---

I want to make it clear that this is not a measure that in any sense treats businesses as cash cows; it is a mechanism to raise funds to support economic projects that will benefit all. Before I discuss the details of the Bill, though, it is worth reflecting on some of the main concerns that have been raised, such as: who will pay? How will they benefit? What control does business have over a BRS? What flexibilities are built in? How, on the whole, will this fit in and promote partnership?

The Bill is proportionate to what is needed to safeguard the interests of business. It reflects a fundamental fairness, linked to the ability to contribute. It sets out that at any one time, the total amount levied

22 Apr 2009 : Column 1507

through the BRS in an area may not exceed 2p per pound of rateable value. That is the upper limit. Local authorities can decide, after consultation with local business, to set a lower rate or to phase in different rates. Nor can a BRS be levied on businesses which occupy properties with a rateable value of less than a value prescribed by regulations. In accordance with their White Paper commitment, the Government will use this power to exempt properties in England with a rateable of £50,000 or less. That threshold exempts the vast majority of smaller business. Based on the latest figures from 2007, more than 90 per cent of business properties in England will not have to pay the supplement. That is a key point in understanding that the Bill will not devastate smaller businesses, despite recent reports to the contrary in the press.

The Bill is built on fundamental democratic principles. Let me set out the role of businesses and ballots in the proposed BRS projects. The involvement of business in decisions about projects will be in proportion to its financial contribution. Where businesses are providing more than a third of the money for a project, they will have a vote on the future of that project. Where they are contributing a small minority share of the funds, they will be consulted in the same way as others, including the communities affected by the project. We believe that it is not right for businesses to be able to block projects when they are contributing a relatively minor element of the funding.

How will the funds be used? The Bill makes provision for upper-tier local authorities—that is, county councils, district councils where there is no county council and, in London, the GLA—to levy a maximum of 2p in the pound of rateable value on the business rate. I assure noble Lords that those funds do not go to the Exchequer but are retained and used by local authorities to fund projects aimed at economic development of their local area.

The Bill allows local authorities and their partners to be genuinely innovative. This is not simply about investing in bricks and mortar; it is about schemes which are believed, jointly, to contribute to the economic development of an area. That might be achieved through the construction of new transport links or business parks. It might be possible and useful to raise the standing of an area in terms of attracting new investment or people with new skills through an international advertising campaign. As long as there is a clear link between the BRS project and economic development, local areas may fund projects which are appropriate to their area.

This approach is about funding what is right for an area. It is about additionality—it has to go beyond what is already planned or in existence. The Bill enshrines this principle in Clause 3, which clearly states that not only must funds be spent only on that which BRS identifies in its prospectus but they can be used only to fund expenditure which the authority,

“would not have incurred had it not imposed the BRS”.

That is vital to making the link with economic development and the specific purpose of the project. It does not mean that a BRS project has to be completely new, stand-alone project. The BRS may fund something

22 Apr 2009 : Column 1508

additional that expands a project already under development, but it must go beyond the current proposals and therefore it must be able to be proved that they would not exist if the BRS were not part of the funding stream. This is therefore not about plugging funding gaps. The Bill clearly states that those funds raised through the BRS may support additional expenditure only on projects which support economic development. Those revenues cannot be diverted into funding services such as housing or education, which we would expect, and indeed are the duty of, a local authority to provide.

In addition, any levying authority which wishes to support a project through the BRS must consult local business which could be subject to the levy before it is charged. We see this as a genuine exercise in partnership, whereby the early conversations about what might be possible are conducted on an equal basis between local authorities and business. They must set out in a clear prospectus the details of the levy, such as its level, duration and the economic evidence of the benefits of the project to be funded.

In practical terms, these plans will hardly be developed in isolation. Local businesses have to be an integral part of any project and we do not anticipate any proposal coming out of the blue. Indeed, where businesses will contribute in excess of one-third of the total costs of a project, we think it absolutely right that those businesses that will pay the BRS should have a vote on whether the BRS goes ahead.

