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My fifth objection to the Bill is that although businesses will be sheltered—they may only have to pay up to a third before there is a ballot—they may well have to pay more than a third. That is a real worry, and it is only a third in the initial prospectus that would trigger the ballot. We all know what local authorities, and, indeed the Government, are like at managing large-scale
infrastructure projects. They have a habit of spending far more than the initial budget, and in such circumstances the whole project could cost much more. I have no doubt that Crossrail will come in greatly over budget, because a host of problems will be encountered in its construction. For example, we know that burying just one 7 km bit of cable under the ground for the Olympics will cost a staggering £160 million. Huge costs and huge difficulties are involved, and even with the best will in the world and the best surveyors in the world those cannot be fully foreseen until the machines start to dig the necessary tunnels for Crossrail.
I have a great concern about how expenditure will be controlled. Much more than that, I am concerned about the Government’s motive in all this. Once they have introduced this mechanism, I think they will start to say to every local authority in the land, “We’re not paying for this large-scale infrastructure project. You pay for it, using the local rates supplementary mechanism.” We might almost see an end to central Government funding of large-scale infrastructure projects, and that is what really worries me. We could find that such a situation became the norm, and that every authority that wanted a new road, railway, port or airport would be told that it must get its businesses to pay, because they were the ones going to benefit. We will simply find that, as happened under the old local business rates system, businesses will move away from those areas to where they know local authorities are cheaper—they are likely to be the Conservative-controlled ones.
I am greatly concerned about the Bill, because it is a Trojan horse being introduced not, as my hon. Friend the Member for Northampton, South said, by a new Labour Government but by an old Labour socialist Government who do not understand the needs of businesses. This Bill is taxation through the back door, and it is dishonest taxation because it does not provide for a proper ballot. I hope that my hon. Friends will oppose the Bill for all they are worth. If the Government do not provide the proper safeguards, I hope that when we get into government after the next election we will provide them, because I was elected to this House to represent the interests of my constituents and of business, so that this country flourishes and gets a bigger and bigger share of world trade, not a smaller and smaller share, as is happening at the moment.
7.35 pm
Mr. Mark Prisk (Hertford and Stortford) (Con): This has been an interesting, if somewhat short, debate, and it is a shame that only two Members from the Government party were able to join us this evening to contribute—I am sure that others might have been able to make a contribution. It is good to welcome the Ministers back to their places to be able to contribute at least to the end of the debate.
The Minister for Local Government, who has just returned, set out the case in his characteristically cautious, but always reasonable manner. He and I had the fortunate—or otherwise, depending on how one describes this—opportunity to debate stamp duty land tax at some length; I am pleased to say that I get out more often now. He showed his ability to do an extraordinary turn at heel when displaying new Labour doublespeak.
He started off with the old gag that a power to tax is not a tax—I particularly enjoyed that. When asked why the Government were cutting a particular initiative, he told us that it was not a cut—they were merely building it into the rates system. He then surpassed himself, because just for a moment, when using the deadpan manner that he uses when telling something that he knows is palpably incorrect—perhaps I should put it that way—a glimmer appeared at the edge of his lips as he told us that this Prime Minister and this Government have at their heart the belief in decentralising power. We all know that the reality is somewhat different; I could use many words to describe the Prime Minister, but “decentralising” would not be one of them.
Business will be concerned that, when questioned, the Minister for Local Government refused to agree to ballots for all supplementary business rates. That is on the record, and businesses will note it. He also admitted when questioned that empty properties face an additional levy under this Bill, despite the impact that that could have at this time. Only Labour could charge 102 per cent. on empty business properties in a recession.
We subsequently heard an excellent contribution from my hon. Friend the Member for Bromley and Chislehurst (Robert Neill), who set out how the original principles have been lost in the Bill, how flexibility has been replaced with a rigid tax-raising scheme and how simplicity has been replaced with complexity. He also rightly spoke about the danger of removing ballots or not permitting ballots for all schemes. We want business and local authorities to work together, and the danger of this Bill is that it will merely divide those two camps. He also contrasted the words of the Prime Minister with the actions of his Government. This morning, the Prime Minister talked about jobs, yet this afternoon his Government are introducing a new tax on employers—we intend to highlight that contrast.
We heard an excellent and knowledgeable contribution from the right hon. Member for Greenwich and Woolwich (Mr. Raynsford), although it was somewhat short for him. At the beginning, he tried to pretend that the Conservatives are adamantly opposed to Crossrail, although he knows that to be untrue—I see him smiling on the Benches opposite. He was eloquent about the business improvement districts scheme—rightly so, for he introduced it. I differ with him in that I do not think that the scheme before us will engender that strengthened relationship between business and councils. I suspect that is where his argument falls down, but it was an excellent bid for a return to ministerial office, and we look forward to his coming to the Dispatch Box in due course.
The hon. Member for North Cornwall (Dan Rogerson), who speaks for the Liberal Democrats, set out why his party will support the Bill. I was intrigued by the fact that the position may conflict with that of his colleague, Lord Cotter, who speaks for the Liberal Democrats in the Lords:
“It does not seem to be a good time to introduce an additional cost for businesses that are struggling to survive in a time of economic crisis.”—[ Official Report, House of Lords, 8 December 2008; Vol. 706, c. 222.]
