My Lords, over the past 10 years, we have seen the relationship between local and central government profoundly change. Long gone are the days of diktats to local government from Whitehall, and the past few years have seen a massive reduction of targets for local authorities and a recognition that they work most effectively when they work in partnership with local service providers, the third sector and business in doing what is right for their area.
We in central government have progressively provided local authorities with the tools they need to do what is right and appropriate for their local needs and aspirations and encouraged closer understanding and working with business and enterprise in strengthening the local economy and the local community. This Bill is another power for the local authority tool kit to build stronger foundations for the future.
It is a short Bill, but it is significant. During its passage through the Commons, I am delighted to say that it received extensive debate with three evidence sessions and six scrutiny sessions during its consideration in Public Bill Committee. It has been supported in principle, even where some of the detail has been challenged. I know that noble Lords will be delighted to hear that it reaches our House in pristine condition, unamended by either government or opposition amendment. What this means is that the other House has concluded that this Bill will work, which is something that we in this House always look for. It arrives with a degree of cross-party consensus that will not only create an effective mechanism to part fund the vital Crossrail funding package in London, but will also offer opportunities for economic initiatives in other parts of the country if local authorities and businesses together want to take ideas forward. I should stress that working together is what will take those new ideas forward.
What does the Bill do? It has been welcomed because it will provide a discretionary power for local authorities to use, in consultation with local partners, to promote the economic development of their area. The Bill strikes an important balance between providing true flexibility at the local level and reassurances and safeguards for those who may be liable to pay the supplement. The idea has an authoritative history and a distinguished pedigree of consultation. Perhaps I may take a moment to explain the background and how we came to legislate for such a power.
In March 2007, Sir Michael Lyons published his inquiry into local government and stated that,
“the purpose of local government is to take responsibility for the well-being of an area and the people living there, and to promote their interests in the future. In doing so, it should both reflect the distinctive identity and aspirations of the people and the area, and safeguard and promote their well-being and prosperity”.
A key part of this role is to support and encourage the economic development of the local area. The inquiry identified the need for local authorities to have a greater flexibility to raise revenue to invest in their local areas. In his final report, Sir Michael concluded and recommended that a new flexibility should be introduced for local authorities to set a supplement on the current national business rate.
The inquiry also recognised the success of business improvement districts as a way for local areas to raise funds and invest in projects supported by business. I know that BIDs have many fans around the House. However, it also noted that BIDs tend to be limited to tightly defined geographical areas and to deal with short-term and specific issues, and thus do not provide a mechanism for long-term development. As we will be discussing BIDs and BRS at different stages of the Bill, perhaps I should explain for the record that business improvement districts are small-scale agreements between local businesses, working together to raise funds to improve their area in ways such as improved security, street cleaning and the promotion of town centres. The framework for BIDs was set out in the Local Government Act 2003 and is another example of the evolution of the relationship between national and local government. BID schemes enjoy wide cross-party support across English local authorities and more than 70 are currently in operation, a quarter of which are in London.
The Bill builds on partnership and the practical success of BIDs and is in the same vein of local authorities and businesses working together to invest in the future economic development of their communities. However, BIDs are designed to do different things. They are typically local in design, whereas the business rate supplement will function at a different spatial level and enable local authorities to invest in larger scale, longer term projects. The Bill reflects those key differences.
We responded positively to the recommendations of Michael Lyons’s report through the Budget 2007.We stated that a local government supplement has the potential to support local economic development, but we also emphasised the need to provide safeguards: first, the need to build in credible accountability to ratepayers and real protections for businesses, particularly small to medium-sized enterprises, that might be disproportionately affected.
The other context is that progress has been made since then towards regional and sub-regional working. In July 2007 the Government published their review of sub-national economic development and regeneration, which stated that BRS has the potential to be a key tool for local authorities to invest in long-term economic development with a strong local voice for businesses. It also proposed that they should be introduced—I stress this—only when they can command support from all those affected.
Following the recommendations of both the Lyons inquiry and the SNR, in October 2007, along with the Pre-Budget Report, the Government published Business Rate Supplements: A White Paper. That is the basis for the Bill; it sets out the foundations on which it is built. It strikes that balance of local flexibility with a strong voice for business and strong safeguards to protect the business community. We published guidance in January which explained how it sits alongside other partnerships between local authorities and businesses, which are designed as a package coherently to enable local leaders to work together to promote economic and social development.
I know that in the course of our short debate today many noble Lords may raise the issue of timing—why now?—pointing out, although I do not think that it needs to be pointed out, that we are in a difficult economic situation, which the Budget response today was designed to address as strongly as possible. I would argue that if the idea was timely in 2007, it is now urgent. I understand that there are concerns, but this is not another tax on business; far from it. This is about releasing investment for mutual benefit across the community. There has never been more relevant a time to plan and anticipate the better use of our future resources. The timing is right, even if it is difficult.
The Mayor of London said recently that the introduction of this Bill was necessary despite the economic downturn. It is necessary because the future will not take care of itself. We are clearly in a unique period of global and national economic turbulence. That fact underlines the need for active government, an active public sector, to protect the poorest, to correct flaws in the market and to exert the leverage to secure a proper role in the contribution required, in partnership, from the private sector for our mutual benefit. In times such as these we need to use foresight and to plan for the future because the alternative is simply to let the recession run its course, leaving the market to devise the upturn. That will not do because the future is going to be a different country.
We are strengthening the foundations for the upturn; the Budget today was the latest step in that and the Bill is a part of it. We understand that business is facing very tough times. We have introduced a number of measures, both short and long term, to protect homes, jobs and businesses, and to help businesses through these very difficult times. I remind noble Lords—I am sure that they do not need reminding—of how we have done this across a wide variety of agency. We have secured billions of additional finance for businesses, allowing them to spread the payment of their business taxes over a longer period; we have taken measures to help improve the cash flow for small to medium-size businesses; since the November Pre-Budget Report, HMRC has agreed the deferral of more than £1.7 billion in business taxes, including deferrals in VAT, corporation tax and PAYE, which will benefit more than 96,000 businesses across the UK.
Recently, we went further. On 31 March the Chancellor announced that many business ratepayers will be able to defer the payment of 60 per cent of the increases in their rates bill due in 2009-10 over the following two years. The deferral scheme will apply where rates bills have increased as a result of the annual adjustment and the phasing out of transitional relief.
To help small businesses that have found it particularly difficult to secure loans, we have introduced the government enterprise finance guarantee, which will enable banks to provide an additional £1.3 billion of credit to SMEs that have viable business plans but cannot access normal commercial credit because of the current economic conditions. We have also introduced the working capital scheme, which will secure up to £20 billion of working capital credit lines for companies, and the capital finance scheme, a new £75 million fund to help viable small businesses with high levels of existing debt.
Taken together, all those schemes will enable viable businesses to borrow money during the credit crunch, thereby ensuring that sound businesses survive the current recession. We are rebuilding the financial system for the future in many different ways as well, not least with the Bank of England’s cuts in interest rates over the past six months, which control inflation and ease the cost of borrowing. This is real help that we are giving to struggling businesses, which has been acknowledged: John Walker, the national policy chairman of the Federation of Small Businesses, stated last November that many of the measures in the PBR,
“such as giving businesses longer time to pay bills and offsetting losses, will give small businesses a welcome breather from the taxman and allow them to concentrate on sustaining their business, supporting their staff and growing the economy in the long term”.
