Business Rate Supplements Bill

Public Bill Committee, 22 January 2009.

Janet Dean (Labour, Burton)

Good morning, everyone. I remind members of the Committee and witnesses that the evidence session this morning must end at 10.25 at the latest. I hope that I do not have to interrupt hon. Members or witnesses in the middle of their sentences, but I shall do so, if need be.

I welcome Mr. Healey and Mr. Khan as witnesses this morning. I understand that Mr. Healey would like to say a few words at the beginning of our sitting.

Janet Dean (Labour, Burton)

Thank you for your welcome, Mr. Healey. I can tell you that I have chaired one short Bill Committee before, but not an evidence-taking session.

Bob Neill (Conservative, Bromley and Chislehurst)

Welcome to the Chair, Mrs. Dean.

I preface my first question by telling the Minister that I am sure he recalls that my party did not vote against the Bill on Second Reading clearly because of the inclusion of Crossrail and an extension of the measure to the rest of the country. If there is a desire elsewhere in the country—the Mayor of London wishes to use the measure for Crossrail only—why were officials of the LGA, when they gave evidence, unable to name a single local authority that desired to take up the BRS power at this time?

Bob Neill (Conservative, Bromley and Chislehurst)

In such circumstances, is it not desirable to achieve, if possible, consensus between the taxor and the taxed? Does not the evidence that we have heard suggest that although in London there is a broad consensus with the business representative organisations, which accept the BRS as a mechanism for Crossrail, outside London there is strong opposition from business organisations, first because of the present circumstances and, secondly, because a ballot is not to be compulsory?

Bob Neill (Conservative, Bromley and Chislehurst)

I have one final point I should like to raise. I feel that I am about to suffer the same senior moment that one of our colleagues had in the statutory instrument Committee yesterday. It is about to come back to me as I waffle my way through it. With luck, perhaps you could just help me on this last point, Minister.

Is there not a danger that, in the current circumstances, what the measure really represents is a shift in the burden of funding infrastructure improvements from the Treasury to local businesses, when you look at this power being coupled with the mainstreaming or the reduction in the amount of monies available under the local authorities business growth incentive scheme? If we are being generally localist, should we not also give local authorities a power to place a discount on the business rates as well as raise a supplement?

Bob Neill (Conservative, Bromley and Chislehurst)

That is because I thought of the other one half way through.

Bob Neill (Conservative, Bromley and Chislehurst)

That was the real question.

Bob Neill (Conservative, Bromley and Chislehurst)

Against that background, is the Minister going to bring forward proposals to enable local authorities to have an incentive to grow their business tax base?

Dan Rogerson (Liberal Democrat, North Cornwall)

I echo the hon. Member for Bromley and Chislehurst and the Minister, Mrs. Dean, in welcoming you to the Chair. I look forward to your chairmanship as we go through consideration of the Bill.

Having listened carefully to what the Minister has had to say, I will start by asking the key purpose of the Bill: Crossrail or a wider power for local authorities?

Dan Rogerson (Liberal Democrat, North Cornwall)

You talked about various parties’ support for the principle behind the Bill. I should take this opportunity to clarify the position of my own party: we are not opposed to the principle of a BRS where the business community has agreed to it through a ballot. We have been keen to point out that principle and will no doubt want to explore it further as we go through Committee. On that issue, why is there no provision for a ballot in all cases and why has a threshold—a cut-off point—been inserted in the Bill?

Dan Rogerson (Liberal Democrat, North Cornwall)

I think that it is a question of whether that is a veto, or just a decision reflecting whether they feel it is the right time to participate in such a scheme, but thank you very much.

Dan Rogerson (Liberal Democrat, North Cornwall)

I am very aware of that. I am sure that you have had the chance to look at the amendments in my name and that of Lorely Burt, which talk about ballots but exempt Crossrail from a ballot, for all the reasons we have talked about and because there is an Act of Parliament on the subject. But I thank the Minister for his contribution.

Mark Field (Conservative, Cities of London and Westminster)

In a moment or two, I may come back to the subject of Crossrail. However, my fundamental question is: has consideration been given to a de minimis-type provision to ensure that the additionality issue can successfully be countered? We heard mixed views in the evidence on Tuesday. Some groups were firmly against the Bill, while others were broadly positive and could see where the Government were coming from.

