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Before we begin, I shall draw the Committees attention to the normal procedure. First, would you make sure that your mobile phones are switched to silent? I shall check mine in a minute. There is a money resolution in connection with the Billcopies are available in the room. Also, the formal warning about starred amendments: in general, my fellow Chairmen and I do not intend to call starred amendments, including any that may be reached during an afternoon sitting.
For those unfamiliar with the slightly new system, I shall outline what will happen today. The Committee will be asked to consider the programme motion, on which debate is limited to half an hour. We then proceed to the motions to report written evidence and to permit the Committee to deliberate in privateI hope that we can deal with them formallyin advance of the oral evidence sessions. Assuming that the motion is agreed, the Committee will move into private session. Once the Committee has deliberated, witnesses and members of the public will be invited back into the room and our oral evidence session will commence. The arrangements are similar to those in a Select Committeelook at the brief provided and we shall work out who wants to ask any questions.
If the programme motion is agreed, the Committee will hear oral evidence this morning, this afternoon and on Thursday morning. On Thursday, the Committee will meet in the Boothroyd room, moving to the more familiar scene of the Committee corridor next week and reverting to the normal clause-by-clause scrutiny of the Bill. Is that reasonably clear to everyone? We shall see if we can find our way through that.
(1) the Committee shall (in addition to its first meeting at 10.30 am on Tuesday 20 January meet
(a) at 4.00 pm on Tuesday 20 January;
(b) at 9.00 am on Thursday 22 January;
(c) at 10.30 am and 4.00 pm on Tuesday 27 January;
(d) at 9.00 am and 1.00 pm on Thursday 29 January;
(e) at 10.30 am and 4.00 pm on Tuesday 3 February;
(2) the Committee shall hear oral evidence in accordance with the following Table
Tuesday 20 January
Until no later than 12 noon
British Retail Consortium
Tuesday 20 January
Until no later than 1.00 pm
British Chambers of Commerce
Tuesday 20 January
Until no later than 4.45 pm
Confederation of British Industry
Tuesday 20 January
Until no later than 5.30 pm
British Business Improvement Districts
Tuesday 20 January
Until no later than 6.15 pm
Royal Institution of Chartered Surveyors
Tuesday 20 January
Until no later than 7.00 pm
Local Government Association
Thursday 22 January
Until no later than 10.25 am
Department for Communities and Local Government
(3) proceeding on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 5; Schedule 1; Clauses 6 to 22; Schedule 2; Clauses 23 to 32; new Clauses; new Schedules; remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 7.00 pm on Tuesday 3 February.(Mr. Khan.)
Before I question the witnesses, I wish to say what a pleasure it is to see you in the Chair, Mr. Atkinson. I hope that that is the proper way in which to start our proceedings. It is a new process for all of us, and you are very welcome in the Chair.
Ms Milne, I wonder whether you can help me. The background to such matters stems very much from the Lyons report and the suggestions of flexibility and an appetite for engagement with local authorities and business. What is your assessment of whether this will assist local authorities in engaging with business? Do you see other potential pitfalls?
Jane Milne: We think that we already have a good model for engagement between business and local authorities in the business improvement districts and the way in which they are organised, so that there is a genuine conversation and partnership between the two parties in developing proposals that will benefit the communities. I am afraid that the business rate supplements proposals try to short-cut some of those processes, such that there may not be a proper conversation between local authorities and the business community. They have the air of something that might be imposed on business, rather than being worked out together with business.
Jane Milne: In terms of developing the prospectus, although there is talk of consultation once the initial prospectus has been published, it is to appear as if by magic from the local authority, whereas within the BIDs process there is a genuine engagement of business at the initial stages, so that the whole project is worked up together in partnership.
Jane Milne: One of the key things that gives everybody an incentive to work together within BIDs is the fact that there is a mandatory ballot that has to approve the whole project before it can go forward. That means that everybody has an incentive to work together to find schemes that genuinely address the issues within the community and that therefore will benefit the community.
In the written submissions there is a statement that the proposals would
increase costs without any correlation to a businesss profits or ability to pay.
The argument might be: if we do not use rateable value as a measure, what other measure could we use?
Jane Milne: The problem with rateable value is that it is, in effect, an input tax. It does not try to match contributions to the benefits that will be derived from a given project, so there is no proportionment between different sectors of the economy. Because retail is a property-intensive sector and retailers have relatively little choice in which properties they occupythey need to be in the high-access, high-footfall areas like the high street or certain retail parkswe have historically seen rents and property values, and hence rateable values, move up much more sharply for retailers than for office accommodation or other parts of business. Therefore, as Tom said, not only do we pay 25 per cent. of the overall rates bill, while actually generating 8 per cent. of GDP by valuewe are paying three times our overall outputbut that is likely to increase rather than decrease in future, so we see the burden falling increasingly heavily on us. In some respects it is the modern equivalent of a hearth tax or a window tax; it is not actually about the overall prosperity of different sectors in the community.
Because, you will argue, you are being taxed on a measure that is a higher percentage of your members costs than other sectors of the economy?
Where does that leave you as to a cost-benefit analysis for your members of what might come from a BRS scheme?
