[ Relevant Documents: The Seventh Report from the Communities and Local Government Committee, Session 2006-07, Local Government Finance: Supplementary Business Rate, HC 719; and the Third Report from the Committee, Session 2007-08, Local Government Finance — Supplementary Business Rate: the Government's response, HC 210, and the Government's response, HC 1200, Session 2007-08. ]
Copy and paste this code on your website
I beg to move, That the Bill be now read a Second time.
We are living through a time of great economic upheaval and uncertainty, global in its origins but local in its impact on businesses and communities right across Britain. We in Government are committed to doing what we can to help people through these tough times and to prepare for the upturn that will follow. Actions such as recapitalising the banks, targeted tax cuts, loan guarantees, programmes of public spending and support for jobs are necessary measures for the present. But even as we take action to cushion the blows of recession, we are also looking to the future. We do not want to make the mistakes of previous recessions by not continuing investment in major projects, in skills and in business support and by not putting in place policies that may help local areas to recover more rapidly and take more advantage of the upturn when it comes.
The Bill is part of the policy framework needed to prepare for the other side of the downturn. Let me be clear with the House from the outset. We are not imposing a new business tax, but introducing a new power to allow local authorities—with strong safeguards for business—to raise some of the money needed to boost local business and the local economy in the longer term.
The Minister is aware that there are many very good councils, but there are some councils that do not listen and do not consult properly even their residents, let alone businesses, which do not have a vote. Can he give an undertaking that businesses will have a vote on all levies, at whatever level they are proposed by the councils?
I will not give that undertaking, but I will give a fuller outline and an explanation a little later, and they will set out the circumstances and the principal case in which businesses would and should get a vote. The hon. Gentleman may wish to consult the leader of his local county council for his view on the issue; he is an innovative council leader interested in the fact that this power could allow Essex to raise more than £12 million each year with the 2p business rate supplement. That money could be used in his county for all sorts of economic development projects.
As I have just explained, we are not imposing a tax on business but putting in place a power through which local authorities can, with safeguards for local business, decide to introduce such a levy. We reckon that a supplementary business rate in London, which is likely to be where this is first put to the test, would raise perhaps £170 million a year. The right hon. Gentleman will know that that is an essential element of the funding package to support Crossrail. It will allow the Tory Mayor and the London assembly to discharge their commitments and responsibilities to contribute to that funding package precisely because it is a major economic project that could bring great benefit to businesses across London. Therein lies the principal case for such a power and for that power being available in other parts of the country.
The Minister said that Crossrail will bring benefits to businesses across London. My constituency is the southernmost in London, and I assure the Minister that a small business in Coulsdon will derive no benefit whatever from Crossrail. Where on earth is the equity? Where is the fairness in having the Greater London authority impose a business rate for Crossrail which hits businesses that derive no benefit from it whatever?
If the hon. Gentleman reads the Bill, he will see that we are proposing the power for all the upper-tier, top-level authorities. He knows as well as anyone that in London the democratic and electoral arrangements are different from those in the rest of the country: the upper-tier, elected authority is the Greater London authority. If there is a problem with businesses in Coulsdon, or if businesses tell him that the power will not bring benefits to them, I suggest he take the issue up with the Mayor. I will come on to explain the significant safeguards in the Bill which will in all likelihood mean that as many as nine in 10 businesses would not be liable to pay a business rate supplement if it were introduced in their area.
I want to support Richard Ottaway. Does the Minister not accept that it is a facet of London politics that a London authority inevitably means a transfer of resources away from rather poor suburbs such as Croydon to projects in the centre or east of London? Would the Minister be willing to follow the Select Committee's recommendation that boroughs should have some kind of veto so that they can address the issue of the continued transfer of money away from south London to other parts of London, which further taxation through the GLA will inevitably involve?
The hon. Gentleman will find that the limitations to liability set out in the Bill will help to safeguard areas that are relatively poor in terms of high rateable value businesses.
I now give way to the hon. Gentleman's former hon. Friend, who represents areas in which a more significant number of businesses will be above the threshold than in Croydon.
I will not be speaking on behalf of Croydon, which is well looked after—at least on this side of the House. Mr. Pelling may have had in mind my constituency as a part of the central London area that is to benefit.
I wanted to ask about the Minister's earlier statement about the top tier. Does he not recognise that we have an entirely different system in London compared with other parts of the country, where that top tier would be a county council? The GLA's role is purely advisory and scrutinising in respect of the Mayor. It is therefore wrong for this power to be geared towards the GLA rather than the constituent 33 boroughs of London.
I think the hon. Gentleman and I will have to disagree. Where we have local government that is not unitary, as in London and in some county areas, it is right that this applies to the upper-level authority, not least because it is much more likely to be leading the long-term strategic planning that will be part of preparing some of the big investment and infrastructure projects that are likely to underpin the performance of the local economy and the prosperity of local businesses for the future. Therein lies the argument for saying that the upper-level authority should have this power, although some have argued that we should allow districts in two-tier areas to have the same. In our view, however, there should be one business rate supplement for businesses in an area, without the risk that a county and a district might separately choose to take this power, which therefore will not be available to those lower-level authorities under the Bill.
May I urge my right hon. Friend to take a robust view on this issue? The Conservatives appear to be advocating an approach that would make it impossible for Crossrail to be funded. If individual London boroughs opted out and power was taken away from the Mayor of London—who is a Conservative but is wholly supportive of the supplementary business rate in order to support Crossrail funding—that would be the death knell for Crossrail, which is crucial to the economic success of our city. I sincerely hope that the Government will remain robust on this.
I welcome the support of my right hon. Friend, as a ministerial predecessor and as a London MP, because he understands the challenges of trying to put in place such a power and the challenges that then face local authorities, in consultation with local businesses, in deciding whether it may be appropriate for their area.
As I have tried to explain, London is the leading example of this principle in the Bill and the leading example of the new power in the Bill. The new power will allow the Mayor of London to make good his commitment to funding a key part of the Crossrail package and to supporting economic recovery and the long-term growth of London. That is why he said last month:
"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."
That is why the GLA briefing for this debate declares that the business rate supplement
"is a key part of the funding package for Crossrail... the successful passage of the BRS Bill is therefore crucial to the construction of Crossrail."
Some argue that such investment opportunities should only be allowed to London; indeed, that is suggested in the Opposition's reasoned amendment. I have to say to their Front Benchers that I see that as the traditional and typical Tory view that nothing matters beyond the country's capital. They would deny other cities, significant county councils and other local authorities the power to develop with their local businesses new plans to support economies outside London. It is therefore right that we do not place a limit on the Bill so that only London may benefit from its provisions. Instead, we ensure in the Bill that all areas of England and Wales have the chance to use this power if and when it is right for them to do so. This legislation for long-term investment and the upturn should not be stalled by short-term concerns; nor should the interests of London be placed ahead of those of other parts of England and Wales.
Some fear that businesses may be seen as a passive cash cow; that is also suggested in the Opposition's amendment. However, the Bill requires, on the contrary, that companies be active participants in debates and decisions on a business rate supplement and on the role that it may have in contributing to the future prosperity of their areas. Again, London is the leading example of that principle, and the GLA and the Mayor have consulted widely with business on Crossrail and its funding. That is why Sir Michael Snyder of the City of London Corporation said last month:
"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. Crossrail is absolutely crucial in keeping London and the UK globally competitive and for this reason we are delighted to support the funding of this vitally important new railway."
Crossrail is supported by the wider business community in London, which, by doing so, accepts the funding package of which the business rate supplement is an essential element—an explicit part of the Crossrail deal.
It was noticeable that the Minister claimed support from business, particularly in London, but pretty much all the bodies representing business have said that the rate is an extra tax, and another cash cow for local government. They are totally opposed to it. How does he equate that with the statement that he just made?
In two ways. First, the picture that the hon. Gentleman paints does not represent the view of the many business organisations in London that accept the case for Crossrail, and which accept that a funding package needs to be put in place if we are credibly to pursue the ambition to build it. They accept the business rate supplement, which the GLA and the Mayor back, as part of that package. The hon. Gentleman talked about other business organisations, but the CBI is not opposed in principle to a business rate supplement, although it wants much stronger safeguards for business than we have in the Bill.
The question is twofold: is there a case, in any given area, for the sort of economic development and investment that would not otherwise happen? If so, do the benefits to business, jobs and prosperity in the long term support the case for introducing a business rate supplement? That is essentially the framework of policy and powers that the Bill sets out.
At a time when businesses are suffering the most for decades and bankruptcies are increasing, the Minister has said that he will not give businesses a vote in every case. Will he include a clause in the Bill saying that before any such scheme is considered, the economic conditions of businesses affected have to be taken into account? We are beginning to see empty sites up and down the high streets of this country, in prosperous places such as Putney. If such a scheme were proposed in Putney at this moment, a fragile trading condition could be made even more fragile.
Whether or not there will be a vote on a business rate supplement, depending on the contribution required for any proposed project, there will be compulsory consultation, which will need to take into account the sort of things suggested by the hon. Gentleman.
Has my right hon. Friend reflected, during his consideration leading to the introduction of the Bill, on the fact that the contribution to local government finance from the business rate has systematically declined as a proportion of the total amount of revenue coming in because of clauses in the original council tax legislation? Rises in the business rate are restricted to the rate of RPI inflation, so the contribution as a percentage of total income has declined over the years. Has he calculated what that effect has been, and what effect the business rate proposals may have on the total contribution by businesses to council tax revenue?
I can give my hon. Friend the figures that he seeks. In 1997-98, business rates formed 25 per cent. of the money that was given to and spent by local government. Last year they formed 20 per cent. The reason is that we have been keen to restrict the annual increase in the small business non-domestic rate to the rate of inflation. At a time when significantly above-inflation Government grants have been given to local authorities, that proportion has therefore fallen. We do not propose to change that policy approach, and any business rate supplement levied in a local area or a combination of areas will be entirely in addition to the core commitment of the business rate take as a whole rising in line with inflation. That commitment will remain.
The present economic circumstances underline the need for active government and an active public sector to protect the poorest, to correct flaws in the market and to exert the leverage needed to secure the proper role and contribution from our private sector. The alternative is to let the recession run its course and leave the upturn to the market—precisely the approach that was taken during the recessions in the 1990s and 1980s. We are determined not to repeat that approach.
Against that background, how does the Minister justify the slashing of funding for the local authority business growth incentive scheme?
The hon. Gentleman will know that that is a three-year scheme, and was only ever introduced as such. This is the final year, and so far we have paid out £833 million to local authorities as a reward for the business growth in their areas. That is entirely additional to the core Government grant, and entirely without strings attached to how local authorities spend it. Having trialled it by proxy as a grant, now is the time to build it in more systematically as a feature of the business rates system. That is what we propose to do from next year.
The Bill is part of what is needed to put in place the foundations of an upturn. It is not easy, because in these difficult financial times there is a risk that major projects and policy reforms will be sidelined because of short-term concerns. There is also a risk that we will retreat to centralism, removing local discretion and flexibility when there are tough choices to be made. We will not do that, because we in the Labour party believe in greater devolution to local government. That is why the Bill is the latest in a series of powers and freedoms that the Government have given to local authorities in recent years. Those powers are essential at the moment, as authorities do more to deal with the downturn at local level and to face the new challenges ahead.
I shall give way to the hon. Gentleman, and then— [Interruption.] Then perhaps I shall run through several of the powers and freedoms that we have devolved and placed in the hands of local government in recent years. There is obviously an appetite among Tory Front Benchers to hear about that.
The Minister is coming to one of the problems with the Bill, which is that it is neither confined to the funding of Crossrail, about which we have heard much already, nor a fundamental review of local accountability and how money is raised and spent locally. Such a review is much in demand and would enable far more involvement of local communities, whether through the localisation of business rates or through a review of how residential taxes are raised. The Bill is tacked on to Crossrail, which is unfortunate and means that it is neither one thing nor the other.
I perceive it as an advantage that the Bill does not introduce a local income tax, and as a strength—not a weakness—that it is not confined to powers for London. It continues the series of greater powers and freedoms that we have given to local authorities in recent years, when we have introduced a general power of competence. It allows local authorities to do anything they choose, except raise taxes, to improve the economic, social and environmental well-being of their area.
A moment ago, I mentioned the three-year business growth incentive scheme. So far, £833 million has been paid to local authorities to reward their efforts to encourage business growth in their areas. Under the local enterprise growth incentive scheme, 20 local authority areas receive £280 million to boost enterprise, inward investment and work. The new power to introduce a community infrastructure levy in the recent Planning Bill gives councils the ability to raise money for vital infrastructure to support more sustainable growth and development.
Local area agreements are struck between the top-level councils in the country and national Government, and designed so that councils can set the priorities for their areas. In all but one of the 150 local area agreements, those councils have set at least one economic priority and target in their plan for the future. In business improvement districts, local businesses join forces with local councils and also invest in their own future.
The murmurings from Tory Front Benchers might suggest otherwise, but I think that members of all parties recognise that local authorities can have an important influence on the economic prosperity and development of their areas. Councils throughout the country, with leaders from all parties, support that view. Sir Michael Lyons emphasised that point in his inquiry into local government. It was a central principle of the sub-national review, which I outlined to the House in summer 2007, and it is also contained in the Local Democracy, Economic Development and Construction Bill, which is starting its passage in the other place.
Local government, across the parties, has welcomed the new powers and funding that we have offered to support economic development work.
I recognise the success of business improvement districts—67 are up and running. They are in diverse areas, such as Liverpool, Leicester, Worthing, Croydon—
Indeed. The 67 areas are diverse and led by different political parties, but work with their local businesses, normally in a very localised area, often to improve safety and environmental quality, and partly to boost business prospects. In many ways, the House and the hon. Gentleman might perceive the business rate supplement as building on that success—applying the approach of the business improvement districts to larger areas and potentially raising money to make lasting change through big projects, such as Crossrail in London.
I did not anticipate giving way at that point, but I will because I shall move on to something else afterwards.
Does the Minister not recognise that, whereas with business improvement districts the issue is consent and parties working together, Conservative Members' worry about the Bill is the amount of compulsion, which is at odds with the development of business improvement districts? I agree that they have generally—and certainly in my constituency—proved a great success.
As I said, businesses will be consulted in all cases, and there will be a legal requirement on councils to do that. I shall deal shortly with what I regard as the principled case in the Bill that, if the business rate supplement is to support a specific proportion of the funding for a proposed project, there should be a vote, and that in other circumstances there should not.
The Minister is aware of the concern about the effect of the Government's levy of 100 per cent. empty property rates, which was designed for a completely different economic climate. My understanding of clause 11 is that the business rate supplement would apply to any property on which rates have to be paid in full. Is the Minister seriously telling us that a business that already has to pay 100 per cent. rates on an empty property will also have to pay the business rate supplement, even though the property is empty?
The Bill allows local authorities, in proposing and implementing a business rate supplement, to make provision to exempt, if they choose, business rate payers on empty property. The hon. Gentleman will also be aware that in the pre-Budget report the Chancellor said that, given the current economic circumstances, the rateable value threshold on empty property will be raised from £2,000 to £15,000 for next year, thus removing the liability to pay business rates on approximately seven out of 10 empty properties.