Crossrail slightly clouds the whole issue, in that it is a practical proposition, on the table, for a £16 billion or £17 billion project, and everyone can see that benefits are to be gained from such a large-scale project, which could not be funded from the normal day-to-day business rates in London. Obviously, the question is: how far does the benefit go? Certain London boroughs—the Barnets and the Bromleys of this world in particular—feel that they will get little direct benefit, because of the artificial way in which the boundaries in London are created.

Looking at future projects, one of the things that could be most corrosive to the case for the measure would be if relatively small-scale infrastructure improvements, which one would generally think should be paid for out of normal rates, were subject to a BRS surcharge. Has thought therefore been given to precisely what sort of projects it should cover, and indeed in what sort of area? London is a city of 7 million souls. Are we looking to give the power to relatively small areas, where there might be only a couple of hundred thousand residents? What is the thinking on how to counter the idea that, in many ways, this is another stealth tax against business?

Bob Neill (Conservative, Bromley and Chislehurst)

Bromley benefits hugely from Crossrail.

Mark Field (Conservative, Cities of London and Westminster)

I appreciate that you do not necessarily want to have a totally inflexible arrangement, but could you give at least an indication of the size of the projects you have in mind? Crossrail is probably going to be one of the very biggest and most expensive projects in the foreseeable future and in the first 20 years in which this Bill will operate. Some £3.25 billion will be raised from a large net of businesses that happen to be in the capital for a project that will cost £17 billion—obviously, we will only see in the outturn just how much it does cost. No one would dispute what you said: the mechanism of a BRS works for a project of that magnitude. Clearly some businesses and business organisations will be against the idea of a BRS as a matter of principle, but those who are open minded about the prospect will think that Crossrail clearly falls into the box and that this is appropriate.

My concern is this. Take a higher-tier authority such as a unitary authority in Luton or Swindon where there was a rail or metro-type project costing perhaps £200 million, with a business contribution of £50 million. You are then in the grey area with people saying, “Hang on a second, this is what we pay our general rates for. This is an ongoing project. To get a BRS is a slap in the face and another stealth tax.” Could such a project be the subject of a BRS, or is it too small? Are you comfortable with the idea that if a local authority and other stakeholders proposed it, it could be subject to a BRS-type scheme?

Mark Field (Conservative, Cities of London and Westminster)

With your permission, Mrs. Dean, I want to touch on Crossrail and the assertion made by both witnesses that without the BRS, Crossrail will fall.

Mark Field (Conservative, Cities of London and Westminster)

We know how the politics are. I was delighted to hear you say such positive things about the work of the aggressively Tory-run Wandsworth council and the local businesses. I am sure that the people in Tooting will be delighted to hear your endorsement.

On a serious level, with Crossrail we are talking about relatively small chunks of money—a fifth of the overall funding package. We have gone through the long rigmarole of getting the hybrid Bill through Parliament and the Standing Committee. Crossrail is now one of those big infrastructure projects that we should obviously move on with fairly quickly if we are going to pump-prime in a Keynesian way, particularly given the difficulties in the London and south-east economy. There are already parcels of money—over 80 per cent. of the total budget—so are you saying that we could not go ahead and find a way of squirreling out a further 18 or 19 per cent. without the Bill?

Mark Field (Conservative, Cities of London and Westminster)

I am trying to get to the bottom of things; we are talking of Crossrail falling.

Mark Field (Conservative, Cities of London and Westminster)

You will be aware that the City of London Corporation has not only agreed to put the money up, as has the Canary Wharf Group, but has also said that it will try to squirrel out a further £150 million from various City connections. That will be a rather harder exercise today than it might have been a couple of years ago, but obviously we do not know how things will pan out. It is not as if all elements of the package are entirely robust and in place.

Mark Field (Conservative, Cities of London and Westminster)

I do not disagree, but I am trying to get to the bottom of it and it is important that it not be used simply as a political football. All sides want to get Crossrail moving. By questioning elements of it, we are doing our bit to try to scrutinise it on behalf of business, which is concerned about additionally. In fairness, there is less concern in London about how the project will work, although I cannot speak for all the suburban areas. A lot of businesses will regard the additionally as another stealth tax—little parcels with bids.

Neil Turner (Labour, Wigan)

I wonder whether we could take a more national look at things and remember that we are a national Parliament, rather than an extension of the LGA. One of the witnesses from the LGA—I think that it was the independent representative—suggested that the lower-tier authority should decide that, rather than the upper-tier authority. Would you give us your comments on that, with regard to two-tier authority areas, obviously?