May I take up a couple of the points you have made and refer back to one of the points in your written evidence? You talked about retailers paying about a quarter of all business rates and you estimated that about a quarter of any business rate supplement will be met by your members. The retail sector is very diverseit includes small shops as well as large ones. Under the design of the scheme, it is proposed that those with rateable values of under £50,000 will be excluded. What is your estimate of the proportion of total business rates paid by your members with rateable values over £50,000?
Tom Ironside: We do not have an accurate estimate of what that proportionate impact would be. You are correct in saying that, for a significant proportion of our members, the £50,000 threshold will have a beneficial impact. However, for members who sit above the £50,000 threshold, that might act to increase the burden on them for any given BRS-funded economic development project.
I hear that message. However, you made the point that you expected your members to meet 25 per cent. of business rate supplement contributions. That does not seem likely if you cannot quantify the percentage of total business rates accounted for by your members with rateable values over £50,000. I find that figure unconvincing without back-up evidence.
Tom Ironside: The important issue, from our point of view, is whether, relatively speaking, retailers have a larger proportion of businesses under the £50,000 threshold than other sectors of the business community. I have not seen any evidence in that area which would lead me to make a conclusion about that.
You must have some idea, because we know all about the make-up of the retail sector. There are some very large businesses, but there are vast numbers of small corner shops. In other sectors of industrythe pharmaceutical industry, or the construction industry, for exampleyou will not have quite the same diversity, will you?
I hear that, but you are putting forward an argument on a rather flimsy basis if you cannot quantify the proportion of anticipated business rate supplement that your membersthe retail sectorwill pay. The figure of 25 per cent. is clearly not convincing.
Jane Milne: Certainly, over the past month, and looking forward a couple of months, we expect about 40,000 jobs to go in the big chains, where figures are publicly available. Our problem is understanding the number of individual people who have been let go from many small and independent retailers, as those jobs disappear without anybody being able to count them.
Jane Milne: We would expect that number to grow, probably quite significantly. There is a mixture of fortunes, with different parts of the sector doing better than others. A number of the supermarkets, for example, have announced that they will recruit staff, so there is some good news in the sector. Certainly among the non-food retailers, formal redundancies have been announced but, given that there is always a certain amount of movement through retailingit is an entry-level employment sector for a lot of people, who then try to move off into other thingsa lot of jobs will just disappear without anybody being made redundant, but with no opportunities for others to move into those jobs.
With forecasts of unemployment on a national level on the rise, do you anticipate that any additional taxation on your members would accelerate the rate of loss of jobs over the coming year or two?
Jane Milne: Retailers are facing a crunch of a different nature from the credit crunch that we often hear about. They have a number of rising costs, including the rising costs of the goods that they put on their shelves, because the falling exchange rates make imports more expensive. There are a number of business rate increases coming through the pipeline too, in terms of the annual uplift and the 2010 review, and when you tot them all up it comes to an increase of as much as £1.6 billion, which is a 30 per cent. increase in the rates bill. In addition, with the national minimum wage and so on there are a number of other cost pressures coming through while, at the same time, customers are looking for reduced prices. We are helping to deliver the reduction in inflation that is coming through very rapidly at the moment through discounting and the like. We are therefore getting to the point at which there are such thin margins that pushing up the rates bill inevitably puts jobs at risk. The total cost coming through with business rates equates to about 100,000 retail jobs.
Could you break down that £1.6 billion a little? How much of it is associated with revaluation arrangements that are already in train, and how much with the impact of the Bill?
What evidence do you have that a local authority would impose this increase on business on the basis of wanting greater economic development, when the fact is that business does not like it, it will cause it a problem and jobs will be lost? What local authority would do that? What evidence do you have that local authorities, in wanting to promote economic development, would cause job losses in doing so?
But you can see the logic. Economic development for local authorities has, certainly in the past ten to 15 years, been a focus, and it most probably was 20 or 30 years ago. You say that you hope that local authorities would not impose the increase. I ask the question again: what evidence do you have? Do you have any evidence at all that local authorities would impose an increase on business that would be contrary to their economic development? Which local authority would do that, when doing so would cause many jobs to be lost?
Jane Milne: Perhaps one issue concerns cases in which the local authority has a different view of what would be beneficial to the community from the business community. We would not suggest that local authorities were deliberately setting out to cause business problemsof course notbut they might not fully appreciate all the issues involved. The BIDs process enables all of that to be worked through and a very high-quality proposal to come forward. The fact that about 85 per cent. of BIDs have been supported by the local business community demonstrates that that process genuinely gives rise to projects that are seen to be beneficial to the community and, therefore, attract the business communitys support.
I, too, welcome you to the Committee. I am pleased that we have the benefit of your experience at this stage and as we move towards more detailed scrutiny of the Bill. I would like to explore the interaction between BIDs and the potential for the supplementary business rate for financial change. Why do you think that the BIDs model is so successful? What works about that model, both in terms of putting together the BID and of its operation?
Jane Milne: At the outset of a project, people in the local authority, in retail, and in other business sectors, as well as key community players, sit down and come up with a proposal that meets the specific issues that that community faces. Retail has a good track record of working with local authorities and of involvement in regeneration projects through BIDs and other means. That very close arrangement ensures that the issues that must be addressed and the best ways to address them are worked out.
