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I also offer some proposals to change the detail of the Bill in order to improve it. As the Bill creates an enabling power to levy a business rate supplement, does the Minister think that, given the current significant economic crisis, it might be sensible also to create an enabling power for a business rate discount? Why should not a local area, which is perhaps suffering in the economic downturn, be able to propose that the level of business rates is cut rather than increased? That would attract businesses and new investment into the area. That is another way of doing it. It does not have to be a new project, but allowing there to be a ballot on discounting business rates would be highly innovative and would lead to economic regeneration faster than anything else. If people look puzzled about that concept, it was entirely at the heart of the regeneration which the previous Conservative Government introduced in terms of urban regeneration projects and enterprise zones. It was all based on freeing up local authorities from planning restrictions and business rates. That is what led to the resurgence of regeneration in urban areas across the country. That whole idea of cutting business rates as a means of trying to engender economic regeneration should be considered more seriously than it has been.

At the moment, no business with a rateable value of less than £50,000 will be liable for a business rate supplement. Does the Minister take the point that this figure must be subject to revaluation or risk being out of date in future economic situations? In a similar vein, does she agree that the exemption provided by small business rate relief should be made automatic, rather than involving time-consuming paperwork which means, according to the Local Government Association, that less than half of the 870,000 firms eligible for this rebate have claimed the benefit of that discount? That would of course be added to by the complexity of delaying or postponing the business rate increase above 2 per cent this year.

Furthermore, this Bill makes no attempt to address the business rate tax hikes on the port industry which have resulted in unexpected tax bills backdating to 2005. After the Government were defeated on this

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issue in this House before the Recess, it was to be hoped that they might be in a position to rethink this tax. Does the Minister admit that it will have the corollary effect of making some firms unexpectedly technically insolvent? Already we are seeing businesses close around the country and jobs lost needlessly because of the way in which this taxation has been introduced. Rather than extending the business rates supplements and new tax into these areas, why not use funding to deal with the injustice which is already there, which has been voted on in this House and on which the Government have been defeated?

There are many other issues still to be covered; for example, clarifying the relationship between business improvement districts and business rate supplement schemes. I look forward to the discussions that we will have on this Bill over the coming few weeks. I am sure that they will be positive, productive and constructive. Perhaps we may even make some changes to the Bill to ensure that it leaves this House in rather better shape than it arrived.

4.27 pm

Baroness Hamwee: My Lords, I, too, thank the Minister for her introduction to the Bill. I should declare two interests. I am one of three Members of your Lordships’ House who are joint presidents of London Councils, the organisation of London boroughs. I am also the trustee of a charity, the Rose Theatre in Kingston, which has a rateable value that is well over the anticipated threshold. It is also in a BID area.

The lobbying which I and no doubt other noble Lords have received—I should like, through the medium of Hansard, to thank the organisations that have contacted us—has inevitably had particular regard to the current economic position. I hope that during our debates on the Bill we can take both an immediate and a longer view. Unless a future Mayor of London does a volte-face on Crossrail or the plug is pulled on the project in terms of other funding, this legislation will have to remain on the statute book for many years. I have read that Mayor Johnson has said that because of the length of time required for the Crossrail funding, he does not want the London boroughs themselves to be able to levy a business rate supplement until 2035 at the earliest—a term to which not even Mayor Livingstone aspired.

Lord Tope: How do you know?

Baroness Hamwee: Well, my Lords, I have debated it in public a number of times with Mayor Livingstone. But perhaps I had better not be diverted.

Let me say a word about Crossrail. It has perhaps achieved the status of a holy grail or panacea—I do not know which. I hope it will achieve everything that is claimed for it. I do not oppose Crossrail, but it is a pity that our transport thinking has not moved on. I have been struck by the benefits of Crossrail, as described, for parts of London which are not on the route. Those benefits really amount to better jobs in central London to which outer London residents can travel.

It is important to be clear about the benefits for Crossrail and for any other project involving the BRS. If those benefits are not spelt out clearly and debated

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robustly, consultation on a project will be a sham. It is important, too, that if the BRS is used in different parts of the country, there is some consistency in the way in which the benefits are assessed.

From these Benches we support the Bill, which is not surprising because we support autonomy, flexibility and discretion for local authorities. I have been quite tempted to ditch my notes and instead respond to a great deal of what the noble Lord, Lord Bates, said. However, I shall leave most of that to my noble friend Lord Tope and simply say that the noble Lord’s speech demonstrated to me, as his colleagues’ speeches have done in the past, the difference in the views which our respective parties take of the role of taxation.