However, the essential economic case for saying that there should be a liability for business rates on empty property remains, and it is this. It is likely to increase the incentive to re-let, reuse or sell empty business properties, and is therefore also likely to reduce the rents that other businesses pay for the use of their premises. That remains the central economic case for empty properties not being relieved from business rates in the long term, in the way that they have been in the past.
The Opposition, in their motion and their interventions this afternoon, have been saying that they do not like the Bill or aspects of how far it goes. However, we have been urged to go further on business rate supplements than the provisions contained in the Bill. The all-party Select Committee on Communities and Local Government urged us to have no cap on the levy determined by local authorities, to leave ballots to local authorities' discretion entirely and to allow lower-tier as well as upper-tier authorities to set their own business rate supplement. The all-party Local Government Association has also urged us to raise the limit on the business rate supplement to 4p and to allow local authorities a free hand to decide, in the light of local needs, whatever they should spend the gained revenue on.
However, we have concerns about the financial implications for business. That is why we have struck the balance contained in the Bill, in preparing the policy and the provisions, and why a series of safeguards for business is set out in the Bill, involving statutory consultation in all cases. There will be an upper limit on the business rate supplement of 2p, a double lock ballot where the BRS will fund more than a third of the total cost of a project, and a rateable value threshold of £50,000, under which no business will be liable to pay a business rate supplement.
We have also carefully considered the extent to which business should be able to influence the projects that are funded by business rate supplements. The involvement of business in decisions about projects will reflect its financial contribution. Businesses will be consulted in all cases; indeed, there is a legal obligation on councils to do so. It is right that business should have a vote when firms are picking up a larger share of the cost. 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. However, where businesses contribute less, they will be consulted in the same way as others, including communities affected by that project. That is because it is not right for business to be able to block projects when it is contributing a small minority share of the funding.
On what basis was the figure of one third arrived at and what consultation took place, either with business or elsewhere, in determining that figure, as opposed to a quarter, a fifth or a half?
There has been considerable debate on and analysis of this policy area for some time, not least in the contributions and evidence to Sir Michael Lyons's inquiry. As I have tried to explain, we have judged that the right balance between the competing interests is that one third of the cost of any large project is the appropriate point to trigger a vote of businesses that may be liable to pay the supplement. However, we will no doubt scrutinise that in more detail as the Bill I hope proceeds through the House.
In order to give businesses a flavour of what is in the Government's mind for this Bill, will the Minister tell us how many such schemes there are likely to be in any one year? Is it likely that the Bill will operate only in wholly exceptional circumstances such as Crossrail, or are we likely to find that, as local authorities become increasingly squeezed financially, they will use this mechanism to raise revenue from businesses?
The short answer to the hon. Gentleman's question is that the extent to which business rate supplements are introduced will depend on the decisions and discussions—and, in some cases, the votes—of businesses in local authority areas. The Bill clearly sets out that any project funded by a business rate supplement must be additional to the authority's current spending plans, and that it would not have happened if the supplement had not been in place. We will support and strengthen this with guidance, on which we will consult, but the Bill also makes it clear that the funds raised by the business rate supplement may not be diverted to plug spending gaps in local authority budgets. In other words, any revenues raised from the business rate supplement must be additional and cannot be spent on the kind of services for which a local authority has other statutory responsibilities.
In addition, there is the safeguard that the funds raised by the business rate supplement must support projects designed to improve the economic development of an area. These might include infrastructure projects, the promotion of an area or perhaps a strong skills programme. I also want to make it clear what the money cannot be spent on, as I tried to do a moment ago. It has to be additional, and it cannot be spent on mainstream services such as housing, health, social care or education, which a local authority has an existing obligation to provide. I intend to set this out in more detail, in guidance or regulations, to make it clear. I also plan to introduce drafts of the guidance or regulations for formal consultation alongside scrutiny of the Bill during the Committee proceedings in this House.
Does the Minister not recognise that the issue of additionality fills us with a certain amount of gloom? After all, it is less than a decade and a half since the national lottery was introduced, with much the same idea of additionality in mind. Is there not a concern that, after a decade or so, this legislation might be used to provide local authorities with an income where certain grey areas exist, and that such an income could be utilised as a broad, general rate rather than one specifically earmarked for economic development in the way that the Minister envisages?
I understand the hon. Gentleman's concern. He and I were elected to the House together in 1997; neither of us was here when the national lottery legislation was passed. I hope he will consider the detail of this Bill, and that he will appreciate that the framework of the provisions requiring funds raised through a business rate supplement to be additional will be a sufficient safeguard. I hope that he will be able to continue these debates as a member of the scrutiny Committee, when we could look at these matters further.
Will the Minister give me some clarification? If an infrastructure project, for example, were to be especially beneficial for one or two boroughs within a county council area, would that county council have to levy the rate increase on all the boroughs in the county, or could it levy the increase only on the specific boroughs for which the project was going to be particularly beneficial?
At the moment, our view would be that we would like it to be possible for a county council to levy a business rate supplement in those parts of the county where there was support for doing so from the district councils in the circumstances that the hon. Gentleman has suggested. Ultimately, however, that would be a matter for the upper-tier authority, in dealing with the business community in its area, either through consultation and discussion alone, or through consultation, discussion and a ballot.
In conclusion, the Bill provides an important new power for our long-term prosperity. It will enable the Mayor of London to raise the money he needs to meet his commitments to Crossrail here in London, and it will extend that power to all upper-level authorities in England and Wales so that they, too, can fund projects that will create wealth and jobs in all our communities in the future. I commend the Bill to the House.
I beg to move an amendment, to leave out from "That" to the end of the Question and add:
"this House declines to give a Second Reading to the Business Rate Supplements Bill because supplementary rates threaten to become another local stealth tax at a time of economic downturn;
because local firms should have a vote on any supplementary rate, as already occurs with Business Improvement Districts;
because cuts to the Local Authority Business Growth Incentive Scheme will put pressure on councils to levy the supplementary rate;
because the proposed exemption threshold for small business will be far less generous following the 2010 revaluation;
because the Bill does not address the problems that local firms are suffering as a result of the Government's business rate rises on empty property and retrospective increases in rates levied on business in the registered ports;
and because the Bill fails to limit the application of supplementary business rates to the Greater London Authority and the Crossrail project."
In moving the amendment in the name of my right hon. Friend Mr. Cameron and others, I congratulate the Minister on the one thing that is always held in his favour: he is a man capable of being very reasonable. In this Government, the ability to say outrageous things reasonably is, of course, a valuable commodity, so I quite understand the right hon. Gentleman's valued presence on the Government Front Bench. If he will forgive me for saying so, when it comes to outrageous statements of 2009 so far, the idea that the Bill deals not with a tax but only with a power to levy a tax is a pretty good kick-off. Here is a new conundrum with which children can be entertained over the Christmas period: "When is a tax not a tax? When it is a power to have a tax." Dry old lawyers such as me used to have a saying—"agreement for a lease is as good as a lease" and there was good sense in that, because that was the reality. A power to levy a tax is, in practice, a tax—and that is the reality. With every respect to the Minister's competent performance in defending the indefensible, let us at least be honest about what is happening.
I understand, of course, the reasons behind the desire to examine how local government finance is approached. There is the whole background of the Lyons report and there is a sense in which we should genuinely seek to give local authorities an incentive to encourage economic development in their areas. Two points arise, however. If the Minister will forgive me, it might be thought that that does not happen at the moment, but in fact it does. Local authorities—Essex was mentioned earlier and there are many other examples—are already busy using a raft of powers and are encouraging economic development by means of brokerage, encouragement, effective use of planning powers and so forth, but there is no need to provide for tax-raising powers to go along with them.
Secondly, the Lyons review spoke of flexibility in raising business rates in a number of ways. Not for the first time in relation to Lyons, the Government have rather cherry-picked what best suits their own purposes. We may remember that at the beginning of this argument, suggestions were made of flexibility either way. The Government—let there be no mistake that this is a Treasury-driven measure—have chosen a form of flexibility that goes only in one direction: the ability to raise a tax, but not to reduce the business rate, as was mooted at one point. They are making selective use of the arguments. Furthermore, the Government have ignored the point made throughout the Lyons report and, indeed, in the subsequent White Paper—that it was necessary for business to have a real say in any such proposals.
If the Minister will forgive me for referring to another interesting phrase of the year so far, "compulsory consultation" is not the same as having a right to vote. If anyone thinks that compulsory consultation can prevent people's rights from being ignored, they should think about the previous Mayor of London and the introduction of the western extension to the congestion charge, where a compulsory consultation was required by Act of Parliament. The Mayor carried it out; the majority said that they did not want it, yet the Mayor ignored them. That shows the value of such "compulsory consultation". Whatever the intentions, rather than encouraging closer partnership between local authorities and business, which happens in the best run authorities, there is a real danger of driving a wedge between local authorities and business, which will be sad and damaging in the long term.
Will the hon. Gentleman tell me whether the present Mayor of London believes that there should be a vote in all circumstances?
I was about to come on to Crossrail, and if you will forgive me, Mr. Deputy Speaker, I will pick up on that point. Interestingly, the briefing document that the Mayor of London made available to all Members of this House states specifically that he supports the use of the business rate supplement only for the Crossrail project, so using London as an example for rolling out the business rate supplement across the country misses the point.
Let me move on and deal with Crossrail—
The hon. Gentleman will know that Crossrail is a project of such size, significance and length, in terms of the construction period, that it would be completely unrealistic for the Mayor of London to think of any other possible use for the business rate supplement in the next decade.
The right hon. Gentleman is right to an extent: Crossrail is a unique project because of its size and extent. I will come back to that point because, in fact, it is an argument against the Government's approach to the Bill. Secondly, it rather flies in the face of the Government's own position that they take Crossrail and use it as an example to roll out nationally. The right hon. Gentleman is correct: Crossrail is a one-off. It is of exceptional size and economic importance, and its funding mechanisms have been the subject of exceptional complexity and negotiation for a very long time.
Let me make it clear that if this Bill were limited in its extent purely to putting in place what is required to carry out the funding agreement for Crossrail, we Conservatives would support it, not oppose it. There has been a long-term debate about Crossrail, going back probably almost to the days before Mr. Raynsford and I were even in the House—certainly to when he first arrived here. It has been around for a long time, and there has been massive consideration. Business in London has been very closely involved, and it is significant that all the representative business groups in London, organisations such as the CBI and the chambers of commerce, support the supplement—for Crossrail, which is the important caveat. Their national representative organisations criticise the Bill for using the Crossrail project as an excuse to introduce a stealth tax on businesses across the rest of the country. That is the key point that is being missed.
The other point, so far as London and Crossrail are concerned, is that there has been a long-standing political consensus in favour of Crossrail in London. All the major candidates at the mayoral election last year stood on a platform of supporting Crossrail and the funding package, so a democratic legitimacy exists that is not allowed for and presented in the Bill before us. It needs to be made abundantly clear that Crossrail is therefore not a justification for the Bill in its current form. It is, I am sorry to say, a classic example of the Treasury's approach—as I said, this measure is essentially Treasury driven, as was the sub-national review—a form of fiscal mission creep to find means of gathering in more public money.
A second point made in favour of the Bill is that it is additional funding.
I was waiting until my hon. Friend had finished on Crossrail before asking him a question, and I think he is now moving on. The Opposition amendment declines to give the Bill a Second Reading because it
"fails to limit the application of supplementary business rates to the Greater London Authority and the Crossrail project."
What limitations would my hon. Friend like to have seen, had we been in government at the time?
As we have set out, we would agree with the Mayor that if a Bill was presented that simply gave effect to the funding package that was agreed some time ago, and which has been in place for some time, we would see the logic of that and give a fair wind to it. However, the problem is that the Bill goes well beyond that. The package was the subject of considerable public debate during the mayoral election, so there was an opportunity for Londoners to express a clear view on it. That does not apply to these other matters. We do not want to delay Crossrail—I understand that some of the Bill's provisions make quick progress possible—but we do not want it to be used as a Trojan horse to expand the burden on businesses elsewhere. That is the error that is being made.
Although we have been talking about Crossrail very much in terms of London, it will go out as far as Maidenhead in the west and we hope that, ultimately, it will come to Reading. Will my constituents have to pay the supplementary business rate for Crossrail to come to Reading? Will the same apply in respect of Maidenhead?
I understand my hon. Friend's point, but, with respect, may I say that I suspect it would be more appropriate to address the question to the Minister than to me? Currently, the provisions simply give power to upper-tier authorities and do not specify which. I should point out to my hon. Friend that the Bill contains a clause that would enable upper-tier authorities to levy a business rate supplement jointly, but he would have to ask the Minister about that. Perhaps we will be able to return to that point when we examine the details of the relevant clause, where safeguards are not properly addressed.
Another point advanced in favour of the Bill is that it provides additional money, and my intervention hinted at the issue that I take with the Minister about that. If the Government are serious about making additional money available for economic development by local authorities, it is extraordinary that they almost strangled the local authority business growth incentives—LABGI—scheme at birth by cutting its funding so drastically. The LABGI scheme was not perfect, but it edged in the direction of giving a greater incentive to local authorities to attract business to their areas. The funding was cut from £1 billion over the first three years to £150 million in the following three. In effect, the Treasury—yet again the villain of the piece—is taking moneys from local economic development and by sleight of hand, in the form of this Bill, shifting the burden for economic development on to businesses and their customers and employees.
The Treasury has used that trick repeatedly under this Administration. May I give one other London-based example in that regard? Interestingly, when the opportunity for the Mayor of London to levy a congestion charge was first introduced under the Greater London Authority Act 1999 an assessment was made of the likely take of the congestion charge—it did not turn out to be terribly accurate, but that was consistent with most of the other things in the assessments at that time. Lo and behold, the following year the central Government grant to Transport for London was reduced by an amount that was almost exactly the same as the projected take of the congestion charge revenue. The truth is that the Government have form for this, and they are robbing shopkeeper, businessman Peter to pay the Treasury's Paul.
I hope hon. Members forgive my saying so, but there is no credibility to the suggestion that this measure will attract additional money. The points outlined by a number of my hon. Friends in interventions were well made. I can understand why local authorities have been interested in the ability to use such a power—I do not blame them—but one of the reasons they are interested is precisely that they are being put under enormous pressure by central Government. Local authorities have had a range of unfunded obligations placed on them in recent years, they have been given a range of ungenerous, rather tight financial settlements and they have seen the LABGI scheme funding slashed—no wonder they are under pressure to seize any opportunity that they can. In a sense, the Minister is setting up local authorities to be his human shield against criticism—he is pushing them into the front line and saying they want this, when it is almost being done with a financial gun to their heads. That is the reality, and the suggestion being made does not have much credibility.
A third point is that the suggestion has been made that the Bill will give local businesses a stake and a real say. Here is a separate point that the Bill simply fails to address in terms of its own original prospectus. I was having a look at some of the phrases used in the White Paper. Benefits were suggested as including devolved decision making, because resources would be raised and controlled locally and those who have a stake in the success of a scheme and the best understanding of what is needed would be running it. That will not be the case, because the people who have the best understanding and the most at stake are the local businesses and they are not going to have a ballot on this in all cases. Neither is there any provision in the Bill to give those local businesses that contribute an ongoing overview of the implementation and working through of the scheme. In fact, their say is limited, because the compulsory consultation can be ignored. That issue could be addressed—every business group that made representations suggested this—by requiring a ballot in all cases. I hope that the Minister will reflect on that, because if there is to be genuine partnership, there must be good will on the part of local authorities, and that can be achieved.