The scheme is based on strong partnership working. Local authorities will work with local businesses when creating and devising possible projects, and decisions will be taken in partnership. This builds on the excellent relationship between chambers of commerce and local authorities, which were evidenced in Committee in the other place. This is not a new burden; I reassure noble Lords that the Bill does not force local authorities to levy a BRS. The Bill does not impose a new duty; it is fundamentally discretionary in its design and is to be used when the time is right for individual local authorities. That is why we have been keen not to constrain levying authorities too tightly. There are other, built-in flexibilities—for example, authorities can raise the rateable value threshold for liability above £50,000, so that more businesses are exempt; they could introduce a taper above £50,000; alternatively, they may wish to phase in the BRS over a number of years to take advantage of the flexibilities that are needed in development projects. Levying authorities will also be able to decide whether empty properties should be exempt from liability and whether bid levies should be offset against liability for BRS. All that flexibility is consistent with our overall approach to BRS. It is not the role of central government to prescribe exactly how each BRS should function; it is properly a matter for a local authority working in consultation with local business.

I shall say a few words about Crossrail. The Mayor of London has announced plans to levy a BRS to support the funding of the Crossrail project. The Bill works for London, but it works for the whole economy; it was designed and works for authorities across England and Wales. London is the leading example of this new principle and new power. It will allow the Mayor of

22 Apr 2009 : Column 1509

London to make real his commitment to funding a key part of the Crossrail project and boost economic recovery and long-term growth. As Mayor Johnson said:

“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. Crossrail has been a dream for many years”—

a dream shared by many noble Lords—

“and these arrangements now give the project the momentum that will make it become a reality”.

For those very reasons, it is right that we do not place a limit in the Bill that only London may benefit from these provisions. We must ensure that all areas of the country have the chance to use this power if it is right for them to do so, when it is right for them to do so. It will enable them to plan for the future. It is not a duty but a power to be used as local authorities and business see fit. London is the leading example of the principle of how it can contribute to future prosperity; the GLA and the mayor have engaged and consulted business on this important project. Sir Michael Snyder, deputy chairman of the Policy and Resources Committee of the City of London Corporation, said last December:

“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”.

The project is supported by the wider business community in London and, as such, the funding package of which BRS is a key component is an explicit part of the Crossrail deal.

I look forward to our debates on this Bill. I commend the Bill to the House; it comes with the support of the other place, unamended, because of the recognised benefit that it will bring and the opportunities for local communities to make real their ambitions and designs for economic development for their area. It is pragmatic and flexible and achieves the right balance between enabling local authorities and business to work together to build on a partnership to realise those ambitions without constraining them through over-rigid frameworks. It is voluntary. I hope that it will be an integral part of this country’s development as we move from recession to recovery and prosperity for all. I beg to move.

4.05 pm

Lord Bates: My Lords, I thank the noble Baroness for the characteristic care and thoroughness with which she has gone through and introduced the Bill to us today. I also thank her for the way she and her team have made available to us information we have requested and helped in our understanding of this important piece of legislation. I am grateful for that. I also place on the record my interests as a director and member of three businesses, which pay business rates in the north-east of England. I put that on the record for your Lordships to be aware of.

I heard what the Minister said about the Bill arriving in pristine condition in this place. It was an interesting presentation of the facts. The reality is, as I would argue from these Benches, that it probably owes more to the voracity of the Government Whips Office than necessarily to the voracity of the arguments presented. Our position is very clear on this. We are very supportive

22 Apr 2009 : Column 1510

of Crossrail, which is a major infrastructure project, and of the enabling legislation that allows that, but we take exception to taking something that is exceptional and making it normative across the whole of the country. That is the basis of the argument that we will present.

Despite a great deal of constructive and positive debate in another place, the Bill enters your Lordships’ House unchanged from its original form. That is very disappointing. I hope that as the Bill passes through the House, and as the productive and informative debates we are sure to have in Committee take place, a degree of consensus will be reached so that some meaningful changes, which are going to help businesses and economic development, can be effected.

We are opposed to the Bill in principle. The current economic maelstrom means that many businesses are experiencing great difficulties and are under enormous pressure to stay viable as they attempt to ride out the perfect storm of the current economic crisis. Clause 1(2) allows upper-tier local authorities to levy a local supplement on business rate,

“to raise money for expenditure on a project that the authority is satisfied will promote economic development in its area”.

The Minister presented it as a key tool of economic development; it is simply something to put into the toolkit. We see it in its context as being no more than a key tool of the Treasury to bring in extra resources from already hard-pressed businesses to support projects, which could, should, and are already being funded through other government initiatives. We believe in businesses contributing to new infrastructure and that it is important to encourage economic development within local areas. Nevertheless, the Government’s figures show that if every local authority levies this charge, supplementary business rates could go up to £597 million a year based on 2007 rateable values. That figure could be even higher after the 2010 revaluation. That is an extra £600 million of taxes.