Neil Turner (Labour, Wigan)

But the decision would be taken by the upper-tier authority.

Neil Turner (Labour, Wigan)

Can I give you a couple of examples of areas in which a BRS might be considered by the authorities? The first example is the second Mersey crossing, in the constituency of my hon. Friend the Member for Halton. I have no idea whether they are thinking of using the BRS. Greater Manchester had a bid that was recently voted down, and there was a meeting this week to decide how we go forward to address the transport problems in Manchester. In London, there is an overall authority, the Greater London authority, which is the upper tier. In Manchester, we have 10 district authorities. If we were to put in a bid for a transport project in Manchester that was similar to Crossrail, would the Greater Manchester authority or the passenger transport authority be considered the upper-tier authority, or would it be the 10 district authorities?

Neil Turner (Labour, Wigan)

But do you appreciate that it would be difficult to persuade some of the outer local authorities? Wigan is the only one that does not have a border with the city of Manchester, but there are others on the outer fringes that may not see an immediate benefit from the package, which would mainly affect the centre of the sub-regional area. It would make it difficult for them to get approval for a BRS bid.

Neil Turner (Labour, Wigan)

Let me return to something that Mr. Rogerson said. He seemed to indicate that if a ballot by businesses went against the BRS, it would not result in a veto although it would be a major part of the consultation process. Can you confirm whether that is true, and whether you envisage a BRS ballot taking place and businesses turning it down and voting against the proposal? Under those circumstances, can you see the BRS going forward?

Neil Turner (Labour, Wigan)

Thank you for clarifying that. That was my understanding, but Mr. Rogerson’s questions seemed to indicate that there was some doubt about it. I am very unhappy, or uncomfortable, with the idea of a double vote. People who work in or own businesses have a vote as citizens. I am not comfortable with them having a second vote as part of a business. I am certainly not happy with the idea that they could veto a project. That is just a comment.

Neil Turner (Labour, Wigan)

I do understand that. However, a scheme that needs to go ahead and is seen as important by most citizens could be voted for by them through the normal electoral process and then vetoed by somebody who has a second vote. I am uncomfortable with that, but I understand the point that was made.

Neil Turner (Labour, Wigan)

Yes.

Brian Binley (Conservative, Northampton South)

It is a pleasure to serve in Committee under your chairmanship, Mrs. Dean. It is the first time that I have done so. I apologise for not being in Committee at our first sitting. I was hit by a virus, which I pray you do not catch.

I was interested to learn that business men in a given area have a vote, although they might not live in the area. That seems an odd concept. In Manchester, many business men live in Cheshire and have no input into the local government decision making in Manchester. We must bear that in mind. I wish to question the use of money. Mr. Khan said that people have not understood what BRS is for. That is partly because the Bill is unclear about its purpose. It is not sure whether it is to finance Crossrail or whether the local government element for the rest of the country has been added on as a way in which to raise extra revenue.

I am particularly concerned about what seems to be a lack of clarity with regard to a period for which a BRS runs for longer than one year. My first question, therefore, is could a BRS be used to supplement private finance initiative schemes?

Brian Binley (Conservative, Northampton South)

It could not?

Brian Binley (Conservative, Northampton South)

It could. That is as I thought from reading schedule 1. There is nothing to say that it could not be a PFI scheme. How does that impact on the length of time, when a PFI scheme could be committing a business for 15 or 20 years?

Brian Binley (Conservative, Northampton South)

So a business in a given area might find itself committed to an extra taxation of that kind for 20 years. What assessment have you done of the impact on fair trade in relation to that? How does it impact on a business man with one particular business in Manchester that has a 20-year commitment to a PFI scheme and a business in Yorkshire that does not? How does it impact on fair trade? You are increasing costs for one business, and not for the other.

Brian Binley (Conservative, Northampton South)

Let me pursue that a little further. Transport clearly falls within the remit of a BRS.

Brian Binley (Conservative, Northampton South)

So the benefit—the return to a business—could be quite dubious, depending on the type of infrastructure, and bearing it in mind that the PFI contribution might only be 10 per cent. of the whole, but still a sizeable commitment.

Janet Dean (Labour, Burton)

Mr. Turner, did you indicate that you have a short, follow-on question?

Neil Turner (Labour, Wigan)

I just have a short point to make. Mr. Binley raised the issue of people in Cheshire with businesses in Greater Manchester who would not have had the vote. I make the point that it is the people of Greater Manchester who would have been paying the Greater Manchester Passenger Transport Executive precept, so it is a question of no representation without taxation.