The Minister rightly said, as did my hon. Friend Mr. Field and others in interventions, that business improvement districts are a good model for that. I have had the opportunity to talk to several people who run successful business improvement schemes. I recently met Dame Judith Mayhew Jonas, who is leading a successful scheme in a new west end company in my hon. Friend's constituency. The point that was made by everyone involved in the BID schemes is that they work because there is genuine buy-in from businesses and a real incentive for everyone to succeed. Why not adopt that model with the compulsory ballots?
The hon. Gentleman knows that I have a particular interest in the Bill's business improvement district scheme because I introduced it when I was a Minister. I suggest that not all businesses have a say in a ballot because not all businesses pay the business improvement district levy. It is a levy only on tenants, and there is an issue about the non-contribution of freeholders, who are not involved in the balloting, although many make voluntary contributions because they see the benefits of the scheme. Will the hon. Gentleman be more careful in his claim that all businesses contribute through a ballot, because that is not so?
Voluntary contributions are welcome, but it follows from the right hon. Gentleman's logic that those who pay should take part in a ballot so that they are represented; otherwise, it would be taxation without representation. That does not detract from the valuable role that voluntary contributions play in BIDs, nor does it undermine the argument that those who are liable to pay the BRS should have a ballot before the scheme is introduced. The point is simple, and would improve the Bill's credibility hugely. It is difficult to understand why the Government have not given way on that, and I hope that they will reflect on it if the Bill progresses to Committee.
I want to raise some issues about safeguards. First, the most important safeguard, which all businesses say that they want, is the compulsory ballot, and I have discussed that. The second issue is the threshold. The Bill does not specify what it will be. The Minister said that the intention—I do not doubt it—is that it should be £50,000 rateable value, but we must make allowance for the fact that there will be a revaluation of business rates in 2010, so many more businesses are likely to be above the threshold. The suggestion that nine in 10 businesses will not pay is unlikely to be the case. Surely, the Government should give a commitment—perhaps they could put it in the Bill—to review the threshold after each revaluation. It seems only fair and reasonable to provide businesses with that further protection.
There is concern about the definitions in the Bill. I appreciate that it contains some definitions of what the BRS cannot be spent on, but it is interesting that that is the opposite approach to that adopted for the community infrastructure levy in the Planning Act 2008, which contains a specific definition of what can be the aim of a CIL. Why have the Government adopted virtually the opposite approach in the Bill? A tighter and specific definition of economic development would help businesses.
Some people are worried about the administrative costs of a two-tier structure, and several London boroughs have asked for an assurance that their administrative costs will be met within the costs of the BRS. I hope that the Minister will respond to that.
Those are a number of specific and quite technical points that we might return to in Committee, but they do not take away from the overall thrust of our argument, which is that in a sense this is a form of taxation without representation. I may have spent some of Christmas watching "John Adams" on Channel 4—a very fine series it was too—but I do not want to see the Minister cast as a sort of General Gage, imposing these imposts on business. He does not look at all like Lord North. However, there is a real risk that the relationship that has been built up in good authorities will be damaged. The provision is a burden on businesses at a time when only today we have seen the Prime Minister on television announcing yet another set of supposed initiatives to try to help in an economic downturn. However, it is not the words that count but the deeds. At the same time as we have the spin about more investment in jobs, the Government, as their first legislative act, are introducing a Bill that will impose a burden on businesses and therefore be a threat to jobs.
My hon. Friend will have noticed that the thrust of the Minister's argument for not having a ballot under the regulations is that he is worried that businesses would block the proposal. Surely businesses know what is best for them, and if they block such a proposal they obviously cannot see a benefit to it. If they cannot see a benefit, surely the proposal ought to be carried out under general taxation.
My hon. Friend is absolutely right, and the point is well brought out by the experience of the business improvement districts. When there is a good BID proposal and businesses see the merit of it, the proposal is carried through in the ballot and businesses vote for it. The test is as simple as that. My hon. Friend makes a very solid point.
I hope that we have set out a number of our concerns about where the Bill fails to address the objectives of the initial debate. I also wanted briefly to touch on the other matters referred to in the amendment, which include the missed opportunities in the Bill. Not only do we have to consider the proposals with the BRS, but we have to consider them alongside the accumulation of other burdens on businesses. We have the BRS on top of the community infrastructure levy. In some areas, we have the possibility of congestion charging and now we have the revival of the cost potential of a workplace parking levy. I hope that at some point the Government will give us some overall assessment of the economic impact of all those potential burdens on business. Will the Government also look again at whether BIDs' contributions should be automatically offset to avoid a form of double taxation?
I want to address two other issues to which we have referred where action has not been taken. The first relates to the situation with empty properties. I know that my hon. Friend Mr. Prisk will deal with the point later, but there is a real concern about the way in which the Government's proposals have worked through in relation to empty property relief. It cannot be satisfactory to have a set of disincentives that cause people to take the roofs off buildings and to demolish industrial plants simply to avoid the levy. We cannot blame the businesses because, with respect to the Minister, there was a lack of economic reality in the advice he was given when he said that the move would be an incentive for people not to leave business premises empty for so long. No landlord wants to leave their premises empty. In the current economic climate, premises are empty because there are not the customers. Clobbering people with the loss of relief is hardly helpful to business confidence at a time when it is falling.
That point very well demonstrates the pressures businesses are under and why the addition of even 2p in the pound on the business rate in its current form—about 4.3 per cent. on the current 46.2p business multiplier—would be an enormous burden on businesses, just as we hope they will be starting to come out of recession, if we reach that stage by 2010. My hon. Friend's point is well made.
The final area of rating injustice that the Bill does not tackle is the rates situation for businesses in registered ports. The issue has been raised a number of times in the House by Members on both sides. I know the Minister is well aware of it because he and I have had some dealings about it in the past. The Bill would have been an opportunity to address what is happening to businesses in the ports, where there is the reality of a £33 million tax hike on their liability. Because the Valuation Office retrospectively increased the levy and changed the basis for calculation from the old cumulo system to a new one, port businesses are faced with backdated rate demands that in some cases exceed their turnover. So far this year, two businesses in the ports have gone bust specifically because of their inability to meet the backdated rates demand. That means 50 or 60 jobs. Many such firms are small, but when we add things up we find that the situation is serious.
A number of ports businesses lobbied Members on both sides of the House just before the Christmas break. Operators of major firms, such as DFDS Tor Line, said that if the situation continued, such would be the difference to them that they would have to consider whether their investment should be in the UK or in Rotterdam on the other side of the North sea.
I am grateful to the hon. Gentleman for his generosity in giving way. Does he not recognise that I and the Government are also concerned about the scale of the backdated liabilities? We announced in the pre-Budget report that we would allow backdated liabilities from previous years to be spread over a full eight years, so that backdated tax liabilities that are due from those businesses can be made more manageable and less likely to tip companies over the edge, particularly at this difficult time.
I appreciate the Minister's expressions of concern and I do not doubt that they are genuine, but perhaps we need to go back to the almost total lack of business experience among his departmental advisers. The reality is that simply spreading the payment does not remove the liability. The problem facing businesses is that under the accounting rules they have to bring the whole of their liability into the current year's account and put it on the balance sheet, so, with the rates due by
The late Iain Macleod, an international-standard bridge player, once observed that politics was rather like bridge: timing is everything. In the current economic climate the timing of the Bill would certainly not bring the Government to international standards; their timing would relegate them not from the bridge club but from the under-fives tiddlywinks league. I honestly hope that the Government will reflect on a Bill that is likely to do considerably more harm than good and will undermine many of the objectives shared by Members on both sides of the House in this time of economic difficulties.
I start by drawing attention to my declaration in the Register of Members' Interests. I strongly support the introduction of the Bill, and I disagree profoundly with the view expressed by Robert Neill at the end of his speech that the Bill will bring "more harm than good". He, as a London Member, will rue that remark, because the Bill is crucial to the future economic success of London. If ever there was a time when we needed investment in important infrastructure that will bring long-term benefits, this is it.
The right hon. Gentleman, as a fair man, would not want to misquote anyone; he knows full well that I made it abundantly clear at the beginning of my speech that we support Crossrail and the use of the business rate supplements to fund the Crossrail package. However, it is perfectly reasonable to observe, in the context of the rest of the Bill, that damage will be done. I am sure that he will know that the suggestion that I was undermining Crossrail is not an accurate reflection of my words.
I have to say to the hon. Gentleman that the whole tenor of his speech was one of carping, criticism and attacks. I quoted his words at the end of his speech, which he made very clear; he indicated that the Bill would bring "more harm than good". Those were his words; he felt that it would bring fewer benefits than disbenefits. If he takes that view, he is condemning Crossrail, given that Crossrail is far and away the largest scheme that is likely to benefit from the Bill. He is trying to say, "Well, the measures are okay for Crossrail, but not for anything else," but that stance is intellectually unjustified and incoherent, as I will demonstrate later. It is an attempt to cast a veil of respectability over the disreputable argument that the Bill is not beneficial.
The Bill is important because it helps to build partnerships between business, local government and other stakeholders for the funding of necessary infrastructure. People may ask why that is necessary, when there is already a business improvement district scheme. A brief reference was made to BIDs at an earlier stage in the debate. As I made clear, I believe strongly that the BID scheme is an important initiative that helps local investment in improving areas.
If we look at the BIDs created to date, the pattern is that they are essentially local. The focus on improvement is very much to do with relatively small-scale local enhancements, such as improving the cleanliness, safety and attractiveness of shopping areas, making it easier for people to access those areas and to benefit from shopping there. Those are the main characteristics of most of the BIDs put in place to date. Of course, we are talking about major infrastructure investment on a much larger scale. The benefits will be felt over a much wider area than the relatively small town centres that have tended to adopt BIDs.
I am a strong supporter of BIDs, but the BID mechanism alone is not sufficient. Crossrail is a classic illustration of why the Bill is necessary, and why there needs to be a larger, more extensive and ultimately more robust framework for funding important infrastructure, in cases where business stands to benefit substantially from that investment.
The right hon. Gentleman earlier boasted that he was the Minister who introduced BIDs. He and I spent many hours in Committee on what form the ballot should take. Given that he was so keen on ballots for the BID system, and given that he has just said that we are now talking about a system on a much larger scale, will he vote against the system until the Government undertake to introduce provision for a full ballot to be held on each and every occasion on which the measures are used?
No, I will not, for precisely the reason that the hon. Gentleman mentions: we are talking about a proposal that is far more wide-ranging than the BIDs, which have a narrow, local focus. As he will have heard in my exchange with the hon. Member for Bromley and Chislehurst, the Front-Bench spokesman, not every business has a vote on BIDs. The landowners do not have a vote. Many people saw that as a potential weakness in the BID mechanism, but we regarded it as necessary, because it would have been a huge complication to create an electoral register for freeholders and landowners that is separate from that for tenants, who are liable to pay the business rate. To avoid unnecessary bureaucracy and complication, we did not extend a voting right to freeholders. So in the case of BIDs, not every business has a vote.
We should think about the purpose of the initiative. If it is meant to secure the support of business for major infrastructure schemes, it is vital, first, that there is a framework to ensure that support and, secondly, that it cannot be prevented from operating by the activities of businesses that do not see the benefits. We have heard the view of Richard Ottaway, who is no longer in the Chamber; he did not see what benefits small businesses in Croydon would gain from Crossrail. He is wrong, because businesses in Croydon will benefit substantially from Crossrail, which has conducted a detailed survey of the economic benefits resulting from improved journey times and greater access to commercial premises and of all sorts of other benefits from improved transport. It demonstrated significant economic benefits in all parts of London—including areas such as Croydon, which would be some distance from the nearest Crossrail station—as London's transport network is an integrated whole. When part of that network does not function, the consequences spread across the whole city. There are benefits, even in Croydon, and as my right hon. Friend the Minister made clear, small businesses will be exempt. The supplements will apply only to businesses above the threshold, which we think will be set at the rateable value of £50,000, although that has not yet been confirmed in the Bill.
The risk of a universal ballot by businesses outside the area immediately affected by the infrastructure investment, which could destroy the huge benefits for those businesses that are more familiar with the scheme in the area where it will be constructed, could prevent necessary improvements. However, I stress that there are safeguards. First, schemes where less than a third of its cost is met by business will not be subject to a ballot. In any case in which business is expected to meet the majority or a significant proportion of the cost, if the cost is less than 50 per cent. but more than a third, businesses will have a ballot, which is a fair safeguard. Secondly, as we know from the Crossrail experience, the measure would not command the support of business if business in London did not believe that it was a good thing. Even without holding a vote, business representatives in London—the CBI, London First and the chamber of commerce—all know how crucial Crossrail is to the future of our city. That is why there is extensive business support for the concept of a business supplement.
This is important because, as Opposition Members know only too well, Crossrail has been a long time a-coming. The scheme—the hon. Member for Bromley and Chislehurst made this point—has been in gestation for 20 years or more. I remind the hon. Gentleman that when his party was in government, the scheme fell. His party introduced a Bill in the early 1990s to create a Crossrail scheme, but it did not get through the House, not because of the activities of Labour Members but primarily as a result of the stance of the Conservative Chairman of the Select Committee that looked at the scheme. Perhaps that is a comment on part of the Opposition's past to which they do not want to return or of which they do not want to be reminded, but that was the shambles of the hon. Gentleman's Government in the 1990s, and that was the reason why the Crossrail scheme did not proceed.
Without a sound, broad funding base, which is now in place, I do not think that Crossrail would proceed even now. It is difficult to see where the funding would come from to enable it to happen if it were a wholly publicly funded scheme without an element of business contribution. It is fundamental if we are to enable a scheme such as Crossrail to proceed that we have the option for that type of joint partnership funding for major infrastructure schemes. Under the Crossrail formula, funding will come partly from central Government, and it is right that they should contribute; partly from the Greater London authority, and it is right that there should be a GLA contribution; partly from the users of the service through the fare box, which has been taken into account in the financial formula; and, crucially, from business.
The business contributions are not uniform. There are two separate types of business contribution. There is the direct contribution of those businesses that have premises or development sites in the immediate locality of a new Crossrail station, which stand to benefit enormously from the creation of the new transport links. I think of Berkeley Homes in my constituency which is carrying out an important new development on the Royal Arsenal in Woolwich—a major regeneration project that is rightly attracting a great deal of support, plaudits and awards, because it has transformed a formerly derelict site into an area with real prospects in the next two decades of becoming one of the great locations not just for residential premises but for businesses.
Businesses recognise the huge benefits that will come to them from having a Crossrail station in Woolwich and they are contributing towards the cost of that station. That is a direct contribution. There are similar contributions at Canary Wharf from the City of London and elsewhere. That direct contribution is an element, but other businesses not so closely connected to the areas where there will be stations will benefit for the reasons that I referred to in the study that Crossrail carried out into the wider economic benefits. It is right that above the threshold—a £50,000 rateable value threshold seems a reasonable one—there should be a contribution from business towards something that will unquestionably improve the economy of London and the prospects for London businesses. That is the nub of the argument in favour of the type of mechanism that the Bill represents.
