Business Rates

When I saw that the Opposition had raised the question of business rates, I thought we would be having a thoroughgoing, wide-ranging debate on the principles behind business rates and how we might do better. Instead, we had a niggardly and rather empty proposal criticising various aspects of the mechanics of the current system. I was surprised that the party that is now supposed to believe in localism did not go for something a bit more radical. I am also disappointed that the Minister for Regional Economic Development and Co-ordination, my right hon. Friend the Member for Doncaster, Central (Ms Winterton), with whom I agree on most issues, was not prepared to be more radical. I agree that we need constitutional reform in this country, and one of the most important aspects of that is to improve the balance of power and responsibilities between central and local government. We need to ensure that there are more powers and responsibilities at local level, and I commend to the House the report recently produced by the Communities and Local Government Committee, on the balance of power between central and local government. If we are to get the balance of power right and push out more responsibilities and powers locally, we have to ensure that we get the balance of funding right and give local councils more responsibility for raising the funding that pays for their services. I noticed that the words "local income tax" did not pass the lips of the hon. Member for Falmouth and Camborne (Julia Goldsworthy). I wonder whether there is a shift in policy coming from the Liberal Democrats. The easiest way to transfer more powers for raising money to local government would be to localise the business rate and put it back to where it was before the poll tax led to the changes. Of course, the Government need sufficient resources so that they can equalise the situation, on the basis of resources and need, between councils with different abilities to raise money and differing needs. The estimate is that the Government need to control about 30 per cent. of the money spent at local level to do that, not the 75 per cent. of money that they control now. Transferring business rates would actually give local authorities the right to raise about 50 per cent. of their own resources directly, and that would be a significant change, which I would commend. I know that the Lyons report looked at that, but did not recommend it. The report did recommend the supplementary business rate, and the Government have introduced that in principle, although they have not gone as far as Lyons wanted. I know that the Government are also looking at measures such as the community infrastructure levy, which will provide some powers at local level to raise the additional resources for councils to spend. There is a fundamental problem, however: not merely with the gearing of council services, because local authorities raise so little of the total money that they spend at local level—only a quarter—but with the disconnect between development, the costs it brings and the extra resources that are provided for an area. This country differs from many others in the EU, such as Germany, which has a much bigger incentive to look positively at development because the benefits of the taxes generated by it come back to the community in which it takes place. That is a big issue that needs addressing. My right hon. Friend dealt adequately with the other issues. Yes, 5 per cent. inflation looks like a large increase, but there is the possibility next year of a minus 3 per cent. figure for the retail prices index, which shows that the linkage right. Over the years, businesses have had a good deal. Since the council tax was introduced, the amount that it contributes to local authority resources has risen from 21 to 26 per cent. At the same time, the amount contributed by the business rate has fallen from 28 to 20 per cent. Over the long term, council services, even with efficiency savings, are always likely to need more money spent on them year on year than RPI, because wages at local council level are likely to go up faster than RPI. If the business rate is held down at RPI, it is likely to contribute a smaller and smaller amount towards the payment of council services. That is why, over time, businesses have not done too badly. Finally—