Examination of Witnesses (Questions 80-98)
MS LYNDA
MCMULLAN,
MR NICK
CHARD, MR
STEVE BROOKS,
MR SIMON
WILES AND
MR DERMOT
FINCH
19 JUNE 2007
Q80 Chair: I have got a question
specifically for the Centre for Cities. If you want to give authorities
an incentive to attract business, do you want to then use SBR
to invest in projects that actually build up non-domestic rateable
value, such as a tramway for example, and do you expect the councils
to then keep that uplift?
Mr Finch: We think that the revenues
and any borrowing against revenues raised from SBR should be hypothecated
towards transport infrastructure, as was mentioned and suggested
earlier by Mr Horwood. We believe that first of all provides certainty
to business, it reassures them that the revenues are not being
frittered away on a range of different projects and, absolutely,
investments in local transport infrastructure would help the local
economy and would help generally uplift the quality and the productivity
of the local economy and those revenues would then, of course,
be recycled and retained later on. Hypothecating towards transport
is the right way forward.
Q81 Chair: If it uplifted the rateable
values locally it would simply increase the amount of non-domestic
rate that was collected and went into the national pot, it would
not go into the council.
Mr Finch: That gets me back to
my earlier point which is that if you regard SBR as a stepping
stone towards full re-localisation over time there are, as you
rightly point out, some points like that that you could hold against
SBR, but if you take the longer term view, if over five, ten years
or whatever, the full business rate was returned to local authorities,
that problem would not materialise.
Chair: Can we return to some questions
about local flexibility.
Q82 John Cummings: Given that the
purpose of the SBR is to enhance local flexibility, do you think
it is necessary for central Government to set an upper limit on
the levy rate?
Mr Chard: Personally I have said
I do not like the idea of SBR and, frankly, I do not like the
idea of a hypothecated grant if it is going to be used just for
roads because if that is the only lever to attract business then
I am either wrong or--- There is a whole range of things that
attract business to an area and increase regeneration, it is not
just the state of the roads or the number of roads or the transport,
it is a lot of other things from training to education, a whole
panoply of things. To hypothecate it in a very narrow and focused
way, I think, would be wrong, but that should be a local decision
and it should not be for the Government to dictate to councils
how they should spend. If that is what councils want to do, fine,
but it should not be for the Government to dictate. As to the
level of what should be the increase, well, that again should
be a local issue, but I do not like the idea, so perhaps I am
not the best person to ask.
John Cummings: Therefore, you
are against such a cap. I think I understand what you said there,
but, therefore, you do not agree that the cap should be placed
upon the SBR?
Chair: Well, he does not think
there should be an SBR.
Q83 John Cummings: But it is there
and we are living with it.
Mr Wiles: As a supporter of it,
perhaps the answer would be that there should be a cap on it because,
otherwise, you could have a massive redistribution between council
taxpayers and business rate payers and there is an opportunity
for substitution of funding between the different forms, so we
would think that it would be reasonable to put a cap on it and
Lyons' proposal was four pence in the pound which is about ten
per cent or just under of total business rates and that would
in my view be perfectly reasonable.
Q84 John Cummings: Are you all of
the same opinion, apart from Mr Chard?
Ms McMullan: I think that the
view from Kent would be that it should be for local discretion,
but we would agree with Mr Finch, that we do see this debate as
being a stepping stone towards relocalisation of business rates,
but, as Mr Chard was saying, we are not convinced that supplementary
business rates separately in a two-tier area is the best way to
go about building that confidence for us with our district colleagues
and equally with business to actually achieve that longer term.
Q85 Mr Betts: Is not the logic of
the stepping stone there that you may accept the four pence and
then argue for it to be raised slightly and then move forward
so that more and more of what business is actually paying is down
to a supplementary business rate as a move towards localisation?
Mr Chard: I think the logical
stepping stone is not for some areas to charge more, but for new
business rates to not go into a centralised pool, but to go to
local authorities, and Kent is—
Q86 Chair: What do you mean by "new
business rates"?
Mr Finch: It is what Heseltine
proposed.
Q87 Chair: I think Mr Chard can answer.
Just to explain, what do you mean by the "new business rates"?
Mr Chard: Well, when new businesses
are formed, and most of these that are in Kent have come under
the Local Authority Business Growth Incentive (LABGI), they tend
to be shopping centres, but where there has been regeneration,
so there are new businesses and, therefore, new business rate
income, they should be localised to the local authorities rather
than going to the central pool.
Q88 Chair: But, if a new business
moved into premises where there had been a previous business,
would that count?
Mr Chard: No.
Q89 John Cummings: Do you believe
then that local authorities should be given the power to negotiate
a discount on a national business rate locally—
Mr Chard: Yes.
Q90 John Cummings:— as well
as the ability to raise it sometimes?
