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John Healey: I now give way to the hon. Gentleman’s former hon. Friend, who represents areas in which a more significant number of businesses will be above the threshold than in Croydon.
Mr. Field: I will not be speaking on behalf of Croydon, which is well looked after—at least on this side of the House. The hon. Member for Croydon, Central (Mr. Pelling) may have had in mind my constituency as a part of the central London area that is to benefit.
I wanted to ask about the Minister’s earlier statement about the top tier. Does he not recognise that we have an entirely different system in London compared with other parts of the country, where that top tier would be a county council? The GLA’s role is purely advisory and scrutinising in respect of the Mayor. It is therefore wrong for this power to be geared towards the GLA rather than the constituent 33 boroughs of London.
John Healey: I think the hon. Gentleman and I will have to disagree. Where we have local government that is not unitary, as in London and in some county areas, it is right that this applies to the upper-level authority, not least because it is much more likely to be leading the long-term strategic planning that will be part of preparing some of the big investment and infrastructure projects that are likely to underpin the performance of the local economy and the prosperity of local businesses for the future. Therein lies the argument for saying that the upper-level authority should have this power, although some have argued that we should allow districts in two-tier areas to have the same. In our view, however, there should be one business rate supplement for businesses in an area, without the risk that a county and a district might separately choose to take this power, which therefore will not be available to those lower-level authorities under the Bill.
Mr. Nick Raynsford (Greenwich and Woolwich) (Lab): May I urge my right hon. Friend to take a robust view on this issue? The Conservatives appear to be advocating an approach that would make it impossible for Crossrail to be funded. If individual London boroughs opted out and power was taken away from the Mayor of London—who is a Conservative but is wholly supportive of the supplementary business rate in order to support Crossrail funding—that would be the death knell for Crossrail, which is crucial to the economic success of our city. I sincerely hope that the Government will remain robust on this.
John Healey: I welcome the support of my right hon. Friend, as a ministerial predecessor and as a London MP, because he understands the challenges of trying to put in place such a power and the challenges that then face local authorities, in consultation with local businesses, in deciding whether it may be appropriate for their area.
As I have tried to explain, London is the leading example of this principle in the Bill and the leading example of the new power in the Bill. The new power will allow the Mayor of London to make good his commitment to funding a key part of the Crossrail
package and to supporting economic recovery and the long-term growth of London. That is why he said last month:
“Crossrail is vital to London and the UK, providing an enormous boost to the economy and, in the tough economic times ahead, creating thousands of jobs linked to its construction.”
That is why the GLA briefing for this debate declares that the business rate supplement
“is a key part of the funding package for Crossrail... the successful passage of the BRS Bill is therefore crucial to the construction of Crossrail.”
Some argue that such investment opportunities should only be allowed to London; indeed, that is suggested in the Opposition’s reasoned amendment. I have to say to their Front Benchers that I see that as the traditional and typical Tory view that nothing matters beyond the country’s capital. They would deny other cities, significant county councils and other local authorities the power to develop with their local businesses new plans to support economies outside London. It is therefore right that we do not place a limit on the Bill so that only London may benefit from its provisions. Instead, we ensure in the Bill that all areas of England and Wales have the chance to use this power if and when it is right for them to do so. This legislation for long-term investment and the upturn should not be stalled by short-term concerns; nor should the interests of London be placed ahead of those of other parts of England and Wales.
Some fear that businesses may be seen as a passive cash cow; that is also suggested in the Opposition’s amendment. However, the Bill requires, on the contrary, that companies be active participants in debates and decisions on a business rate supplement and on the role that it may have in contributing to the future prosperity of their areas. Again, London is the leading example of that principle, and the GLA and the Mayor have consulted widely with business on Crossrail and its funding. That is why Sir Michael Snyder of the City of London Corporation said last month:
“Crossrail is critical to the future of London's economy and it is essential that we continue to make major improvements to our transport infrastructure during these challenging times. Crossrail is absolutely crucial in keeping London and the UK globally competitive and for this reason we are delighted to support the funding of this vitally important new railway.”
Crossrail is supported by the wider business community in London, which, by doing so, accepts the funding package of which the business rate supplement is an essential element—an explicit part of the Crossrail deal.
Mr. Brian Binley (Northampton, South) (Con): It was noticeable that the Minister claimed support from business, particularly in London, but pretty much all the bodies representing business have said that the rate is an extra tax, and another cash cow for local government. They are totally opposed to it. How does he equate that with the statement that he just made?
John Healey:
In two ways. First, the picture that the hon. Gentleman paints does not represent the view of the many business organisations in London that accept the case for Crossrail, and which accept that a funding package needs to be put in place if we are credibly to pursue the ambition to build it. They accept the business rate supplement, which the GLA and the Mayor back,
as part of that package. The hon. Gentleman talked about other business organisations, but the CBI is not opposed in principle to a business rate supplement, although it wants much stronger safeguards for business than we have in the Bill.
