, there is some doubt about whether
or not businesses would contribute to SBRs for larger infrastructure
projects, we have also heard from the evidence on Crossrail that
actually the contribution from a business SBR might be a very
small fraction of the total financing in any case. In Gloucestershire
we are looking at possible light rail schemes linking Cheltenham
and Gloucester and the rest of Gloucestershire; again the likely
cost of that is going to run into hundreds of millions, the likely
additional revenue from something like an SBR would probably only
be, if we were very lucky, tens of millions. Is this really just
a bit of window dressing or do you think it does have a role to
play in infrastructure projects on a significant scale?
Ms Dee: We have not taken a view
as to exactly what type of projects an SBR ought to be used for.
We would not go as far as the British Chambers and say it should
only be used for transport. Transport projects are a good example
of the sorts of projects, like Crossrail, that have been talked
about for uses in SBR. Whatever the project, businesses would
need to be persuaded of the benefits and, therefore, asked to
vote on them and, in our view, or the views that members have
expressed to us, what they would do is look at the project, see
whether or not it will benefit the overall area and offset that
against how much they will pay and vote accordingly.
Q58 Martin Horwood: The CBI have
no real view about whether or not this would be in general something
that would end up being used probably for things like local CCTV
schemes or something that might contribute significantly to major
infrastructure. Those are quite different directions really, are
they not?
Ms Dee: I think it depends on
the way that the Government decides or otherwise to take the issue
forward. We have BID schemes for those smaller scale type projects.
What is the difference between a BID and a supplementary business
rate? In our view they should be very similar but it is not clear,
for example, whether larger scale infrastructure projects across
local authority areas are the sorts of things that were envisaged.
They pose challenges. We have not taken a definitive view about
this.
Q59 Martin Horwood: Would you rather
see BIDs continue as the vehicle for the smaller schemes and push
SBR in that direction or have you really not taken a view yet?
Ms Dee: We have not taken a view
yet. We think that BIDs offer a very good model to use for a supplementary
business scheme. As I said, at the beginning we were not particularly
enthused with the idea of a general power for local authorities
to raise additional revenue because of corporate tax but, subject
to a vote, businesses are given the opportunity to vote on a particular
project, they will decide whether or not that project makes sense
in that local area.
Dr Grail: Can I just put a quick
health warning on the definition of "small" because
we are talking about the scale of BIDs in terms of localities
and, yes, in terms of localities as against local authority businesses
they are small geographically but in scale and strategic importance,
if I come back to the new West End Company example again, they
are raising £2.1 million a year with the BID levy, they are
raising an additional £1.6 million a year with voluntary
property owner contributions, they are having that matched by
£3 million a year from the Mayor through TfL and they are
doing major long-term strategic projects. It is not small. Yes,
what we are talking about is local but we are not necessarily
talking about small. For the SBR, where projects sit, the devil
is in the detail. There may well be examples—I hesitate
to raise Crossrail again because everyone has said it—where
there is an appropriateness for SBR at a certain level to do a
major infrastructure scheme across a region and offset BID levies
across that region but leave the BID delivering at local level.
That does not mean that the projects are not of strategic importance,
it means they are locally delivered.
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