The Committee consisted of the following Members:

Chairman: † Mr. Peter Atkinson

Binley, Mr. Brian (Northampton, South) (Con)

Burt, Lorely (Solihull) (LD)

† Dunne, Mr. Philip (Ludlow) (Con)

† Farrelly, Paul (Newcastle-under-Lyme) (Lab)

† Field, Mr. Mark (Cities of London and Westminster) (Con)

† Healey, John (Minister for Local Government)

† Khan, Mr. Sadiq (Parliamentary Under-Secretary of State for Communities and Local Government)

† Love, Mr. Andrew (Edmonton) (Lab/Co-op)

† Neill, Robert (Bromley and Chislehurst) (Con)

† Raynsford, Mr. Nick (Greenwich and Woolwich) (Lab)

† Rogerson, Dan (North Cornwall) (LD)

Scott, Mr. Lee (Ilford, North) (Con)

Sharma, Mr. Virendra (Ealing, Southall) (Lab)

† Turner, Mr. Neil (Wigan) (Lab)

† Twigg, Derek (Halton) (Lab)

† Watts, Mr. Dave (Lord Commissioner of Her Majesty's Treasury)

Alan Sandall, Gosia McBride, Committee Clerks

† attended the Committee

Witnesses

Karen Dee, Head of Infrastructure, CBI

Julian Lyon, Manager, European Real Estates, General Motors Corporation; Chair of the CBI Property Group

Dr. Julie Grail, Chief Executive, British BIDs

Blake Penfold, Chair, RICS Rating and Local Taxation Policy Panel

Jerry Schurder, Panel Member, RICS Rating and Local Taxation Policy Panel

Councillor Keith Ross, Leader of the LGA Independent Group, Local Government Association

Councillor Stephen Knight, Deputy Leader of Richmond Council, Local Government Association

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Public Bill Committee

Tuesday 20 January 2009

(Afternoon)

[Mr. Peter Atkinson in the Chair]

Business Rate Supplements Bill

Written evidence to be reported to the House

BRS 02 Royal Institution of Chartered Surveyors

BRS 04 Mayor of London

4 pm

The Committee deliberated in private.

4.3 pm

On resuming—

The Chairman: Good afternoon and welcome. Thank you both for coming along. For the record, please identify yourselves in the normal way.

Karen Dee: I am Karen Dee, head of infrastructure at the CBI.

Julian Lyon: I am Julian Lyon, head of the property group at the CBI.

The Chairman: Thank you. The first question is from Mr. Robert Neill.

Q 134 Robert Neill (Bromley and Chislehurst) (Con): Welcome. I have seen the CBI’s broad submission on these issues. We know that the idea of the business rate supplement had some of its germination in the Lyons report, which talks about an appetite for greater engagement with local authorities on economic development. Is there such an appetite in the business sector, and is the Bill the right way to engage business in those issues?

Karen Dee: I would like to say that there is an appetite. Certainly most businesses would accept that they should engage more widely with their local authorities. As an organisation, we think that that would be a good thing. Clearly, there are a number of pressures on businesses, so it has to be meaningful engagement and a good use of their time, to encourage them to do so. At the moment, many businesses probably do not believe that to be the case. Under the right circumstances—you will know what my circumstances are—the BRS might be a route that could encourage local authorities and businesses to engage in a more constructive fashion.

Q 135Robert Neill: What would be the right circumstances?

Karen Dee: Well, there would have to be a vote. That process would bring benefits to both sides, because it would encourage local authorities to make a thorough investigation of the projects that they are seeking to fund and of the business case, and to work hard and engage with businesses to develop that business case. At the same time, businesses would know that they have a

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financial stake and a clear mechanism, and a potential cost if they do not engage. The mechanism should encourage positive behaviour.

Q 136Robert Neill: A mechanism closer to BIDs perhaps, where the object of the project is on a broader scale than most BIDs—is that how to understand it?

Karen Dee: Yes. The BIDs model is one that the businesses involved universally say is a good thing. They can all see benefits, and that is why it is working so well. We at the CBI think that that is a good model and that there should be a read-across from the lessons.

Q 137Robert Neill: Okay. Can you help me? Have you carried out an assessment of the likely impact of the current proposals—if the Bill is unamended, in effect—on your members?

Karen Dee: We have not carried out an assessment as such, but there is a pretty obvious potential increase in costs, added to the existing increases that we are facing anyway, as a result of the business rate increases. The increase is significant and, in the current economic climate, certainly not something that many businesses could contemplate. The other thing is that businesses will have to assume that, in going forward, they have to bear the cost, so they will plan accordingly.

Q 138Robert Neill: If you have BRS and BIDs in place in the same area, should there be an automatic offset?

Karen Dee: The CBI would like to see the offsetting of existing BIDs, particularly when there is not a vote on business rate supplements.