We are doing this because we know that businesses need assistance to weather the storm.
These measures are designed to prepare our country for the future in terms of economic development, which is where BRS comes in. It is vital that local communities have the tools in place to enable them to invest, and BRS does just that by enabling authorities and businesses to raise additional revenue to invest in local economies.
During these difficult financial times, we cannot afford to be so risk-averse that essential investment is sidelined because of short-term concerns. There is also a risk that we retreat to a centralist position, removing local discretion and flexibility where there are tough choices to be made and failing to put in place for the future the skills and work opportunities to guarantee a strong recovery. Investing in Crossrail, for example, is a graphic illustration of faith in the future; it is essential to building on opportunity and building recovery. No doubt there will be other projects in the coming years that will do the same for different parts of the country.
We accept that local authorities are key to driving local prosperity. They set out their clear vision for economic, social and environmental development, and local area agreements are the framework for driving that prosperity. It is only right that we provide local authorities with as many tools as we can to enable them to do what they need to.
I shall set out what the Bill does, and does not, do. Clauses 1 to 3 set out who may levy the supplement and the strict conditions that we have built in about how the money raised may be used. Clauses 4 to 10 set out the details of the development of a BRS prospectus, consultation and the conditions on which a ballot may be held.
Clauses 11 to 17 explain the details relating to liability, the rates that may be charged and reliefs. Clauses 18 to 23 set out the details of the administration of BRS, such as collection and enforcement, while the remainder of the Bill to Clause 32 sets out how regulations may be used, the guidance and the ultimate power of the Secretary of State to intervene and cancel a BRS.
I want to make it clear that this is not a measure that in any sense treats businesses as cash cows; it is a mechanism to raise funds to support economic projects that will benefit all. Before I discuss the details of the Bill, though, it is worth reflecting on some of the main concerns that have been raised, such as: who will pay? How will they benefit? What control does business have over a BRS? What flexibilities are built in? How, on the whole, will this fit in and promote partnership?
The Bill is proportionate to what is needed to safeguard the interests of business. It reflects a fundamental fairness, linked to the ability to contribute. It sets out that at any one time, the total amount levied through the BRS in an area may not exceed 2p per pound of rateable value. That is the upper limit. Local authorities can decide, after consultation with local business, to set a lower rate or to phase in different rates. Nor can a BRS be levied on businesses which occupy properties with a rateable value of less than a value prescribed by regulations. In accordance with their White Paper commitment, the Government will use this power to exempt properties in England with a rateable of £50,000 or less. That threshold exempts the vast majority of smaller business. Based on the latest figures from 2007, more than 90 per cent of business properties in England will not have to pay the supplement. That is a key point in understanding that the Bill will not devastate smaller businesses, despite recent reports to the contrary in the press.
The Bill is built on fundamental democratic principles. Let me set out the role of businesses and ballots in the proposed BRS projects. The involvement of business in decisions about projects will be in proportion to its financial contribution. Where businesses are providing more than a third of the money for a project, they will have a vote on the future of that project. Where they are contributing a small minority share of the funds, they will be consulted in the same way as others, including the communities affected by the project. We believe that it is not right for businesses to be able to block projects when they are contributing a relatively minor element of the funding.
How will the funds be used? The Bill makes provision for upper-tier local authorities—that is, county councils, district councils where there is no county council and, in London, the GLA—to levy a maximum of 2p in the pound of rateable value on the business rate. I assure noble Lords that those funds do not go to the Exchequer but are retained and used by local authorities to fund projects aimed at economic development of their local area.
The Bill allows local authorities and their partners to be genuinely innovative. This is not simply about investing in bricks and mortar; it is about schemes which are believed, jointly, to contribute to the economic development of an area. That might be achieved through the construction of new transport links or business parks. It might be possible and useful to raise the standing of an area in terms of attracting new investment or people with new skills through an international advertising campaign. As long as there is a clear link between the BRS project and economic development, local areas may fund projects which are appropriate to their area.
This approach is about funding what is right for an area. It is about additionality—it has to go beyond what is already planned or in existence. The Bill enshrines this principle in Clause 3, which clearly states that not only must funds be spent only on that which BRS identifies in its prospectus but they can be used only to fund expenditure which the authority,
“would not have incurred had it not imposed the BRS”.
That is vital to making the link with economic development and the specific purpose of the project. It does not mean that a BRS project has to be completely new, stand-alone project. The BRS may fund something additional that expands a project already under development, but it must go beyond the current proposals and therefore it must be able to be proved that they would not exist if the BRS were not part of the funding stream. This is therefore not about plugging funding gaps. The Bill clearly states that those funds raised through the BRS may support additional expenditure only on projects which support economic development. Those revenues cannot be diverted into funding services such as housing or education, which we would expect, and indeed are the duty of, a local authority to provide.
In addition, any levying authority which wishes to support a project through the BRS must consult local business which could be subject to the levy before it is charged. We see this as a genuine exercise in partnership, whereby the early conversations about what might be possible are conducted on an equal basis between local authorities and business. They must set out in a clear prospectus the details of the levy, such as its level, duration and the economic evidence of the benefits of the project to be funded.
In practical terms, these plans will hardly be developed in isolation. Local businesses have to be an integral part of any project and we do not anticipate any proposal coming out of the blue. Indeed, where businesses will contribute in excess of one-third of the total costs of a project, we think it absolutely right that those businesses that will pay the BRS should have a vote on whether the BRS goes ahead.
The scheme is based on strong partnership working. Local authorities will work with local businesses when creating and devising possible projects, and decisions will be taken in partnership. This builds on the excellent relationship between chambers of commerce and local authorities, which were evidenced in Committee in the other place. This is not a new burden; I reassure noble Lords that the Bill does not force local authorities to levy a BRS. The Bill does not impose a new duty; it is fundamentally discretionary in its design and is to be used when the time is right for individual local authorities. That is why we have been keen not to constrain levying authorities too tightly. There are other, built-in flexibilities—for example, authorities can raise the rateable value threshold for liability above £50,000, so that more businesses are exempt; they could introduce a taper above £50,000; alternatively, they may wish to phase in the BRS over a number of years to take advantage of the flexibilities that are needed in development projects. Levying authorities will also be able to decide whether empty properties should be exempt from liability and whether bid levies should be offset against liability for BRS. All that flexibility is consistent with our overall approach to BRS. It is not the role of central government to prescribe exactly how each BRS should function; it is properly a matter for a local authority working in consultation with local business.
I shall say a few words about Crossrail. The Mayor of London has announced plans to levy a BRS to support the funding of the Crossrail project. The Bill works for London, but it works for the whole economy; it was designed and works for authorities across England and Wales. London is the leading example of this new principle and new power. It will allow the Mayor of London to make real his commitment to funding a key part of the Crossrail project and boost economic recovery and long-term growth. As Mayor Johnson said:
“Crossrail is vital to London and the UK, providing an enormous boost to the economy and, in the tough economic times ahead, creating thousands of jobs linked to its construction. Crossrail has been a dream for many years”—
a dream shared by many noble Lords—
“and these arrangements now give the project the momentum that will make it become a reality”.
