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Mr. Raynsford:
If the hon. Gentleman bears with me, he will hear precisely how I believe that the introduction of an owners levy in parallel with the occupiers levy—not as an alternative—will help to avoid the problem of
costs being passed from one to the other. In addition, the concept of a BID is entirely compatible with the concept of local democracy. Local communities should be free to decide to do things that they think will enhance their area. Obviously, they will take account of the competition issue. If the businesses in one area do not think it will be to their benefit, they will not vote for it. It is entirely a matter for local decision, and in this case the vote comes from the local business community.
Mr. Mark Field: I am sure the right hon. Gentleman agrees that one of the most important tenets of any tax, to make it as efficient as possible, is certainty. Presumably that was one of the issues when six years ago it was determined that BIDs would not go down the route of a levy on property owners. How much evidence is there on the certainty of property ownership? Often it will be difficult to get the money from offshore companies. In introducing the new clause, has he given any thought to how that problem can be overcome?
Mr. Raynsford: The hon. Gentleman raises a pertinent point. I am going to address that in detail later in my speech, so if he will bear with me, I will come back to the point, which is relevant and has exercised people. I should stress at this stage that it was not so much a problem of certainty that deterred us from introducing a property owners levy as a basis for BIDs when BIDs were introduced. The obstacle was the cost and time involved in creating a register throughout the country, which would have been necessary, when there was no certainty that BIDs would receive positive votes anywhere. There could have been a lot of abortive cost. Now we are in a different situation, as I will explain.
The Government took the decision, and I do not in any way resile from it, in 2002-03 to proceed with the BIDs on the basis of an occupier levy that could be easily and quickly implemented on the basis of the existing business rates register. At the same time we encouraged the concept of voluntary contributions from property owners to supplement the levy on occupiers, so as to spread the burden and ensure that owners had an involvement and were not excluded from the BID. That has worked reasonably well in a number of BID areas, but not everywhere. It has worked to a considerable degree in key retail locations such as London’s West End, in the area including Regent street, Oxford street and Bond street, which has a BID: the New West End Company, which has been very successful. It has an annual BID levy income of £2.5 million from property occupiers, but it receives an additional £900,000 a year in voluntary contributions from property owners, so the contributions from owners represent about 36 per cent. of the levy income.
Mr. Field: It is probably worth making the case that there is one very large landowner in that area: the Crown Estate. Under the scheme that the right hon. Gentleman is envisaging for BIDs and the BRS, property ownership would be much more disparate, at least at freehold level, which would make it far more difficult. He clearly recognises that the New West End Company may have certain benefits and advantages over many of the other 76 BIDs.
Mr. Raynsford:
That is absolutely right and I am not making my case solely on the basis of the New West End Company, but I am using it to illustrate how a levy
has been supplemented by a voluntary contribution from the property owners. However, even there, as I will explain, there are problems.
Dame Judith Mayhew Jonas, who heads the New West End Company, was part of a group of interested parties I was pleased to have the opportunity to take on a delegation to meet the Minister just last week. During the debate that we had on the subject in Committee, he offered to have a meeting with representatives of British BIDs, individual BIDs and the British Property Federation. We had that meeting and I am grateful to him for making that opportunity available. It was a constructive discussion. Dame Judith highlighted a number of weaknesses with the voluntary contribution system. First, it is unstable and unpredictable. Whereas the BID levy is fixed for the full five-year duration of the BID before it comes up for renewal, voluntary contributions can be cut off at any time. Given the significance of the sums—£900,000 a year in the case of the New West End Company—that makes forward planning and budgeting much more difficult.
Secondly, although current owners may commit to a voluntary contribution, there is no guarantee that their commitment will be taken up by their successors if property changes hands, and BIDs are concerned that income is reducing from voluntary contributions as a result of insolvencies and change of ownership.