It is somewhat ironic that we are debating this additional tax measure in the House today, because in the other place the Chancellor of the Exchequer is seeking to present ideas which, if not designed to save the world, are certainly trying to save some businesses. Yet at the very same time, here we are at the other end of the House debating a measure to enable local authorities to apply more tax to more businesses which are already struggling.

In that context, businesses face being hit next year by an army of new taxes on not only two but four sides. By April 2010, businesses will be burdened with a rates revaluation that uses April 2008 as the snapshot, a time when retail rents were artificially high. That will take many shops out of business rate relief altogether. They will also be hit by the new empty property hike, which will bring further increases.

This year, the Government have deferred the rises resulting from the end of transitional relief. If firms fill out an application form, two-thirds of the proposed 5 per cent increase in business rates, scheduled to be levied from the beginning of April, can be deferred—but only deferred—into next year. Nevertheless, while we welcome this deferral, its postponement is not a cut. Even though it is only a form to fill in, it will mean

22 Apr 2009 : Column 1511

that many businesses are unaware of the rules and therefore will not claim the relief to which they are entitled. The bill will therefore go up. In 2010-11, rates will rise by a further £335 million. The year after that, they will rise by £320 million. The deferral will therefore mean that, next year, another two components will be added to the raft of new taxes which businesses are facing in the present climate. A cursory walk along any high street or through any shopping centre will show the catastrophic effect that these taxes and the current economic crisis are having on businesses. It is all well and good talking about new projects of economic development, but what about helping economic development by helping small, viable businesses, which are already employing people, to keep going under the present conditions?

The enacting of the Bill will therefore mean that struggling businesses will be saddled with yet another load of taxation as business rate supplements are introduced. It appears that, at a time of economic recession, these measures are a lethal cocktail that poses a real threat to businesses across the country. That is the basis of our opposition.

In case there is any doubt as to the serious nature of these taxes, I remind the House that the rates bill is the third largest expenditure for many small businesses, coming after wages and rents. This is why we on these Benches are particularly worried that the Business Rate Supplements Bill, despite its honourable intentions and relevance in the City of London, will turn into a stealth tax reaching across the nation. That is in addition to the possibility of the community infrastructure levies that have been announced, and the congestion charging and workplace parking levies that have been talked about. They have all been taken into account in business improvement district levies as well: just another load of taxation when we can afford it least. These can all add up to a toxic burden of taxation at a very difficult time.

In addition, the Government's decision to cut funding to local councils under the local authority business growth incentive scheme, from £1 billion over the past three years to just £150 million over the next two years, means that local authorities are heavily laden. One cannot let that pass without spotting a connection between the local authority business growth incentive scheme being cut while there is a nice bit of enabling legislation in the Bill that could potentially add £600 million to plug the gap. The Government have simply shifted the burden of debt directly on to local businesses.

The increased financial pressure may mean that councils are tempted into using the supplementary business rate simply to replace lost funding. The Lyons inquiry, referred to by the Minister and which we have studied and support, specified that the supplement should be used for additional purposes,

“additional, with any new revenues available to spend on new infrastructure or projects rather than taken into account in central government grant allocations",

which have already been made. Does the Minister agree that any other use would be utterly inappropriate? It is unacceptable to use it instead to pass on costs to

22 Apr 2009 : Column 1512

local taxpayers which are already being levied centrally. We will look for assurances from the Government that the principle of additionality will be maintained. To this end, we will also seek reassurance from the Government that they have looked into the possibility of “crowding out”, which the business rate supplements scheme may introduce.

An example of a use to which we are told the business rate supplements could be put is to establish centres of excellence focusing on training in particular industries. Three centres of excellence are established in the north-east: the centre of excellence for life sciences in Newcastle; the centre for progress innovation on Teesside; and the centre of excellence for new and renewable energy in Blyth. All these are funded by the regional development agency. One North East has done a terrific job in instigating these initiatives. That is exactly the type of long-term investment in skills and technology that we should be encouraging and which Government should be leading. However, One North East has seen its budget cut from £277 million last year to £207 million next year. One is piecing together pieces of a jigsaw and a picture is emerging of something that is less than the high ideals and lofty ambitions that the Minister has presented. It would be interesting to hear the Minister comment on the ongoing funding of those three centres of excellence as she mentioned centres for enterprise. Would it be appropriate for them to be supplemented? Would they qualify for additionality purposes or would they be exempt? It would be interesting to have the Minister’s comments on that on the record.