I heard the hon. Member for Bromley and Chislehurst saying, "Well, yes, we understand that Crossrail is quite a good idea." He is bound to say that, because his own Mayor of London, Mayor Johnson, is a very strong advocate and rightly so. The hon. Gentleman would be in an impossible position if he were cutting Boris off at the legs by saying, "No, we don't support this." He has had to get himself into the curious position of saying, "We don't really like the Bill"—the tone of the contributions that we have heard today from the Opposition has been hostile—"but okay, we accept it for Crossrail."
That is intellectually incoherent. Why should London benefit from the Bill and no other part of the country have the benefit? If in any other part of Britain a major infrastructure scheme is developed that has the support of the business community because it believes that the scheme is crucial to economic success, why should it not have the option? We heard no answer to that question. To say that the Bill is acceptable in London on a major project such as Crossrail but nowhere else is incoherent and non-credible.
This new business rate supplement scheme is fundamental to the economic well-being of our country and there could be no better time than the present for it to be introduced. To argue that this is an inappropriate time is extraordinary. In the next week or so we will see the inauguration of a new President of the United States, which many in all parts of the House welcome. He will be clearly committed to major action, including major infrastructure investment to tackle the current economic difficulties that that country, along with the rest of the world, is facing. We know perfectly well from history what an important role major infrastructure investment played in the 1930s in attacking the problems of the great depression.
It seems an extraordinary position at this point in time to try to prevent a scheme from being put in place that will benefit the economy, that can command the support of local business and that is subject to loads of safeguards against measures being imposed on business. That reinforces the view that the Conservative party does not know what to do and so is doing nothing, as against a Government who are determined to take the action necessary to tackle and respond to the challenges of our time. If the Opposition continue in their incoherent, intellectually bankrupt position of saying, "Yes, the Bill is all right for Crossrail, but nowhere else in the country, and we don't like it," they will be seen as the party doing nothing at a time when the country deserves better. I sincerely hope that the Bill receives a solid Second Reading tonight.
A theme that has emerged from the debate is that the Bill means different things in different parts of the country. In London it will undoubtedly be seen as enabling Crossrail to be constructed. That has been discussed, most notably in the contribution from Mr. Raynsford, but more widely there may be some confusion about whether this is the right time to introduce it, as the spokesman for the Conservatives, Robert Neill, said, and how the scheme will work and what safeguards there will be for local businesses and communities.
As I said in my intervention during the Minister's contribution, the Bill falls between two positions. One would be to concentrate on Crossrail and ensure that the enabling powers were in place for the mechanism to work in London, to see how it works, whether it can be delivered, and whether the money required is raised through that mechanism. The other would entail a more fundamental examination and reform of the way the business rate system works. My party would favour the localisation of that process as part of a genuine process of localism. The Minister was proud of the list that he read out, but if he were to discuss that with local authority members, many would feel that that was not a radical step giving them the tools to change the world for the better.
The Bill is focused on Crossrail and allows some engagement with the local business community and some options for local authorities to make a change. However, it does not allow fundamental reform. Through their reasoned amendment, the Conservatives seem to have decided that they are happy to throw out the Crossrail baby with the legislative bathwater. If we reject the Bill on Second Reading, we are effectively setting back progress towards Crossrail. Although we share many of the concerns that have been expressed about provisions in the Bill and about the safeguards for business at this crucial juncture, we think that it would be wrong to reject the Bill when it has such an important job to do with regard to Crossrail and the funding for that.
I understand the point that the hon. Gentleman makes, but I am sure he will understand that the rules of parliamentary procedure are such that it is difficult to cast the motion in such a way that the Bill would only give effect to Crossrail. I am sure he will understand the thrust of our argument that we want Crossrail to proceed without being burdened with the other provisions.
I am grateful to the hon. Gentleman for setting out his position once again. Having made those points in a general debate on Second Reading, he could have aired them again and had them resolved in Committee. If he had made it clear that that was his party's intention, we would not have been forced into an either/or argument on some extremely complex issues. The Minister will no doubt understand that our support at this stage is not equivalent to a blank cheque to support the Bill. We will have many concerns to raise as the discussion moves on.
Outside London, eyes will be focused on the Bill's slight reform of the business rate, which is important for the businesses that will be directly affected. As we heard from other hon. Members, the organisations that represent those businesses have been keen to point out that big risks are involved. Their fundamental argument is that there should be no taxation without representation. It was good to have an insight into the Christmas viewing of the hon. Member for Bromley and Chislehurst. We share that principle. I am a little concerned that in the Government's responses so far, they seem to be saying that although the process works effectively for bids, with the double-lock vote and so on, and the opportunity for businesses to be consulted, to have the final say and to be involved in what goes on from there, there is not the same safeguard in much larger and more important schemes. That is a problem.
The Liberal Democrats believe that the Bill is a missed opportunity to reform local taxation altogether and radically shift the balance of funds raised and spent locally; it could have been the first step away from the Britain that is the most centralised country in Europe outside Malta. The Lyons inquiry has already been debated in the House many times. It has said that a significant increase in the proportion of expenditure raised locally would assist in the revitalisation of local democracy and its strategic role. That may hint that the principle might be acceptable in certain circumstances, but it does not concede the wider point that local authorities could be trusted to be more involved in raising money locally and justifying the expenditure to the local community, businesses and electorate. The Government should have had that fundamental aim in drafting the Bill. That would have allowed them to look at the Crossrail issues and the reform would have been wider, which many would have welcomed.
There is a real danger that the Bill will set back the positive relationships between businesses and local authorities, which, as we have heard, have been moving forward and delivering through bids and other mechanisms in their areas. That is a real concern. Why concede the principle of locally collected business rates without allowing local authorities to engage fully in that practice?
A useful change adopted by the House has been the hearing of evidence first hand from a wide range of organisations at Public Bill Committees. No doubt our Public Bill Committee will hear from those who think that the Bill is a positive step and those who are far more concerned about it. Clearly, businesses are ready to engage with some proposals of this kind, but they rightly want firm safeguards so that concerns about an ever-increasing taxation burden, at a time when even slightly increased overheads could mean the difference between bankruptcy and insolvency, can be addressed and the voices can be heard. The Prime Minister himself has instructed Her Majesty's Revenue and Customs, for example, to do all it can to support businesses going through short-term difficulty. It would be against that trend if proposals such as these could be imposed on businesses in the local community without their having had the chance for a final say and for thoroughly opting into the process.
We have heard a great deal about business improvement districts as an idea of how such a principle could work. It was instructive to me, as a relatively new Member, to hear that the Minister was instrumental in bringing them in; I am sure that he will want to explore that if he joins us in Committee. What the BID mechanism tries to provide is very different; there are some key local renewal projects to encourage investment. However, the fundamental point is how businesses can be consulted and reassured that they are not simply a cash cow, but very much part of the process of coming up with a vision—and not only funding it, but delivering it and ensuring that it is realised.
BID approval requires a majority of the liable ratepayers and that the aggregate of rateable values voting in favour exceeds those voting against; that is the double-lock system to which the Minister referred. Such a provision is in the Bill for certain circumstances—when more than a third of the eventual project is to be funded through the mechanism. That provision is there, but my concern and that of businesses is that it is not there in all cases. Clearly, if the Bill is enacted, that will be a problem for many people.
BIDs can choose to exclude certain businesses from paying the levy; the Minister has said that he may envisage parts of an area being targeted for funds. Those are the sorts of questions that people will have. There is a fear that the measure could be an overall levy, on top of the existing business rates structure, to fund projects that a local authority might have wanted to fund for some time, but lacked the money to do so.
I appreciate that in some cases it is difficult to demonstrate additionality. However, it is crucial that businesses have confidence that in any system such as this the principle of additionality will apply. A similar point came up in the debates between the Minister, Robert Neill and I, during the Planning Bill, about the infrastructure levy and how it would work. Such measures must be designed to provide something and enable development and genuine economic benefit.
Will the Minister reconsider the question of a ballot and return to it later to meet the concerns shared by many hon. Members—that circumstances are likely to occur in which a local authority imposes the measure without there having been a ballot? That is the business community's fundamental and major concern, and a change on that issue could go a long way towards allaying people's concerns about the Bill.
There is much to be said for how local government structures work in other parts of the world in raising money, engaging with electorates and ensuring that there is collective support for measures. In the United States, for example, there are ballots when major infrastructures are to be funded through whatever mechanism is appropriate in the state and a local authority is allowed to pursue. We should move towards such a process, in which the business community and local residents have far more of a say in opting to support major infrastructure projects that could put a significant financial burden on the local authority and the business community.
Under the United States system, the powers available to local authorities are very different and they vary in different states. However, we should aspire to provide that sort of example; that would go far further than the measures outlined by the Minister to engage people and ensure that everybody has a say in the financial commitments for a community and in delivering the community's wishes for its future.
As I said, the Bill raises questions about how the rateable value system works. Last week, I met representatives of St. Austell Brewery in my constituency to talk about the problems that the company's pubs are experiencing. They were keen to get across to me the fact that the smoking ban and changes in people's spending behaviour because of changes in the economy mean that the rateable value of some of their pubs will be affected. The system is very slow to catch up with that. The problem is that businesses are dealt with at a certain rateable value, and it takes a long time for them to get across the message that their business has changed fundamentally and that the premises have a different value. Businesses would have welcomed more exploration of such questions in any Bill on business rates.
As we have heard, next year the rateable value formula will be reviewed. There are concerns that although the threshold is set at £50,000 at the moment—although that is not in the Bill—that may well change in future and many other businesses may be drawn in. That does nothing to allay the fears of those outside who see the Bill as potentially dangerous or negative. The Government's ability to see the economic future has been drastically called into question in recent months. We could see Government Ministers in the role of Michael Fish, who said in 1987 that everything was going to be fine—and then the hurricane struck. All of a sudden we find ourselves in the worst economic circumstances for decades, if not centuries.
There is a need for greater clarity in the Bill. Clause 6, which deals with the consultation process, has little detail about how consultation with business will be conducted. Having said that we favour a ballot system were the Bill to be enacted, I should say that consultation will need to be undertaken extensively prior to that to ensure that there is real debate. We want to hear more about how such consultation should take place and how businesses can have confidence that their voices will be heard. Given that local authorities will also be contributing to these schemes, that also applies to how the debate will be conducted locally for local residents and other organisations in the voluntary sector and so on.
The impact assessment that accompanies the Bill states that assurance will be provided by internal safeguards as well as via external audits undertaken by the Audit Commission. However, inevitably, there will be concerns about consultation. We heard about a specific London-based example regarding the congestion charge. On a national scale, the recent programme of post office closures is another example of consultation. Many communities were given the opportunity to be consulted, but all the evidence that they presented in those consultations came to nothing, and in the end valuable local institutions were lost. That devalued concept of consultation needs to be addressed—the problem is not insurmountable. If there is to be consultation, it must be genuine and there must be a much clearer vision of how it is to be conducted.
We will explore many of those issues in Committee, so it is a shame that the Conservatives have chosen to take an all-or-nothing view at this stage. However, the House seems to be more or less unanimously in agreement that we should not put Crossrail in jeopardy. That is why the Bill, although it needs to be improved drastically, as I hope will happen during its passage, deserves a Second Reading. We have been waiting 18 years for Crossrail. I saw somewhere on a website that we have been waiting for it since Brunel's time, so we can go even further back. That is a name that resonates with me as I come up here on the Great Western line.
I am sure that the ghost of Brunel would have something to say about that.
An efficient transport system across London is vital to remove congestion, to increase productivity and to deliver economic growth in the constituencies of hon. Members across London. Pulling back from building Crossrail is not an option. Congestion in London's already overcrowded system would worsen and conditions for passengers would deteriorate. International business could relocate to Europe, away from the UK altogether. It is vital to business and to London that the scheme goes ahead. We have had that consultation process, as well as the tortuous progress of an Act through Parliament. Hon. Members who sat on the Committee on that Bill certainly felt that they had done their duty to the House. We have had a consultation process and there is support for the scheme, and it would be hugely damaging to send any signal that it should be brought to a halt or rejected or that the finances enabling it to come to fruition might be curtailed or prevented from being secured. Whatever disagreements we have about the nature of the Bill and the clumsy way in which a broader business rate supplement has been piggy-backed on to what could have been a Crossrail funding Bill, there can be no doubt that the Crossrail project is urgent and must not be further delayed.
My colleagues and I will reluctantly support the Government tonight—reluctantly because there are many ways in which they could have gone further to work with businesses to deliver a Bill that allayed their concerns and assured them that the aim is a partnership that can deliver for local communities. We have been advocates of Crossrail for many decades, and I am afraid that we cannot join the Conservatives in opposing it at this late stage.
There is an enormous amount of work to do in Committee. Britain needs a Bill of this nature, but it needs to go much further in its consideration of business rates. It is a great shame that the Bill falls between two objectives, but I hope that the House will give it a Second Reading. However, I am sure that at later stages and in another place much can be done to improve it and to ensure that it is more fit for the purposes that the Government claim for it.
I want to give general support to the Bill, which advances modest reforms to the uniform business rates regime that has been run nationally since its introduction with the ill-fated poll tax 1990. The poll tax—I am sorry to mention it twice in two sentences—was swiftly replaced, but this small amount of discretion locally to tinker with business rates has been a long time coming. Importantly, it is not mandatory—no council will be forced to implement a business rate supplements scheme. It also gives local businesses a strong voice in the introduction of any such scheme and over the projects for which any funds raised are earmarked.
That said, I have concerns about the operation of the business rate regime that I hope to highlight with specific examples after these short opening remarks. I promise that I am not going to mention Boris, London or Crossrail. I want to deal with some of the potential benefits outside the capital, but also some of the flaws in the current system that assist abuse. In short, I want to talk about some of the good intentions in the Bill, but also some of the bad apples out there abusing the system. That issue should be addressed with further reforms, possibly as the Bill goes through the House.
In my area of Newcastle-under-Lyme and north Staffordshire, one of the biggest challenges that we face is economic regeneration in a traditional manufacturing and former coalmining area. It will not have escaped the notice of any hon. Member—not least Michael Fabricant and my hon. Friend Mr. Flello, who are both here—that last week, on practically the first working day of the year, Waterford Wedgwood, one of north Staffordshire's biggest and most renowned employers, went into receivership. Indeed, Wedgwood's employees are today expecting to learn their fate. Like my colleagues locally, I am in touch with Government Departments, agencies and our local Potteries trade union, Unity—its general secretary, Geoff Bagnall, its deputy general secretary, Garry Oakes, and officers in particular—to see what help and advice can be offered.