The LGA does not want to use the term which both speakers so far have used and which I wrote down—“toolkit”. The LGA recently published a list of terms which it thinks we should not use and which it says are jargon. It says that the synonym for toolkit is “guidance”. That puzzles me a bit. The LGA does not like the word “mechanisms” either, so I cannot use that for the business rate supplement. I shall just say that raising the supplementary rate can be very useful.

The current focus on the economy should not distract us from considering whether the power should be limited to projects which will promote economic development. I should put on the record that that does not mean that I do not agree about the concept of additionality. It is important that the power is used for additional projects. However, in 2035—or, I hope, much sooner—there may be a wish that local businesses share with their local authorities to undertake business projects with other objectives, and it would be a pity if primary legislation were required to allow that to happen. The Minister talked about flexibility, and this is a bit more flexibility that I would like to see in the Bill.

There would obviously be safeguards in making every business rate supplement subject to a ballot and of course in the question of whether the local authority can gather together all the necessary funding. It will probably be important to hold on to the picture of how any project is financed in the whole, because the business rate supplement will be a very important part—possibly the catalyst—for something much bigger.

I think that describing a business vote on a ballot as a business veto, as was done in the Commons, is rather offensive to business because it implies that businesses are always negative and unconstructive. The local authority, central government and private sector funders can say no to funding the project in question, so why not the majority of businesses? I accept that Crossrail is different—it has been debated at length and in detail, including in legislation, before reaching this stage.

It is not surprising that the business sector has a concern. It is facing a plethora of charges. One has to be quite an anorak to fathom out the differences between the criteria for the different charges which might be applied to business. I shall not go into the use of the community infrastructure levy as against this rate, and so on. I simply observe that the workplace parking levy must be the subject of very much wider debate than I had realised, given that it is so often mentioned in the material that has come our way.

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I am concerned that the BRS might exacerbate the confusion in many people’s minds about which sphere of government receives normal rates given the way in which national rates are collected locally. The British Retail Consortium says that the issue is that it is a property-based contribution, but even from these Benches we would not realistically expect the Government to countenance direct taxation by local authorities. We will pay attention to the prospectus in our discussions. It will require a lot of preparation, which will be a good thing because that should in itself be a form of consultation. It will need to deal not just with a decision in principle but with how the project is to be delivered. The Bill is silent on delivery and, as we have discussed before, project management is not a skill that is in wide supply.

Local authorities will have to be very serious about proposals. They will not incur the preparation costs lightly. As I said, I am one of the joint presidents of London Councils. I am glad to see the noble Lord, Lord Graham of Edmonton, in his place. London Councils is seeking commitments from the Government that, as billing authorities, the London boroughs will be able to recoup the additional costs of administering, collecting and enforcing the BRS on behalf of the Greater London Authority. They will incur set-up costs now. They will also bear the costs of modifications to software systems, leading the way for local authorities which may wish to set up a BRS in the future.

The London boroughs should be able to recoup the costs they incur from the consultation process, which should be fully funded by the levying authority. They have made it clear to me that while they support the construction of Crossrail, they are disappointed that they will not be able to levy a local BRS for local priorities. They are keen that the Government should undertake to review the operation of the BRS in London in the future. It has to be said that the London boroughs are as big as many of the authorities that will qualify as levying authorities. It is also particularly urgent that consultation on secondary legislation and powers is published as soon as possible. Much of the detail on how the boroughs will have to administer the rate will be covered in secondary legislation and in regulations. The time becomes shorter and shorter for them to assess and react to these. It would be much the best thing if that exercise could stop while the Bill is undergoing its legislative stages.

If the use of the BRS is to evolve it is necessary that the Bill permits evolution. I have no doubt that the noble Lord, Lord Best, will explain the Local Government Association’s views. I am sure that he will not agree with all that I am saying, particularly with regard to ballots, but we all agree that there should be a statutory commitment to consultation. By that I mean consultation with both local authorities and the business sector on whether the 2p limit will always be the appropriate one. The LGA tells us that 2p would raise about 5 per cent of the total raised by the main business rate. I assume that the association has worked that out on the basis of all the local authorities applying it.