We fully support a business rate supplement with regard to Crossrail. Crossrail will cost an estimated £15.9 billion, including contingency, and a business rate supplement will be a necessary part of this and is expected to finance and repay £3.5 billion of borrowing while Crossrail is under construction. Crossrail will form a major part of London’s regeneration and should in turn pass on economic benefits that will help the rest of the country. The scheme has been discussed and consulted on within London. Business rate payers have had their say, as have voters at the relevant election where this was a key issue. The funding package has been agreed and it is important that a business rate supplement should support this scheme so that it can develop and bring all the benefits we hope to see.

Nevertheless, we believe that this is a unique project and should not be the catalyst for a nationwide business rate supplement scheme. On 11 March in another place, it was suggested, at col. 345 of Hansard, that perhaps the Bill could be limited in scope to just the Greater London Authority in order to make sure that the Crossrail project is secured and fully funded, and that the debate about the application of the business rate supplements nationwide should be taken out of the context of the Bill and debated another day. Given that the nature of the recession is directly relevant to how a business rate supplement will be perceived and how it will work, this seems a very sensible idea. I should be interested to hear the Minister’s response on whether that idea of decoupling the debates into two elements—the funding of Crossrail and the nationwide aspect—could be contemplated in the context of our discussion in Committee.

22 Apr 2009 : Column 1513

However, if the Bill is to go forward, it is important that some fundamental changes are made to improve it to create more effective legislation. Given the debates that occurred in another place, the Minister will not be surprised to hear that one of the areas we will be pushing on is making sure that businesses have a vote on the imposition of business rate supplements. The Bill requires that a ballot must be held only where the supplement constitutes more than one-third of the funding, or the initial prospectus states that the levying authority thinks that a ballot is required. In contrast, the Lyons inquiry—the Minister and I have quoted that liberally—recommended that the local business community should have,

“a strong voice in the final decision on whether there should be a supplement”.

We are unconvinced that there are any safeguards in place that will ensure that that voice is heard and acted on. Does the Minister agree that there is a very strong argument for a mandatory ballot, as already occurs in business improvement districts? The Minister, in her opening remarks, talked about those districts’ success. We argue that it is very much the essence of their success that they have been collaborative and that ballots have taken place.

Furthermore, it is clear that a business vote would improve relations between local government and businesses. Confident in the knowledge that they can only deploy a vote, businesses are likely to be more open to new and innovative ideas. In return, business acumen can be deployed to make sure that only the most worthy projects are selected and that the funds are well managed. Moreover, a mandatory vote would mean that projects qualifying for the business rate supplement would be defined not by fixed, prescriptive and complex rules, but rather by the merit of being the projects on which local authorities and businesses have agreed. Have the Government given any more thought to this very important issue?

We welcome the Government’s consultation on the draft statutory guidance, particularly as it relates to the prospectus. This is particularly important to assess how the relationship between levying authorities and businesses in running any project that is funded or partly funded by business rate supplements is envisaged as working. The Lyons inquiry recommended that the process of levying the business rate supplement would have to be,

“transparent, so that business and other local taxpayers understand how much money is being raised and what it is being spent on”.

We agree, and it is important that businesses are involved not just from the ballot when a project is selected, but that they should be an integral part of the process, receiving regular updates and communication about how the project is going, how money has been raised and how it has been spent. In Committee, we will probe the composition of the governing bodies of the business rate supplement bodies, where there are projects of this nature. Who will be involved? Is the representation of the business community mere tokenism, or is it being given a real voice, with its expertise being drawn upon?

When do the Government hope to publish the results of their consultation exercise? Can the Minister assure the House that the sanctions applying to the

22 Apr 2009 : Column 1514

levying authority, which were called for in another place, will be included and, furthermore, that businesses will be involved in the decision-making process before decisions are made and not just informed of the conclusion?

As this Bill progresses through the House, we will debate both its merits and flaws. Nevertheless, I will also mention the alternatives that we on these Benches have proposed. We take exception to the very heart of the Bill, and we suggest that a scheme that gave local councils a direct financial incentive to boost economic activity and development in their areas would be preferable to one which simply ensured higher taxation. The idea is that where the level of business rates increases in a given area over a period, the local authority would be able to keep the proceeds of that growth, which is an indicator of economic growth in an area, and spend it on local projects. That would heavily incentivise local authorities to make sure that they provide the support and services to local businesses to ensure that there is economic and employment growth.

---