Nick Raynsford (Labour, Greenwich and Woolwich)

May I change the focus of the questioning slightly—to the issue that came up once or twice during our evidence sessions on Tuesday? The issue is freeloading and the position of landowners as against tenants, and it has been around since the introduction of BIDs, when concern was expressed that landowners would get the benefit without having to make a contribution. That applies even more so in the case of BRS, because the benefits, as you have been rightly emphasising, are likely to be longer term, whereas the payments, as with Crossrail, begin long before the benefits will be perceived. The tenants will, essentially, be paying the levy, while the landowners will get a benefit further down the line without having to make a contribution, unless they do so voluntarily.

The problem is not new, but it is a real one, which will lead to a certain amount of resentment on the part of some elements in the business community if a solution is not found at some stage. I am not suggesting that it is required immediately, but the issue has to be addressed. I would very much welcome your views.

Nick Raynsford (Labour, Greenwich and Woolwich)

I entirely understand that, which is why I did not press for an instant solution, but I do believe that the issue will not go away. It will return, partly because the approach adopted in the case of Crossrail has broadly mirrored that of BIDs. There have been voluntary contributions from some business elements, which will get large immediate benefits because stations adjoining their premises will give them a considerable additional market. A similar pattern is emerging with BRS as with BIDs—of voluntary contributions from some, and the levy paid by all those who are liable—but that still leaves scope for some beneficiaries to choose not to make a voluntary contribution, while benefiting enormously, which will lead to resentment within the business community.

While I accept entirely your long-term economic argument, I am reminded of John Maynard Keynes’ famous phrase:

“In the long run we are all dead.”

A business that is facing financial difficulty and might go out of business in the next five years would not be terribly impressed by the argument that its long-term ability to negotiate a lower rent with its landlord might be helped by paying the business rate supplement. May I ask you to respond to that? Might there be scope to explore ways in which that particular problem might be addressed in the longer term?

Nick Raynsford (Labour, Greenwich and Woolwich)

May I move to the interrelation between the BRS and BIDs? There is a nervousness on the part of some BID companies that the arrival of a BRS may prejudice their prospects of securing a renewal of the BID mandate. We heard that in evidence from British BIDs on Tuesday. I fully understand the steps that the Government have taken, particularly the options for mitigating the impact of a BRS. However, I would be grateful for your thoughts on whether anything else might be done to overcome that problem, particularly if it appears that the number of new BIDs falls off after the introduction of a BRS, or a number of existing BIDs cease to operate because they failed to get a mandate.

Lee Scott (Conservative, Ilford North)

I am a great fan of BIDs. One of the great successes of the scheme is that the businesses feel directly involved and they vote on it. We launched a new BID proposal in my area only two weeks ago, and it is a much harder sell now than it was last year and it will, perhaps, be harder still in a few years’ time. Because the businesses had the ultimate say about a BID, they were able to buy into it. Are you concerned that, because people will not have the ultimate say, they will not be brought into the process in the same way? Are you concerned, or not?

Lee Scott (Conservative, Ilford North)

Okay. I take on board the fact that you are saying that businesses will be involved and that they will be consulted in the same way for BIDs, but that they will not have an ultimate decision in the same way for BIDs.

Lee Scott (Conservative, Ilford North)

But you do, I am sure, share some of my concerns that the business community might be somewhat sceptical about consultation in that, in the past, businesses have been consulted on things and not necessarily agreed with them, but they have still gone ahead. There would be that level of scepticism. Do you agree that it will be vitally important how the deal is sold, and how they can be convinced not be sceptical about it?

Derek Twigg (Labour, Halton)

I just want to pursue two points. First, I do not want to labour the London-centric view. I was the Minister when the Crossrail Bill was drafted. I therefore understand the strong arguments for it, and I remember the many months of hard work to get it into a state to go forward. Relatively speaking, it is not as though there are not equally important projects. I understand that we are not talking about a £16 billion or £17 billion project, but relatively speaking such projects are essential for certain areas of the country. I was interested that the CBI evidence said that, in one sense, the principal view was that there must be a vote, but that that will be overlooked for Crossrail. It had no view about what the balance of funding should be in terms of local government and central Government for what is happening in local authority areas, although it is opposed to localisation. That is a bizarre view.