The question is twofold: is there a case, in any given area, for the sort of economic development and investment that would not otherwise happen? If so, do the benefits to business, jobs and prosperity in the long term support the case for introducing a business rate supplement? That is essentially the framework of policy and powers that the Bill sets out.
Mr. Mark Prisk (Hertford and Stortford) (Con): The Minister cites the CBI. Will he give it what it asked for in its briefing to all Members: a ballot on every proposal?
John Healey: No, and I will explain why later. I note that that is an element of the Opposition’s reasoned amendment.
Mr. Geoffrey Clifton-Brown (Cotswold) (Con): At a time when businesses are suffering the most for decades and bankruptcies are increasing, the Minister has said that he will not give businesses a vote in every case. Will he include a clause in the Bill saying that before any such scheme is considered, the economic conditions of businesses affected have to be taken into account? We are beginning to see empty sites up and down the high streets of this country, in prosperous places such as Putney. If such a scheme were proposed in Putney at this moment, a fragile trading condition could be made even more fragile.
John Healey: Whether or not there will be a vote on a business rate supplement, depending on the contribution required for any proposed project, there will be compulsory consultation, which will need to take into account the sort of things suggested by the hon. Gentleman.
Dr. Alan Whitehead (Southampton, Test) (Lab): Has my right hon. Friend reflected, during his consideration leading to the introduction of the Bill, on the fact that the contribution to local government finance from the business rate has systematically declined as a proportion of the total amount of revenue coming in because of clauses in the original council tax legislation? Rises in the business rate are restricted to the rate of RPI inflation, so the contribution as a percentage of total income has declined over the years. Has he calculated what that effect has been, and what effect the business rate proposals may have on the total contribution by businesses to council tax revenue?
John Healey: I can give my hon. Friend the figures that he seeks. In 1997-98, business rates formed 25 per cent. of the money that was given to and spent by local government. Last year they formed 20 per cent. The reason is that we have been keen to restrict the annual increase in the small business non-domestic rate to the rate of inflation. At a time when significantly above-inflation Government grants have been given to local authorities, that proportion has therefore fallen. We do not propose to change that policy approach, and any business rate supplement levied in a local area or a combination of areas will be entirely in addition to the core commitment of the business rate take as a whole rising in line with inflation. That commitment will remain.
The present economic circumstances underline the need for active government and an active public sector to protect the poorest, to correct flaws in the market and to exert the leverage needed to secure the proper role and contribution from our private sector. The alternative is to let the recession run its course and leave the upturn to the market—precisely the approach that was taken during the recessions in the 1990s and 1980s. We are determined not to repeat that approach.
Robert Neill (Bromley and Chislehurst) (Con): Against that background, how does the Minister justify the slashing of funding for the local authority business growth incentive scheme?
John Healey: The hon. Gentleman will know that that is a three-year scheme, and was only ever introduced as such. This is the final year, and so far we have paid out £833 million to local authorities as a reward for the business growth in their areas. That is entirely additional to the core Government grant, and entirely without strings attached to how local authorities spend it. Having trialled it by proxy as a grant, now is the time to build it in more systematically as a feature of the business rates system. That is what we propose to do from next year.
The Bill is part of what is needed to put in place the foundations of an upturn. It is not easy, because in these difficult financial times there is a risk that major projects and policy reforms will be sidelined because of short-term concerns. There is also a risk that we will retreat to centralism, removing local discretion and flexibility when there are tough choices to be made. We will not do that, because we in the Labour party believe in greater devolution to local government. That is why the Bill is the latest in a series of powers and freedoms that the Government have given to local authorities in recent years. Those powers are essential at the moment, as authorities do more to deal with the downturn at local level and to face the new challenges ahead.
Dan Rogerson (North Cornwall) (LD) rose—
John Healey: I shall give way to the hon. Gentleman, and then— [Interruption.] Then perhaps I shall run through several of the powers and freedoms that we have devolved and placed in the hands of local government in recent years. There is obviously an appetite among Tory Front Benchers to hear about that.
Dan Rogerson: The Minister is coming to one of the problems with the Bill, which is that it is neither confined to the funding of Crossrail, about which we have heard much already, nor a fundamental review of local accountability and how money is raised and spent locally. Such a review is much in demand and would enable far more involvement of local communities, whether through the localisation of business rates or through a review of how residential taxes are raised. The Bill is tacked on to Crossrail, which is unfortunate and means that it is neither one thing nor the other.