Mr. Redwood: Is that not the point? All these schemes were dreamed up in a totally different world of rising property prices, rising rentals and strong tenant demand. In a world of crashing property rentals, many voids and falling asset values, it seems that it is no longer appropriate to try to extract the added value when value is being subtracted.
Mr. Raynsford: On the contrary. The right hon. Gentleman will know the importance of major infrastructure investment such as Crossrail to the long-term health of the economy of London. He must be aware that, were we to lose confidence and cancel Crossrail, which would be the implication of not proceeding with the Bill, that would have a devastating long-term impact on London's reputation and its economic viability. It is precisely because it is necessary, even in difficult times, to help to support appropriate investment that will help our economy and business, that such arrangements are necessary.
British BIDs has told us that income from voluntary contributions in the Heart of London, another central London BID, have reduced by 34 per cent. in its first three years, so there is a risk of declining income through change of ownership. Thirdly, there is growing resentment among the owners who are making voluntary contributions at what they rightly see as freeloading by other property owners in the BID area who get the benefit of the work of the BID without having to make any contribution. For all those reasons, there is a strong case for revisiting the option of introducing a property owner levy in BID areas. That is given added urgency by the introduction of BRS, which, as I have emphasised, could threaten the survival of several BIDs.
To overcome the objections, notably the cost and time necessary to compile a national property owners register, which prevented this being undertaken when
BIDs were introduced, the new clause would apply only in very limited circumstances: first, in areas where BIDs have already been established; and secondly, in areas where a business rate supplement has been introduced. In effect, therefore, the new clause, if it is accepted, will apply only in the early years of business rate supplement within the London area, where there is the only BRS scheme that is likely to be ready to start from 1 April 2010. Even when BRS is picked up in other parts of the country, the provision will apply only in those areas where there is both a BID already in existence and where the BRS scheme is to be applied.
The provisions in the new clause are permissive; they do not require the imposition of a property owner levy. They allow it in circumstances where the existing BID company, board or governing body—I wholly take the point about the need for flexibility in such arrangements, which we debated under the previous group of amendments—decides that it is in favour of pursuing this, subject to exactly similar balloting arrangements as apply in the case of a property occupier levy. In other words, there must be a double-key ballot: a majority vote among the property occupiers and, for the owners levy, the majority of owners voting yes along with the majority of rateable value. Essentially, there has to be support from both large and small-scale occupiers or owners to ensure success. One cannot simply load a cost on to others. That safeguard has worked well in the case of BIDs, and the new clause provides that that should be applied equally in the case of the owner levy.
Angela Watkinson: I am listening to the right hon. Gentleman most carefully and I think I understood him to say that owners will not be able to offload the additional charge on to occupiers. Is he not concerned that occupiers will pay their additional charge as occupiers and then may be required to pay again when the owner transfers the equivalent sum, or recoups the cost, in additional leasing or renting charges?
Mr. Raynsford: That is very much the point raised by the hon. Member for Northampton, South (Mr. Binley) and perhaps I will come to it now. I wanted to get to a relevant stage in what is necessarily a rather complex presentation of the new clause.
The proposal would allow the BID company or board to decide what it required in the way of a budget over a period and then to decide whether it wished to seek an apportionment of the cost between property owners on the one side and property occupiers on the other. It should not be required to do that. In my view, it should be equally permissive, with separate ballots to be held of owners and occupiers. Dr. Julie Grail has given evidence, to which I shall refer, from Scotland to demonstrate why flexibility is probably a good thing, but if there is a decision to apportion the cost between the two, the proposition will be put to both the owners and the occupiers that they should meet a set percentage of the agreed budget, which will be set in advance. Both parties would know at the outset what share of the total budget they would meet and what the financial implications would be.