I shall give a good example. My hon. Friend the Member for Wigan made the point that, in my constituency, the second Mersey crossing—a project of about £600 million—will be part paid for by the Government and tolls. It is just about to go to a public inquiry. By the way, the previous Government refused to approve it. This Government have approved it. It might have been an ideal candidate for the measure if that was in place then. The project would not just benefit Halton, but the whole of Merseyside and Cheshire, which is why all the local authorities support it. A lot of the drive to get it off the ground was from local business because it was so important. Do you have any comments on that before I go on to the next point?

Derek Twigg (Labour, Halton)

The second issue, which I have been asked to pursue by a couple of people from the business sector, is local authorities and the change in how they deliver economic development and take a lead. It is clear that some things would just not happen in a number of areas unless the local authority showed the initiative in making them happen; would the Minister agree? As he knows, the former chief executive of my local council of Halton, who is now chief executive of the Minister’s local authority, was employed specifically by Halton to lead on economic development, because of his background in that. That is a reasoned decision, to have someone like that in such a position. I have not heard as much from the Opposition, but is it not the case that the position of local authorities today in leading economic development—making sure that it happens in many cases—has changed completely over the past 10 or 15 years? That is what we are doing in the Bill: recognising that and complementing what councils are already doing. I know that my own area has an excellent relationship between local business and the local authority, but Halton has done some amazing work in economic development.

Philip Dunne (Conservative, Ludlow)

I was struck by the evidence of the Local Government Association into the proportion of BRSs that might fall on publicly owned occupiers. I noted in your opening remarks, Minister, that you very properly said that you were going to listen to evidence and take account of it in the remaining proceedings of the Committee. Have you managed to give any thought to the comments of the LGA about the potential for exempting buildings such as schools or hospitals from such a charge?

Philip Dunne (Conservative, Ludlow)

So that is a no.

Philip Dunne (Conservative, Ludlow)

I was also struck by the comment from the representative of British BIDs that the reason why BIDs have been widely taken up and regarded as successful by many of the businesses participating is that business people who pay the tax are also involved in the delivery of the project. What notice did you take of that evidence and what have you done to consider some form of accountability to business, which will be paying the supplement?

Philip Dunne (Conservative, Ludlow)

I am pleased to hear that. I was present when you made that announcement, which is encouraging.

My third question relates to the interaction between the BRS and BIDs. The Bill makes provision for voluntary offset on a case-by-case basis. Will you clarify why you think that should be voluntary and not mandatory?

Philip Dunne (Conservative, Ludlow)

I note that the annexe to the impact assessment states:

“BRS could be used to fund smaller, less expensive initiatives, such as promoting an area to tourists, or for investment, or using the supplement to provide skills training.”

Those are very much the sort of things that BIDs are currently used for.

Philip Dunne (Conservative, Ludlow)

I know that we are running out of time, so this is my final question. The impact assessment—which I must say is a very thin document—estimates that the types of businesses that will be most affected by the Bill are those with high rateable values such as retail businesses. We heard evidence from the British Retail Consortium on Tuesday. With a 2p levying rate, the impact will be an increase of around 5 per cent. in business rates. What assessment has been done by your Department into the proportion of net margins and retailers that would be absorbed by such an increase?

Philip Dunne (Conservative, Ludlow)

Well, your own impact assessment acknowledges that retail premises are likely to be disproportionately affected by the BRS—I have a quote from it. You admit that retail will be disproportionately affected, and you have just contradicted yourself.

Philip Dunne (Conservative, Ludlow)

Minister, do you know what the typical net margins of retail businesses are in good times, let alone poor times?

Philip Dunne (Conservative, Ludlow)

And when preparing the Bill, you did not think to ask your officials what the impact would be on the net margins of the different categories of businesses that might end up paying this?

Philip Dunne (Conservative, Ludlow)

I am sorry to interrupt, but we are about to finish. When introducing legislation, you as the Minister responsible are obliged to undertake an impact assessment. The work that has been done on page 13 of your assessment is one of the thinnest and weakest pieces of work that I have seen in an impact assessment for a Bill on which I have served.

Brian Binley (Conservative, Northampton South)

On a point of order, Mrs. Dean, you will note that we are clearly not going to get on to the area of consultations, ballots, exemptions and reliefs. I wonder if you could just take that into account when it comes to the debate itself. I would be most grateful.

Janet Dean (Labour, Burton)

I think that we have touched on that subject, but I am sure that both myself and the other Chairman will take that point into account.

Brian Binley (Conservative, Northampton South)

You are very kind. Thank you.