John Healey:
I perceive it as an advantage that the Bill does not introduce a local income tax, and as a strength—not a weakness—that it is not confined to powers for London. It continues the series of greater powers and freedoms that we have given to local authorities in recent years, when we have introduced a general
power of competence. It allows local authorities to do anything they choose, except raise taxes, to improve the economic, social and environmental well-being of their area.
A moment ago, I mentioned the three-year business growth incentive scheme. So far, £833 million has been paid to local authorities to reward their efforts to encourage business growth in their areas. Under the local enterprise growth incentive scheme, 20 local authority areas receive £280 million to boost enterprise, inward investment and work. The new power to introduce a community infrastructure levy in the recent Planning Bill gives councils the ability to raise money for vital infrastructure to support more sustainable growth and development.
Local area agreements are struck between the top-level councils in the country and national Government, and designed so that councils can set the priorities for their areas. In all but one of the 150 local area agreements, those councils have set at least one economic priority and target in their plan for the future. In business improvement districts, local businesses join forces with local councils and also invest in their own future.
The murmurings from Tory Front Benchers might suggest otherwise, but I think that members of all parties recognise that local authorities can have an important influence on the economic prosperity and development of their areas. Councils throughout the country, with leaders from all parties, support that view. Sir Michael Lyons emphasised that point in his inquiry into local government. It was a central principle of the sub-national review, which I outlined to the House in summer 2007, and it is also contained in the Local Democracy, Economic Development and Construction Bill, which is starting its passage in the other place.
Local government, across the parties, has welcomed the new powers and funding that we have offered to support economic development work.
Mr. Lee Scott (Ilford, North) (Con): Does the Minister agree that, in the business improvement districts to which he referred, businesses have engaged with local councils and voted in favour of extra revenue going towards improving their areas, and that that is true democracy?
John Healey: I recognise the success of business improvement districts—67 are up and running. They are in diverse areas, such as Liverpool, Leicester, Worthing, Croydon—
John Healey: Indeed. The 67 areas are diverse and led by different political parties, but work with their local businesses, normally in a very localised area, often to improve safety and environmental quality, and partly to boost business prospects. In many ways, the House and the hon. Gentleman might perceive the business rate supplement as building on that success—applying the approach of the business improvement districts to larger areas and potentially raising money to make lasting change through big projects, such as Crossrail in London.
Mr. Mark Field: Will the Minister give way?
John Healey: I did not anticipate giving way at that point, but I will because I shall move on to something else afterwards.
Mr. Field: Does the Minister not recognise that, whereas with business improvement districts the issue is consent and parties working together, Conservative Members’ worry about the Bill is the amount of compulsion, which is at odds with the development of business improvement districts? I agree that they have generally—and certainly in my constituency—proved a great success.
John Healey: As I said, businesses will be consulted in all cases, and there will be a legal requirement on councils to do that. I shall deal shortly with what I regard as the principled case in the Bill that, if the business rate supplement is to support a specific proportion of the funding for a proposed project, there should be a vote, and that in other circumstances there should not.
Mr. Roger Gale (North Thanet) (Con): The Minister is aware of the concern about the effect of the Government’s levy of 100 per cent. empty property rates, which was designed for a completely different economic climate. My understanding of clause 11 is that the business rate supplement would apply to any property on which rates have to be paid in full. Is the Minister seriously telling us that a business that already has to pay 100 per cent. rates on an empty property will also have to pay the business rate supplement, even though the property is empty?
John Healey: The Bill allows local authorities, in proposing and implementing a business rate supplement, to make provision to exempt, if they choose, business rate payers on empty property. The hon. Gentleman will also be aware that in the pre-Budget report the Chancellor said that, given the current economic circumstances, the rateable value threshold on empty property will be raised from £2,000 to £15,000 for next year, thus removing the liability to pay business rates on approximately seven out of 10 empty properties.
However, the essential economic case for saying that there should be a liability for business rates on empty property remains, and it is this. It is likely to increase the incentive to re-let, reuse or sell empty business properties, and is therefore also likely to reduce the rents that other businesses pay for the use of their premises. That remains the central economic case for empty properties not being relieved from business rates in the long term, in the way that they have been in the past.
The Opposition, in their motion and their interventions this afternoon, have been saying that they do not like the Bill or aspects of how far it goes. However, we have been urged to go further on business rate supplements than the provisions contained in the Bill. The all-party Select Committee on Communities and Local Government urged us to have no cap on the levy determined by local authorities, to leave ballots to local authorities’ discretion entirely and to allow lower-tier as well as upper-tier authorities to set their own business rate supplement. The all-party Local Government Association has also urged us to raise the limit on the business rate supplement to 4p and to allow local authorities a free hand to decide, in the light of local needs, whatever they should spend the gained revenue on.
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