In Newcastle-under-Lyme, large swathes of land, particularly around the central ring road, are awaiting development. As in other towns across the country, how they are developed will determine not only the economic future of the town but how it looks and feels for the foreseeable future. The issue of land acquisition by the public sector has been one of the key stumbling blocks to joined-up regeneration in our area for many years. A business rate supplements scheme might provide useful extra funding—an additional tool in the armoury, as it were—to make the town more the master of its own future. Public land acquisition would help to safeguard against speculative developers playing the planning system, cajoling local councillors and getting away with poor design, especially as the siren calls of "Any development is welcome development" will only grow stronger during a downturn. In my area, it may well prove popular with local traders and property owners in a traditional market town that is under threat of further huge supermarket developments right round the town centre, not only on the edges of the town.
Together with a coherent local plan, having more wherewithal for public ownership of key sites would act as a bulwark against—or perhaps provide a backbone for—weak, old-fashioned, unimaginative, unambitious or simply perverse planning officers who cave in too easily. That happened yet again in Newcastle before Christmas. Our head of development control, who goes largely unsupervised in a dysfunctional planning department, almost single-handedly pulled the rug from under the feet of councillors, his planning colleagues and experts from Urban Vision North Staffordshire, our local architecture and design centre, by recommending the approval of a Lidl discount store and budget Travelodge hotel, right in the town centre, against all expert opinion and emerging site guidance. Had the site been in public ownership, that could have been resisted. That failure is ultimately political and managerial at the highest level of the council. However, there is no doubt that if these sites were in public hands, in Newcastle-under-Lyme, as in many towns and cities up and down the land, we would be more masters of our own fate.
As in many other areas, housing is another example of major concern where a business rate supplements scheme may well have a part to play in well thought out projects to revitalise the economic fortunes of town centres, in particular. Again before Christmas, representatives from our registered social landlord, Aspire Housing in Newcastle, informed me almost lackadaisically, in a meeting about a totally separate matter, that they did not see the building of new social housing as part of their so-called core business any more. Newcastle alone has a waiting list of 3,000 for social housing. We have regional and sub-regional targets for house building aimed particularly at encouraging town and city-centre living in Newcastle and Stoke-on-Trent. Aspire Housing owns all Newcastle's former council housing stock. If it does not intend to build social housing beyond schemes already in the works, it is hard to see who will, especially at this point in the economic cycle. Frankly, that is a dereliction of duty that I am pursuing with it vigorously. However, it is another example of a development, coupled with key public site acquisition, which meets a need, which might make town centres more sustainable, and which otherwise would not happen, where a BRS scheme might have a role to play and local businesses may well support it in their own interests.
In that respect, I discussed with my local council the option of a business improvement district—an idea introduced by my right hon. Friend Mr. Raynsford, the former Minister—that would be backed by regeneration agencies to help to revitalise the town centre. A business rate supplement scheme, as provided for by the Bill, would allow for a further alternative in co-operation with local businesses. It is absolutely inconceivable in places such as Newcastle-under-Lyme and north Staffordshire that anything would be implemented without such co-operation or against the interests of local business.
When I refer to local business, I am talking about the vast majority of local employers and traders, as well as national firms and store chains, which are socially responsible and pay their taxes and business rates. However, in Newcastle and north Staffordshire, as in other areas, there is a small minority of unscrupulous so-called business people who do not. They let other suppliers and creditors suffer, as well as the taxman, local councils and the Government's business rate pool. I am not talking about entrepreneurs who genuinely set up firms and take risks that do not work out in a free market, or about businesses, of which there will be a growing number in the recession, which find they cannot cover their costs and have to close. I am referring to a small minority of parasites, frankly, who have no intention of paying their dues from the outset and who hide behind limited liability and deliberately play the system to avoid business rates.
I hope, therefore, that any change to the business rates system, such as the provisions of the Bill, will contain measures to address flaws in the current regime. First, breaking the link between local collection and the ability to spend business rates locally gives councils such as mine little financial incentive to pursue serial evaders seriously. After the passage of the Bill, even if councils set up a business rate supplement scheme, they will still be collecting agents for central Government for the vast proportion of business rates and, importantly, they will not suffer financial loss for any lack of rigour in tackling evaders. Secondly, many of the people in question serially go bust and leave little or nothing by way of assets because they do not own the properties from which they trade, or because they have hived them off into separate companies or trusts. Business rates will still be collected from the operators of business premises and not from the owners or landlords—a point that has been made by Members in all parts of the House. Reforming that process would aid collection from such evaders and I urge the Government to consider addressing the issue in the Bill, or in further reforms to the system. Thirdly, on the detail of a business rate supplement scheme, I and honest traders in my town have serious concerns about how consultation and balloting arrangements in the Bill—or any subsequent regulations—would cater for evaders. Put simply, they do not operate on a level playing field, so why should they have a voice or a vote, and how could such a situation be prevented? Such details need to be discussed.
I shall illustrate those concerns with a specific example from my area, to give them meaning. We in north Staffordshire are by no means alone in suffering from the actions of such people, but there is one particularly shocking case that I have taken the time and trouble to investigate and pursue over the last nine months as the local Member of Parliament. In the past three years, business rates written off by Newcastle-under-Lyme borough council have more than doubled from £195,000 in 2005-06 to nearly £420,000 in 2007-08. That is a substantial amount for any second-tier authority, and had the borough council collected it and been able to spend it locally—or not—the effect on the council tax would have been enormous. The council has lost a serious amount of money. Those figures dwarf the amount of council tax write-offs from ordinary taxpayers. In March 2007, for instance, £252,000 was written off in business rates for the financial year, which was almost 10 times the amount due from council taxpayers that was eventually written off. Sadly, the council, like many throughout the country, tries to keep those figures secret. It should not. The public have a right to know how the system is operating, and it is perfectly possible for councils to be more robust by shaming serial offenders as a discouragement to others tempted to do the same who give towns such as mine a bad name in business.
I come to the worst example that I have found locally. In March last year, the borough cabinet—behind closed doors again—wrote off more than £13,000 owed by a firm running the Albion public house in Newcastle town centre. The Albion is an old pub—coincidentally, my uncle's mother and father-in-law used to keep it when I was growing up. This was the fourth time in four years that the council wrote off its business rates, and for four different pub operating companies that went into liquidation. The owners and directors of the companies were the same: two local characters called Anthony William James and Peter Andrew Whieldon. Piecing together all their companies' affairs from Companies House and liquidators' reports, one finds that the track record of serial insolvencies and non-payment from their numerous pub companies since 2003 runs as follows: more than £47,000 in business rates was written off by Newcastle-under-Lyme borough council, another £57,000 in business rates was owed to Stoke-on-Trent city council, and at least £184,000 in VAT, tax and unpaid national insurance was owed to Her Majesty's Revenue and Customs. In all, their failed companies have left a trail of £1.3 million in unpaid debts across the Potteries, but they are still in business and, by all accounts, they have never had it so good.
I am not making a political point, but what makes the case particularly shocking is that Peter Whieldon, one of the co-owners, is a local Conservative borough councillor. Until I pursued that track record, he was vice-chairman of Newcastle-under-Lyme council's financial audit and risk sub-committee. He is still the treasurer of the local Conservative association. His current companies run at least three pubs in Newcastle, and others in Stoke-on-Trent, which make people's lives a misery in town on Saturdays by showing live Stoke City matches, accessing dodgy satellite signals aimed at Scandinavia and elsewhere. They are doing a thriving trade, but to add injury to insult, the resulting antisocial behaviour causes some traders who pay their business rates to shut up shop early and lose business. As well as football's premier league, the police have serious concerns.
On business rates, I want to stress that the present regime provides no incentive financially to a local council that shows no determination—as a matter of good practice or, as in this case, to uphold civic values—to pursue such serial evaders seriously. The council as a collector for the Government suffers no financial loss. The premises in question were not owned by the companies liable to pay the business rates. The freehold of the Albion pub, for instance, is owned by Marston's. When the companies go bust—surprise, surprise—the landlord, and main drinks supplier, does not appear on the list of creditors. Either the landlord is very prescient, or that is prima facie evidence of preferential treatment of a key creditor and of tolerance of dubious business practices over quite a number of years, which can only detract from a reputable brewery's standing in the community.
If the business rates regime allowed councils to collect business rates from the actual owners of properties—either generally or in the special circumstances that I have outlined—the opportunity for evasion would be much more limited. I encourage the Government to consider such a reform during the passage of the Bill. Locally, we pursued the council over the affair after receiving many complaints from the public and local businesses. A letter was sent last April, for instance, to the Conservative leader of the council, Simon Tagg, to ask not just why the council always wraps itself in so much secrecy, but what straightforward measures the council had taken to protect itself and the Government's business rate pool, given the track record, by means such as not allowing rates to build up over a year but instead demanding them up front or in instalments, which is the case for ordinary council tax payers The leader replied that existing legislation does not allow the council to do that. He also wrote:
"The Council's finance department cannot take account of 'previous bad history' when issuing demands because they have to treat each financial year separately."
That defies common sense and any good business practice, and I would like to hear from the Government whether that advice, no doubt given to the leader by his officials, is correct. If not, I will further pursue the matter locally. If it is correct, I would urge the Government to amend the Bill to give councils common-sense flexibility in how they pursue such cases.
I have written at length several times to the council's relatively new chief executive, Mark Barrow, who has been in post for about 18 months now. The first time was in April, when I pieced together the track record. I wrote again in June and again at the end of July after receiving no substantive reply. I am afraid that at that point, for the first time as a Member of Parliament, I invoked the Freedom of Information Act, but pretty much to no avail. Apart from general procedural details about the new standards procedure for local councils, which I knew about by that stage, I received no answer to specific questions and heard no more. I wrote again on
The point that I wish to make about the reform of the business rates regime is that if such things are happening in my area, they are happening up and down the land to the detriment of government, councils, council tax payers and honest business rate payers. There is some local evidence that the more widely such behaviour becomes known—traders talk to each other all the time—the more others follow suit, either just because they can or because they cannot otherwise compete on a level playing field. Have the Government calculated the total cost of business rate write-offs each year, and have they commissioned any studies to estimate how further reforms such as those I have suggested may help to reduce that amount, to the benefit of everybody across the country?
Councils could either be helped by being able to levy business rates on the owner of a business property, or they could be given specific duties to pursue serial evaders, with financial penalties on councils as an incentive. That would apply particularly to councils such as Newcastle, which has hardly pursued with zeal the affair that I have mentioned or complied with its statutory duties under FOI legislation. If that is the frustrated complaint of the local MP, what chance do ordinary local council tax payers and honest businesses have of ensuring that the business rates system operates fairly?
I shall draw my remarks to a conclusion by discussing openness. A further reform should involve a duty on councils to be transparent about write-offs and the non-collection of business rates in general. In the case that I mentioned, the council's standards committee has now considered a complaint against Councillor Whieldon, concluded that there is a case to answer and appointed an investigator. However, that has all been done behind closed doors. Nothing has been said in public, and nine months on I have not been contacted. I hope that the review has not been set up to clear the council and to whitewash the procedures that it adopted.
One of the more farcical elements of the case is that the only thing that has been made public is an investigation into how the information came into the possession of a Member of Parliament—a leak inquiry into myself. As part of that investigation, last July the council reviewed its policy of writing off business rates in secret and gagging cabinet members and ordinary councillors from saying anything to anybody, even in the public interest. In a paper to its cabinet, the council surveyed the policies of nine councils in Staffordshire and labelled them—
Order. I have given the hon. Gentleman a fair amount of licence, as this is a Second Reading debate, but on balance it now appears that he has used the term "business rates" to talk about business rates in general, rather than to speak within the scope of the Bill. There is a certain amount of flexibility on Second Reading, but I think that he has exhausted the possibilities of it.
Order. Perhaps the hon. Gentleman should hope to get on the Committee in order to do that, but he will still have to do it within the terms of the long title of the Bill.
Indeed, Mr. Deputy Speaker, I shall make such a request of my Whips.
In conclusion, I shall support the Second Reading of the Bill tonight. However, I urge the Government to make the wider reforms that I have mentioned to tackle abuse of the system and to make councils more open about their collection records. Otherwise, council tax payers in Newcastle will gain the impression that ordinary families will be pursued to the limit in hard times, while determined business rate evaders will get off scot-free. Honest businesses and traders in my area do not like what people such as those I have mentioned are up to, and the Government can ensure that our councils are better helped so that they do not get away with it.
I follow an interesting speech by Paul Farrelly, in which he made remarks about a person whom I know, and knew reasonably well in the past. I was concerned that such remarks should be made, and I seek your guidance at the outset, Madam Deputy Speaker. It seems to me that a person ought to be given the right to put the record straight if they feel that it has not been stated well in the House. I do not know whether it was in this case, but I wonder whether I might appeal to the person concerned to write to me so that I can put the record straight, perhaps on Third Reading. I would be grateful for the opportunity to do so, and I seek your guidance on that point, Madam Deputy Speaker.
The local councillor was given full opportunity last April to respond to the matters of fact. He not only declined to do so but put the telephone down on me. The matters of fact have been laid in the public domain without the benefit of privilege.
I am grateful for that clarification, and I shall take it into account, as I am sure you would expect me to, Madam Deputy Speaker.
I move on to business rate supplements, which are the subject of the debate. We have heard a lot about Crossrail, but I shall leave that issue alone. I spent two and a half years on the whole thing, and I am very doubtful whether it will ever get off the ground. That is another matter altogether, and I have made that point clear in the House on a number of occasions. I have no reason to change my mind, and I do not want to take up valuable time by proceeding through the whole Crossrail debate again.
The Minister for Local Government said that this was not the best of times from a business perspective. That was pretty much an understatement, and I wish to set out the business atmosphere and climate that prevails, because it has a bearing on the debate. Many businesses would tell the House that they are in one of the worst of times, and that they face immense problems. They are burdened by the Government's activities in recent years, which make it more difficult for them to face those problems.
I shall give a brief resumé of the current business climate. In 2007, some 13,500 companies failed. The Forum of Private Business tells us that in 2009, some 200,000 businesses will fail. That is a pointer to the almost unprecedented economic situation that the businesses of this country have to deal with. KPMG, the well-known accountancy business, has stated that 150,000 companies will become insolvent in 2009, which will be the highest number since records began 50 years ago. Unemployment is at more than 2 million, and is projected to be 3 million by the end of 2009. The interesting figure was released last week that new bank lendings in the third quarter of 2008 were £447 million, compared with £16 billion in the same quarter a year ago.
Those figures are all pointers to an economic climate that is unprecedented in business terms. In Northampton, businesses tell me that turnover is already down by 10 to 20 per cent. For some businesses, particularly restaurants, it is down by 30 to 35 per cent. Most of those are owned by friends from the Bangladeshi community, who run some of the most impressive Indian restaurants in the country. I am happy to pay tribute to them, but tragically they are faced with a 35 per cent. fall-off in turnover. It is as though they had fallen off a cliff.
The Prime Minister now admits that the downturn will be longer and deeper than we thought. That comes after the Chancellor told us in his pre-Budget report that there would be a recovery in the third quarter of 2009. The Chancellor said:
"We are far from through this" when asked about that projection, which perhaps hints that although he did not quite want to say "I was wrong", he was not far from saying it. Barry Potter, the director of the International Monetary Fund, said that it was "very optimistic" to forecast that Britain would begin to recover in the third quarter of 2009. It is therefore true to say that we have not done away with bust. We speak against a background of a serious recession, so what do the Government do? They propose that we think about levying extra cost, through an extra tax, on businesses, which are suffering from massive past burdens.