Mr. Binley:
The right hon. Gentleman is most kind and I am very grateful to him for giving way. Can I get it clear in my mind? We have a BID in operation. If we introduce a supplementary rate, is the right hon. Gentleman suggesting that the levying authority would be able to
divide the element of supplementary rate between the owners and the occupiers, not exceeding the total of 2 per cent., or is he saying that we could levy even more money by including the owners of the property, while the occupiers would still have to pay both the BID levy and the supplementary rate levy?
Mr. Raynsford: I must apologise to the hon. Gentleman. This is complex territory and I am probably not explaining it as well as I should. The apportionment is purely in relation to the contributions to the BID. The business rate supplement—the main purpose of the Bill—would apply only to occupiers. There is no provision for the business rate supplement to apply to owners. My new clause would not change that. It applies only, as I thought I had stressed, to those areas where there are existing BIDs, in which it would be open to the BID board to work with the levying authority. I would hope that the two would work closely together; one of the lessons of BIDs is that close co-operation is crucial to their success. If the board were to propose an apportionment between the element of the BID that would be paid by the occupier and the element that would be paid by the owner, it would be free to do so.
2.45 pm
I said that I was in favour of flexibility; let me explain why. There will be some BID areas where the renewal ballot is perhaps not due for three, four or more years. The New West End Company only just had a successful renewal ballot at the end of last year. Therefore, there will be a period of almost five years before it is time for another ballot. If the new clause were accepted, there would be an option to set an owners levy within an area where there is an existing BID—the New West End Company is one—and where the business rate supplement is coming in. It might be decided that it was sensible to introduce an owners levy as well as the existing BID. It is right that there should be the flexibility to do that rather than saying that the board has to wait until the end of the current BID period, when there would then be the relevant apportionment and a proposal. It is purely a practical measure to allow a degree of flexibility.
The other point was whether the occupiers would end up paying more because the owners tried to offload the extra costs that they were bearing through a rent review. In the experience of most BID areas, probably only a very small element of the total costs would be part of a rent review, particularly because—as I hope I have now explained—the costs of the BID are being apportioned between owners and occupiers. It would be difficult for the owners to make a case to seek to offload their contribution on to the occupiers.
I would not be tabling the new clause if it had not received substantial support from property owners and occupiers, who believe that it will strengthen the BID’s offer and make it more likely that BIDs will succeed. I am not proposing to impose something. I am making a proposal that commands the remarkable support of a large proportion of those involved, either as owners or as occupiers of retail premises in some of the country’s most significant shopping areas.
Mr. Redwood: How much extra money does the right hon. Gentleman think would come in as a result of the change?
Mr. Raynsford: I tabled the new clause to provide an offset for property occupiers who currently have a liability to pay a BID levy and will also be affected by business rate supplement. The right hon. Gentleman will have heard me say clearly that I would leave it to the BID board to determine what the basis of the levy on owners should be and the amount it would seek to collect. I would expect it to be used to offset the contribution of occupiers; in other words, the extra contribution from owners would offset the liability of the occupiers, which would reduce their contribution and make it less burdensome to meet the additional demand of the business rate supplement. I cannot give an absolute guarantee on that because it would depend on individual circumstances. I hope that the right hon. Gentleman will recognise that that is necessary if we are to leave the control of these operations at a local level, with the board covering the businesses and the levying authority.
Dan Rogerson: On this aspect of the new clause, am I right in understanding that where there is an existing BID, there would be the possibility of this new provision being brought into effect, but that that would also automatically be discussed in any area where a BID proposal is currently still being worked on? That would provide a reassurance to businesses prior to a ballot in any new BID areas, as well as to businesses in an existing BID.
Mr. Raynsford: I have already made it clear that this provision will apply only in areas where there is an existing BID, and where business rate supplement is proposed. Those are the two areas that are covered. A new BID would not be covered, and the new clause may need to be improved to address that requirement, because there would be a logic in doing so. However, it also remains the case that the provision would not apply even in areas where there are BIDs unless there is a business rate supplement.