Q 139Robert Neill: Finally, I want to ask about the threshold that has been talked about—£50,000—in the light of the upcoming revaluation. Do you have any observations on its adequacy or otherwise?

Karen Dee: We have not taken a specific view on the £50,000, which is not mentioned in the Bill. The CBI is not opposed to the concept of a threshold. We understand the desire to protect small businesses, although, against that background of not opposing it, we would comment that business rates are not necessarily a good measure of a business’s ability to pay or of its profitability. There are some sectors, which are not small businesses, that will find it an equally difficult burden to bear.

Q 140Robert Neill: Any in particular? Can you elaborate?

Karen Dee: Any property-intensive sector, manufacturing and retail are obvious examples.

Julian Lyon: From the point of view of the £50,000 threshold, or whatever the threshold is, it is important to understand how business rates work in the market to establish whether the threshold is an appropriate mechanism. For example, a six-storey office building might have a major plc occupying two floors, each of the floors being less than the £50,000 threshold and in two separate hereditaments—the plc would fall below the threshold on both of them. There may be a department that has two floors, but on a single lease or hereditament, it would fall within the scheme. A small business on two floors of the same building would also be caught by the threshold. The threshold itself is relatively arbitrary, particularly when you look at it against the individual hereditaments.

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Q 141 Mr. Nick Raynsford (Greenwich and Woolwich) (Lab): First, I want to come back to the issue of the vote and the scheme parallel with the BID. In our evidence session this morning, we explored with the representative of the British Chambers of Commerce the fact that there would be circumstances in which it would be inappropriate for a business vote to stop a major infrastructure project that had wide support, when the business contribution was relatively small. A de minimis position was thus accepted. We asked for a figure from the British Chambers of Commerce and the witness accepted that the 30 per cent. set in the Bill was probably about right. Would you agree, and if not, why not?

Karen Dee: No. We would not agree with that, and we do not believe that one third is the right threshold for a vote. Our position, which we have come to by consulting all our members through all our regional councils in England, is that the only basis on which businesses will think business rate supplements are acceptable is if they have a vote on every proposal.

Q 142 Mr. Raynsford: In all cases?

Karen Dee: In all cases.

Q 143 Mr. Raynsford: Including Crossrail?

Karen Dee: In principle, yes, we would like a vote on Crossrail. I think that the one thing that our members accept about Crossrail is that it is unique. There will not be many Crossrails.

Q 144 Mr. Raynsford: There will not be a vote on Crossrail; you know that?

Karen Dee: We know that that will be in the Bill, but why should Crossrail set the precedent for all other projects? Crossrail is unique, and we have taken the position that you should not design legislation to accommodate a unique project and let it guide or set precedents for others.

Q 145 Mr. Raynsford: Even though you know that the business contribution will be a relatively small proportion of the total—

Karen Dee: For Crossrail?

Q 146 Mr. Raynsford: Yes. Furthermore a negative vote could destroy a project that the CBI and other business bodies have said is fundamental to the future not just of the London economy but of the UK economy.

Karen Dee: Our position is that we believe as a principle that a vote should apply to Crossrail, but we accept that because of its unique scale and status that that might not be possible. However, that should not set a precedent for others.

Q 147 Mr. Raynsford: Why not?

Karen Dee: Because Crossrail is a unique project.

Q 148 Mr. Raynsford: But we also, in talking to other witnesses this morning, explored the question of why other parts of the country should not be free to develop a similar model for supporting infrastructure in their area, on a similar basis to Crossrail.

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Karen Dee: I would find it hard to believe that there are many other places in the country where a £17 billion project on the scale of Crossrail could be developed.

Q 149 Mr. Raynsford: Let us scale it down in proportion to the size of the local economy; I can well envisage a situation in which a city region would want to develop major transport infrastructure that was as important to the region as Crossrail is on a larger scale to London and the south-east. Would you really say it was right to deny it the opportunity to do that?

Karen Dee: We would say that businesses should have a vote and that if there was a clear benefit, businesses would vote in favour.

Q 150 Mr. Raynsford: Do you accept that there would be a point where the business contribution was sufficiently small not to justify putting at risk a major project primarily funded by other bodies?

Karen Dee: I would say that what businesses would be voting on would be making an extra contribution to a project. You have to set it in the context of the amount that is already collected in business rates and business taxation. I do not believe that businesses would vote against a proposal if they could see that it would deliver real benefits. It is not a question of vetoing projects.

Q 151 Mr. Raynsford: As I think the Mayor of London has made very clear, in the case of a project such as Crossrail, the benefits will come in the relatively long term. It is a major project, and it will take a long time to develop. In the short term—and we are in difficult short-term circumstances—a business vote could go against something that everyone, including business representative bodies, says is vital to the long-term health of the London and south-east economy.

Karen Dee: In that case, give the businesses a vote and make the case.

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Prepared 21 January 2009