Of course, I accept your guidance, Madam Deputy Speaker, but you will recognise how provoked I was.
Business has faced £66 billion of regulatory costs since the Government came to power. There are 800,000 people on the public sector payroll; only the wealth-producing sector has to support that. I am worried that we have seen little concern about that from Labour Members. All we have heard from them about the trials and tribulations of business people seems to involve the small minority who deliberately set out to twist the system. I am all for belting them as hard as we can, but, after 40 years in business, I have met very few such people. I have always been proud of the ethical base of most businesses in this country, especially in the small and medium-sized enterprise sector. I would like that to be on the record, and it will be now. I am grateful for the opportunity to do that.
In addition to extra costs that business has to bear, corporation tax has increased for the SME sector.
We face a massive additional tax—or potential for it—in the business supplementary rate, which is the subject of the Bill, but it must be judged against the background of the business climate. You are right, Madam Deputy Speaker, that I have argued that enough, but it is important to make the point.
Where did the idea for a supplementary business rate come from? It will not surprise you, Madam Deputy Speaker, to learn that it came from the bowels of Government. I believe that it was first raised in a White Paper in 1998. The idea did not therefore originate from the business sector, the general public, or even local government. It came from the heart of national politics—this place. After its publication in the 1998 White Paper, it resurfaced in a Government-sponsored balance of funding review in 2004. We face a Bill that is thoroughly new Labour, Government sponsored and—business feels—thoroughly anti-business. Business says that.
I want to quote from businesses that have expressed deep concern about the Bill. It is right that the House understands the breadth of feeling in the business community about the measure. On
"The CBI is concerned that BRS could add significantly to the business tax burden."
That is the heart of the matter. The CBI does not trust BRS not to widen, and become the thin end of the wedge and a greater tax than it is innocently portrayed to be. It does not trust the Government on the matter.
The quotes are all from recent statements. On
"The IOD strongly opposes BRS in principle. They would be an additional burden on business which bears no relation to profile and could jeopardise their commercial viability."
If the Government do not take that statement into account, I do not know what they will do about placing further charges on business.
I emphasise £597 million a year, to be doled out in a way that—in many business men's eyes—will not help businesses. They are most concerned that the money will leak out and be smoothed into other areas of activity. That is one of the Bill's dangers—it does not tie up the way in which money is spent anywhere near strongly enough to meet with businesses' approval.
The British Retail Consortium, which represents a massive part of the British retail industry, is especially concerned. On
"The BRC does not support the introduction of BRS... it has the potential to add significantly—and disappointingly—to retailers' costs.
It saddles retailers with new costs when they can least afford it—it could add an extra £160 million a year to tax bills. Retailers face a massive £16.6 billion cumulative increase in rate bills from 2010."
I do not need to point out to hon. Members how many retail businesses are going to the wall. They have read about high profile companies, but every Member will point to his own high street, shopping areas and retail businesses, and say, "He's gone", "She's gone", "That's up for sale" and "That shop is now vacant." That will increase dramatically in the coming year or two years—perhaps even three years.
Let us consider construction, which is vital for this country. The Government say that they want to encourage it and look to it to build more houses, provided that they can get credit moving. On
"At a time when 60 per cent. of FMB house builders are reporting falling workloads the last thing builders need is another tax."
Just at the time when we may begin to see green shoots—my prediction is April 2010; we might tell the Chancellor that—we provide the opportunity to levy a new tax on business. The Federation of Master Builders is aghast.
"BRS could prove a tax too far—it could add up to 10 per cent. to a company's council tax bill."
Moreover, the Forum of Private Business stated:
The Federation of Small Businesses stated:
"The FSB opposes the Bill. Small business rate bills are on average proportionally three times greater than larger businesses. The FSB will continue to oppose the BRS."
There could not be a more solid array of business organisations lined up against a proposal from a so-called business-friendly Government. We are for ever inundated with messages from the Prime Minister, the Chancellor and Labour Members about how they understand, support and want to help the business sector. One would therefore have thought that they might listen to business and help it in the way it wishes to be helped. However, the Bill is an example of how all the Government's words come to very little when action is required. As my grandmother said, and as I repeat again and again, fine words butter no parsnips. It is no accident that the business sector's trust in the Government and the Prime Minister has dropped dramatically, and this Bill is one of the reasons.
The attitude of business is perhaps best summed up by a statement that I received from Mr. Richard Gayler of Scanfit Ltd and which is supported by many business leaders in Northampton, South:
"This is another stealth tax. My local Council"— he is not a Northampton man, nor is Scanfit a Northampton business; he wrote to me through a small business contact—
"treats me as a cash cow in exchange for what I see as no increase in services provided.
Many companies are thinking of making redundancies because of the current economic environment and an increase in business rates will mean they will have to consider making even more."
No wonder business is horrified at the prospect of another tax. Businesses are horrified for a number of reasons. They have written to me in their hundreds and said that the Bill is inadequate, ill prepared, badly written and deficient in many respects. That is the message that I have received from business about the Bill. The Government tell us that the Bill is intended to enhance business partnerships and recreate a better understanding between local government and business, yet business is totally opposed and concerned about the quality of the Bill.
Let me voice some of those concerns, some of which have already been mentioned. There is a universal wish for a ballot on all projects. That is a must where proposals are made by local authorities. I have worked in local authorities as an elected councillor for nearly 12 years and I have been a party officer working at the constituency level for 50 years next year. That is a long time to be in politics, and one might feel that the effort that I have made to arrive in this place so late in the day has hardly been worth it. The truth is that local business is very wary indeed of estimates produced by local councils. Local business wants much more involvement in the business rate supplement process, if it comes to fruition, and therefore wants a ballot for all projects, because it knows that local government estimates can be so way out.
We have seen even the Government's estimates being pretty off the mark. Dare I talk about the Olympics, Madam Deputy Speaker? Would that be unfair to the Government? What was it—£2.9 billion?
You are absolutely right and I thank you again for your guidance, Madam Deputy Speaker. But the very fact that local government estimates are no better than Government estimates is why local business needs to be involved at every point. Local business knows that often estimates cannot be trusted. That is why we cannot set the level at a third of a given project, as is proposed, because there are too many ways of perverting any projection for local business to accept it at face value. What guarantee does business have that local government will not understate a project cost? What is to say that local government will not say afterwards, "Oh yes, well, we should've had a ballot, because this has turned out to be more than a third of the total rate, but we didn't expect that when we made our projections"? It is just not good enough.
Business is also concerned that there would be a reduction in spending on projects financed from Government sources. We have already experienced a reduction in the revenue support grant for local government because other items are reckoned to have more impact. Let me give an example. Grants for infrastructure have been used as a reason for not increasing the revenue support grant in my county. The truth of the matter is that grant is given and taken away, but we are still left with a lower base than we should have, had we received the proper amount of revenue support grant. We need a guarantee from the Minister when he replies to this debate that other Government spending can in no way be lessened because of the ability to levy an extra business rate on businesses.
Let me talk about the concern about the level of rateable value. You will know, Madam Deputy Speaker, that it is suggested, although not stated in the Bill, that the level for payment of a supplementary business rate will be a rateable value of £50,000. I do not know whether the Government will confirm that that will be the level before the end of this debate, but the Bill does not come into effect until 2010. We shall have a rate revaluation in 2010 and many more businesses will be caught in the net of that tax as a result. What is to say that, if the proposal does not work quite how the Government wish it to, we will not lower the level of the rateable value relevant to the calling for a particular tax under the Bill to be paid? There is massive concern about rateable value and, in particular, about the fact that we will have a reassessment that could affect the whole thing. We will vote on the proposal now, have a reassessment and then find that many more businesses are caught in the trap of extra taxation.
There is concern about consultation. I have had the experience—I was about to say "good fortune", but it was not good fortune—of being in a business caught up in local government consultation. I was a marketing and public relations professional for a long time, and the consultations that I saw emanating from local government were some of the most amateur and shoddy that I could expect to see. The lack of professional ability in that respect has been lamentable. It is therefore no wonder that business is concerned about the lack of good consultation.
Business is concerned that BIDs payments will not be offset against business rate supplements. The BIDs project is excellent—I pay tribute to Mr. Raynsford, who introduced it—because it has meant that business and local authorities work in partnership. That was the essence of the project, which had the effect of bringing business and local government together more and creating greater understanding. The Bill will do the opposite, because business will not be involved in the project. The businesses might simply have the chance to vote, but that would pretty much be all, until the project ended. If there is a good BID project going, the very least that we ought to be doing is to offset the business rate supplement against that project. That provision is not in the Bill, at least not in a form of words that the right hon. Gentleman and I know to be meaningful.
Let me introduce another point. I live in a sustainable communities project area. Northamptonshire is due to build 167,000 houses by 2031. It is expected that our population will grow by 50 per cent., and that most of the money for the infrastructure will come from—would you believe it?—the local construction industry. So the industry will have to make sustainable communities project payments on land, and perhaps pay a roof tax, and pay a business rate supplement on top of that. Asking it to take part in a BID project will simply not work.
I want to make a final point on the loopholes in the Bill. I hope that the Minister is noting these points, and that he will respond to each one in as much detail as I have used in trying to make them to him. Businesses are worried about how the cost of administration will be constrained, and about how well the funds will be ring-fenced. They have seen in local government what is loosely called unofficial virement across budgetary silos, along with work not being properly classified in one area of activity and being moved into another. They are very concerned about this proposal.
Businesses are also concerned because this is a long-term project. I have already mentioned that we are now in one of the worst business environments that we have ever faced, but we all hope that that will come to an end. In fact, we believe that it will do so. We might run a book in this place on when it will happen. Will it be in two years, or three? We do not know, but green shoots will appear, and that is the time at which we must take all the burdens off businesses that we possibly can. We want to release them from regulation and extra taxation, not add to their burdens when they are recovering from a recession that will do more damage than has been seen in living memory. After three years of recession, we shall have about 10 years of recovery—at least, that is what most business people tell me—before we get back to where we were in 2007.
We shall also face a global challenge that will run for 30, 40 or 50 years. The only sector of our community that can fight that challenge is the business sector. It will be fighting massive growth from what is called BRIC— Brazil, Russia, India and China—and the underdeveloped nations. The world will be dramatically changed in business terms over the next 40 years, and this recession might have heightened that change. Yet the Government fail to recognise that every burden that they place on business is another millstone around its neck to be dealt with in the fight to stake our business claim in a global world.
I have heard very little from the Government that shows that they understand the need to nurture and help the wealth-producing sector rather than adding to the regulation and burdens placed on it. That is what business is most angry about. That is what I meant when I talked about the fine words that emanate from this Government but are not carried through into real actions when it comes to nurturing, nourishing, growing and helping to sustain the business sector in this country. The business sector wants help and understanding, not fine words and promises that are not very meaningful. It wants help and real understanding, but the Bill shows that it is not going to get it from this Government.
I shall try to be brief and to stick to the points raised in the Bill, which I am sure will please you, Madam Deputy Speaker. I agree with what Mr. Raynsford said earlier about Crossrail. I have been a supporter of Crossrail, both under the present excellent Mayor, Mayor Johnson, and under his predecessor, Mr. Livingstone. For many years, I have believed that it would benefit my constituents, even though it will not actually go through Ilford, North—it will go through the neighbouring constituency of Ilford, South. It will take pressure off the Central line and other lines in the area, as well as bringing in extra transport capacity. I fully support Crossrail; I believe that it is a separate issue from the remainder of the Bill and that it does indeed need funding.
I do not agree with my hon. Friend Mr. Binley—
He is shocked by that. I do not necessarily agree with his pessimism about Crossrail coming to fruition. I hope that it will do so as quickly as humanly possible, for the benefit of everyone in London and, indeed, the whole country.
I should like to talk about business improvement districts. My hon. Friend the Member for Northampton, South paid tribute to Mr. Raynsford for introducing those provisions—
Indeed, the right hon. Gentleman is getting worried at receiving so many compliments from this side of the House. Of course, he is more than welcome to come over to this side of the House.
Last Thursday, Mike Gapes and I went to Ilford town centre to promote the business improvement district—the BID—that has been proposed there. It is precisely in this time of recession that we need such an arrangement, because we are seeing empty shops in our high streets. I shall not list all the shops that are going, and I pray to God that not too many more will go. I fear that some will, but I believe that the BIDs could help to stop that in these difficult times. We appeared in the local press only this week to persuade people to become involved in the BIDs and to encourage them to pay the business rate supplement that would be required. We are encouraging people across the board, in small and large businesses, although I believe that there is a particular onus on some of the larger businesses that perhaps have more resources to fund these arrangements than the smaller businesses, which might find that more difficult.
I want to talk briefly about the BID in my own constituency, the Hainault business park, and to pay tribute to Mr. Jim Ridley and Mr. Chris Wyles, who co-chair the organisation. Before I came to the House as a Member of Parliament, I was the cabinet member in Redbridge for regeneration in the community, and we promoted the BID project with Hainault. There were some difficulties in the area, in relation to levels of crime and to the number of empty units in the business park. The BID project has enhanced the area by bringing in new businesses, closed-circuit television, signage, and extra police community support officers. Various other projects have been linked in and brought in funding from banks, from businesses and from the wider area. This is all making the business park a thriving area, and one that I hope will be more resistant to recession than other areas that do not have such an arrangement. I am a great fan of the project.
Of course, the project was set up by means of a vote. In Ilford, everyone was fully engaged and fully involved in voting to get the extra funds. My problem with the provisions in the Bill is that consultation, however well meaning it might be, is simply consultation. It is not the same as engaging people in voting, getting them involved and enabling them to feel part of a project. I believe that that is where the Bill falls down. What we need is a provision for such voting, and certain guarantees in the Bill. I shall push for that if I am on the Public Bill Committee. Looking down at those on my Front Bench, I believe that there is a possibility that I might find myself in that position. I genuinely believe that we have to push for those provisions.
You will be pleased to know, Madam Deputy Speaker—with no offence to my hon. Friend the Member for Northampton, South—that my conclusion will be brief rather than lengthy. We have heard about the problems of recession and if I may have a little latitude, Madam Deputy Speaker, I would like to say a few words about a small business whose owner came to see me shortly before Christmas. It does about 80 per cent. of its trade over the Christmas and January period. A bank that will remain nameless decided that it would be prudent to call in the overdraft facility before Christmas, putting that business in an impossible position: either the business was being given the keys to shut up shop or it would be allowed to trade its way through the difficulties in the Christmas period. The bank would not move. Fortunately, we introduced the business owner to a new bank, which was able to honour the overdraft facility and allowed him to trade through Christmas. I am delighted to say that the business had a good Christmas and is now able to trade on. The Government have to look further into the practices revealed by that case. I realise that that example may not be strictly relevant to the Bill, but I wanted to raise it so that the Minister may pass on those details to the Treasury to enable it to take some action.
I obviously support the Opposition's amendment, but I also want it put on the record that I fully back Crossrail, which I believe is vital and needs our support. I would, however, like see votes on every issue that involves and engages our business community, so that it is part of any decisions taken.
