Q
218 Mr.
Love: But there may be people outside the business
improvement area who do give a damn about someone else getting a
discount or a bribe, whatever we call it. You have a business
improvement area where there is a clearly justified reason why business
would want to be involved and pay the levy. You have a business rate
supplement scheme which one assumes business will support and a clear
economic rational for why they would want to do so. The
question that I am really asking you is: why should businesses inside
the improvement zone get some form of reduction? They are getting an
economic benefit in the same way as others, so why should they
not pay like everyone
else? Dr.
Grail: Because they would be paying twice. The
businesses outside the BID area are not paying for the BID
levy.
Q
219 Mr.
Love: But they are not receiving the benefit of the BID
levy or of what is happening inside the business improvement zone. A
business that sits outside the business improvement area and
gets no benefit from it does not pay anything towards it, but when it
makes a contribution to a wider scheme on business rate supplement,
those businesses on the inside get some sort of discount or bribe,
whatever you want to call it. Would that not be objected to by
businesses outside, or do you think that they will be happy that others
are getting a
reduction? Dr.
Grail: That presupposed that those who propose a BID
can clearly demonstrate that for every pound they spend they get at
least a pound back, and that is difficult to achieve and demonstrate. I
am saying that what we are trying to do is look pragmatically at how we
maintain a BIDs movement in this country, because we are in grave
danger of losing it. That is how we could recognise that there is a
compromise that we could achieve, so that the business community is not
given carte blanche to create low-level BIDs but recognises at least
some subsidy.
I think that
it is an entirely different matter whether the business community
supports business rates and what the relevance and focus of that is.
How do we protect business improvement districts, which are working
well in this country? Business communities, when faced with a 2p levy
over which they have no choice and a 1p-ish levy on a BID, will vote
against it in many cases at the moment. There are ways to try to
safeguard that, at least in part.
The
Chairman: On that point, Dr. Grail, we have reached the
end of this session. Thank you very much for coming along, and for your
informative contribution to our debate.
5.31
pm
The
Chairman: Good afternoon and thank you for coming along.
We have until 6.15 for this session. Could you please identify yourself
for the
record? Blake
Penfold: My name is Blake Penfold, and I am a
chartered surveyor with GL Hearn, which has offices in London and
elsewhere in the UK. I chair a policy panel on rating and local
taxation for the Royal Institution of Chartered Surveyors, a body
governed by a royal charter. We are not a lobby body; we are here to
speak in the public interest in respect of the business rates
system.
Jerry
Schurder: I am Jerry Schurder, head of rating at
Gerald Eve LLP, chartered surveyors and property consultants. I am a
member of the RICS rating and local taxation policy panel and
Blake’s immediate predecessor as its
chairman.
The
Chairman: Thank you. Nick
Raynsford.
Q
220 Mr.
Raynsford: Your written submission implies that the RICS
takes a rather negative view of the legislation. First, in paragraph 5,
you say that there is little sound economic reason for introducing
supplements and little enthusiasm from the business community for such
supplements. Do I take it from that that the RICS is opposed to
Crossrail? Blake
Penfold: No, we are not opposed to Crossrail. We are
in favour of
it.
Q
221 Mr.
Raynsford: So how do you propose that Crossrail should be
funded? Blake
Penfold: I will start with a negative, which is a
slightly consultant-y way of starting an answer. Our concern about
using business rates as a tool to fund Crossrail is that essentially,
business rates are, as you will know, a tax on the occupation of
property. They accrue on a daily basis, and therefore may accrue over
quite a short term. Crossrail is a major infrastructure project by
nature whose construction period will be many years and whose life will
be way beyond that. We are not satisfied that a tax to do with the
occupation of property levied on property occupiers is the correct way
to fund a major infrastructure
project.
Q
222 Mr.
Raynsford: The Mayor of London said to us in his evidence
that the passage of the Bill allowing the supplementary business rate
for Crossrail is essential to enabling Crossrail to be built. Without
it, the funding package
collapses. Blake
Penfold: That must be a decision for Parliament. It
would fall outside my remit as a rating
valuer.
Q
223 Mr.
Raynsford: But I am sure that the RICS has considered the
implication. You are not saying that you would be quite relaxed if
Crossrail
collapsed. Blake
Penfold: No. In 2003, the RICS produced a report with
GVA Grimley on funding options for Crossrail. One of those was a
supplement on the business rate, but there were a number of others as
well. For the reasons
that I have tried to explain, we do not see a tax on the occupation of
property as the best way to fund a major infrastructure
project.
Q
224 Mr.
Raynsford: Okay. You say that the existing uniform
business rate is set at a high level. You will be familiar with the
Lyons
report. Blake
Penfold:
Yes.
Mr.
Raynsford: He made the very strong case that that was an
unsound argument, because other business taxes are low by international
comparisons. If you take things in the aggregate, therefore, the
uniform business rate is not uniquely high. It itself might be, but the
total package of tax on business is
not. Blake
Penfold: I understand that entirely. The general rule
that seems to me to be good for taxation is that it should be three
things—low, simple and compulsory.
Q
225 Mr.
Raynsford: Fine, okay. Are you familiar with what has
happened to the business rate as a contributor to local government
expenditure over the past decade or
so? Blake
Penfold:
Yes.
Q
226 Mr.
Raynsford: Do you know that the proportion of local
government expenditure met by the business rate has fallen from about
25 per cent., a decade or so ago, to about 20 per cent.
currently? Blake
Penfold:
Yes.
Q
227 Mr.
Raynsford: Do you think that that is
equitable? Blake
Penfold: It is a proportion of an increasing sum. The
actual amount raised from business rates is
increasing.
