Business Rate Supplements Bill

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.