The type of projects may evolve. I came to the Bill thinking mainly about capital projects, but even with capital projects, the prospectus must address the revenue costs; but there could be revenue projects. I am intrigued

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as to how that might work. Reference has been made to business improvement districts. BIDs are often—perhaps even usually—revenue projects. Clearly, we will have to debate the relationship between the BRS, BIDs, and—to the extent possible within the scope of the Bill, which is quite limited—the contribution by property owners as well as occupiers to BIDs.

As I said, we will support the Bill. I hope that we can make improvements to it and I hope that if we are successful in doing so, that will be considered in a reflective manner by the House of Commons. The problems on the issue of financial privilege became very stark during the progress of the Planning Bill last year. The Minister says that the Bill reaches us in pristine condition. The House of Commons ran out of time, so I am not sure that her claim is as strong as she presented it. Without wishing to tread on toes, I make a plea that if we make changes, they are not knocked back simply because it came to us in its original state.

Even an improved Bill will not answer the charge, on which point I will end, that local taxation is in need of wider reform than this useful, but quite narrow Bill.

4.41 pm

Lord Best: My Lords, I declare my interest as president of the Local Government Association—an unremunerated post. In that capacity, I welcome the Bill with the extra power that it introduces for local authorities to raise additional revenue to assist in local economic development. Although the majority of local authorities are currently Conservative-controlled, the LGA seeks to work on the basis of consensus and speaks for local government across the political spectrum. If there is one issue on which local government politicians unite, it is on the need to empower local authorities to devolve from central to local government. That theme is the policy of all the main political parties at national level as well.

The Bill is one modest step in the direction of decentralisation and devolution and it should prove a useful instrument to assist in economic development—not, I fear, in the short term, but in the medium and longer term. However, two particular bones of contention remain for the LGA, on which local government hopes to see the Bill improved. First, local government would like more flexibility on the 2p limit, which is hard-wired into primary legislation, so that it could be changed later through regulation alone. Secondly, it is felt that councils should not be forced to hold a ballot on the business rate supplement but, as the bodies with local knowledge of local accountability, should take the decision directly on whether the BRS would be appropriate to local circumstances.

Let me elaborate on those two points. The Bill builds a limit of 2p in the pound into primary legislation. The Minister mentioned the report from Sir Michael Lyons back in March 2007. The Lyons report recommended a limit of 4p. It stated that a balance needed to be struck between providing flexibility to enable a real difference to be made and ensuring that tax limits remain within acceptable limits. It noted that a lower limit would provide less revenue and less flexibility. The 2p limit would raise a relatively modest sum in the totality of public finances of about

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£600 million, as the noble Lord, Lord Bates, said, which is about 5 per cent, or perhaps a bit less, of the £19.5 billion that has been raised by the main business rate.

It is clear that, in the current economic climate, attempts to increase the limit to anything more than 2p would be entirely inappropriate. Local government accepts this; the 2p limit in the Bill is perfectly acceptable at the moment for local authorities and, it is believed, for business. However, the amendment that I shall move when the Bill reaches Committee would ensure that the Secretary of State consults at five-yearly intervals on whether the limit is still appropriate. This would ensure that when the economy recovers, which it surely must one day, projects funded by the BRS become more attractive. There will be no more need for primary legislation, and changes could be made more quickly.

This proposal recognises that central and local government must be mindful of the circumstances in which businesses find themselves, so we envisage consultations to seek views from local authorities and the business sector. If, following consultation, the Secretary of State concludes that the upper limit should be varied, this could be done simply through regulation.

The LGA believes that councils should not be obliged to hold a ballot but should be allowed to respond to local circumstances if appropriate. This reflects the conclusions of the Lyons inquiry report, which recommended strong consultation with business rather than a ballot. I therefore hope that this valuable new measure will not be inhibited from achieving its full potential in the future, or undermined or diluted by arrangements for ballots that overrule councils’ own decision-making role. With these thoughts, I wish the Bill well.

4.46 pm

Lord Smith of Leigh: My Lords, I, too, declare an interest. I am leader of Wigan Council and chairman of the Association of Greater Manchester Authorities and I may at some stage seek to implement the provisions of the Bill when it becomes an Act. I, too, welcome the Bill, but I recognise that it is a small step towards improving local government finance and that there is a lot more still to be done.

