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11 May 2009 : Column GC285
11 May 2009 : Column GC285
11 May 2009 : Column GC285
Monday, 11 May 2009.
Business Rate Supplements Bill
Committee (1st Day)
3.30 pm
The Deputy Chairman of Committees (Baroness Gibson of Market Rasen): If there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung, and resume after 10 minutes.
Clause 1 : Power to impose a BRS
1: Clause 1, page 1, line 5, at end insert—
“( ) A levying authority has the power to impose a business rate discount where the levying autority has sufficient low income or avoided costs in order to fund it in full.”
Lord Bates: It is perhaps appropriate to repeat and to put on the record my interests as a director of three businesses in the north-east of England, all of which pay far too much in business rates, which will be a recurring theme that I shall come on to.
The first amendment, we hope, sets the tone for our argument in relation to the Bill. The amendment allows the levying authority power to impose a business rate discount where the levying authority has “sufficient local income”. We have made a flying start, because that is not on the Marshalled List, which actually states “low income”. The intended wording is,
As well as having the power to increase and to impose a business rate supplement of up to 2 per cent on local businesses, there should in certain circumstances be an opportunity to have a mirroring capability to reduce business rates in a given district. The arguments for this are clear, in that reducing business rates would make that location more attractive to potential investors, retailers and businesses. Bringing those businesses into the area would help.
In her Second Reading speech, the Minister welcomed this Bill, saying that it was another power for the local authority toolkit to build strong foundations for the future— we understand that perspective—and that, even in this time of very difficult economic circumstances, it was right to do so, because the Bill was about releasing investment for mutual benefit across the community. If the intentions behind the Bill are really to help local businesses and to invest in local communities at this time, why not include an enabling power to levy a business rate discount? I am not sure whether “levy a business rate discount” is the right term, but for want of a better one, we shall leave it as it stands.
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Under the Local Government Act 2003, local authorities already have a discretionary power to levy council tax discounts, which they fund. We advocate the introduction of a similar discretion to offer reduced business rates in whatever form local authorities choose, as long as those reductions can be funded from local income or avoided costs. This would allow councils to apply local solutions to local problems, and would give them greater flexibility. Authorities would be able to work together to fund it, whereby the billing authority would not have to bear all the cost. This is important, because we want to reward businesses and thereby encourage and stimulate business growth and prosperity, particularly as we go through very difficult economic times. This would be part of the new financial framework to give local authorities a share in local growth, as was mentioned in the Green Paper.
There is concern, because economic crises and the lack of incentives to encourage business mean that landlords are being deterred from converting buildings to business use. In rural areas, farmers are not choosing to convert redundant agricultural buildings because they are likely to face significant empty property rates for the period when they take over as tenants. We will come back to the issue of empty property rates later at the appropriate point in our amendments, and to the general revaluations taking place, particularly in ports, but also generally among businesses at a very difficult time.
We ask the Minister to consider this proposal to help local communities and businesses in need, and we do so recognising that we are asking not for exceptional treatment but for something very much in line with other aspects of local government finance.
Baroness Hamwee: As this is the first opportunity to speak in Grand Committee, I should declare my interest as joint president of London Councils. This must be the first Bill dealing with local government where one of my fellow joint presidents, the noble Lord, Lord Graham of Edmonton, is not present.
Baroness Hamwee: Yet. I was going to say that the noble Lord, Lord Jenkin, was a third, but I mean the first; he is indeed here, and I would be the third. I am also a former London borough councillor and member of the Greater London Authority, with the consequent loyalties to both those areas that one retains; and am director of a charity, the Rose Theatre in Kingston, which is a business paying business rates.