For those very reasons, it is right that we do not place a limit in the Bill that only London may benefit from these provisions. We must ensure that all areas of the country have the chance to use this power if it is right for them to do so, when it is right for them to do so. It will enable them to plan for the future. It is not a duty but a power to be used as local authorities and business see fit. London is the leading example of the principle of how it can contribute to future prosperity; the GLA and the mayor have engaged and consulted business on this important project. Sir Michael Snyder, deputy chairman of the Policy and Resources Committee of the City of London Corporation, said last December:
“Crossrail is critical to the future of London's economy and it is essential that we continue to make major improvements to our transport infrastructure during these challenging times”.
The project is supported by the wider business community in London and, as such, the funding package of which BRS is a key component is an explicit part of the Crossrail deal.
I look forward to our debates on this Bill. I commend the Bill to the House; it comes with the support of the other place, unamended, because of the recognised benefit that it will bring and the opportunities for local communities to make real their ambitions and designs for economic development for their area. It is pragmatic and flexible and achieves the right balance between enabling local authorities and business to work together to build on a partnership to realise those ambitions without constraining them through over-rigid frameworks. It is voluntary. I hope that it will be an integral part of this country’s development as we move from recession to recovery and prosperity for all. I beg to move.
My Lords, I thank the noble Baroness for the characteristic care and thoroughness with which she has gone through and introduced the Bill to us today. I also thank her for the way she and her team have made available to us information we have requested and helped in our understanding of this important piece of legislation. I am grateful for that. I also place on the record my interests as a director and member of three businesses, which pay business rates in the north-east of England. I put that on the record for your Lordships to be aware of.
I heard what the Minister said about the Bill arriving in pristine condition in this place. It was an interesting presentation of the facts. The reality is, as I would argue from these Benches, that it probably owes more to the voracity of the Government Whips Office than necessarily to the voracity of the arguments presented. Our position is very clear on this. We are very supportive of Crossrail, which is a major infrastructure project, and of the enabling legislation that allows that, but we take exception to taking something that is exceptional and making it normative across the whole of the country. That is the basis of the argument that we will present.
Despite a great deal of constructive and positive debate in another place, the Bill enters your Lordships’ House unchanged from its original form. That is very disappointing. I hope that as the Bill passes through the House, and as the productive and informative debates we are sure to have in Committee take place, a degree of consensus will be reached so that some meaningful changes, which are going to help businesses and economic development, can be effected.
We are opposed to the Bill in principle. The current economic maelstrom means that many businesses are experiencing great difficulties and are under enormous pressure to stay viable as they attempt to ride out the perfect storm of the current economic crisis. Clause 1(2) allows upper-tier local authorities to levy a local supplement on business rate,
“to raise money for expenditure on a project that the authority is satisfied will promote economic development in its area”.
The Minister presented it as a key tool of economic development; it is simply something to put into the toolkit. We see it in its context as being no more than a key tool of the Treasury to bring in extra resources from already hard-pressed businesses to support projects, which could, should, and are already being funded through other government initiatives. We believe in businesses contributing to new infrastructure and that it is important to encourage economic development within local areas. Nevertheless, the Government’s figures show that if every local authority levies this charge, supplementary business rates could go up to £597 million a year based on 2007 rateable values. That figure could be even higher after the 2010 revaluation. That is an extra £600 million of taxes.
It is somewhat ironic that we are debating this additional tax measure in the House today, because in the other place the Chancellor of the Exchequer is seeking to present ideas which, if not designed to save the world, are certainly trying to save some businesses. Yet at the very same time, here we are at the other end of the House debating a measure to enable local authorities to apply more tax to more businesses which are already struggling.
In that context, businesses face being hit next year by an army of new taxes on not only two but four sides. By April 2010, businesses will be burdened with a rates revaluation that uses April 2008 as the snapshot, a time when retail rents were artificially high. That will take many shops out of business rate relief altogether. They will also be hit by the new empty property hike, which will bring further increases.
This year, the Government have deferred the rises resulting from the end of transitional relief. If firms fill out an application form, two-thirds of the proposed 5 per cent increase in business rates, scheduled to be levied from the beginning of April, can be deferred—but only deferred—into next year. Nevertheless, while we welcome this deferral, its postponement is not a cut. Even though it is only a form to fill in, it will mean that many businesses are unaware of the rules and therefore will not claim the relief to which they are entitled. The bill will therefore go up. In 2010-11, rates will rise by a further £335 million. The year after that, they will rise by £320 million. The deferral will therefore mean that, next year, another two components will be added to the raft of new taxes which businesses are facing in the present climate. A cursory walk along any high street or through any shopping centre will show the catastrophic effect that these taxes and the current economic crisis are having on businesses. It is all well and good talking about new projects of economic development, but what about helping economic development by helping small, viable businesses, which are already employing people, to keep going under the present conditions?
The enacting of the Bill will therefore mean that struggling businesses will be saddled with yet another load of taxation as business rate supplements are introduced. It appears that, at a time of economic recession, these measures are a lethal cocktail that poses a real threat to businesses across the country. That is the basis of our opposition.
In case there is any doubt as to the serious nature of these taxes, I remind the House that the rates bill is the third largest expenditure for many small businesses, coming after wages and rents. This is why we on these Benches are particularly worried that the Business Rate Supplements Bill, despite its honourable intentions and relevance in the City of London, will turn into a stealth tax reaching across the nation. That is in addition to the possibility of the community infrastructure levies that have been announced, and the congestion charging and workplace parking levies that have been talked about. They have all been taken into account in business improvement district levies as well: just another load of taxation when we can afford it least. These can all add up to a toxic burden of taxation at a very difficult time.
In addition, the Government's decision to cut funding to local councils under the local authority business growth incentive scheme, from £1 billion over the past three years to just £150 million over the next two years, means that local authorities are heavily laden. One cannot let that pass without spotting a connection between the local authority business growth incentive scheme being cut while there is a nice bit of enabling legislation in the Bill that could potentially add £600 million to plug the gap. The Government have simply shifted the burden of debt directly on to local businesses.
The increased financial pressure may mean that councils are tempted into using the supplementary business rate simply to replace lost funding. The Lyons inquiry, referred to by the Minister and which we have studied and support, specified that the supplement should be used for additional purposes,
“additional, with any new revenues available to spend on new infrastructure or projects rather than taken into account in central government grant allocations",
which have already been made. Does the Minister agree that any other use would be utterly inappropriate? It is unacceptable to use it instead to pass on costs to local taxpayers which are already being levied centrally. We will look for assurances from the Government that the principle of additionality will be maintained. To this end, we will also seek reassurance from the Government that they have looked into the possibility of “crowding out”, which the business rate supplements scheme may introduce.
An example of a use to which we are told the business rate supplements could be put is to establish centres of excellence focusing on training in particular industries. Three centres of excellence are established in the north-east: the centre of excellence for life sciences in Newcastle; the centre for progress innovation on Teesside; and the centre of excellence for new and renewable energy in Blyth. All these are funded by the regional development agency. One North East has done a terrific job in instigating these initiatives. That is exactly the type of long-term investment in skills and technology that we should be encouraging and which Government should be leading. However, One North East has seen its budget cut from £277 million last year to £207 million next year. One is piecing together pieces of a jigsaw and a picture is emerging of something that is less than the high ideals and lofty ambitions that the Minister has presented. It would be interesting to hear the Minister comment on the ongoing funding of those three centres of excellence as she mentioned centres for enterprise. Would it be appropriate for them to be supplemented? Would they qualify for additionality purposes or would they be exempt? It would be interesting to have the Minister’s comments on that on the record.