Mr Chard: Yes.
Q91 John Cummings: To what extent
is any additional revenue raised going to be offset by additional
administrative costs?
Ms McMullan: Mr Brooks can answer
more accurately as one of the billing authorities within Kent,
but we do see as to the actual administration of collection, should
supplementary business rates be the way forward, there are administration
centres set up to collect existing business rates, and as to altering
the rate, we do not see that as a huge amount of additional work
for districts, but Mr Brooks might want to come in.
Mr Brooks: I do not see a huge
amount. It would presumably be a fairly simple change to a computer
system, so I do not think there is too much involved in it. I
think some difficulties would ensue where people did not pay or
they only paid some of it and how would you allocate within target,
I think you would certainly have issues there, but, in theory,
it should not be that difficult.
In the absence of the Chair, Mr Betts was
called to the Chair
Q92 Mr Betts: Mr Finch?
Mr Finch: Just as to Mr Cummings'
question about whether it should be capped, the question a few
minutes ago: in principle, we do not think that capping is a good
idea. In fact, what will probably happen or would happen with
an SBR is that there would be an effective cap which would be
arrived at through discussion between local businesses and local
authorities. For example, a four pence SBR looks unrealistic,
looks too high. Sir Michael Lyons has proposed an upper limit
of four pence, but I have not heard any business which would accept
that. Something nearer two pence, however, does look to be acceptable
and it is quite interesting that, if you speak to local chambers
of commerce in Greater Manchester or Newcastle, for example, they
are much more inclined towards supporting an SBR because they
can see the local infrastructure project, being Metrolink Phase
3 in Manchester, for example, that would then lead them to support
an SBR. The two pence rate seems more acceptable than four pence
and indeed, where a local business community can see a local transport
infrastructure project that requires investment, the need for
formalised consultation through a vote, for example, may not be
needed because business buy-in could already be there.
Q93 Mr Betts: Could I just raise
one concern or two possible concerns, the first being in terms
of infrastructure. The idea with this supplementary business rate
is that it will be time-limited. There will be a discussion with
business, the CBI would want a ballot and it would then run for
a certain period of time, but, if it was only limited to major
infrastructure projects, and we had a discussion with the London
politicians earlier about linking it with Crossrail, then these
projects are all much longer in terms of time and the borrowing
for them is going to go on for a long period of time, so, if the
rate to support them is for shorter periods of time, is there
not a problem there?
Mr Finch: Well, there could be
if it is not made clear at the beginning and the revenue required
to support such a large transport infrastructure project would
need to be very long term. I think where businesses go in with
their eyes open, knowing that a project requires long-term revenue
financing, then they can make the decision. If a project is much
longer than an SBR is time-limited for, then certainly there is
a problem, but you would not get into that situation hopefully.
Q94 Mr Betts: Can I ask whether it
poses any difficulties then for the two-tier, rather than the
unitary, authorities, and particularly infrastructure projects,
by their nature, may be done by the county, so is that going to
lead to a tension if the SBR was simply limited to those and the
second-tier authorities felt somewhat excluded?
Ms McMullan: We think that there
are problems administratively in agreeing it because, if, say,
we were doing a major piece of regeneration, there may be a number
of districts involved in that, for example, so we would have to
co-ordinate different consultations with business with different
districts. As to the money coming in, I think whether you are
a unitary authority or two-tier, there are problems of the sustainability
of that funding which is why we think that a more coherent stepping
stone to relocalisation would be really revamping the LABGI scheme
because we think that is something that is sustainable and would
incentivise local government to do something more coherent. Then
there are issues within the two-tier authorities, and we have
this issue within ours, of growth areas where infrastructure is
required. If the money is coming through the district and decisions
are made at that level—and there are always going to be
competing demands on the money coming through, but a lot of the
infrastructure requirements in terms of expenditure are at county
level—you are setting us up for a lot of, in the nicest
possible way, very thrusting debate about what those priorities
will be. To us, it does not seem to be the most sensible
stepping stone to where we want to be in the longer term, which
is about coherent regeneration and economic development and sustainable
funding.
Mr Chard: This whole scheme to
me seems to be another way of taxing to create a revenue stream
for infrastructure projects. What I think the purpose should be
about is encouraging regeneration of areas and increasing business,
and that is why I would much rather personally concentrate on
the LABGI scheme, which I would say was a great idea mucked up
by civil servants. I would love to see the LABGI scheme looked
at afresh by people who really understand it and make it work
because that is what regeneration is about. This SBR to me is
about extra tax collection for infrastructure projects, and that
is fine if that is what you want to do but I thought this was
about regeneration. I do not think SBR is about regeneration,
it is tax collection.
Mr Brooks: We agree with that.