I should say to the noble Lord, Lord Bates, that I will start by being negative, but I shall end by being positive; that is probably the right way round. I do not see how the amendment would operate. What is sufficient income? That seems quite a subjective phrase. Is it sufficient in an account dealing just with the BRS project, or overall? It could be interpreted in a number of ways. I am not sure what “local income” means in this context. I realised that there was a typo in the amendment; I just assumed that the word should not have been there at all so that we were talking about
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The noble Lord is right to raise the issue. I had assumed that Clause 10 covered a variation in the amount of business rate supplements, and that it could be varied up or down. There certainly needs to be a mechanism to reduce BRS during a project if it turns out to be less expensive than had been thought or circumstances change. Schedule 2 provides for credits and refunds, but only at the end of the project. I recall seeing somewhere in the debates in the Commons that the Minister, Mr Healey, said that refunds were provided for, but I cannot see where. I look forward to exploring how we can achieve something, even if I do not quite go along with this amendment.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Andrews): I welcome everyone to the Grand Committee on a shorter Bill than the last one, but no less significant. I am sure that we will have the usual vivid debates. I am pleased to have kicked off with a general debate on the disposition of the BRS itself. I am also grateful for the clarification, because we struggled; we thought that a subtlety in the amendment had evaded the combined experience of officials and Ministers, but I now understand more what the noble Lord is getting at. Certainly, the crucial word is “discount”. I will not repeat anything that the noble Baroness, Lady Hamwee, said about the issues raised by the amendment, but this is an opportunity for us to debate the general principle. The noble Baroness is right. As regards the BRS, local authorities will be free to levy up to 2 per cent. There is flexibility within that, although it is slightly different from that raised by the noble Lord in his amendment.
The amendment proposes that levying authorities be given a power to reduce business rates. As I understand it, the noble Lord argued that as well as being able to raise BRS for projects that will enhance economic development, they should have the flexibility to use BRS as a trigger to reduce business rates for smaller businesses. That was the background to the general argument about whether that would be a plausible and sensible thing to do. It is an interesting point.
It is worth just giving a brief outline of where the current rating arrangements derive from. As noble Lords will know, they have been in place since 1990. They ensure that business rates are collected by billing authorities and transferred to central government. For many years, we have followed the principle of equalisation according to local need and resource, and redistributed to local authorities for them to provide local services. I believe—as did Sir Michael Lyons, the last person to have a serious look at the systemic nature of this—that it ensures that businesses that benefit from those local services contribute towards them. Although the system has its critics, it is fair.
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Nevertheless, the noble Lord raised a good question about whether there should be scope for local authorities to be able to use BRS to reduce business rates. It was in that context that this question was raised in the discussions around the 2007 White Paper. Paragraphs 2.43 to 2.50 developed that argument, and I will take the issue on from there. It was acknowledged that, while there had been widespread debate of the issues that surround allowing local authorities to raise a supplement on business rates, there had been less discussion of the arguments for and against permitting authorities to reduce their local rate below the current national level.
The White Paper raised the theoretical possibility of allowing local authorities a broader discretionary power to lower their local rate if this were in the economic interests of the area. As the noble Lord said, an authority might want to do this to attract inward investment or to deal with other local economic challenges. In the White Paper, we said that we would discuss the case for allowing local authorities in the context of BRS to reduce rates with business, local government and other stakeholders, which is what happened.
We held meetings between officials and representatives of business interests, including the CBI, the British Chambers of Commerce, the British Retail Consortium, local government, the LGA and London Councils. We invited views on the proposition and asked stakeholders to consider how such a measure might work in the context of BRS and some of the implications. These included the impact on local services, how local authorities might use the power, what safeguards might be put in place to protect council tax payers and the implications for tax complexity.
This was a thorough discussion but, significantly, the outcome was that there was little appetite to pursue that further. Businesses and local government could not see how this would work without a general negative impact on local services and council tax payers. So they debated it in the round in that context. Given the response, I am very happy we have had this debate on the record. It would be perverse of the Government to bring forward such a measure and, clearly, it would be perverse if we were to support it.
However, let me reassure the noble Lord that local authorities already have the power to provide discretionary hardship relief to businesses which would otherwise suffer hardship, provided it is reasonable to do so having considered the interests of council tax payers. This is because part of the cost of providing hardship relief must be met by local taxpayers. I know that the noble Lord’s argument was in the context of economic incentives and ways of promoting local economic activity, but in order to complete the debate it is worth saying that hardship relief is given in the most extreme circumstances.
I am grateful to the noble Lord for raising the issue, and I hope he will feel able to withdraw his amendment.