We fully support a business rate supplement with regard to Crossrail. Crossrail will cost an estimated £15.9 billion, including contingency, and a business rate supplement will be a necessary part of this and is expected to finance and repay £3.5 billion of borrowing while Crossrail is under construction. Crossrail will form a major part of London’s regeneration and should in turn pass on economic benefits that will help the rest of the country. The scheme has been discussed and consulted on within London. Business rate payers have had their say, as have voters at the relevant election where this was a key issue. The funding package has been agreed and it is important that a business rate supplement should support this scheme so that it can develop and bring all the benefits we hope to see.
Nevertheless, we believe that this is a unique project and should not be the catalyst for a nationwide business rate supplement scheme. On 11 March in another place, it was suggested, at col. 345 of Hansard, that perhaps the Bill could be limited in scope to just the Greater London Authority in order to make sure that the Crossrail project is secured and fully funded, and that the debate about the application of the business rate supplements nationwide should be taken out of the context of the Bill and debated another day. Given that the nature of the recession is directly relevant to how a business rate supplement will be perceived and how it will work, this seems a very sensible idea. I should be interested to hear the Minister’s response on whether that idea of decoupling the debates into two elements—the funding of Crossrail and the nationwide aspect—could be contemplated in the context of our discussion in Committee.
However, if the Bill is to go forward, it is important that some fundamental changes are made to improve it to create more effective legislation. Given the debates that occurred in another place, the Minister will not be surprised to hear that one of the areas we will be pushing on is making sure that businesses have a vote on the imposition of business rate supplements. The Bill requires that a ballot must be held only where the supplement constitutes more than one-third of the funding, or the initial prospectus states that the levying authority thinks that a ballot is required. In contrast, the Lyons inquiry—the Minister and I have quoted that liberally—recommended that the local business community should have,
“a strong voice in the final decision on whether there should be a supplement”.
We are unconvinced that there are any safeguards in place that will ensure that that voice is heard and acted on. Does the Minister agree that there is a very strong argument for a mandatory ballot, as already occurs in business improvement districts? The Minister, in her opening remarks, talked about those districts’ success. We argue that it is very much the essence of their success that they have been collaborative and that ballots have taken place.
Furthermore, it is clear that a business vote would improve relations between local government and businesses. Confident in the knowledge that they can only deploy a vote, businesses are likely to be more open to new and innovative ideas. In return, business acumen can be deployed to make sure that only the most worthy projects are selected and that the funds are well managed. Moreover, a mandatory vote would mean that projects qualifying for the business rate supplement would be defined not by fixed, prescriptive and complex rules, but rather by the merit of being the projects on which local authorities and businesses have agreed. Have the Government given any more thought to this very important issue?
We welcome the Government’s consultation on the draft statutory guidance, particularly as it relates to the prospectus. This is particularly important to assess how the relationship between levying authorities and businesses in running any project that is funded or partly funded by business rate supplements is envisaged as working. The Lyons inquiry recommended that the process of levying the business rate supplement would have to be,
“transparent, so that business and other local taxpayers understand how much money is being raised and what it is being spent on”.
We agree, and it is important that businesses are involved not just from the ballot when a project is selected, but that they should be an integral part of the process, receiving regular updates and communication about how the project is going, how money has been raised and how it has been spent. In Committee, we will probe the composition of the governing bodies of the business rate supplement bodies, where there are projects of this nature. Who will be involved? Is the representation of the business community mere tokenism, or is it being given a real voice, with its expertise being drawn upon?
When do the Government hope to publish the results of their consultation exercise? Can the Minister assure the House that the sanctions applying to the levying authority, which were called for in another place, will be included and, furthermore, that businesses will be involved in the decision-making process before decisions are made and not just informed of the conclusion?
As this Bill progresses through the House, we will debate both its merits and flaws. Nevertheless, I will also mention the alternatives that we on these Benches have proposed. We take exception to the very heart of the Bill, and we suggest that a scheme that gave local councils a direct financial incentive to boost economic activity and development in their areas would be preferable to one which simply ensured higher taxation. The idea is that where the level of business rates increases in a given area over a period, the local authority would be able to keep the proceeds of that growth, which is an indicator of economic growth in an area, and spend it on local projects. That would heavily incentivise local authorities to make sure that they provide the support and services to local businesses to ensure that there is economic and employment growth.
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 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.
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.
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 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.
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 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.
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 £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.
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 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 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.
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.
However, this support does not come without some concerns about the Bill. No one welcomes additional burdens on business, particularly if we do not emerge from this recession as fast as the Chancellor, speaking in another place today, would hope. Nevertheless, it is incumbent on us to balance the cost-benefit analysis involved. In this context, I echo the key findings of the Greater London Authority, which supports the Bill, for the following reasons. The authority recognises the long-term benefits of Crossrail to business, which will far outweigh the costs to it of the BRS. As has been pointed out, all of London’s boroughs will benefit from Crossrail and there are important medium-term benefits which should create demand for up to 14,000 jobs during its construction. This will make it an important source of employment at a time when London’s job market is likely to remain difficult. The authority makes a further compelling point, which is that getting on with Crossrail’s construction sends an important signal to the world about the intention to continue to invest for the long term. Delay would reveal a lack of self-confidence in maintaining London’s status as a leading global city.
That said, I share the views expressed by the noble Baroness, Lady Hamwee, who has deep-seated reservations about the fact that the detail of the Bill lies in secondary legislation in the form of regulations that have yet to be published and that a significant amount of that detail will focus on how the boroughs are to administer the new business rate. Perhaps the Minister will be able to provide greater clarity on when these documents will be made public, because, in the tempered words of London Councils, “This is not ideal”.
However, it will not surprise your Lordships to learn that my principal concern relates to sport and recreation, whose role I am pleased to see is recognised in Clause 13(4). In Canary Wharf today, the International Olympic Committee’s Co-ordination Commission met for the fourth time with the London Organising Committee of the Olympic Games; indeed, I have just returned from there. The Olympic Games and Paralympic Games bring more to a host city than a summer of glorious sport. They are a catalyst for the youth of this country, a catalyst for the elite sportsmen and sportswomen of future generations and a catalyst for a sports legacy that should reach every community in the land. I am therefore concerned about the effect that this could have on a unique entity—the Olympic Park following completion of the 2012 Games. The facilities there are a central part of the legacy that we are all working so hard to foster and it is important that we do not undermine the work that is being done to inspire a generation of young people to take up sport by increasing costs to the businesses and facilities covered by the authority of the proposed special purpose vehicle.
More generally, and in principle, although it would appear that sport has no problem with the Bill, a number of additional issues may have an effect on sport which I hope we will be able to consider in Committee. As noble Lords will be aware, under Clause 13(4) community amateur sports clubs—CASCs for short—would receive an exemption under the provisions of the Bill. While I welcome any measure that benefits CASCs and boosts the CASC scheme, I am concerned about those sports clubs that are not registered as CASCs and are not exempt by the de minimis threshold in the Bill, but which nevertheless provide a valuable service to local communities. It is important that their contribution is recognised in the tax system, particularly because last year the Government recognised the promotion of amateur sport as a charitable purpose. Let us not forget that the excellent work done by the Central Council of Physical Recreation in its 2007 sports club survey found that more than half of the UK’s amateur sports clubs were either operating at a deficit or only just breaking even. We must remain committed to easing the regulatory burden on them, not increasing it, and, if necessary, counteract the effects of this Bill by launching a parallel CASC registration initiative.
