Business Rate Supplements Bill

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, schedule 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 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.