Mr. Scott: I wonder whether the right hon. Gentleman can provide clarification on the following point. In my neighbouring constituency, with which I have a connection through the main town centre of Ilford, a BID is being voted on at present. Would that also be included, or would it be counted as a new BID?
Mr. Raynsford: Even assuming that this new clause is accepted, the Bill still has to pass through Parliament. I do not know the precise timetable for the Ilford BID ballot, but if it is taking place soon, there will be an existing BID within Ilford when the Bill is passed. Therefore, it will be open to the BID, if it is successful, to decide to use this power, if it is available. That would be entirely permissive, however; the BID would not be required to use it.
Other benefits arise from focusing on areas where there are existing BIDs, which is why the new clause is framed in this way. On the whole, there is a good understanding of property ownership in such areas, because the BID itself has, as a matter of course, had to bring together the various business interests—the occupiers, because they are contributing, and the owners, because, in many cases, a voluntary contribution is being sought from the BID and it is necessary to know and understand who those owners are. I am assured by British BIDs as well as the New West End Company that they do not
think that in these circumstances it will be difficult, expensive or time consuming to compile a register of ownership in such areas. That was the primary obstacle to the introduction of an owners levy at the outset.
The second safeguard, which is absolutely crucial, is a minimum threshold contribution. If this were to apply across the board to all businesses, I could foresee certain difficulties, such as having to deal with very small pockets of land that might be held in ownership that it would be difficult to identify. However, it is a characteristic of most BIDs that contributions come from significant businesses within an area, and most small businesses in most BID areas are exempt. Therefore, the range of business ownerships that have to be identified will be less, and the risk of serious problems arising will also be less. I therefore believe that this is a practical measure that addresses the problem, and that does so without creating the kind of difficulties that deterred us from adopting an owner register and owner levy when BIDs were first introduced.
Mr. Binley: I thank the right hon. Gentleman for taking great steps to ensure we understand what is a rather complicated area. Let us consider a situation in which a business rate supplement is in being and a new BID is then mooted; does the right hon. Gentleman fear that the supplementary rate could make it much more difficult for a new BID to be introduced? Let me say to him at this point that I am a fan of BIDs, as I have said both on previous occasions and in a commission I had the privilege to head-up for my party. Does he fear the concept of BIDs becoming less attractive because of this double whammy of costs, albeit split between property owners and property occupiers?
Mr. Raynsford: By definition, yes, because, as I have said, I think that there is the possibility of existing BIDs failing to get support in renewal ballots because of the imposition of BRS. It is precisely because of that that I believe it is right to address the long-standing problem of property owners not having had any liability to contribute towards BIDs. I believe that this proposal addresses that problem in a practical way, and that it will make it possible for people to see the case for continuing to support BIDs, albeit the occupiers will be contributing less because the owners will be contributing more as well as meeting the business rate supplement. I believe that, for all these reasons, there are very strong arguments in favour of the approach I advocate.
I have also been struck by the amount of support I have had from a very wide range of organisations. There is strong business backing for the introduction of a property owners levy. The British Property Federation has been closely involved in the preparation of the new clause, and it made clear the degree of both its support and business support for this approach at the meeting that my right hon. Friend the Minister for Local Government arranged a week ago. It is not every day that business welcomes the introduction of a financial levy, and the fact that business and owners’ representatives were saying they welcomed this and thought it was the right way forward for BIDs is doubly telling.
We have also had a letter of strong support from the Mayor of London. It was sent to my right hon. Friend, and I would like to quote from it:
“Further to the Committee Stage debate on property owner involvement in Business Improvement Districts (BIDs) I am writing to express my full support for this measure.
Specifically I support proposals by the British Property Federation ‘to amend the Local Government Act 2003 to allow a BID, where it wanted to, to make the BID levy mandatory for both owners and occupiers, and giving property-owners full rights of BID membership. Similar to occupiers, property owners would only be faced with a levy if a majority by number and rateable value had voted in favour of it.’
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