The negative impact that this measure could have on sports clubs would undermine the valuable role that they play in achieving government targets, not only in encouraging more people to be actively involved in sport and recreation but also more widely in improving public health and education, fostering community cohesion and tackling anti-social behaviour and social exclusion. To us in the British Olympic Association, who are working closely with the Central Council of Physical Recreation, which represents sport and recreational governing bodies the length and breadth of the country, the sports legacy for this country from the Olympic Games is as important as the regeneration legacy.
The challenges that we face have been clearly set out by the Fitness Industry Association, which, in its briefing to us today on these health issues, stated:
“A BRS, coupled with the expected rise in the Uniform Business Rate … has the potential to inflict a significant and negative impact on public and private health and fitness facilities and to impede Government and community efforts to bring about a healthier, more active population. The Foresight Report”,
to which it refers,
“estimates that, based on current trends, the UK will experience a virtual ‘obesity time-bomb’ in which 60% of adult men, 50% of adult women and 25% of all children will be, not simply overweight, but obese by 2050”.
As a result, there is understandable concern that some of the key businesses that offer the facilities needed to address these issues will face disproportionately high rate increases. It cannot be right to increase the tax burden on those organisations and businesses offering the facilities that are needed to address the challenge of delivering a sports legacy for the Games and for the country at large. It is my view that nothing should be done to jeopardise public health campaigns and overall health and sports objectives. That may lead me to introduce a “cardiovascular amendment” to the Bill to provide special BRS relief for public and private organisations that facilitate opportunities to be physically active.
In conclusion, I give my thanks to Ministers who have already provided some relief on the subject that I have been discussing through the community amateur sports clubs initiatives. I hope that we can, in considering the Bill, go significantly further. At this point in our journey, we have a long road to travel.
My Lords, I declare my interests in this debate. I am chief executive of a non-profit-making pressure group, London First, which, with subscriptions from businesses, universities and colleges, pursues its mission to make London the best city in the world in which to do business. I want to make it absolutely clear that I am not a paid advocate for any individual business and that my views are my own.
I share the ambitions of the Government’s Department for Business, Enterprise and Regulatory Reform in pursuing an environment in which business can thrive, only I do so with an insight into the immediate hopes, fears, opportunities and challenges facing business leaders. In regard to this Bill, I find myself in the unusual position of supporting higher taxes on both the property and the occupier community, because doing so ultimately promises them and society greater benefits.
I apologise for labouring both my interests and my perspective. I do so because this is the first time I have spoken on a Bill in the House since an Opposition spokesman from another place suggested that Members who draw on their professional expertise in this House might somehow be committing an offence. I am grateful that his more considered colleagues in this House have a better understanding of the value that temporal and spiritual experience bring to our proceedings. Now more than ever, this House and this Parliament need to understand how their decisions will impact on the economy and I hope to bring value to the House in this regard.
The Bill broadly enables local businesses and local government to come together to fund a central infrastructure for the benefit of all. Given the pressure on public spending for much of the next decade, a mechanism such as the supplementary business rate, empowering local authorities to raise money from businesses in order to invest in the infrastructure they say they need, is a good thing.
The question is: how is it to be done?
Infrastructure spend brings immediate activity and therefore jobs, as well as building capacity for the long term. This is surely welcome in an economic downturn and provides grist to the mill of Sir Rod Eddington’s report, which was categorical in making the case for infrastructure investment to support the economy. However, we must be conscious that the SBR is but one part of a number of rating challenges facing businesses at the worst possible time in the economic cycle.
As the noble Lord, Lord Bates, has described, when rates bills fall onto the desks of finance directors next April, an SBR levy might be accompanied by an uplift in rates and an absence of empty property rate relief, as well as—in London in particular—the sharp effects of revaluation due to the valuation having been taken in April 2008 at the peak of the market. It is a shame that the Chancellor has not taken the opportunity to reintroduce empty property rate relief, the logic for the removal of which has disappeared. However, the Government have indicated that transitional arrangements will be put in place for the revaluation. It is vital that these measures effectively alleviate the strain of the rates burden at this crunch time.
For London, the Bill will enable the current mayor to fulfil the commitment of his predecessor in providing part of London’s funding contribution for Crossrail. This is essential London infrastructure that will bring benefits to London and London businesses in excess of the costs, so I strongly support the Bill—though not without reservations.
I sympathise with the views of those who feel that there should have been a discrete bill for Crossrail’s funding or who feel that every project should require a ballot so that businesses can be confident that money raised will be appropriately invested, but we are where we are. We desperately need the capacity that Crossrail will provide, and, starting now, it will provide much needed countercyclical investment in London.
Nevertheless, as I have mentioned, it is clearly a difficult time to be increasing the financial burden on business. The SBR will be with us for many decades and many economic cycles. Anything that the Mayor of London can do to vary the quantity or the timing of the SBR on its introduction at this economically fragile time will be welcome, and I know that he is considering the extent of flexibility available to him.
A further issue, which was touched on earlier, is the way in which the SBR affects businesses in business improvement districts, or BIDs, where occupiers already pay a levy to support local improvement measures. There is a strong case for some offset measure to ensure that businesses contributing to BIDs do not in effect pay double. In London, the mayor has resisted this step, but we have found common ground over reducing the impact by broadening the way that BIDs are funded. It has long been argued by London First, the British Property Federation and others that BIDs should have the power to decide whether or not to include property owners, as well as occupiers, as contributors to their funding. To date, many property owners have contributed voluntarily to BIDs, but other property owners who have not contributed have also benefited from their activities. The Bill represents an opportunity to rectify that imbalance and to help to reduce the immediate burden on occupiers. I hope that government amendments will be brought forward to that end, which will attract wide support.
It is always a thorny issue debating the finer points of legislation concerning the structure of taxation. As I mentioned in my opening remarks, I sympathise with a number of the critics of the form of the Bill but, as is so often the case, I fear that the perfect is the enemy of the good. Subject to the observations I have made, this Bill is the good.
My Lords, I welcome the Bill. I have been involved in Crossrail for a number of years, and the Bill is a way of plugging quite a big financial hole. I shall come back to that.
It is a good idea that the Bill is much wider than Crossrail alone. Having read Clause 3, I think it could be used for energy projects, be they wind farms, waste-generating stations or nasty coal-fired power stations—if anyone wanted to do that—or road, rail, airports or ports. As the noble Lord, Lord Bates, said, it could cover centres of excellence too, as well as my noble friend Lord Smith’s skill improvements scheme, so it is to be welcomed.
I still worry slightly about who pays and who decides. It will be important for businesses to be balloted. Taking into account the whole of the Greater London area, some businesses will think that it is a very good idea to have something while others will ask what good it does them. I will come back to that.
On a more general principle, in the past decade or two we have seen people who live where transport links have been suddenly improved, be they rail or road, enjoying pretty enormous capital gains on their properties. I know that it is politically unacceptable to change anything to do with domestic valuation or rates, but some businesses might ask why they should pay while residents do not.
It is good that small businesses will be exempt. I do not have much of a view on the 2p maximum, except when we look at the example of Crossrail. As many noble Lords have said, it is an essential element of the project funding. It is under the 30 per cent but it is still quite high. If a project such as Crossrail is being promoted through a hybrid Bill, the Standing Orders say that a financing plan which is credible or definite has to be in place before the Bill even starts its passage through either House. Some of us might have questioned whether that was the case regarding the BRS. Even though it may have been in the plan, there was no legislation at the time to allow it to be raised.