3.45 pm
Earl Cathcart: I was not going to speak to this amendment, but before I do so I declare my interests. I have been a councillor for more than 10 years, and
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I have a question for the Minister that was sparked by the noble Baroness, Lady Hamwee. What would happen if the actual cost was lower than the estimate? Would a refund go back to business? If, for example, the estimate was £1.5 million and the business rate supplement was £300,000, there would be no vote because the figure was less than 30 per cent, but if the actual cost was only £1 million and therefore reduced by one-third, there probably should be a vote in that instance. If the figure were reduced by one-third, would a third of that go back to the businesses that had put in the £300,000 originally?
Baroness Andrews: Local authorities and business together will have to show in their partnership document, the prospectus, what they anticipate the total cost of the project will be. If it becomes clear at some stage that the cost has been underestimated or overestimated, they will have to have a way of dealing with those contingencies that is expressed in the original prospectus. They will have to show that they have anticipated some contingency if things do not work out quite as expected.
The noble Earl asked about refunds. I am afraid that I do not have an answer, and I suspect that we will not find one in the Bill or the guidance, but I will write to noble Lords with a little more detail.
On the ballot, if it turns out that there has been a gross misrepresentation—an underestimate or whatever—the prospectus would have to be re-presented, and there may have to be arrangements for a ballot at some point. I am not entirely certain that I have got that precisely right, but I will write to the noble Earl.
Lord Bates: I am grateful to noble Lords for their comments, to which I shall refer in turn. I thank the noble Baroness, Lady Hamwee, for her observations on the amendment. Perhaps I should have explained it at the beginning in fairly simple terms. If the project that was the subject of the supplement was aimed at reducing the business rates in a given area, it would work in the same way by paying money into a fund that could then be used to reduce the overall tax rate in that area. Given that business rates, to which we will come later, are often the third greatest cost that many businesses face, that could be attractive. Under previous Governments—I am not sure whether this happened when my distinguished noble friend Lord Jenkin of Roding was at the former Department of the Environment—we introduced the concept of areas, such as development areas and enterprise zones, which were free from business rates. They did tremendous good by drawing people in, because business rates were a major barrier to investment. They are again reaching a high level at this difficult time. Offering a discount might be more successful in attracting business to a locality than trying to entice it with a new road or new infrastructure. We would very much like to see such a measure.
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I am grateful to the Minister for her comments on the measure’s wording. I am interested in the extensive discussions that she mentioned had been held with the CBI, the British Retail Consortium and the British Chambers of Commerce. However, she also mentioned that a lack of appetite appeared to be shown. Was that lack of appetite shown by the business organisations—that seems strange given what a burden they consider this issue is and the lobbying that we have received from those organisations on it—or was it on the part of Ministers?
My noble friend Lord Cathcart asked about the system of refunds. The Minister said that it was not on the face of the Bill. If the levying power and the levying structure are on the face of the Bill, perhaps the refund system ought to be there, too. I hope that the Minister will reflect on that. I beg leave to withdraw the amendment.
2: Clause 1, page 1, line 7, at end insert—
“(2A) Regulations may amend subsection (2) so as to add to or vary the purpose of projects for which money may be raised by a BRS.
(2B) The appropriate national authority shall consult on the draft of any regulations proposed to be made under subsection (2A)—
(a) representatives or membership organisations of persons who are non-domestic rate payers;
(b) representatives of local authorities;
(c) such other persons as the national authorities think appropriate.”
Baroness Hamwee: I also speak to Amendments 7, 12 and 65. I thought that Amendment 2 would give rise to a spate of lobbying against me on the part of business organisations. I am not sure that it has but I would like to explain why I am seeking to allow the opportunity to extend the scope of the business rate supplement. The Bill is completely focused on economic development but it will, by definition, have to last longer than some other legislation. Life changes and priorities change. Businesses do not necessarily have more of a stake in economic matters than they do in social or environmental matters in their area. Indeed, social and environmental considerations can affect the way in which business operates. Promoting economic development in area A may not greatly affect a business in that area but economic development in areas B and C outside the immediate local authority might well do so. This could be part of a much bigger picture than the Bill seems to allow for. Amendment 2 seeks to allow regulations,
This is an amendment for the long term. I am not seeking an immediate extension of the purposes. I propose that there should be regulations to implement this, and that they would follow consultation of representatives or organisations of business rate payers, local authorities and others.