The issue of the business rate supplement is nothing terribly new. Much as we like to present it, as did my hon. Friend Mr. Binley, as coming from the bowels of the Government over the last decade, it actually goes back quite some time. At the heart of the legislation lies the age-old questions: how should large-scale infrastructure projects that promote economic development be most equitably financed; and should business be able to benefit without contribution when windfall gains benefit property values as a result of infrastructural development projects that are made for the common good? It is difficult to get our heads round those difficult issues.
The whole conundrum of "value capture" has been with us in many ways since the great railway building mania of the 1840s and 1850s, when things were somewhat simpler. The promoters of the new railway networks that sprouted like bindweed across the UK during that crazy decade or so bought up the surrounding land, built houses and in that way paid back the capital costs of the new infrastructure. That, at least, was the theory; but all too often in practice, boom turned to bust. I wonder where we have heard that phrase before. The only investors who profited were those who either cashed out very quickly or those who were genuinely in the project for the very long term.
I must confess that I share my party's concern that in today's desperately uncertain economic and commercial climate there could scarcely be a less opportune time to introduce what undoubtedly amounts to a new stream of business taxes. The Minister fairly argued that we are putting in place a regime that will have an impact not just now, but in the decades to come, and it is also probably fair to say that relatively few schemes will come onstream during these difficult and tumultuous times, but I none the less share many of the concerns expressed by those on the Opposition Front Bench that now is not the time to bring such a Bill into play.
The very compulsion that is instrumental to a supplementary business rate is in stark contrast to the business improvement district initiative, which has been referred to by many hon. Members. My hon. Friend Mr. Scott made it clear in his contribution that BIDs had proved a great success in his own area. I have to say—I am surprised that the Government have not yet pointed it out—that the initiative was initially opposed by the Conservatives during my first term as a Member, but I acknowledge that there have been great successes in my own constituency. My hon. Friend Robert Neill referred earlier to a new west end company and there is also the Paddington Waterside BID; a number of other areas are also keen to go through this procedure.
As I have said, the real issue relates to what is a proper sense of consultation and true ownership of how the process works. Such consultation contrasts with the element of compulsion that is integral to this particular Bill. Consent by local businesses under the process in the Bill would be sought only for those projects where the supplement made up for one third of the total cost. There are some understandable fears that that arrangement will become a charter that ends up driving business both old and new away from the parts of the UK that most need regeneration. The Government must address that concern as they follow up how the legislation works. Nothing could be more disastrous than areas desperately requiring regeneration having it taken away from them simply because a lot of business melts away, but that could well be the case.
I am lucky in that my part of central London has a thriving business sector, but there is no doubt that the problems affecting the retail sector as a whole might well impact on the west end. If secondary charges for various initiatives are levied on top of successful BIDs, it could well tip a number of businesses over the edge. The worst thing would be if vulnerable, small, independently owned and run businesses rather than the large-scale retailers went under. I hope that the Government will give some thought to that. If we look at the disadvantages stemming from the licensing regime over the past half decade, particularly since the Licensing Act 2003, we find that it is the small independent businesses that have proved most vulnerable.
I hope you will forgive me, Madam Deputy Speaker, if I focus the remainder of my brief comments this evening at a slightly more parochial level, as the provisions on prospective Crossrail developments, which my hon. Friend the Member for Ilford, North mentioned, may have a significant impact on central London.
The Business Rate Supplements Bill originates from the Lyons inquiry recommendation that local authorities should have greater flexibility, subject to certain safeguards, to raise revenue to invest in their local areas. I was unable to put the point to the Minister earlier, but the City already and uniquely has the ability to raise a supplementary business rate—reflecting the fact that in part it has a business franchise—so the notion is nothing new within the Square Mile. Given its long-standing support for the Crossrail project, the City's position is also understandably informed by the fact that the proceeds of the supplementary rate in the capital are earmarked for the construction of Crossrail. With that objective in view, the City supports the introduction of SBR in London at the Greater London authority level.
I understand the concerns expressed earlier by my hon. Friend Richard Ottaway and other Members representing the suburban areas that are unlikely to benefit to any significant or direct degree from Crossrail—that this will be seen as a template and that it will benefit only certain parts of a particular district. London is obviously a very large area of 650 or so square miles. Crossrail benefits are regarded as being of national importance in the same way as the Olympics, but there is little doubt that a number of these infrastructure projects will benefit certain areas rather than others. Mr. Raynsford made a robust defence not just of the Bill, but of the Crossrail project and spoke about the issue of additional stations. I am sure that he will appreciate, however, that a new station in north Woolwich will not be of much benefit to people who live in Hillingdon, Enfield or Croydon. Any Crossrail configuration will definitely go through my constituency and there will be great benefits, but we London Members need to appreciate the concerns that are felt elsewhere.
The hon. Gentleman will recall that I argued in an intervention—or perhaps in my speech—that Crossrail has conducted research showing that the project will bring economic benefits for all parts of London, not just those parts directly affected by it.
I appreciate that, but I am sure that the right hon. Gentleman will also appreciate that some benefits will be more apparent, more direct and more extensive in certain parts of London in comparison with others—an inevitable consequence of living in a capital city. The issue is whether the Greater London authority rather than the boroughs provides the right way to implement the legislation. The exclusion of the City of London and the 32 London boroughs from those able to fund local development through an SBR highlights the importance of ensuring that the community infrastructure levy introduced by the Planning Act 2008, which can be levied at either the GLA or city-borough level, is available to fund genuinely local projects. The case for such a measure is further strengthened by the Mayor's proposed changes to the London plan. They will enable him to fund £300 million of his contribution to Crossrail from money obtained through the City and some of the boroughs via section 106 planning agreements made with developers in London's central activity zone.
The requirement in the Bill for the Mayor to consult the City, as with the London boroughs, on any proposal to impose an SBR is in my view welcome, but I also understand the concern that consultation in this context may not be enough; there needs to be a sense of consultation with a certain amount of teeth. I hope that the Bill will not include an entitlement for any of the London boroughs to propose projects to be supported by SBRs without there being a proper dialogue in developing ideas for those projects. Of course, this is not immediately relevant, given that in London the SBR will initially be used just to fund Crossrail, but the situation cannot continue indefinitely.
The Bill's formal consultation processes regarding who will pay for the supplementary business rate in London will also provide an opportunity to record business support for Crossrail. This support has been demonstrated by the substantial financial commitments made by BAA, to the tune of £230 million, and by the Canary Wharf Group, which has committed £150 million. The City Corporation has agreed to a direct contribution of some £200 million to Crossrail, and has guaranteed another £50 million from the further contribution of £150 million that it is trying to attract from businesses at large.
Although I have long had some reservations about the route that Crossrail takes, now that the hybrid Bill is on the statute book it is essential that we avoid delay, because a delay will only result in crippling planning blight for those businesses and individuals who would otherwise be affected by the work. There will be some very important medium-term benefits from Crossrail. The demand for some 14,000 jobs during its construction will be an important source of employment during what promises otherwise to be very difficult economic conditions here in the capital. However, it is also an important signal to the world at large about London's intention to invest for the longer term. Delay now would betray a lack of self-confidence in our capital in its role as a leading global city.
I want to finish on a practical note. The detailed provisions on the consultation process and the collection of the supplement suggest some significant complexities and additional expense for the billing authorities, including the City of London itself. We believe that the most practical way to collect the supplement would be together with the non-domestic rate, if that is what the Minister has in mind. I appreciate that this is likely to be discussed at a practical level in Committee, but I wanted to put on the record my concern, given the projected early introduction in London to satisfy the Crossrail financing requirements, that the administrative detail will need to be swiftly settled in order that the software can be adjusted in readiness for any such circumstances.
I regret that I will be joining my Front-Bench colleagues in opposing the Bill tonight because I am concerned that this is not the right time to put such legislation into place. There are some important practical issues that will need to be ironed out, assuming that the Bill gets a Second Reading and goes through to Committee. There are also some important issues of principle regarding such legislation, which I would not entirely oppose. This has been an important opportunity for us to discuss them, but we will no doubt do so in the months and years ahead if supplementary business rates become a part of the horizon affecting both businesses and local authorities in the future.
I am delighted to catch your eye in this debate, Madam Deputy Speaker. I had not intended to speak. I entered the Chamber this afternoon with a relatively open mind on this proposal, but the more that I listened to the debate, the more I realised that the Bill lacks adequate safeguards for businesses and the more I therefore realised that my Front-Bench colleagues are right to oppose it, for the reasons that I wish to outline.
The people of London have already been, or are likely to be, caned through increased council tax to pay for the Olympics, and it now seems that the businesses of London are to be caned through this mechanism to fund Crossrail. Before Mr. Raynsford leaps up to intervene on me, I wish to say that I totally support Crossrail, but a fairer method of funding it—if the Government wish to do it that way—would be a supplemental increase in the uniform business rate so that all businesses throughout the country pay for it. As he and others have made perfectly clear, all businesses in London and businesses elsewhere in the country are likely to benefit from these measures, so why should they not all pay, rather than just a certain section of them?
There are a number of reasons why I oppose the Bill, but my hon. Friend Mr. Binley made the very powerful case that now is not the right time to introduce such a measure. The country is enduring negative growth and huge increases in unemployment, the rate of business failures is increasing alarmingly, and the rate of business output is decreasing alarmingly. Perhaps the most important reason is that given by Dan Rogerson: we have to remain internationally competitive. If we keep increasing bureaucracy and taxation on businesses, they will simply relocate away from these shores.
I have just come back from Hong Kong where there is a maximum corporation tax of 15 per cent., no capital gains tax, no inheritance tax and very low business rates. It is very easy to get money in and out of Hong Kong, and the tax returns are one page long. Let us compare that with the bureaucracy of this country and the huge increase in it that this proposal will engender. It is not just tax-raising problems that these proposals will engender; there is the whole bureaucracy connected with collection, which the local authorities will have to undertake. As my hon. Friend Mr. Field said in the closing moments of his speech, a whole new form of software will be required to collect these rates.
The Bill does not contain adequate safeguards. We all know what happened when the Conservative Government introduced the lottery. We were clearly told that it would be additional to normal Government expenditure and that in no way would it be used to supplement their tax-raising powers, expenditure on health or other normal expenditure. But what happened? This Government came along and started raiding the lottery for all sorts of purposes—health, education—that the lottery was never designed to pay for in the first place.
Clause 3 sets out clearly some purposes that the mechanism is not supposed to pay for: housing, social services, education services, services for children, health services and so on. The problem with the Bill is that it contains very wide order-making powers. My reading of it is that the Government would easily be able to alter those purposes by a simple statutory instrument discussed upstairs. Indeed, almost anything proposed in the Bill could be altered by a simple statutory instrument after an hour and a half's debate upstairs.
There is a second thing that I dislike about the Bill. Clause 4, entitled "Conditions for imposing a BRS", indicates that there is to be consultation on these proposals. One of the conditions is that a levying authority
"has consulted the relevant persons on the proposal".
Who are the "relevant persons"? Are they strictly businesses? Are they other organisations? In any case, this Government have made a new art form of consultation. We all know what happens when they consult on anything: they may take people's views but then they completely ignore them.
Let us take the example of the post offices in my constituency. Twelve post offices were proposed for closure. There was a huge number of demonstrations, public meetings and letters and much annoyance of every sort—and the Government took not one jot of notice. I warned when my ambulance trust was going to be merged that there would be problems. What did the Government do? They consulted—and proceeded with the proposal. There have been countless occasions when they have consulted on things and completely ignored that consultation, so the safeguard in the Bill is very scant.
Thirdly, there are other safeguards in the Bill. As has been mentioned by other Members, there is a 2p in the pound rateable value safeguard. There is a £50,000 safeguard—we believe—to be implemented. There are safeguards whereby a local authority can introduce transitional measures. Again, however, those can all be altered on a whim by a statutory instrument discussed upstairs. The Government must give an undertaking that those things will be constantly reviewed, because we all know what happens if monetary safeguards in a taxation regime are not upgraded from time to time—through fiscal drag the Government end up raising more money. For example, personal allowances, which were not increased for years under this Government, were, in effect, just an extra income tax that the Government were raising.
The most important aspect of this Bill is the lack of a mandatory ballot of all the affected businesses. That is what I object to most, because if the Government had confidence in their proposals—and they clearly do not—they would be perfectly happy to allow businesses to have a ballot. As I said in an intervention on my hon. Friend Robert Neill, the Government might be scared that businesses will block a proposal, but businesses will do so only when they consider it not to be in their interests. If they consider that improved infrastructure will improve their profits, they will want things to go ahead. The argument being made is incredibly weak, and I hope that my hon. Friends will address it in Committee—indeed, I have a forlorn hope that the Government may yet recant on this provision.
We can all remember the days when businesses without representation went bust under the old local business rates system. In Sheffield, business owners had to take the roofs off their factories so that they were not liable for the excessive local business rates that the Sheffield borough council wanted to raise. If we are not careful, we will go back to that system and we will simply put businesses out of business. I was not elected to this place to put businesses out of business; I was elected to help my constituents form businesses for this country, so that we can create the wealth to pay the tax to have the Government expenditure on the projects that we want.
I am extremely concerned about the lack of a ballot. The right hon. Member for Greenwich and Woolwich and I spent a great deal of time discussing business improvement districts in Committee when that system was introduced by the Local Government Act 2003. We discussed not only the fact that there needed to be a ballot, but the form of the ballot. I do not think it beyond the wit of man to see that we should do the same this time.
My fifth objection to the Bill is that although businesses will be sheltered—they may only have to pay up to a third before there is a ballot—they may well have to pay more than a third. That is a real worry, and it is only a third in the initial prospectus that would trigger the ballot. We all know what local authorities, and, indeed the Government, are like at managing large-scale infrastructure projects. They have a habit of spending far more than the initial budget, and in such circumstances the whole project could cost much more. I have no doubt that Crossrail will come in greatly over budget, because a host of problems will be encountered in its construction. For example, we know that burying just one 7 km bit of cable under the ground for the Olympics will cost a staggering £160 million. Huge costs and huge difficulties are involved, and even with the best will in the world and the best surveyors in the world those cannot be fully foreseen until the machines start to dig the necessary tunnels for Crossrail.
I have a great concern about how expenditure will be controlled. Much more than that, I am concerned about the Government's motive in all this. Once they have introduced this mechanism, I think they will start to say to every local authority in the land, "We're not paying for this large-scale infrastructure project. You pay for it, using the local rates supplementary mechanism." We might almost see an end to central Government funding of large-scale infrastructure projects, and that is what really worries me. We could find that such a situation became the norm, and that every authority that wanted a new road, railway, port or airport would be told that it must get its businesses to pay, because they were the ones going to benefit. We will simply find that, as happened under the old local business rates system, businesses will move away from those areas to where they know local authorities are cheaper—they are likely to be the Conservative-controlled ones.
I am greatly concerned about the Bill, because it is a Trojan horse being introduced not, as my hon. Friend the Member for Northampton, South said, by a new Labour Government but by an old Labour socialist Government who do not understand the needs of businesses. This Bill is taxation through the back door, and it is dishonest taxation because it does not provide for a proper ballot. I hope that my hon. Friends will oppose the Bill for all they are worth. If the Government do not provide the proper safeguards, I hope that when we get into government after the next election we will provide them, because I was elected to this House to represent the interests of my constituents and of business, so that this country flourishes and gets a bigger and bigger share of world trade, not a smaller and smaller share, as is happening at the moment.