However, the Crossrail Bill received Royal Assent and we are all wondering what will happen next. Clearly this will plug the gap. Whether it is essential to the funding of Crossrail, we can debate. The Treasury could always find more money if it wanted to, even now, or it could ask local business ratepayers to do it instead. This is what is in the plan and I shall not question it very much.
What worries me comes out of the briefing from Transport for London and the Mayor of London about the economic benefits of Crossrail, which many noble Lords have probably received. There are lots of maps. The mayor is trying to show that even though Crossrail goes east-west, there are just as many benefits in the north and south of London as there are at the east and west. I find it difficult to accept that those who own a large business at the top end of the Northern line will benefit in the same way as those who own a large business in Paddington or Southall, for example, which are on the new line. It is extraordinary. I wondered how the GLA would organise this but it is clear from the example in the briefing that it is expecting the various contributions to be between £150 million and £200 million each year if the levy is set at 2p in the pound of rateable value for properties over £50,000. That clearly covers the whole of the Greater London area, so it looks to me as if there will be 2p on every business within the Greater London area.
I may have got this wrong but I have seen nothing in the Bill to allow the authority to charge different amounts in different areas. If that is the case, perhaps my noble friend can explain how this would work. I cannot imagine many businesses from the north and the south voting for it. It could be that because the proportion of finance for the project is less than 30 per cent, there will not be a ballot, but that would be even more difficult and extremely divisive.
There are an awful lot of questions to be answered here, particularly in relation to Crossrail. It could happen equally in places such as Manchester. For example, the noble Lord, Lord Smith, might want to see the tram extended where it would benefit; some businesses might want to contribute but others might say, “Why should we?” Individual boroughs in London might get together and those on the east-west route might say, “Let’s club together and do it on these routes”. The ones a little further out might do a bit less and it might be difficult getting agreement from all the boroughs but, to me, it would seem a great deal more equitable. I worry about this aspect of Crossrail. I still cannot understand how the sum of 2p, even if it is raised over the whole Greater London area, will achieve the £3.5 billion that is clearly needed.
To conclude with something that is relevant to Crossrail in particular, I have been involved over the years with the Channel Tunnel—building the tunnel and the rail link. I have also been involved in Crossrail, and I declare an interest as chairman of the Rail Freight Group. I am not talking about freight now, but I have been involved in it. I have found when a project is being developed that there is a need for much consultation—and many noble Lords have mentioned that. What has happened up to now with Crossrail is that the Minister responsible, who has normally been the Minister responsible for railways or transport in general, has chaired a stakeholder group with local authority groups, meeting once every six months or so. The parties involved will go through issues, which could include issues like this—technical issues and other things. On the Channel Tunnel, the Department of Transport led the process, with the Department of the Environment and some planning input as well. There now seems to be a bit of a hiatus; the Bill has Royal Assent, the staff are all changing at Crossrail and Ministers are not going ahead with meetings. It might be an idea if Ministers considered restarting some of those meetings with stakeholders and local authorities and the three departments or ministries concerned, so that all the stakeholders involved can get an overview of what is happening and explain any concerns that they have. It makes a great difference having a Minister there who is prepared to listen and answer questions. On the whole, projects go much more smoothly when that happens.
In conclusion, I very much welcome the Bill. There are a few changes that could be made, which may be beneficial. More than that, I will be pleased to hear from my noble friend how the issue of how much different businesses might be charged in different areas, depending on the benefit they receive, could be dealt with. That is one of my main worries.
My Lords, this has been a useful, interesting and on the whole positive debate, which we from these Benches welcome. We particularly welcome the contribution from the noble Baroness, Lady Valentine, not just for what she had to say but for the important role that she and London First have played for a number of years and continue to play in helping business and local government to speak together, better to understand where each is coming from and going to. That is a crucial role and we welcome it. I also look forward to the Minister’s replies to the questions that the noble Lord, Lord Berkeley, asked about Crossrail; some of them have interested me, too, coming as I do from a London borough.
I was grateful to my noble friend for saying that she would leave it to me to respond to the noble Lord, Lord Bates, speaking from the Conservative Front Bench. I could do so at great length, but I shall resist that temptation, not least because I think that we will be discussing these matters at each stage of the Bill. The points on which we agree—and there were some—will become clear, just as our different approach will become clear.
One comment that I would make on the noble Lord’s speech in general is that he painted an alarmist view of the dreadful things that local government would do once it was armed with this power to levy additional tax on poor, long-suffering businesses. I sat here thinking, “Does he know something that I don’t?”. The majority of local authorities that will have this power are currently Conservative-controlled and I am sure that he will expect even more of them to be Conservative-controlled by the time the Bill is enacted. Therefore, I worry that he knows something that I do not know and that the effects of the Bill will be far more damaging than the Minister will suggest or, indeed, than I believe they will be.
Before I go further, I should declare my own interest again, as this is the start of the process on the Bill. I am a member of the council in the London Borough of Sutton; indeed, I am a member of the executive. It is not quite an interest, but at the time of the 1988 Act to which the noble Lord, Lord Smith of Leigh, referred, I was leader of the council. I remember well the Conservative Government nationalising the business rate. What I remember best is our first statutory consultation meeting with the business rate payers after the Act was enacted. We had always had consultation meetings with business rate payers before the business rate was set, as I imagine most local authorities did. We told them why it was necessary to be whatever it was; they told us why it was too much and we then had a general discussion on what the council was and should be doing.
At the first statutory meeting—the ratepayers were not required to attend, but they did—I explained to them first that the council no longer set the business rate. I said that, although the council would continue to collect it, it would not keep their money and that the amount that we got when it was redistributed from the national pool would bear no relation whatever to what they had contributed—nor, indeed, would there be any great benefits directly from any increase in the business rate. They looked at me and asked, “What is the point in having the consultation?”. It was rather bizarre that we were statutorily required for the first time to have a consultation on something over which evidently we had no power at all.
The noble Lord, Lord Smith of Leigh, is right to refer to the damage that that part of the Act did. What he forgot to say is that the Labour Party, committed at that time to denationalisation of the business rate, has now been in power for 12 years and has done absolutely nothing about it. Indeed, I regret very much that through those 12 years, and even now, the Government, like their predecessor, have failed completely to tackle the whole thorny issue—and it is a thorny issue—of local taxation generally, of which this is an important part. In arguing for the return of the business rate, I would not wish to be thought to be saying that it is necessarily the best form of business taxation at a local level, but it is what we have now.
I declared my interest as a councillor for a London borough that is just about the most distant one from Crossrail. Perhaps I may say, therefore, that my commitment and my party’s commitment to Crossrail, and now to this method of helping to fund it, is absolute; I have no qualification whatever to make about that. However, I know that many of the local businesses in the London Borough of Sutton—I suspect that this might be so in other outer London boroughs north and south, too—will not be consulted or have a vote on it. Personally, I do not think that that should be the case. I suspect that, if they were asked, they would be a little cynical about the suggested £13 million of benefits that will come to the borough in 2026. If asked, they might say that they saw the economic benefits from extending the Croydon Tramlink into our borough being of much more immediate and direct benefit than Crossrail. I say that by way of comment, not in any way to reduce my commitment or my council’s commitment to the funding of Crossrail. It is vital that that goes ahead. I certainly would not want to do anything that might damage that funding.