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It has occurred to me that by tabling this amendment I may be arguing against my own cause, as it is probably possible to argue that almost any activity promotes economic development if you analyse it down to the last detail. But if that was the case, Clause 3(3) would not be required, so it is not the basis on which the Bill has been drafted. I should also say at this point that later amendments have been tabled regarding ballots. They are not unrelated to this if regulations to extend the purpose are introduced. We believe that there should in any case be a ballot on each project so that businesses have the opportunity to express their opinion.
Amendment 7, by taking out the restriction in Clause 3(3)(a), would allow for money to be spent on housing. I am puzzled that this restriction is included because housing so obviously supports economic development. The consultation on the draft guidance published by the Government in January states in the section on the kind of projects it might or might not be appropriate to fund that:
“It may be considered appropriate to levy a BRS to fund a place-marketing programme to attract investment into a local area”.
One cannot attract investment into an area if the environment—I use the word in its widest sense—is not in itself attractive. In order to bring business into an area, those who are going to work in it need to have access to decent housing. If an authority proposed to use a BRS to spend on housing, it would have to pass the additionality test, so I do not seek for this to substitute for other sources of funding. The consultation on the draft guidance rightly states that it will be quite complex to deal with the test, although of course at the moment funding for local authority housing is not in great supply in any sense. Amendment 65 is consequential and would provide for the affirmative resolution procedure to be used or the regulations I have already mentioned.
Amendment 12 would insert a new clause seeking a periodic review and a report to Parliament on the use of money raised by BRS with the opportunity for representations to be made and a report then produced. The clause has been suggested by the Federation of Small Businesses, which rightly says that business is being asked to contribute and therefore should have some reassurance that it will be heard so that the Government can get the benefit of business experience in delivering projects of this kind. There is no doubt that local businesses, given that they are so strongly engaged with economic activity, should be given the opportunities that the amendment would provide. The federation also points out that the amendment should ensure that the business rate supplement is used for the Government’s intended purpose of promoting economic development. I have to say that that is probably a matter for the auditor and does not need the provision I am suggesting here.
However, I have more reasons than the federation for arguing for this amendment. Business rates are national and this local element is only local in some aspects. To my mind, the amendment would not deal with the detailed assessment of individual projects
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The review should extend to the interests of all those who are involved, not just those who pay. The billing and levying authorities, having operated the system, are likely to have a view either that it is going well or that alterations in the arrangements are desirable. That is of particular concern in London. I shall leave my noble friend to argue for his first amendment, because I can see that he has marked up exactly the same words in the briefing as I have, so I shall not steal his thunder.
I think that that exhausts my arguments for the moment. I beg to move.
4 pm
Lord Bates: In general, we regard this group of amendments to be helpful in drawing attention to a number of key issues about the Bill, but we have some reservations, which are born of our consistent view that we are suspicious of the motive behind it. We believe that it could be a means to delegate commitments and responsibilities that should be in the preserve of central government to local government as part of the current adverse economic and fiscal position. We are very concerned about that; we will obviously come back to that when we consider additionality. That is why we would not want to follow the amendment that extends the list into housing. Housing is for central government and for private sector commitment for development. That should be allowed and it would not be appropriate to be covered under the Bill.
The amendment helpfully highlights the fact that, curiously, we have a Bill that identifies what the business rate supplement can be used for by listing what it cannot be used for. Clause 3(3) lists housing, social services, education services, services for children, health services or services that the local authority provides in the discharge of functions that Planning Acts provide. Then there is the very broad term of economic development. I share the concern of the noble Baroness, Lady Hamwee: most things fit into economic development. At Second Reading, the Minister was generous in giving a number of examples of what could be used, but it would be useful for that phrase, “economic development”, to be spelt out. That would give comfort to businesses, which may be fearful—the noble Baroness referred to the briefing from the Federation of Small Businesses, which we have also read and agree with.
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