Clearly, one of the Bills main concerns is Crossrail in London, so we are talking about very big infrastructure projects. Would you agree that BIDs would not be not the right model for funding similar projects, which may be on a smaller scale, but still fairly large for those regions, counties or boroughs?
Jane Milne: I think that the procedure set out in BIDs provide the model for the engagement that enables the examination of those projects, makes the right assessments and ensures that a genuinely robust business case is developed within the initial prospectus. We are supportive of Crossrailour problem is the way that it is being funded.
I hesitate to paraphrase, but you said in answer to earlier questions that the principle of some form of supplementary business rate to fund a project that the business community in that area thought would be beneficial to the whole community, including its ability to trade, prosper and play a part in economic development, is not the problem. If it signs up to a project, the problem is how it is arrived at and delivered. Is that fair?
There is also the issue of areas where a BID may already be operating, but which sit within a wider area that might be subject to the measure. What do you think that the interaction between those ought to be? What safeguards should be in place for existing BIDs sitting within areas subject to an SBR?
Jane Milne: We would like to see an automatic offset. If that is not there, we risk losing BIDs as a process to put in place regeneration projects beneficial to the community. Inevitably, retailers have to look at their overall cost base, and while many of them are enthusiastic supporters of BIDs, if they think that they are going to have a BRS imposed on them, they simply have to look at the budget and work out what costs they need to avoid to meet this statutory requirement.
Would a ballot for the BRS as well, which many are arguing for, be sufficient? Where a BID is operating, people would have the chance to say whether they thought that two projects were incompatible at that time and that one needed to be completed before moving on to another. Is that enough of a safeguard? Do you think that there should be automatic offsetting in that area, or do you think that businesses should decide whether they could cope with both, given that they are delivering different sorts of scheme and that there may be two sets of benefits?
I am just trying to establish whether the offset is sacrosanct or whetherif business is involved in arriving at the BRS decisionthere will be enough and one could be flexible about the offset.
Could you describe to the Committee the process by which you have polled or taken soundings among that membership to come to the view that you have taken in your submission?
Jane Milne: As a representative body, the consortium is inevitably made up of a series of committees to which all members are entitled to come. Those who sign up as being particularly interested in such an issue come to meetings and discuss the issue, but we also use e-mail and other means to consult. We arrive at a consensus on the basis that everybody is entitled to be involved in the conversation; clearly, some are more involved than others.
Tom Ironside: It might be helpful if I explain that it goes to the local government finance working group and to our property committee, but at the same time, because this issue is of such interest to members, it has featured in our budgetary submission and in our pre-budgetary submission in recent years. That gets extremely wide circulation among the membership, which has the opportunity to comment when the submission is at the formulation stage. We can say robustly that members have had extremely good exposure to the BRS issue through direct contact with the members concerned and with their constituent trade associations.
Ms Milne, I think that all of us here have some sympathy with many of your members, given the tumultuous economic events of recent months. However, I want to explore one or two of your answers and to ask one or two questions, partly on the BIDs process, but also more generally. You said that you are not averse to the principle of making a contribution to infrastructure projects. You were asked whether that would be through a property-related tax, and I am not sure whether you had any other ideas in mind. How do you think that large-scale infrastructure projects, such as Crossrail in London, which obviously affects my constituency, can possibly be funded?
One of my concerns, being slightly devils advocate with your approachI appreciate that you have to speak on behalf of your membersis that, ultimately, people will argue that all these retailers and many tenants in properties have cut a pretty bad deal with their landlords to get the property. The commercial property market was buoyant until the past 18 months or so, but you have cut a bad deal with your landlords and you now want to oppose the Bill. You are acting to the detriment of the public at large, who desperately need some large-scale infrastructure projects. There needs to be a way of funding them. We have looked at the whole issue of value capture. This debate does not just go back a few years; it goes back many decades, and it concerns the whole idea of how to ensure that a proper project is in place for something that is for the common good. What do you say to that criticism? I understand that you have to argue your case, but is it entirely self-interest?
Jane Milne: First, I touched earlier on the fact that the retail property market does not necessarily work in a perfect manner, particularly during a growing economy. The costs of renting and leasing retail property have accelerated much faster than other sectors. An awful lot of that value sits with the developer, not necessarily with the occupier.
That, as you say, is potentially a market failure, but it is ultimately an issue of being able, with the benefit of decades-worth of hindsight, to cut the right deal. You have cut a bad deal, and you are expecting the rest of the general public to have poor infrastructure, just so that you can make your case and not pay your way.
Jane Milne: It is difficult to portray some of the bigger retailers as victims of this process; but nevertheless, it is a sellers market in very many cases, and it does not matter how big a corporation you are on the other side of the deal. If you want a certain site on the high street and there are only so many of them and you are competing with others to get to it, you have to pay whatever it takes to get it.
I will take you down to Victoria street, in my constituency, where there are enough voids to make one think that it is not quite so much a sellers market now. I appreciate that those are the market conditions, but I expect that that applies to my hon. Friends constituencies. The market clearly has turned.
I also want to touch on BIDs. There are BIDs in my constituencythe New West End Company and the Paddington Waterside Partnershipand they have worked well. Superficially, I can understand one of the arguments that you made: effectively, it sounds like double countingyou become part of BIDs and then potentially you also have the maximum 2p surcharge through business rates. Do you see that there is a view that what a BID is trying to do is somewhat different from what the Bill is trying to achieve? The BID process is looking at some additional spendingto get a few more police, to smarten up a rather small vicinitywhereas the Bill is proposing to get much larger-scale infrastructure projects?
