Clause 16
Business Rate Supplements Bill
6:30 pm
Bob Neill (Shadow Minister, Communities and Local Government; Bromley and Chislehurst, Conservative)
We come to a fresh and important set of considerations. It was dealt with in some detail by the witnesses who gave evidence to us, and it comes back to the issue of the interaction of the BRS with BIDs. I am happy to say that many of us have seen BIDs work well in our areas. I know that Ministers do not desire to harm BIDs schemes, but those who gave evidence expressed real concern that there is, not for the first time, a risk of unintended consequences and of an adverse impact on BIDs schemes.
Why does that risk arise? First, as we said earlier, the tax-raising power in the Bill is given right across the country. Secondly, it is done against a background of serious economic downturn and pressure on businesses. Thirdly, it is done at a time when, for a number of reasons, there are real constraints on local authority budgets. Finally, and in particular, it is done against the background of a reduction in the funding made available to local authorities for a number of economic development-related purposes, through the cutbacks in the funding of the LABGI scheme. Whether we call it mainstreaming LABGI, or whatever else, the fact is that there will be significantly less money available in the coming two years than was available over the previous years—£150 million as opposed to £1 billion.
The real concern that many people have, and which a number of my hon. Friends share, is that this may create almost irresistible pressure upon a local authority to use BRS as a means of making up some of that loss and to push the envelope of the rules to the maximum permissible extent. One might then get a situation where an authority that can justify the economic reasons for a scheme within the rules decides to proceed using a formulation whereby 25 per cent. or 30 per cent. of the monies are raised by the BRS, so the ballot provisions are not triggered. That, of itself, might be well and good, but the evidence suggested that the real concern for many business organisations is the interaction between that scheme an existing or future BIDs schemes in the area. Fear was also expressed about the cumulative effect if other measures are introduced, such as those involving voluntary contributions, the community infrastructure levy, workplace parking levies, and so on. There is a limit to how much can be squeezed out of businesses in those circumstances—one cannot get a quart out of a pint pot.
Because the threshold is not met to trigger a ballot, the business cannot ultimately say yea or nay to the BRS scheme. Realistically, it may not have much choice about the community infrastructure levy because, again, there is no ballot provision for that; nor would it have a choice in relation to the voluntary contributions—that is a matter of negotiation. The one area where it can say no is the BID scheme. The temptation in those circumstances will be for local businesses to say, “The only way that we can prevent an accumulation of burdens upon us is to say no to the one thing that we can say no to: the BID scheme,” even though, if the relative value of the BID scheme was ranked against the BRS scheme in a wholly dispassionate world and with an even playing field between the two, they might prefer the BID scheme.
In the current economic climate, the most important thing to them is containing their costs. That creates a perverse incentive to say no to BID schemes that might otherwise have been approved. That might not be the desired consequence, but it is the reality for lots of businesses. That was highlighted in the evidence of a number of witnesses on the effect of the economic downturn.
Even the big multiples are shedding many jobs because their turnover is being squeezed. The Federation of Small Businesses made the point that for many of its members who may be caught above the threshold, cash flow is king. The one thing that they will do is restrict avoidable overheads. If they cannot avoid the BRS because they do not have a ballot, they will avoid the BID scheme. That would be tragic, because BID schemes have worked well and been hugely successful. I accept that the case for them has been proved by experience. They work well because businesses have real and genuine buy-in and the ultimate ability to say no. That is the background and why the measures are an area of concern to us. It is not a fanciful concern; it was flagged up, in one way or another, by all the various business organisations that gave evidence to us.
How can that unfortunate consequence be prevented? It seems to us that the best and safest way is to adopt the desire of all the business organisations to allow an automatic set-off for BID levies. In some cases, it may be said that the BRS deals with a different magnitude of scheme than BID schemes. Sometimes that is the case, but sometimes there will be an overlap. Another idea that might have been available, but which the Government have not made available in the Bill, is to have some reduction in the business rate multiplier to compensate, giving a set-off that way. However, that is not on the table, so we cannot sensibly advance it.
How can we protect the growing BID sector from damage in this difficult time? We can permit the automatic set-off. That could then be compensated in other ways, such as how thresholds or other poundages are adjusted within the scope of the Bill. It would at least create a situation of clear linkage between the area of a BID scheme, which might cover the whole of a local authority that also wants to do BRS, where there is substantial overlap. The automatic set-off would be a reassurance to businesses that they will not be hit, in effect, by a double whammy. That is the thinking behind the amendment. As you will have noticed, Mr. Atkinson, the amendment’s main thrust is to insert a new subsection (1) into clause 16 to achieve that effect, and other consequential amendments follow.