Council Tax (New Valuation Lists for England) Bill

My Lords, while respecting the fact that the Bill concerns council tax revaluation, I should like to raise a wider issue of local authority finance, which I am confident that the Lyons report will also scrutinise. That is the matter of the business rate. The business rate should not only be raised locally but retained locally. Before 1990, economic development within local government was enlightened self-interest. A city like mine of Norwich could spend local ratepayers’ money on starter units for very small businesses and support services—trying to grow those businesses from two or three persons to 10, 15 or 20. It meant that an authority such as mine could make available key worker accommodation for businesses and companies seeking to expand or to move into the locality. One big decision was that we not only started but, although it was a loss leader, retained an airport because we were told by the head offices of companies located in Norwich that that was a key facility for a city that had relatively poor road communications. We did that. We invested in the local economy of our city because we knew that although that cost rates at the time, down the road, revenues would return to enhance the health of the city and its capacity to be an economic powerhouse for its region. In all the years when I was active, we discussed that business rate with the chamber of commerce. I am sure that the same was true for my noble friend, who is also a former leader of a local authority. Those discussions with the chambers of commerce were entirely amicable and, if it was appropriate, we amended our agenda accordingly. As a result, we could persuade local citizens that what we needed to spend we raised locally and that we were accountable locally. Because most of our revenues were raised locally, there was a transparency between what we did, what we spent, what we raised and what we were held to account for in local government elections. Since 1990, one of the most perverse pieces of legislation was the nationalisation—it was about the only thing that was nationalised—of the business rate. I want to address two arguments—the other side of the advantages that we had before 1990. It has resulted in a very serious democratic deficit. Now, something like 85 per cent of local government revenues come from central government. As my noble friend rightly said when discussing the Lyons report, as a result local people do not know what their money buys or the degree to which their local authority is effective, efficient or offers value for money because it is cloaked, concealed and cushioned by the moneys coming from central government. There is an obscurity where there should be transparency and there is a lack of accountability. There is an erratic volatile quality because, of course, if something like only one-seventh of moneys is raised locally, for every £1 of expenditure that you want to raise, you have to raise £7 locally. There is a very high gearing effect which increases the volatility against which so many people currently complain. Therefore, the first problem with nationalising the business rate is the democratic deficit, but the second problem is the economic absurdity of it. There is now no connection between economic development and financial return. Because over many decades my city has invested in its local economy, next year, it will pay into the national economy something like £57 million in business rates and will get back about £37 million in grants from central government—both at district and at county levels on a pro rata population basis. In other words, as a result of the city’s investment as an economy in the past, it exports something like £20 million to other authorities, whereas the adjacent, sometimes rather sleepy, indolent and low-rate and low-activity culture rural districts are doing very nicely, thank you. Next year, one will export £15 million in business rate, but will get double that figure back—£30 million—from central government for doing nothing. The consequence of that detachment and dislocation between economic development and the business rate means that whether a local authority invests in its economy and does anything, or does not invest in its economy and does nothing, matters not at all. So why bother? Why should any local authority do anything to help its local economy and business when it will not get a penny piece back in revenues? It is more perverse than that: local citizens will be asked, through their council tax with its very high gearing ratio, to invest in local business, the rates of which are exported to other local authorities. Not only does your own citizenry not benefit from economic development, you end up charging your local citizens for the privilege of exporting more moneys to other local authorities which are doing nothing similar of their own. Can my noble Lords imagine a more perverse way to calculate a quarter or a third or so of local authority expenditure and financing than a business rate which completely breaks the connection between what a local authority does and what it receives back to support its local community. Are you surprised that local government becomes increasingly indifferent to the concerns of business when whatever it does, positively or negatively, makes no difference for the returns that it gets? It is bizarre, it is perverse. It is surely alien to the issues we want to see resolved in the Lyons report, and also more broadly to encouraging local government to take a comprehensive view across the whole of its city—not just its citizens and residents, but its workers and employers. Bearing in mind the argument of the democratic deficit and of encouraging local government to take a healthy responsibility for economic activity within its local economy, I hope that my noble friend will restore back to local government its business rate.