I accept that Crossrail is an exception in terms of costing a total of £16 billion or £17 billion, with about £3 billion to be covered, ideally, by the BRS under the Bill. However, the same will apply on a smaller scale elsewhere across the country. It is a quite different idea. The BIDs are there for additionality in a very small location, whereas the idea of the Bill is to look at large-scale infrastructure projects that would otherwise not be funded, because, clearly, there would always be other priorities from local and central Government. I understand why you make your case, but do you see that a BID and a business rate supplement scheme are two quite separate things?
Jane Milne: First, of course, it comes back to the additionality of the benefits and how those stack up; but also, as I mentioned previously, it relates to the distribution of those benefits. In the case of Crossrail, where we have had some modelling done, we find that the benefits that retailers are likely to derive at £17 billion are just less than half the costs that they will be asked to provide. It is just adding extra cost, without delivering extra benefits.
What proportion of the overall costs would you require for it to be worth whilematched fundingor would you expect to get a multiple of benefits from costs?
Jane Milne: I think that an arrangement whereby we as a sector made a proportionate contribution, linked to the benefits that we were going to derive from it, would be much easier to swallow; but retail tends to be a very high component of BIDs, and that is why we end up with this double whammy. I do not know whether Tom wants to add anything.
Tom Ironside: I think that that covered the point very accurately. It is a real concern for our members that they will be paying a much larger proportion of the overall BRScertainly in the case of Crossrailthan the benefits that they may derive. We have research, which we could share with the Committee if it is helpful.
You say that retail accounts for a high proportion of BIDs. Of course, there is a fairly fundamental difference between BIDs and the BRS, in that the £50,000 rateable value threshold does not apply in the case of BIDs, which are often designed specifically to help a range of retailers, including small ones. There is a pretty obvious difference between the two, is there not?
The crucial point that I want to establish, and want you to agree on, is that there is a pretty fundamental difference between major infrastructure development and the kind of objective with which BIDs have been very successful. I strongly support BIDs and introduced them as a Minister, so I am wholly behind them, but they were about regenerating and building confidence on high streets, rather than about supporting major infrastructure development.
Tom Ironside: We certainly do not dispute that there is a difference in the scope and range of activities that many BIDs carry out, compared with the sort of proposals that we understand may come forward under business rate supplements. That still does not necessarily lead our members to think that a mandatory ballot would not be a worthwhile improvement to the legislation as drafted, because those substantial costs and significant issues will move ahead with the business rate supplements, too.
Let us turn to Crossrail, because that is obviously very important. It is a major infrastructure development. You said that, although you support Crossrail, you do not like the way in which it is funded, and you are on record as saying to the Committee that you would like to do without the Bill altogether. Do you recognise that, without the Bill and without the business rate supplement, Crossrail would not proceed? You need not take my word for that. In his evidence to us, the Mayor of Londonnot a member of my partysaid:
The successful passage of the BRS Bill is therefore crucial to the construction of Crossrail.
But do you think that your London members would seriously support a case for the Bill not proceeding knowing that that would actually kill Crossrailwhich it would?
So please square with us why London business representative bodies, such as London First and the London branch of the CBI, have supported the framework, including the supplementary business rate, for funding Crossrail. Are such bodies different industries? Are there no retail members in London First?
Do you seriously think that it is right that retailers, who have a strong presence in many of the areas where Crossrail stations will be built, particularly in places such as Oxford street, will really not get any benefit from the arrival of the new stations that will deliver huge additional opportunities for retail?
So the modelling done by Crossrail, which shows substantial business benefits in all parts of the Londonnot just along the routeand huge benefits in key points on the route is wrong.
May I just ask about thresholds? I am told that £50,000 is postulated as the threshold. It is not in the Bill. How adequate do you regard that, and what will be the position when revaluation takes place in 2010?
Jane Milne: Clearly, revaluation will have a significant impact on that, particularly since it was based on April 2008 values, which clearly do not reflect the world that we are in today. One of our key concerns is that retailing will have a different experience and that the impact will be skewed. We are also concerned that there may well be regional implications for having a specific cut-off with different balances in different parts of the country.
Can you elaborate on those two points? You said first that the effects may be different from 2008. What has been happening to retail since then?
Jane Milne: As Mr. Field mentioned, thankfully we have seen a reversal in the movement of rents. Some rents have actually come down for some retailers although, given that many are locked into upward-only rent reviews, that is by no means true of all of them. It is only where vacant properties and new leases are being taken on that we are really seeing the benefit of that. However, given that we have vacancies on high streets, and property owners are taking a rather different attitude to the market, there has possibly been more of a shift within the retail sector than other sectors. There is a shift in the balance between our and other parts of the economy.
It is represented that you are somehow unrepresentative of your membership. That seemed to be the drift of some questioning. What is your answer to that?
Jane Milne: Of all the issues that we look atwe look across the whole range of things impacting on retailthis is probably one where there is the most unified voice and the most stringent urgency in what members are putting to us that we need to make progress on. We need to get the business rate system changed, so that it does not impose these huge increases30 per cent. increases in coststhat are coming down the track over the next couple of years.