I understand why the current Mayor of London opposes extending this power to London boroughs, as he is fearful that, among other things, this funding might be damaged. In any event, this is not the right time for London boroughs to be imposing a further supplementary rate on top of the GLA supplementary rate, which we know will come, and the other measures that have been referred to. However, as several speakers including my noble friend have said, we are talking about the period up to 2035. We all hope that the economic downturn will “upturn” some time before 2035. Some of us still have a faint hope that, at some time before 2035, some Government will be brave enough to reform local taxation generally. But I have always been an idealist. Maybe it will happen, maybe it will not.
In introducing the Bill, the Minister rightly said that the power will be there when the time is right. The time must become right at some stage before 2035 for London boroughs. The object of this, which I wholly support, is to improve local economic development. London borough councils working in partnerships with their businesses—that is enormously important—are the drivers of local economic improvement. As my noble friend said, all London boroughs, some more than others, are major players in the local area. They are not the local parish council. Surely there is a case for them, too, to have the power, with proper qualification, to levy a supplementary business rate when the time is right, which I readily accept is not in the immediate future. Unless that is in the Act, however, it will never be there if and when the time ever becomes right. If and when local businesses, councils and people are all in agreement on the use of a supplementary businesses rate to help to fund a particularly important project that benefits all, they will be unable to do so unless that power is there. I regret that.
I referred to partnership, which is the key to the Bill. Times have changed beyond recognition from the situation in the 1980s that perhaps led to the nationalisation of the business rate. I remember well that, even in my own council, in those days business did not understand local government and much of local government did not understand business. We did not understand why we behaved and worked as we did, and many had not realised that we very much shared common interests. That situation has changed pretty well everywhere in the country; certainly, it has long since changed in all good areas. Any good local authority will be working in partnership with its business community.
I am therefore a little sorry to see that the briefings for the Bill have become, in a way, a little polarised. We have the Local Government Association on the one hand saying, “No ballots! We must not have a ballot”, and the CBI and the business community saying on the other hand, “We must have a ballot”. I hope that we can make this debate a little less polarised. A ballot, whether it is statutorily required or not, will come at the end of a process. It will not come at the beginning, or even in the middle, before we even get to having a project or proposal that may, or may not, go to ballot. A local authority—the levying authority, to be more precise—should have been working with its business community to identify what the project is, to reach agreement that it will genuinely benefit the local economy, and consequently those businesses, and to produce the prospectus on which that ballot will be held. By the time we get to that stage, the businesses will possibly not need that assurance because they will have been part of the process.
I accept that we are not yet in that position. Many businesses in all parts, probably including my own borough, do not yet trust local government—or government generally—enough to proceed on that basis. During the passage of the Bill, we will return to the need to give businesses that reassurance, but I hope that, when we do so, it will be just that: a reassurance that, if it is necessary, it will be at the end of the formative process that I have described.
The issue that had not been raised until the noble Baroness, Lady Valentine, spoke was that of giving BIDs the opportunity to levy from property owners. I know that this was debated in the other place. I do not need now to rehearse the arguments, but I believe that the Local Government Minister said that the Government understand the point, that they are working on a number of issues that, quite properly, need to be resolved and that they hope to take this forward during the Bill’s progress through this House. In her reply, I hope that the Minister will give us the Government’s view and will be able to reassure us that they will bring forward proposals to achieve that. Where they exist, BIDs have been enormously successful. I am a strong supporter of them. This overdue measure is widely supported and this Bill should be used as an opportunity to make it possible.
In opening, my noble friend said that we will support this Bill in the vein of critical friends and that we will seek to improve it. I do not know the superlative to pristine, but whatever it is we will seek to ensure that when this Bill leaves this House it is improved and even more—I have no other word—pristine than when it arrived.
My Lords, I am truly delighted by the response offered to the Bill. I knew that I should not have used the word “pristine”: it certainly got me into serious trouble almost before I began. Clearly, we will have some interesting debates. It has been an excellent debate so far, as usual demonstrating a wealth of expertise and commitment, and a genuine diversity of approach across the House. Noble Lords have been able to support the principle of the Bill by and large.
I am very pleased by the language that has been used. This Bill has been described as modest and useful, which means that it is in with a good chance. My noble friend Lord Smith, the noble Lord, Lord Best, and the noble Baroness, Lady Hamwee, used those terms. The noble Baroness, Lady Valentine, described it as a good thing. I am delighted by those approaches. It does not mean that we will not have intense scrutiny, which I welcome. But there has been an understanding about what the Bill is about, which was not least exemplified in the words of the noble Lord, Lord Bates, in relation to Crossrail. In his summing up, the noble Lord, Lord Tope, did the Bill a great service in describing the nature of partnership and the way in which partnership fundamentally informs and will make a success of BRS. That was a useful description.
Partnership was described not least by my noble friend Lord Smith with all his experience of promoting partnership. The noble Baroness, Lady Valentine, has already had tribute paid to her role in bringing business together, as has the role of the LGA in its ambitions of working with local government. Crossrail has commanded unanimous support, which is a very important part of the success of this Bill as it goes through the House. The noble Lords, Lord Bates and Lord Moynihan, introduced a very interesting perspective, to which I will turn in due course. The noble Baroness, Lady Valentine, and my noble friend Lord Berkeley, raised detailed questions which I will answer.
In this Bill we are trying to achieve a balance of interest and outcomes, and the importance of additionality. I was particularly intrigued by the invitation by the noble Lord, Lord Tope, to answer the noble Lord, Lord Bates. I always look forward to the Opposition answering each other’s arguments and leaving me out of the picture completely. I am very happy for that to continue. Essentially, I say to the noble Lord, Lord Bates, that, as demonstrated by his response, we have a slightly different take on the Bill. I want to emphasise the principles again; first, the exceptional nature of what we would see BRS as offering. It is normative in the sense that it is in the Bill and will be there as an opportunity. Certainly, it will be an exceptional opportunity for those local authorities which want to take it up. That is partly my response to the fears raised by the noble Lord, Lord Moynihan, in relation to the leisure and sport industries and the interests that they represent. The £50,000 rateable value limit will certainly put many fears to rest because most of those organisations will certainly fall within the 90 per cent that are excluded by the Bill.
This money goes to local authorities in partnership with business to develop local significant projects which have been jointly agreed, designed, devised and expressed in the prospectus, so this is very much local funding done on a joint basis. Therefore, it is about responding to the needs of the local community. In developing BRS, therefore, the Government have been mindful of the need to balance these greater freedoms to raise revenue locally with the need to protect business interests. I particularly welcome noble Lords applauding this celebration of local autonomy, and the power which it gives local authorities.
I agree with the noble Lord, Lord Tope, that it is regrettable that the debate has become polarised between the 2p rate and the extent of the ballots. I hope that we can enable people outside to understand that there is common ground on the balance that we are seeking to achieve, and that we shall get that balance right. I believe that the Bill strikes the right balance, which is reflected in the support which it has by and large received. Indeed, all the business representatives who gave evidence to the Commons Public Bill Committee supported the principle of BRS. It is interesting to note that the director-general of the British Chambers of Commerce said that people in several parts of the country spoke of the need for more local determination and to raise additional revenue from the business community. That attempt to balance rights and interests underpins the credibility of the Bill because it is very clear that an explicit benefit has to be proved in the prospectus of whatever project emerges, as the noble Baroness, Lady Hamwee, said, which has to be owned by the people involved. That has to be balanced with the need to protect smaller businesses from paying the supplement.