It is just an unnecessary complication. As Nick has said, we need
to sort out the LABGI scheme. LABGI is fine in theory but it is
hopelessly flawed in practice. The Government are allocating £1
billion of money to local authorities over three years and it
is an appalling mess.
Q95 Mr Olner: I was going to make
the point I actually do not think SBR has a cat in hell's chance
of working in the Shires. Given that that is a given, London has
an agreement with its boroughs but it has got one commonality
and that is Crossrail, there is no commonality in the Shires.
There might be commonality in city districts. Do you see this
as a tool that could cross counties or cross districts? You are
talking about city regions now where there would be, if you want,
the scope for doing a big infrastructure project like Crossrail.
How do you see that fitting in with city regions?
Mr Finch: I think that is right,
this SBR proposal is definitely more suited to urban areas where,
incidentally, we did research last year in Liverpool, Birmingham
and Barnsley where businesses told us, and local authorities told
us, that if an SBR were to go live it ought to be hypothecated
towards transport infrastructure. They felt that was the priority
and that would secure business buy-in. It is admittedly less useful
for towns with a small business base, with rural areas, for example,
but that is not a reason not to pursue SBR. SBR is differential
in its impact, Crossrail being the biggest example, but Metrolink
in Manchester, Birmingham New Street and other major transport
infrastructure projects do require additional sources of revenue.
Rural areas: different situation, different solution.
Mr Wiles: I support that but generally
we may be thinking too large on the infrastructure projects and
the sort of things we might be thinking of in York are more like
additional Park and Ride sites and we would like to get away from
the focus on transport because one of the big things our businesses
want is a new Tourist Information Centre. There is a whole variety
of things which would boost local business, particularly in the
city centre, which go far beyond transport.
Q96 Mr Olner: Yes, there are, but
with that you have got the city regions, and I happen to think
the city regions in the UK are never going to compete with London
to get our fair share of commerce, trade and what have you.
Mr Chard: Is this not a mechanism
really for central Government to get local authorities to raise
extra revenues to fund fairly large infrastructure projects which
we would ordinarily expect government to fund. To me, that seems
to be the whole point of this SBR. That is fine if there are other
things—and I am pleased to hear that there would be other
things rather than transport involved—but I think this is
really just to try and milk the business community rather than
to increase the regeneration.
Q97 Mr Betts: I was about to say
the CBI seem to think that localising the business rate is a similar
way of milking the business community only doing it rather better
than SBR would.
Mr Chard: I certainly think the
local business community have done better in terms of the increase
in their business rates have been substantially less than the
increase in council tax.
Mr Finch: Could I just pick up
on that. The revenues proposed here for SBR, say a 2p increase,
are relatively marginal and do not really equal the statement
that Mr Chard just made. They would not be sufficient to support
the costs of major infrastructure projects. They are a contribution
to local transport infrastructure projects and, quite rightly
too, local businesses who benefit from those transport infrastructure
projects ought to pay their fair share towards them, but we are
talking here about a marginal increase, part of a longer term
return of revenue raising capacity back to local authorities,
as I said a stepping stone over many years, and in that context
I think SBR is a marginal contribution to transport infrastructure
rather than milking the business community to pay for all of them.
Q98 Mr Betts: One issue that may
cause us all a bit of concern is that looking at more local raising
of revenue is fine for those areas where there is revenue to be
raised but what about the areas which one might think might need
more regeneration than others because they have got declining
industrial bases, quite a lot of poverty in the areas, where perhaps
transferring powers back to the local authorities to raise revenue
is not necessarily the right solution if those areas have not
got the revenue to be raised locally?
Mr Finch: I think we have to be
very clear that SBR will have a differential impact. It is more
suited to some areas than others. That is part and parcel of the
whole devolution agenda. This is one tool, hopefully one of many.
SBR will not solve the regeneration problems of every area. It
is designed, hopefully, to address some specific issues around
under-investment in transport and a wider issue about local authorities
not having sufficient revenue raising capacity. There are plenty
of other ways to address longer term decline, more deep-seated
regeneration issues, in other areas. We have to be clear that
the purpose of SBR is not to address every problem, it is just
to address this one.
Mr Chard: I thought the LABGI
scheme was, as the name says, Local Authority Business Growth
Incentive, about incentivising and to encourage regeneration.
I have made my point on SBR clear.
Mr Brooks: I would absolutely
agree with that.
Mr Wiles: The issue you raise
is a valid one, there would be a problem where there was genuine
decline. I have had discussions with a couple of other places
where they have got issues within their council areas and some
have got positive business growth in a number of areas and in
some parts of the city or the borough there is decline, and if
you were able to have the opportunity to reduce business rates
slightly in some areas and increase them in others you may be
able to address that, particularly with the decline of city centres
which some councils are talking about.
Mr Olner: They should give planning
permission to build outside, should they not?
Mr Betts: Thank you all very much.
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