Jane Milne: That is taking the sum of this years annual upliftbased on the September inflation rate, which is probably around twice what it will be announced to be this week and certainly well ahead of overall annual inflation, which could be deflation this yearwith the revaluation coming forward in 2010 and the potential in what the business rate supplements could bring forward.
May I just ask a hypothetical question? What if the legislation were to be amended to make a ballotgoverned by a dual-key mechanismmandatory? On the basis of your views, would it be fair to say that you could mobilise your many thousands of members in London? Would you expect them to go out and vote against Crossrail in droves, if Crossrail could only be funded with the participation of the business rate supplements scheme?
I am thinking of the numbers really. It would be fair to say that, if those circumstances came to pass and you had those protections, your consortium would seek to mobilise many thousands of shopkeepers to vote down a system for London and therefore imperil Crossrail.
Jane Milne: We believe that the proposals need to be strengthened in a number of areas. I have already talked about the need for inclusion in discussions to produce the initial prospectus. The consultation process needs to be more than a process to be gone throughto be one with a bit of bite to it and having a mandatory ballot at the end. That would result in genuine engagement, which would result in quality proposals that would genuinely answer the issues that local authorities are trying to address.
It is proposed that a ballot of local businesses is required only if the supplement is to fund more than one third of the total cost of the project. However, is it appropriate to allow a ballot in other circumstances, when the authority may wish to hold one?
Jane Milne: What we have done with BIDs is to work with British Business Improvement Districts, whom I believe you will be seeing later today, to help draw up guidelines of what we think are particularly good approaches and the right sorts of projects to bring forward. That sort of approach, where we can give
Tom Ironside: What we say in the criteria document circulated to BID proposals that are brought forward is that the proposals should demonstrate a clear business benefit, and that that benefit should be quantifiable and measurable. The businesses concerned should then be able to make a judgment on the basis of the information that they are presented with. So, it will vary from case to case. It may relate to addressing retail crime, or to improvements to the physical environmentto cleanliness. In many cases, it is about delivering quantifiable benefits within their trading environments.
I have a final question on the modelling that you have done. Obviously we are in a recession and things are difficult, but does the modelling take into account that the recession will endwhenever that may beand we could be into a boom period, and businesses could benefit considerably from various projects being suggested?
I find that interesting, because I have seen some figures for Crossrailthe project does not affect my constituency directly but it does affect the neighbouring onewhich showed that businesses, not in Oxford street but in the suburbs, were going to benefit considerably from the extra people that Crossrail could bring in. That study was done before the current climate, and the figures might be different now, but that does not mean that in the longer term there could not be bonuses for businesses. However, you say that even when business was good the modelling showed that people would not benefit from Crossrail.
We are finding it difficult to understand that your modelling seems totally contrary to all the other modelling that has been done on this matter. That point was raised not just by Mr. Scott but by Nick Raynsford. Are you looking in the short term? What is your time scale for the so-called benefits that you talk about? How narrow are the assumptions that you have made about the boost to business from huge numbers of people flowing from outer to inner London? Just give us a taster of how you have assembled that modelling.
Tom Ironside: I will give you a little more background on the modelling that was undertaken. It was carried out by Oxford Economics and looked at a London-wide picture. It estimated a cost of £34 million per annum to the retail sector in London from the time that the BRS was introduced, and at the same time it estimated that the benefit once the Crossrail project was completed would be £15 million per annum. Those are the headlines of the research. We have the research document, which I am sure has already been shared with Government Departments. We would be only too happy to provide you with it, as well. I do not have a copy with meit is a 10 or 12-page documentbut we would be more than happy to share it with the Committee if that were useful.
We would obviously want you to share that with us, but we are trying to square the circle here. As Mr. Scott said a few moments ago, we are talking about some 600,000 additional people living in east London, who will be carried through Crossrail either to work or to make purchases at all the stops along the line. Looking superficially, it seems that there would be significant benefits not just for central London but all along the Crossrail route, yet you suggest otherwise. I am trying to cope with how you have come up with a different set of figures from almost everyone else.
One of the questions I critically want to ask is, what is your time scale for the figures that you have produced? In the submission by the Mayor of London, he says:
The long-term benefits of Crossrail to business will far outweigh the costs to them of the BRS.
He goes on to say:
All Londons boroughs will benefit from Crossrail, not just those through which Crossrail passes. That is a definitive set of findings. The Mayor would not have come up with that if he had thought there would be any challenge. But you are saying not only that it does not work but the benefit is only half the cost to retailers. We have always assumed that retailers would be among the main beneficiaries of this scheme. How do you come up with these different figures?
Let me put it to you this way. Where the underground has been extended, all the evidence suggests that there is a significant benefit, not just in terms of people flows but in terms of the value of properties close to the underground. It has to be assumed that that will be the case with Crossrail. It will carry huge numbers of people, albeit perhaps not more than the overall underground network carries, yet you are asking us to believe that retailers will not benefit. I find that incredible, especially as almost everyone else suggests that there will not just be significant but overwhelming benefits to business from the building of Crossrail.
Jane Milne: I think you are lumping everybody into the term business. Our point is that there will be different sectoral effects and we need to reflect those in the contributions that each sector is asked to give. Just because the value of a property has increased it does not mean that the value to the occupier has increased.