I remind your Lordships that the Bill is necessary. Twenty-one years ago, the infamous Local Government Finance Act 1988 introduced the poll tax and the system of the national business rate. That was a grave mistake because it stopped businesses engaging with local authorities for many years. The noble Lord, Lord Best, complained about what is coming in the future: the 2010 review. All the unwieldiness and the problems of changing the system are down to the 1988 Act. If the CBI wants more understanding of business rates, we can do no better than to have them determined at a local level from day one. The system has also made councils very reliant on a single tax, which these days is the council tax, so it has helped to undermine confidence in that tax.

This is a limited Bill, but I welcome the way in which the Government have thought about introducing at least part of the Lyons report and have given local authorities the opportunity to “place-shape”, to use

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the words of Sir Michael Lyons. We want to improve the quality of life in our boroughs and we can do that by working with key stakeholders in the community. Businesses are obviously important. The supplementary business rate will give us the opportunity to achieve these objectives, which I welcome.

I recognise that there are major concerns with the Bill. I will not repeat the words of the noble Lord, Lord Best, who preceded me. I am not sure that 2p should be written into the Bill, but I agree with him that there should be a process whereby the figure could be reviewed at a certain time. It may go up to 4p in line with the Lyons report.

When we reflect on the various communications that we received from organisations, we see that there is a lack of confidence in local authorities among the business community. That is probably more true nationally than locally. It is important that local authorities think about how they can be successful in consulting businesses. I am long in the tooth as a local politician, but as a young chairman of finance I implemented one of the earliest consultations when we had to consult local businesses on the level of rates. We were still able to set the business rate but we had to consult about it. I remember the meetings that we had with the local business communities as meetings of two halves. In the first half, the business community berated me for wanting to spend too much money and therefore putting up the business rates. In the second half of the meeting, it berated me for not spending enough money on its pet projects, which it wanted to see implemented.

We have moved a long way from the 1980s and we are in a position to have that communication. In most areas, including my own—both at the local Wigan level and at the wider Manchester level—we have significant partnerships with business. We are talking all the time about issues and trying to work together to improve our local economies. That could be the basis of going forward.

The implication seems to be that we are trying to sneak in some kind of local authority schemes and get them funded by business. The message needs to be that these are schemes that local authorities and the business community together believe are important to improve the local area. We should be able to think about making them joint developments rather than seeing them as developments for one side or the other. Local authorities must recognise that they cannot always spend as much money as they may like. I think that, in their recent response to the recession, local authorities of all political persuasions have shown that they understand the way in which these things work.

The noble Lord, Lord Bates, started off by announcing his background from the north-east, but then he seemed to want a scheme that would be applicable only to London. I come from Manchester. Why can we not have a scheme in Manchester if there is one in London? Why should this be limited to what London wants? We want an opportunity to bring significant economic improvements to our area. Significantly, we have just done something that no other city region, including London, has done: we had a group of independent economists look at the Manchester economy and tell us face-to-face what needs to be done. A key thing that

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was identified was that skill levels are not good enough if we want to drive our economy forward. That is accepted by local authorities and by business. Using an appropriate supplementary business rate, we could drive forward a scheme that would really improve the local economy.

I was delighted with the part of the Budget today in which the Chancellor announced that the Manchester city region was to be a pilot area for economic improvements. I pay tribute to the work done behind the scenes by my noble friend Lady Andrews and I thank her for her support. I welcome this opportunity, as do local business communities. I spoke earlier today, albeit on another matter, with the chief executive of the Manchester Chamber of Commerce. She said, “We support the Bill, but don’t start it until the economy begins to improve”. We can all share those sentiments.

4.55 pm

Lord Moynihan: My Lords, I start by declaring an interest as chairman of the British Olympic Association. Unsurprisingly, I will address the subject of the sports and fitness industries during my remarks. However, the Minister will be pleased to learn that I, too, support the Bill in principle. Indeed, I never thought that I would hear the case for a new tax made so eloquently. For 10 years I was the Member of Parliament for Lewisham East and I believe that allowing the Greater London Authority to introduce a levy on business rate payers to ensure that Crossrail is finally brought into life is commendable. It is difficult to see alternative funding mechanisms being implemented on the timeline required and necessary to ensure that Crossrail’s financing package is signed off. I have long believed that the economic benefits from Crossrail, as outlined by the Minister, will be substantial both for Londoners and for the rest of the UK. Estimates have been made ranging from £20 billion to £36 billion as a contribution to GDP over six years through faster journey times, job growth and increased productivity.

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