This has been an interesting, if somewhat short, debate, and it is a shame that only two Members from the Government party were able to join us this evening to contribute—I am sure that others might have been able to make a contribution. It is good to welcome the Ministers back to their places to be able to contribute at least to the end of the debate.
The Minister for Local Government, who has just returned, set out the case in his characteristically cautious, but always reasonable manner. He and I had the fortunate—or otherwise, depending on how one describes this—opportunity to debate stamp duty land tax at some length; I am pleased to say that I get out more often now. He showed his ability to do an extraordinary turn at heel when displaying new Labour doublespeak. He started off with the old gag that a power to tax is not a tax—I particularly enjoyed that. When asked why the Government were cutting a particular initiative, he told us that it was not a cut—they were merely building it into the rates system. He then surpassed himself, because just for a moment, when using the deadpan manner that he uses when telling something that he knows is palpably incorrect—perhaps I should put it that way—a glimmer appeared at the edge of his lips as he told us that this Prime Minister and this Government have at their heart the belief in decentralising power. We all know that the reality is somewhat different; I could use many words to describe the Prime Minister, but "decentralising" would not be one of them.
Business will be concerned that, when questioned, the Minister for Local Government refused to agree to ballots for all supplementary business rates. That is on the record, and businesses will note it. He also admitted when questioned that empty properties face an additional levy under this Bill, despite the impact that that could have at this time. Only Labour could charge 102 per cent. on empty business properties in a recession.
We subsequently heard an excellent contribution from my hon. Friend Robert Neill, who set out how the original principles have been lost in the Bill, how flexibility has been replaced with a rigid tax-raising scheme and how simplicity has been replaced with complexity. He also rightly spoke about the danger of removing ballots or not permitting ballots for all schemes. We want business and local authorities to work together, and the danger of this Bill is that it will merely divide those two camps. He also contrasted the words of the Prime Minister with the actions of his Government. This morning, the Prime Minister talked about jobs, yet this afternoon his Government are introducing a new tax on employers—we intend to highlight that contrast.
We heard an excellent and knowledgeable contribution from Mr. Raynsford, although it was somewhat short for him. At the beginning, he tried to pretend that the Conservatives are adamantly opposed to Crossrail, although he knows that to be untrue—I see him smiling on the Benches opposite. He was eloquent about the business improvement districts scheme—rightly so, for he introduced it. I differ with him in that I do not think that the scheme before us will engender that strengthened relationship between business and councils. I suspect that is where his argument falls down, but it was an excellent bid for a return to ministerial office, and we look forward to his coming to the Dispatch Box in due course.
Dan Rogerson, who speaks for the Liberal Democrats, set out why his party will support the Bill. I was intrigued by the fact that the position may conflict with that of his colleague, Lord Cotter, who speaks for the Liberal Democrats in the Lords:
"It does not seem to be a good time to introduce an additional cost for businesses that are struggling to survive in a time of economic crisis."—[ Hansard, House of Lords, 8 December 2008; Vol. 706, c. 222.]
I agree with the noble Lord, but I am disappointed that Liberal Democrat Members are confused.
We then had a wide-ranging contribution from Paul Farrelly, which was mostly about business rates arrears and an interesting press release that attacked the local council. I have no doubt that Ministers look forward to his contribution in Committee.
We then had four strong contributions from Conservative Members: my hon. Friends the Members for Northampton, South (Mr. Binley), for Ilford, North (Mr. Scott), for Cities of London and Westminster (Mr. Field) and for Cotswold (Mr. Clifton-Brown). My hon. Friend the Member for Northampton, South spoke with his characteristic passion. He gave us the full economic context—perhaps a little fuller than you liked, Madam Deputy Speaker. In the broad range of issues, he highlighted and rightly contrasted the way in which the Government say one thing and do another. I hope that he keeps banging that drum—I am sure that he will—in the weeks and months to come.
My hon. Friend the Member for Ilford, North spoke strongly in favour of Crossrail, which will benefit Ilford and much of east London. He also made a powerful point: consultation and ballots are not the same. I see the Minister nodding in agreement, and I hope that he will say so on the record.
My good and hon. Friend the Member for Cities of London and Westminster made, as expected, a knowledgeable contribution. He gave the history of how such infrastructure projects need to be funded, and the underlying dilemmas. He explained the difficulty of quantifying benefits for businesses and why the matter needs to be handled with such care. That is the line that we want to take.
Last, but by no means least, my hon. Friend the Member for Cotswold made a powerful contribution. Like me, he is a chartered surveyor, and he brought his knowledge of surveying to the debate, as well as a powerful exposition of the weakness of the Government's arguments. He highlighted the fact that many of the key elements are not in the Bill, but will be revealed later, dripping through the legislative system when we can challenge them only more weakly.
The core of this debate and the origin of the measure lie, as hon. Members have said, in the Lyons inquiry into local government finance. It highlighted the need for local authorities to have a more flexible way of raising supplemental revenue for local economic development. Several hon. Members pointed out that the inquiry emphasised that
"local supplementary powers should be designed in a way which can gain credibility with business and the wider community."
That is where the Bill's weakness lies. The Government's White Paper followed in October 2007 and set out the key features of a new business rate supplement. They were to include a limit on the rate in the pound, the need for businesses to be balloted, although only in limited cases, and the exemption of businesses whose rateable value falls below £50,000. Those elements remain in the Bill.
Alongside that has been the need to progress the Crossrail scheme. Indeed, a business rate supplement in London will be used to part-finance the expected £16 billion cost of Crossrail. We welcome and support Crossrail, not least because it will enable us to link our capital's rail network and help to reduce the pressure on an already overcrowded tube network. However, it is not unreasonable for many London businesses to question the cost. After all, much of the revenue to be raised is likely to come from businesses in boroughs such as Westminster, the City and Hillingdon, where the specific benefit to each firm will be extremely difficult to show. There is evidence for direct and indirect benefits but hon. Members must understand that it is not wrong to raise those concerns, because those are the people who pay not just our salaries, but those of the public sector as a whole.
That leads me to one of the key points in this debate. Business rates have long been resented by firms because they are taxation without representation. That charge is raised from entities that do not have a vote. The owner may vote and the staff may vote, but the firm—the payer of the tax—has no vote. If businesses receive nothing specific in return, they understandably question the fairness of the levy. That is why changes to business rates must be handled carefully. The Lyons inquiry said that the rules covering business improvement districts, for example, have been credible to the business community, because they specifically require that a majority of the affected tax-paying businesses must agree to the additional charge. Conservative Members support that approach.
The Bill is fundamentally flawed because it seeks to permit a supplementary rate to be charged, but requires a ballot only in certain circumstances. Under clause 7, a ballot must be held only when the amount raised accounts for more than one third of the estimated costs. Councils may hold ballots in other circumstances, but they are not obliged to do so. That is the problem. There should be a vote on any proposed supplementary rate with no ifs or buts.
Issues arise about costs, not least the fact that they could range from £319 million a year to £600 million a year. It would help if the Minister clarified the basis on which those estimates were made. After all, they come at a difficult economic time when output is falling, unemployment is rising and the economy in this country is contracting faster than in any of our G7 competitor nations. The result is a squeeze on small businesses, which is why so many business organisations are worried about the measure. Perhaps the Minister will tell us how many jobs could be lost as a result of introducing the measure now. What is the Government's estimate of the number of jobs that will be affected by the extra charge?
The impact of the measure could be affected severely by the rates revaluation planned for next year. It will be based not on 2010 values, but on values at
In conclusion, there is a case for businesses to contribute to infrastructure projects from which they benefit. Clearly, businesses throughout London will benefit from Crossrail and a radically improved rail service. However, the Bill is fundamentally flawed. A measure that should be flexible and accountable has been turned into a rigid tax rise that is needlessly complex and highly undemocratic. At a time of recession, it threatens not to help economic development but to burden hard-pressed employers. At a time when firms need fewer regulations, it introduces more red tape. At a time when we should be encouraging councils and businesses to work together, the Bill threatens to divide them. For all those reasons, the Bill is a missed opportunity that businesses and their workers can ill afford.
I wish you a happy new year, Madam Deputy Speaker. I thank right hon. and hon. Members who have taken part in this interesting and lively debate.
I want to reiterate the purpose of the Bill, which seems to have been lost in hon. Members' rustiness in Second Reading debates. It is another tool for local authorities, and introduces a new power for county councils, unitary district councils and the Greater London Authority. It will provide them with a new way of investing in the economic development of local areas and of working closely with local businesses, and it will enable local authorities to invest in projects aimed at promoting economic development that they would otherwise not be able to invest in.
Let me be clear that if the Opposition are successful in defeating the Bill on Second Reading and the Bill does not pass into legislation or it is delayed, the London Mayor will simply not be able to levy a business rate supplement by April 2010 as he desires. I listened with interest as Mr. Field said that a delay in passing the business rate supplement would show a lack of confidence in the City. He cannot have his cake and eat it. When it comes to voting on Second Reading, he will have to decide whether he wants the Crossrail investment, with the additional jobs that that will create and the improvements to London that it will lead to, or whether he wants to play party politics.
The hon. Gentleman has had plenty of time to wind us all up; I would like to wind up the debate.
As my right hon. Friend the Minister for Local Government explained in his introduction, we are committed to doing what we can to help people through these tough times. At the same time, we need to look to the future and to prepare for the upturn in the economy. The business rate supplement should not be stalled by short-term concerns. The Bill does not propose a new duty on local authorities to levy a supplement. Instead, it provides a new discretionary power for local authorities to raise revenue to invest in local projects aimed at promoting economic development when the time is right. As the Bill is drafted, a business rate supplement will apply equally across the entire area on the basis that projects should benefit whole areas.
I shall now go on to address some of the points raised by hon. Members during the debate. Robert Neill moved the amendment and he had a lot of time over Christmas to think of it. It is a Christmas tree amendment. The only thing missing from it is the kitchen sink. He was his normal, amusing self and we hope that he keeps his job in the imminent reshuffle. I was not clear whether he was calling the Bill BRS or BS—I know that we think that it is an important Bill that will have many benefits.
My right hon. Friend Mr. Raynsford did an excellent job of demolishing the points made by the hon. Member for Bromley and Chislehurst. My right hon. Friend also made a positive case for the BRS. Of course, he was the architect of business improvement districts. He explained why the BRS is an important complement to the BID scheme that he drafted, rather than an idea in conflict with that scheme. He showed the irrationality of the Conservative amendment and asked why Crossrail should get the BRS and not the rest of the country. That is the Mrs. Merton question. Why do the Conservatives support and want to help transport infrastructure in a city with a Tory Mayor and not in the rest of the country? The answer, of course, is obvious.
I thought, in a non-patronising way, that Dan Rogerson, who speaks on behalf of the Liberal Democrats, made a grown-up and sensible speech. It was very good— [ Interruption. ] May I add that I am not being patronising? He articulated the folly of a Member voting against giving the Bill a Second Reading if they are in favour of Crossrail. He made the point that if the Conservatives were successful—God forbid—in the vote tonight, there would be no business rate supplement and no Crossrail. He made the point that grown-up politicians would make any objections clear in Committee and would come back to them on Report and on Third Reading.
Let me answer the hon. Gentleman's specific point about having an element of the uniform business rate subject to local control. The Lyons inquiry, to which he alluded, considered the case for returning business rates to local control. Its analysis was that that would not be appropriate at this time. Instead, it recommended introducing a new local power to set a supplement on the current business structure, and that is what we are doing with the Bill.
My hon. Friend Paul Farrelly made an interesting contribution to the debate. He talked about the benefits of a business rate supplement outside London and also articulated some of the problems with the current system. He is hoping that a business rate supplement will alleviate some of the problems that he articulated. He referred to the recent problems with Waterford Wedgwood, which I think happened in the constituency of my hon. Friend Mark Fisher, and to how the BRS could be a tool for local government to help infrastructure in various parts of the country.
I come now to the comments of Mr. Binley—where do I begin? His speech was a 32-minute tour de force. It was a speech that was interesting. He referred to the fact that he had spent two and a half years considering a Bill on Crossrail. If he supports his party in voting against Second Reading tonight and succeeds, those two and a half years will have been wasted. Crossrail simply cannot happen within the necessary time scales unless we get the scheme on the road. He made the point that his local Indian restaurants would suffer if the Bill were passed—I am not sure why. He will be aware that 91 per cent. of businesses around the country will not be affected, but if he has any particular problems and if any local restaurants suffer, I would be happy to visit his constituency, to visit the restaurant, to have a meal and to deal with the points that might be raised. I am not sure whether to say that I look forward to his being a member of the Public Bill Committee and to our having a ding-dong in Committee.
Mr. Scott made a good speech. He explained that he was in favour of Crossrail. Once again, he will need to decide whether he can have his cake and eat it. If he votes against Second Reading, he cannot be in favour of Crossrail. He spoke in favour of BIDs and he will be aware that, as we were reminded, his party opposed BIDs when they were first introduced. I look forward to his being a member of the Public Bill Committee.
The hon. Member for Cities of London and Westminster, who should have declared an interest as a huge beneficiary of the Bill, has a problem. In one breath, he talked about this being a less opportune time for a business rate supplement, but he went on to say that, if there was a delay, that would send the wrong signal to businesses and show a lack of confidence in the City. He cannot have it both ways. If he wants Crossrail to happen and wants London to benefit from it, he needs to decide which way he is going to vote tonight.
It is only fair to point out that the business rate element for Crossrail plays only a very small part in the entire funding of the scheme. It would be wrong to suggest that having concerns about the legislation is somehow entirely at odds with supporting Crossrail— [ Interruption. ] It is pretty disingenuous of the Government to suggest that. A very small proportion of the overall funding for Crossrail as a whole will come from this legislation. Much of it will come from a number of other sources and not least from central Government. [ Interruption. ]
The hon. Member for Cities of London and Westminster speaks regularly to the Mayor of London. I cannot copy the Mayor's accent but he says that revenue helps to secure borrowing, and the hon. Gentleman should be aware of that important point as the MP representing an area that covers the City of London.
Mr. Clifton-Brown made a suggestion that I really hope is taken up by his Front-Bench colleagues. He said that the whole country should pay the levy for Crossrail, and not just London businesses. Should that become Conservative policy, I look forward to visiting the constituencies of his hon. Friends to see whether they are in favour of it.
The hon. Gentleman has had plenty of time; in fact, he spoke for longer than I shall.
Let us be clear. The choice is straightforward: you can vote against Second Reading, as Her Majesty's official Opposition want us to do, or you can support investment in businesses up and down the UK. You can support a Bill that will be part of a package of measures to help economic growth, or you can vote against it and propose unworkable amendments. You can be optimistic—
I am hoping that we will not need your vote tonight, Madam Deputy Speaker.
Members have a choice: they can vote in favour of optimism and helping businesses and communities to prepare for an upturn or they can vote for fatalism. Accordingly, I ask the House to support the Second Reading of the Bill and oppose the Opposition amendment.
Question put, That the amendment be made.
The House proceeded to a Division.