Let me put you on the spot. How narrowly did you draw up the research? Did you say, We want you to tell us the bottom-line effect on retailing business, compared with the cost, without taking any of the wider benefits into consideration? Did you look at this over a longer time scale, or did you set it in the short term? What assumptions did you give to Capital Economics to draw up the figures that you are now telling us?
Okay. We will need to see the figures.
Let me ask you a final question, again trying to square the circle. As has already been said by Mr. Raynsford, all of the business organisations in London have come out strongly in favour of Crossrail, and there is a significant retail element within them. Yet you are telling us that your members are overwhelmingly opposed to this Bill and what it will achieve in terms of building Crossrail. How representative is London within the overall British Retail Consortium? Does it account for 11 or 12 per cent. of your membership, or a much higher proportion? How representative is London and have its views in retail terms been taken on board regarding your attitude to this Bill?
Jane Milne: In so far as we have the overwhelming majority of the major brands, which have a significant presence in London, those companies are clearly taking a view on both the specific Crossrail and London question and the broader question of BRS across the rest of the UK. Our membership includes a number of companies which operate only in London, so their views are also reflected.
But presumably that is a relatively small minority of the overall membership across the country. Would that be an adequate reflection? Would it be 10 or 15 per cent. of your overall membership?
I wonder whether we could explore that a little further. Mr. Ironside, you said earlier that your organisation would support a supplement where there was clear and demonstrable benefit. We have just heard that the models that have been done have produced quite different results. Does not that show that small changes in assumptions will make a model show either a benefit or a disbenefit and that what you are really asking for is impossible to deliver?
I am not asking you what it proves. I am trying to get at the fact that we have a number of models that show different results. You are saying that your organisation would support the measure only where there are clear and demonstrable benefits, yet small changes within any of the assumptions that are built into these projections which produce the results will produce a different result. Therefore, there will never be a definitive, clear and demonstrable benefit. You are asking for the impossible.
Tom Ironside: I was going to say that our research is the only research of which I am aware that has looked solely at the impact on a single retail sector. I am not sure that the findings of our research are incompatible with the other modelling. Our modelling shows that the impact on the retail sector would be negative, but that does not necessarily mean that the impact on the wider business community would be.
Jane Milne: I believe that the financial services sector was expected to benefit disproportionately. I am not sure whether that still holds in the present circumstances, but when the original proposals were looked at, it was going to receive much greater benefits than retailing, for example. The distribution between sectors is as important as the overall benefit to business.
Jane Milne: Although, as we have discussed previously, BIDs are about somewhat different projects, that whole system has worked because, in making the case and working in partnership with business, local authorities have been able to demonstrate and quantify the benefits that businesses would receive.
Do you think that there should be a differential supplementary rate? For instance, in Crossrail, financial services should have 4p in the pound and retail 1p in the pound because that is the benefit that you assess they will get from it?
I want to return to the question of ballots, because that seems to be crucial. We have established that in your dream Queens Speech, this measure would not be the first thing out of the bag. However, having accepted that it might be appropriate for business to make a contribution to economic development where business will benefit, and that the property-based levy is the mechanism that is currently on the table, how important would the safeguard of a ballot in all circumstances be to your ability to accept it as a way forward?
And that would mean, in your opinion, that any consultation that takes place will be more focused on ensuring that everybody is signed up effectively.
We had a discussion about Crossrail. Most, if not all, of the Committee would no doubt feel that Crossrail is a project worthy of support, which we are eager to see go ahead. However, there has been an Act of Parliament and intensive scrutiny and discussion about Crossrail, its viability and what effects it might have. Most of the measures under the Bill would have nothing like that. Would you say that that makes them different from Crossrail and that there is a clear distinction between the way in which the Bill enables Crossrail to be funded and to take place on the model that has been set out, and the potential for other schemes across the country?
Do you want to say anything about the type of ballot that should take place and the dual-key approach that has been proposed? Do you have any views on whether that is the correct approach and whether the balance between large and small businesses is correct?
I apologise to our two witnesses for that interruption. I am afraid that the fire alarm system in this building is not up to scratch. Unfortunately, because we work to a time frame set by the programme motion, the evidence session with you two ended at 12 noon. On behalf of the Committee, I thank you for coming here today and giving up your time. You are very welcome to add anything in writing to clarify points or add figures. It will be added to the written material attached to the report.
Good morning, Mr. Frost. I would be grateful if you outlined the overall view of the British Chambers of Commerce. I read your submission, and as you represent 100,000 businesses across the UK, I do not think that any of us will suggest that you are not representative. The Lyons review set forward the idea of greater flexibility in business rates and discussed the existence of an appetite for greater engagement with local authorities on economic development. Is this proposal the right way to get that?
David Frost: The British Chambers of Commerce network is made up of 53 accredited chambers of commerce. The one thing that I have learned in my time in this job is that chambers of commerce haveand share strongly with their local authoritiesa real sense of pride in place and real passion: a desire for their community to be the best. If it is not the best they want to look at measures to make sure that it is.
Chambers of commerce and local authorities also share legitimacy. The boards of chambers of commerce are elected from the business community, from a membership. The business members of those chambers are typified by a strong sense of identity with the area. Theirs are frequently second or third-generation businesses. Those businesses will not move to the other side of the globe; they have an owner-manager who lives in the area, whose children go to school there and whose partner could be a school governor or magistrate. Those people have a strong sense of place.