I agree with the noble Lord, but I am disappointed that Liberal Democrat Members are confused.
We then had a wide-ranging contribution from the hon. Member for Newcastle-under-Lyme (Paul Farrelly), which was mostly about business rates arrears and an
interesting press release that attacked the local council. I have no doubt that Ministers look forward to his contribution in Committee.
We then had four strong contributions from Conservative Members: my hon. Friends the Members for Northampton, South (Mr. Binley), for Ilford, North (Mr. Scott), for Cities of London and Westminster (Mr. Field) and for Cotswold (Mr. Clifton-Brown). My hon. Friend the Member for Northampton, South spoke with his characteristic passion. He gave us the full economic context—perhaps a little fuller than you liked, Madam Deputy Speaker. In the broad range of issues, he highlighted and rightly contrasted the way in which the Government say one thing and do another. I hope that he keeps banging that drum—I am sure that he will—in the weeks and months to come.
My hon. Friend the Member for Ilford, North spoke strongly in favour of Crossrail, which will benefit Ilford and much of east London. He also made a powerful point: consultation and ballots are not the same. I see the Minister nodding in agreement, and I hope that he will say so on the record.
My good and hon. Friend the Member for Cities of London and Westminster made, as expected, a knowledgeable contribution. He gave the history of how such infrastructure projects need to be funded, and the underlying dilemmas. He explained the difficulty of quantifying benefits for businesses and why the matter needs to be handled with such care. That is the line that we want to take.
Last, but by no means least, my hon. Friend the Member for Cotswold made a powerful contribution. Like me, he is a chartered surveyor, and he brought his knowledge of surveying to the debate, as well as a powerful exposition of the weakness of the Government’s arguments. He highlighted the fact that many of the key elements are not in the Bill, but will be revealed later, dripping through the legislative system when we can challenge them only more weakly.
The core of this debate and the origin of the measure lie, as hon. Members have said, in the Lyons inquiry into local government finance. It highlighted the need for local authorities to have a more flexible way of raising supplemental revenue for local economic development. Several hon. Members pointed out that the inquiry emphasised that
“local supplementary powers should be designed in a way which can gain credibility with business and the wider community.”
That is where the Bill’s weakness lies. The Government’s White Paper followed in October 2007 and set out the key features of a new business rate supplement. They were to include a limit on the rate in the pound, the need for businesses to be balloted, although only in limited cases, and the exemption of businesses whose rateable value falls below £50,000. Those elements remain in the Bill.
Alongside that has been the need to progress the Crossrail scheme. Indeed, a business rate supplement in London will be used to part-finance the expected £16 billion cost of Crossrail. We welcome and support Crossrail, not least because it will enable us to link our capital’s rail network and help to reduce the pressure on an already overcrowded tube network. However, it is not unreasonable for many London businesses to question the cost. After all, much of the revenue to be raised is
likely to come from businesses in boroughs such as Westminster, the City and Hillingdon, where the specific benefit to each firm will be extremely difficult to show. There is evidence for direct and indirect benefits but hon. Members must understand that it is not wrong to raise those concerns, because those are the people who pay not just our salaries, but those of the public sector as a whole.
That leads me to one of the key points in this debate. Business rates have long been resented by firms because they are taxation without representation. That charge is raised from entities that do not have a vote. The owner may vote and the staff may vote, but the firm—the payer of the tax—has no vote. If businesses receive nothing specific in return, they understandably question the fairness of the levy. That is why changes to business rates must be handled carefully. The Lyons inquiry said that the rules covering business improvement districts, for example, have been credible to the business community, because they specifically require that a majority of the affected tax-paying businesses must agree to the additional charge. Conservative Members support that approach.
The Bill is fundamentally flawed because it seeks to permit a supplementary rate to be charged, but requires a ballot only in certain circumstances. Under clause 7, a ballot must be held only when the amount raised accounts for more than one third of the estimated costs. Councils may hold ballots in other circumstances, but they are not obliged to do so. That is the problem. There should be a vote on any proposed supplementary rate with no ifs or buts.
Issues arise about costs, not least the fact that they could range from £319 million a year to £600 million a year. It would help if the Minister clarified the basis on which those estimates were made. After all, they come at a difficult economic time when output is falling, unemployment is rising and the economy in this country is contracting faster than in any of our G7 competitor nations. The result is a squeeze on small businesses, which is why so many business organisations are worried about the measure. Perhaps the Minister will tell us how many jobs could be lost as a result of introducing the measure now. What is the Government’s estimate of the number of jobs that will be affected by the extra charge?
The impact of the measure could be affected severely by the rates revaluation planned for next year. It will be based not on 2010 values, but on values at 1 April last year. Hon. Members will realise that that creates two serious problems. First, many firms will face big rises in rates bills, just when they can ill afford them. Secondly, the revaluation will push many firms that are below the £50,000 threshold into paying the new charge. Implementing the levy now will deliver a double whammy to many small and medium-sized firms. The question for us is, why is it right that in the next year those businesses must pay more on their main rates bills and more on their supplementary rates bill?