Q
228 Mr.
Raynsford: But the domestic rate payer and the national
tax payer has had to meet a much higher proportion as a result. Is that
equitable? Blake
Penfold: They are voters, I suppose.
That would perhaps be the position of
business.
Q
229 Mr.
Raynsford: So you are quite relaxed about the fact that on
the one side is a declining proportion of business rates supporting
local government, and on the other you do not want to see any use of
that mechanism to support infrastructure? The RICS position appears to
be that the whole burden for increased spending on necessary
infrastructure or improving the local economy should fall either on the
individual council tax payer or on central Government
taxpayers. Blake
Penfold: There might be other options, one of which
is outlined in the paper that we put forward: to hypothecate a
proportion of the existing uniform business rate to local purposes.
That could be levied, for example, by the Mayor of London, for
Crossrail.
Q
230 Mr.
Raynsford: How would that give
additionality? Blake
Penfold: It would
not.
Q
231 Mr.
Raynsford: No. And therefore the funding of Crossrail
could be achieved only by cutting other aspects of local government
expenditure. Blake
Penfold: That is a circumstance with which I am
familiar in my own household.
Q
232 Mr.
Raynsford: Indeed, but if the view of the business
community in London, of the Mayor and of central Government is that the
Crossrail project is fundamental to the economy of London and the
nation, and will require additional spending to get there, you would
essentially say, “Sorry, but we don’t think that’s
appropriate.” Is that
correct? Blake
Penfold: I think that we are saying that the business
rate system might not be the best way to achieve it, for the reasons
that I have tried to
explain.
Q
233 Mr.
Raynsford: Forgive me if I sound a bit exasperated, but
you seem to be advocating a position whereby the business rate payer
has seen business rates providing a lower proportion of local
government spending over the years, as a result of which the burden has
shifted to national and council tax payers. When it comes to the need
for major infrastructure investments, from which business will benefit
hugely, as Crossrail has itself demonstrated, you do not think that
there should be any additional contribution from business. That seems
to me to be a totally untenable
position. Jerry
Schurder: I am not sure that the RICS position is
that business should not contribute. We are saying that we do not
believe that the rating system is the best mechanism for finding that
revenue. The key issue is that it is generally a tax on the benefits of
occupation. In the main, but not exclusively, the property system in
this country consists of owners and occupiers, and they are not always
the same—in the majority of instances, they are not. The
concern—and you raised this issue earlier—is that the
burden will fall upon the tenant-occupier ratepayer. They might partly
benefit from a successful scheme funded by the business rate
supplement, but that would take some time to come through. Ultimately,
however, the property owner would be the beneficiary of a successful
scheme, and they would benefit from increased rental values and
increased capital values without contributing to the scheme. The RICS
has that concern about a number of the relief schemes that have been
used and adopted over time in the business rating system. We do not
feel that that is always the best way of targeting relief to what may
well be deserving cases. Very often, the relief is targeted at the
ratepayer tenant, but at least some of the benefits go to the landlord
without them having contributed.
Q
234 Mr.
Raynsford: I understand that and I hear the argument.
However, that argument was used strongly and forcibly five years ago to
oppose the introduction of BIDs. BIDs have come in, despite what we
acknowledge may be a weakness, and the scheme has proved
successful.
Jerry
Schurder: I think there is a significant distinction
to be drawn between the BIDs model and the business rate supplements.
By their nature, BIDs are generally local and usually fund revenue
expenditure, be that additional policing, street cleaning, street
furniture or whatever. That brings fairly immediate returns to the
tenant, the ratepayer. They contribute and they derive benefit. Some of
that benefit may flow through to the landlord through increased values.
The distinction that RICS draws with the business rate supplement is
that generally these are major capital projects over a long time
period. Clearly, there are significant elements of expenditure, and for
the tenant to pay up front for a number of years—they might no
longer be the tenant
any more by the time the scheme comes to fruition—does not make
this the best model or system to get business to assist with the
funding of capital projects. It is not RICS’s position to say
that businesses should not assist and contribute, but we are concerned
that the business rate system is not the best measure to
use.
Q
235 Mr.
Raynsford: So, tell me your proposal in item 10 of your
submission as to how we should introduce a scheme instead of this one,
which would essentially derive similar benefits from property owners
through supplements on them.
Jerry
Schurder: That is a very good question and there is
no straightforward answer. At the moment, we do not have a register of
all property interests within the country. We have a complex scheme of
property ownership with freeholders, head landlords, tenants and
subtenants and so on, and that makes it very difficult. I appreciate
that that does not assist with the answer to the question, but it is an
important fact to bear in mind.
The only
solution that we can come up with at this stage is our belief that
tenants would feel more comfortable with the concept of contributing
towards a BRS scheme if they could see equivalent, landlord
contributions. It would not need to be one to one, but perhaps people
could see that property owners are prepared to put their hand in their
pocket. Property owners will ultimately be the beneficiaries and they
should also contribute.
How does one
achieve that? We cannot impose it—we do not see how we can have
a system of imposing that on property owners. However, if there were a
vote in all cases, which many of us are clearly calling for, that would
focus the minds of those who propose a scheme to be funded by a BRS and
ensure that they get contributions and funding from landlords. That
would not only help reduce the element to be paid for by tenants, but
it would enable the tenant ratepayer to see that their landlord is
serious about the project and is playing a fair part. We cannot prove
it, but our perception is that that would assist those voting in a
ballot in favour of such a scheme. Perhaps the BIDs model, where
landlords have come forward voluntarily and put their hands in their
pockets, could assist with that.
| 