Yes, there is a view, clearly expressed in a number of parts of the country, that there is a need for more local determination and, to be fair, for the ability to raise additional revenue from the business community, among others, for local projects that will benefit and develop the local economy. The issue is that we are not sure that the business rate supplement is necessarily the way to do that outside London.
David Frost: We are concerned that the whole area of local determination and funding appears to lack any strategy and coherence. We have the concept of business improvement districts and business rate supplements; we have community infrastructure levies; we hear word ofand I have correspondence aboutthe idea of accelerated development zones; we talk about workplace parking levies and congestion charging. From the point of view of the business community how does all that tie together? Where is the overall strategy to improve the community? The business communitys worry, in difficult economic times, is that there will essentially be layering of one charge on another to raise additional funds for local authority expenditure.
I get a suggestion that your attitude would be different if it were proposed purely to fund Crossrail through a BRS.
There is only one other thing I want to ask. Accompanying the ability to add a supplement to the business rates, should there be an ability to reduce business rates at local level?
David Frost: We have always said that. First, there should be much greater connectivity between the business rates that are raised and the funding that comes into an area. With that, there might be an incentive in certain local authorities to make reductions, and it might act as a stimulus to encourage inward investment.
In your opening comment you saidand I strongly agreethat chambers of commerce have a strong pride in their place. They often work with local authorities to enhance the area. When we came on to discuss Crossrail, in response to Mr. Neills question, you said that it was a unique project. You indicated that you were quite sympathetic to the idea that the measure should apply in London only, but that the wider power should not be available. What do you think would be the view of a chamber of commerce in, say, Leeds, Manchester or another part of the country which felt that there was a real need for a major infrastructure project that would enhance the economy and improve the place, but which was told that it could not do it because the Bill has been limited to London?
That was a specific response to a question about a congestion charging scheme, not about the need for necessary infrastructure investment that a local authority and the business community would see as improving the quality of their area. Mine was a theoretical question, not tied to congestion charging.
David Frost: My point is that there is an understanding that improvement in infrastructure is needed at local level; the business communitys concern is that there does not seem to be a coherent strategy on how that money should be raised. Government Departments seem to be fishing around for a way of doing that, whether it be congestion charging, a workplace car parking levy, a business rate supplement or an accelerated development zone. There seems to be a whole range of initiatives here, with no real thought being given to what we are trying to do and what the single strand is by which we should seek to raise that money. The business community is worried that we will simply get a series of layering on. So, for example, you would raise the money for a business rate supplement, and two years down the track the next idea would be a business improvement district and then a workplace car parking levy and perhaps even congestion charging after that. There is a very real fear that business is simply seen as a cash cow, without these programmes having a strategic idea behind them.
I hear that message, but I simply want to come back to the question. A chamber of commerce in a particular locality might believe that it was extremely important to get a major infrastructure development, which would benefit business and towards which it would be reasonable for business to make a contribution. If it looked at London and saw Crossrail being built on exactly that basis, how would you explain to it that it cannot do that even though it wants to do it because the Bill does not apply outside London?
David Frost: We are not saying that. We are saying that there needs to be some coherence in the method of funding such projects and a far greater involvement by the business community in both deciding what the projects will be and playing an active role in selling the concept to the wider community.
I think you said in your evidence that there has been active involvement by the business community in London in the funding of Crossrail. It is very supportive of Crossrail, and regard it as a successful model. Let us remember that this is for a scheme that has been talked about for 20 years. It has taken a very long time to get to the point where, at last, it appears to be proceeding because there is now a broad-based funding model that looks credible. Why should that option not be available to any other part of the country?
David Frost: We are not saying that it should not be, but there must be a decision as to what we going to run with. Are we running with a business rate supplement? Are we running with a business improvement district? Are we running with a workplace car-parking levy? Are we running with congestion charging? People can make their mind up about which way we are going to run, but they are concerned that it will be just a mish-mash.
With respect, we are in a Committee dealing with the business rate supplement because that is what is on the agenda. You have given us evidence suggesting that you are sympathetic to its application in London for Crossrail, but you do not see its potential value outside London. I am trying to get to the bottom of the question of what you will say to your members if they want to proceed on a similar basis as London, are in agreement with the local authority and see a project as necessary, but you have opposed the power to make it possible.
David Frost: What we are saying is that we want a determination of which route authorities are going to take and the clear involvement of the business community. Chambers representing the business community are far more welcoming of the BID concept, as opposed to the business rate supplement, because there is far greater business engagement with BIDs than with BRS.
I am sure that we will come back to that, but can you say for the purposes of clarity that you are not opposed to the powers in the Bill being available outside London, obviously subject to the issue of votes and so forth?
I suppose the issue is that they cannot do that at the moment, so the Bill is important in its wider scope beyond London, to allow communities to do so. Perhaps we need to explore that message and return to it later.
We have not dealt with ballots. Is that what you are getting at? You have talked about engagement with the community. The message from our previous witnesses was that the Bill would be far more reassuring to their members if a ballot was a standard part of the imposition of a supplementary rate.