In conclusion, there is a case for businesses to contribute to infrastructure projects from which they benefit. Clearly, businesses throughout London will benefit from Crossrail and a radically improved rail service. However, the Bill is fundamentally flawed. A measure that should be flexible and accountable has been turned into a rigid tax rise that is needlessly complex and highly undemocratic. At a time of recession, it threatens not to help economic development but to burden hard-pressed employers. At
a time when firms need fewer regulations, it introduces more red tape. At a time when we should be encouraging councils and businesses to work together, the Bill threatens to divide them. For all those reasons, the Bill is a missed opportunity that businesses and their workers can ill afford.
7.48 pm
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr. Sadiq Khan): I wish you a happy new year, Madam Deputy Speaker. I thank right hon. and hon. Members who have taken part in this interesting and lively debate.
I want to reiterate the purpose of the Bill, which seems to have been lost in hon. Members’ rustiness in Second Reading debates. It is another tool for local authorities, and introduces a new power for county councils, unitary district councils and the Greater London Authority. It will provide them with a new way of investing in the economic development of local areas and of working closely with local businesses, and it will enable local authorities to invest in projects aimed at promoting economic development that they would otherwise not be able to invest in.
Let me be clear that if the Opposition are successful in defeating the Bill on Second Reading and the Bill does not pass into legislation or it is delayed, the London Mayor will simply not be able to levy a business rate supplement by April 2010 as he desires. I listened with interest as the hon. Member for Cities of London and Westminster (Mr. Field) said that a delay in passing the business rate supplement would show a lack of confidence in the City. He cannot have his cake and eat it. When it comes to voting on Second Reading, he will have to decide whether he wants the Crossrail investment, with the additional jobs that that will create and the improvements to London that it will lead to, or whether he wants to play party politics.
Robert Neill: Will the Minister give way?
Mr. Khan: The hon. Gentleman has had plenty of time to wind us all up; I would like to wind up the debate.
As my right hon. Friend the Minister for Local Government explained in his introduction, we are committed to doing what we can to help people through these tough times. At the same time, we need to look to the future and to prepare for the upturn in the economy. The business rate supplement should not be stalled by short-term concerns. The Bill does not propose a new duty on local authorities to levy a supplement. Instead, it provides a new discretionary power for local authorities to raise revenue to invest in local projects aimed at promoting economic development when the time is right. As the Bill is drafted, a business rate supplement will apply equally across the entire area on the basis that projects should benefit whole areas.
I shall now go on to address some of the points raised by hon. Members during the debate. The hon. Member for Bromley and Chislehurst (Robert Neill) moved the amendment and he had a lot of time over Christmas to think of it. It is a Christmas tree amendment. The only
thing missing from it is the kitchen sink. He was his normal, amusing self and we hope that he keeps his job in the imminent reshuffle. I was not clear whether he was calling the Bill BRS or BS—I know that we think that it is an important Bill that will have many benefits.
My right hon. Friend the Member for Greenwich and Woolwich (Mr. Raynsford) did an excellent job of demolishing the points made by the hon. Member for Bromley and Chislehurst. My right hon. Friend also made a positive case for the BRS. Of course, he was the architect of business improvement districts. He explained why the BRS is an important complement to the BID scheme that he drafted, rather than an idea in conflict with that scheme. He showed the irrationality of the Conservative amendment and asked why Crossrail should get the BRS and not the rest of the country. That is the Mrs. Merton question. Why do the Conservatives support and want to help transport infrastructure in a city with a Tory Mayor and not in the rest of the country? The answer, of course, is obvious.
I thought, in a non-patronising way, that the hon. Member for North Cornwall (Dan Rogerson), who speaks on behalf of the Liberal Democrats, made a grown-up and sensible speech. It was very good— [ Interruption. ] May I add that I am not being patronising? He articulated the folly of a Member voting against giving the Bill a Second Reading if they are in favour of Crossrail. He made the point that if the Conservatives were successful—God forbid—in the vote tonight, there would be no business rate supplement and no Crossrail. He made the point that grown-up politicians would make any objections clear in Committee and would come back to them on Report and on Third Reading.
Let me answer the hon. Gentleman’s specific point about having an element of the uniform business rate subject to local control. The Lyons inquiry, to which he alluded, considered the case for returning business rates to local control. Its analysis was that that would not be appropriate at this time. Instead, it recommended introducing a new local power to set a supplement on the current business structure, and that is what we are doing with the Bill.
My hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) made an interesting contribution to the debate. He talked about the benefits of a business rate supplement outside London and also articulated some of the problems with the current system. He is hoping that a business rate supplement will alleviate some of the problems that he articulated. He referred to the recent problems with Waterford Wedgwood, which I think happened in the constituency of my hon. Friend the Member for Stoke-on-Trent, Central (Mark Fisher), and to how the BRS could be a tool for local government to help infrastructure in various parts of the country.
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