My second major point in relation to balance is that the Bill does not give local authorities unfettered access to businesses’ profits. It includes numerous protections for business rate payers. As I said, it gives them a real say in whether the supplement should be levied, not least because we are requiring a double lock which will guarantee support as 50 per cent of all qualifying businesses will have to agree to give their support in a ballot, and they will have to represent more than 50 per cent of rateable value among businesses. That is genuine fairness in terms of proven support.
The noble Lord, Lord Best, on behalf of the LGA, referred to the 2p rate. We are aware that the LGA has taken a particular stance on that. The 2p limit allows local authorities to raise what we think is a significant and meaningful sum towards projects while safeguarding business. The national upper limit provides an important safeguard for business in terms of the maximum that they may be required to pay. We shall return to that issue in Committee when we discuss the noble Lord’s amendment. Alongside that we have had the beginnings of a debate about the ballot. The noble Lord, Lord Bates, and other noble Lords asked why there should not be a ballot in all cases. There have indeed been strong calls from the business sector for a vote in all cases. However, again, this contrasts sharply with the position of the Local Government Association, which takes the opposite view entirely and would like the local ballot to be left to local discretion. Once again, the Government find themselves in the middle, trying to balance the interests of both parties.
Requiring a ballot where the supplement will support more than one-third of the total cost of the project strikes the right balance. It will ensure that where the BRS is contributing a relatively large proportion, or all, of the funding needed for a project, that business will get a vote. However, in the circumstances where it is contributing a smaller package, we do not believe that it would be desirable. There will be a robust consultation process, but we think that it would create additional uncertainty, greater delay and confusion about whether complex and large projects can be agreed and can go ahead. I say to noble Lords, in particular the noble Lord, Lord Bates, that although we have not specified it in the Bill, there is nothing to stop local authorities choosing to introduce a ballot on any BRS if they were to so choose.
Noble Lords have addressed additionality and how money is spent, which are important. As the noble Baroness, Lady Hamwee, said, this could be about revenue-raising projects as well as capital-raising projects. The noble Lord, Lord Bates, put forward some very interesting examples. I reiterate that in Clause 3 we have provided that the projects must be specific to what the prospectus says, and they can take place only if they are funded additionally and for the purpose specified. The examples that the noble Lord gave of the RDAs and the centres of excellence are interesting, but we do not see this as a substitute for projects that can be funded in other ways. My sense is that those options would have been exhausted, or a decision would have been arrived at that the RDA might be a contributing partner, for example. Certainly, every case would be taken on its merits in terms of the local conditions. I am sure that there will be many opportunities for us to discuss that in Committee.
The noble Lord, Lord Moynihan, raised some interesting issues in relation to community amateur sports clubs. The noble Lord will know that registered sports clubs are eligible for 80 per cent relief from national non-domestic rates, and they will get exactly the same relief in the Bill. Billing authorities can top up the mandatory 80 per cent relief, and if they do so they will have to make sure that it is systematic across both ordinary relief and this levy. Obviously, I agree with everything that he said about the contribution of sport and about the legacy that we want to see and, we would not wish to inhibit that in any way. I foresee the possibility of a project under BRS that would bring the boroughs, the sports community and sports industries together to conceive of something specific and part of that legacy. I would have thought that there is a lot of comfort to be got from the £50,000 rateable value limit in relation to those businesses and charities. I will read the noble Lord’s speech in more detail, as he may have raised other issues.
My noble friend Lord Berkeley and the noble Lord, Lord Tope, talked about Crossrail, and asserted that there will be differential benefits for different parts of London. The whole of London’s economy and the areas surrounding London will benefit from Crossrail in the long run. It is a London project but, my goodness, its benefits are not confined to London. We know how much London drives not just the economy of the south-east but the country as a whole. Its impact will be felt in reducing congestion and enabling faster journeys. That will free up many routes, not just across London. It will contribute to the build-up of jobs in London as well.
The Mayor of London’s briefing suggests that every London borough is projected to benefit by at least £14 million by 2026 in terms of wider economic employment and transport benefits for local residents. There are some variations within that, but I look to the expertise on London across the House to see whether a test will be applied to that.
On the question of my noble friend Lord Berkeley, we estimate that the BRS will raise about £177.9 million a year. That would bring in less than a third of the total cost of Crossrail, and that is why a ballot will not apply in that case. I shall look in more detail at his other questions.
One fundamental and important question raised was: why not limit the Bill to London? We heard a conclusive argument as to why not from my noble friend Lord Smith, who asked why other areas should be denied the potential benefits of the Bill. I cannot think of a better counterargument, because that is the point of creating an opportunity in the Bill for areas outside London. If and when the time is ripe and the partnerships agree and want to work on something exceptional that crosses different local authorities, why should they not have this opportunity? Is it not more undemocratic to deny them that chance and construct something for London alone? I suspect that if we had constrained the Bill to London, I would be here making an altogether much weaker case. We are very mindful of the potential use of BRS more widely as local authorities move towards subnational organisation. Indeed, there were splendid examples of progress on that in today’s Budget.
I was also very pleased that so much attention was paid to the nature of consultation. The noble Lord, Lord Bates, talked about the importance of transparency. That was absolutely right. The issue, as the noble Baroness, Lady Hamwee, said, is about the need to take the whole funding package, whereby everyone is clear about their roles and responsibilities, particularly funding responsibilities within the package, and the need for the prospectus to be absolutely clear about the expectation, the additionality, the cost benefits and the responsibilities. That will be an extremely serious part of our debate on the detail of the Bill. My noble friend Lord Smith also referred to that. Underpinning that is the idea that this is not something that will be done to local businesses; they will be involved in this and will benefit from it. The consultation process before each BRS is levied is an extremely important part of the whole argument.
I am winding up, but I should address the issue raised by the noble Baroness, Lady Valentine, about BIDs. There was much discussion in another place about the possible impact of BRS on BIDs, but she raised a wider issue. This was also raised by Nick Raynsford in another place. Perhaps I may deal first with the notion of offsets; the decision to offset BIDs against BRS is accomplished in the Bill. That will depend very much on the specific circumstances of the project. Clause 16 leaves the decision to local discretion. As for the wider issue about whether property owners should be included in BIDs to strengthen the role and to spread the weight, since the Commons considerations we have received further representations on the issue. It is now clear that there is widespread support for BIDs and we are keen to ensure that they continue to flourish. We are giving further consideration to the representations on the interaction between BIDs and BRS, and I hope that in Committee I can come forward with more detail on that and keep the noble Baroness fully informed.
I believe that I have taken care of most of the substance of the arguments that have been made, but I shall read Hansard tomorrow to make sure. The issue of implementation and the timing of regulations was raised by the noble Lord, Lord Moynihan, and the noble Baroness, Lady Hamwee. We intend to consult shortly on the policy that will underpin the regulations. Even if we do not have the regulations in front of us, we will have the substance of the regulations to enable us to have an intelligent debate, and we can do that as soon as possible. We aim to issue the consultation paper on our proposals for secondary legislation very soon. With that in mind, I hope that we will be able to proceed before, if not during, Committee stage with a map in front of us of what implementation will look like.
I am extremely grateful to everyone who has spoken in this debate. I am very grateful for the welcome that noble Lords across the House have given to the Bill and for the intelligence and thoughtfulness with which they have responded. I very much look forward to our later debates on the detail.
Bill read a second time and committed to a Grand Committee.