Examination of Witnesses (Questions 620
THURSDAY 11 JULY 2002
MP, MS PAM
620. So in terms of this review, you still believe
that a proper balance can be achieved even with the business rate
remaining determined by central government?
(Mr Raynsford) What we want to do is explore the arguments
and they are interesting, complex and quite difficult ones, about
the balance between the two, the gearing consequences for local
government, and whether there would be benefits in terms of greater
local accountability as a result of changes, and to look at ways
in which the balance might be altered if the conclusion is that
this is the right thing to do. It is an open-ended review; we
will not approach it with any preconceptions; and we certainly
will not be ruling out the possibility of increasing the proportion
of funds raised locally if it is concluded that that is the right
thing to do as a result of the review.
621. Is there a time period for that?
(Mr Raynsford) We are doing preliminary work at the
moment looking at the technical issues that need to be covered
so that when the review is constituted it has the basis of proper
research on which it can consider the issues and reach decisions.
I would expect to be able to make an announcement later this year
about when the review will be constituted.
622. In the interests of fairness, since looking
through the evidence I do not think more than perhaps one authority
possibly there by accident thinks it is a good idea to merge these
two. Can you give us one reason why they should be merged?
(Mr Raynsford) Administrative efficiency.
623. Do you refer to the NNDR as a grant to
(Mr Raynsford) It is one of the streams of revenue
which is crucial to local authorities for discharging their functions.
624. Is it a grant?
(Mr Raynsford) It is a revenue stream, and under any
foreseeable framework we would want to ensure an equalisation
between authorities because, as all members know, some authorities
have got very much larger non domestic rate basis than others
and it would be unfair if they benefited from that advantage and
those with a relatively low non domestic base suffered.
625. Some spending assessment is a revenue stream
but this is a grant, is it not?
(Mr Raynsford) The consequence of a spending assessment
framework is that a grant is then awarded to local authority.
626. The NNDR is not a grant, is that what you
(Mr Raynsford) The NNDR is an income stream but
627. SSA is an income stream.
(Mr Raynsford) No. SSA is a mechanism used to distribute
grant between authorities. It measures the need to spend authority
628. The redistribution of the NNDR obviously
is what is referred to but, if they come together, will there
be a grant?
(Mr Raynsford) If the two are administered together
there will be savings in terms of administrative efficiency and
that is the reason for doing it.
629. Will it be a grant?
(Mr Raynsford) It will be an income stream to the
630. Will it be a grant?
(Mr Raynsford) Whatever it is called, a grant or an
income stream, I am not particularly concerned.
631. Why I raise that is because in the Finance
Act 1988 there is no such reference to the NNDR being a grant
and I would not like to think that, once we set this legislation
in place, the thing is going to be challenged because we have
not made the proper assessment in the first instance, but I take
note from you that if they come together it will be a grant?
(Mr Raynsford) It will be income stream comprising
the revenue support grant that flows from the formula and the
appropriate element of the national non domestic rates.
632. As part of the consultation exercise that
you launched, and obviously there will be a great deal of response
to that, if the overwhelming evidence is that people do not want
to see this emerge, will you accept that?
(Mr Raynsford) We obviously will listen to that because,
as I said in response to the Chairman's earlier question, we see
some administrative saving from doing this without in any way
pre-empting future policy decisions on the future of the NNDR.
633. Can you put a figure on the savings?
(Mr Raynsford) I cannot offhand but I can write to
you with estimates.
634. Moving on to business improvement districts,
some of our respondents have suggested and I think it is ruled
out of the Bill that perhaps the Department would like to provide
a little bit of funding or certainly some advice in order to get
business improvement districts off the ground. What is your response?
(Mr Raynsford) I have never known local authorities
that have not been seeking additional sources of finance but I
have to say the purpose of the business improvement district (BID)
is agreement between the local authority and the businesses within
its area about how additional revenue raised from business might
be applied to improve not just the business prospects of the area
but the general environment and the quality of life in the area.
635. But will your Department be happy to provide
the practical advice to the local authorities?
(Mr Raynsford) We are committed under this draft Bill
to produce guidance, and we will be doing so, certainly.
636. How do you answer what is perhaps contradictory
in that the people who will contribute to the success of a BID
will be probably the tenants and retailers in the city centre;
but yet those who will benefit in the long term will be the property
(Mr Raynsford) This is the inevitable consequence
of the different structure of business taxation in the UK to America,
where the business improvement district idea was originated, where
it is the property owners who pay the local taxes. Unless we were
to devise a new taxation system, there is no way that we could
raise the finance from the property owners. Therefore, our view
is that the right way forward is to use the existing business
taxation framework, which is the rate which applies to the tenant,
but to encourage a voluntary participation by the land owners,
a number of whom have advised us that they would be very happy
to do so. We think that if they come in at an early stage and
indicate their willingness to make voluntary contributions this
will help to build confidence among the tenants, the retailers,
and will make a yes vote in any referendum more likely and therefore
the success of a BID more likely.
637. How many of these do you think you are
going to have in place in, say, five years' time?
(Mr Raynsford) I do not want to give a forecast.
638. A hope?
(Mr Raynsford) I am not someone who plucks figures
out of thin air. I would be disappointed if we did not have a
significant interest in a number of different areas in the country.
Talking to both business and to local authorities in many, many
different areas, I am reasonably optimistic that there will be
a real take-up for this new concept.
639. Can I move on to the transitional relief
scheme for the non-domestic rate payers? Why do you think the
self-financing scheme will prove any more popular this time than
it has in the past? It was tried by the previous government in
the early 1990s and abandoned.
(Mr Raynsford) The problem about any scheme of this
nature is that people want to have a rebate scheme or a transitional
relief scheme and then do not want to have to make any contributions,
so they expect the general tax payer to make the contribution.
However, if they are presented with a request for an increase
in tax, they take a very different view. If we want to see a proper
framework that does ease in the introduction of revaluation, the
right way to do that is the same way that we applied with the
floors and ceilings in the case of revenue support grant to local
government, the thing being self-financing with the assistance
to those who otherwise would lose being paid for by those who
otherwise would gain very substantially. It does not seem to me
to be an unreasonable principle.