David Frost: The ballot and the timing of a BID are one of the measures most attractive elements because, first, they have forced the business community and agencies, particularly local authorities, to find out what communities want. Secondly, they have forced them to get out and sell the concept of a business improvement district, and explain the added value. The BID then goes to a ballot. We think that the simple majority and the measures concerning the aggregate rateable values form a good twin-track approach. At the end of five years, you have to go and resell the concept; that is democracy at work and it is a good thing. That is why the BID concept is strongly supported.
Is there a feeling that local authorities would automatically look at the list of all the potential powers and use all of them to get as much money as possible out of the business community? Do you think that it is more likely that through consultation with the business communityand a ballot is integralthere would be a local decision on which model would be best for that area and that that is a better way to proceed?
David Frost: I would like to think that that will be the case. My concern is that over the next few years, as funding for local authorities becomes tighter, they will seek every additional way to raise money locally. The other concern is that there will be substitutionin other words, the funds for existing economic development activities will be transferred to fund social services, for example, and the business community will be asked to fund work that is already being carried out.
My questions arise from those put by Mr. Raynsford and from your answers towards the end. There is the principle of the business rate supplements and their detail. To be clear, you are in favour of the principle of BRS, but have problems with the detail.
That is excellent. It is a change from the written submission, so good. My second question concerns your being in favour of the principle of the BRS. I am not clear about your position. Are you in favour of the principle of BRS for London and the rest of the country, or just in favour of the principle of BRS for London and not the rest of the country?
That leads me to my final question. You are in favour of the principle of the business rate supplement. Is that the case? You mentioned Crossrail.
So you are. I will not go into verbal gymnastics. I have a simple question. You are in favour of BRS in London for Crossrail. We have established that. Does your concern about the detail act as a veto to London getting the funding via the business rate supplement or do you accept, even with its imperfections in your view, that it is worth having and so that Crossrail can succeed?
I am a former business man. I had a business that was based in the City, so I understand your critique or concern that, as a whole, the Government often regard business as a cash cow. I would have used that critique myself when I was on the other side of the fence, before I joined the public sector. Do you not appreciate that there is disbursement on different initiatives, whether BIDs, the whole BRS thing or the accelerated development service, partly because of the level of hostility, so we need small parcels with identifiable, quite distinct benefits for business, otherwise business just thinks that it is all more and more Government on its back. If business can see that there are distinct benefitsthere are quite different benefits, as we saw in our discussion about BIDs, for exampledo you not accept that that concern is in the mind of any Government who are trying to raise money for large infrastructure projects.
David Frost: No, I just think that there is a lack of coherence. I do not think that a debate is taking place about how much money should be raised at a local level and how that can best be done. There appear to be a range of different innovative schemes to raise money at a local level, without any thought being given as to how they dovetail togetherif at all. That is what creates the worries in the business community. It signs up for one business improvement district, which for the reasons I have given has strong supporters, and then finds all of a sudden that the local authority wants to run with workplace parking charging and the BRS, whatever we have gone into.
But as I understand it, one of your objectives is the transparency of the initiatives. The idea of value capture goes back a long time. It is quite an historical idea, and an element of it in a London context goes back to the Jubilee line extension, when there were huge benefits to the community at large, but specific large benefits to landowners that almost came as windfall gains. There is an element whereby matters of Crossrail and elsewhere have been trying as far as possible to balance out the issues. I appreciate that this is difficult: if we had had this discussion a couple of years ago, you might have found it easier going than now, with the travails and tumultuous economic events of the past year and the difficulties ahead. However, can you understand that there often have been huge windfall gains for property owners, particularly in large infrastructure projects, where they happen to own property nearby, which seems to be at odds with some of the benefits that need to be spread more widely across communities in such projects?
David Frost: I would also say that there will be much greater and wider economic benefits to the area, in job creation and regeneration of communities. I do not think that it should be simply seen as a particular landowner getting a windfall. However, we are in a very different economic climate now.
I do not entirely agree with what Ministers are saying specifically about Crossrail. My party has some concerns with elements of the legislation. I possibly have slightly fewer concerns about the principles of the measure than one or two other members of my party. However, regarding the benefits of Crossrail, the Bill will raise only £3.25 billion for a project whose cost of is currently envisaged to be between £16 billion and £17 billion. That is a relatively small figure; it is less than a fifth of the overall cost. Do you not think that within the context of those overall benefits, which will be seen, too, by many generations of businesses, to pay about a fifth of that cost is in the ball park of equitability?
David Frost: As I say, I can see that, but what I want to see when we have taken the London issue out is much greater transparency, as you say, and much greater openness to the involvement of the business community. It is not my role, nor should it be, to say that business communities the length and breadth of this country should not have the power to look at how to get new developments, particularly new forms of regeneration in their communities over the coming years. However, it is my role to reflect some of the very real concerns about how we will ensure the survival of good projects such as the business improvement district. Equally, we are not going to allow the business community to be seen just as a cash cow and have the relentless layering of one project after another.
Given the initial approach of your submission, which is really to heap one possible charge on another, on another, on another, with the implication that to your members the business rate supplement is either the thin or the thick end of the wedge, I am not surprised that lots of your members may have come back to chambers of commerce around the country and said, We do not want it, and if London wants it let it get on with it on its own. Of course, as Mr. Raynsford skilfully probed, Crossrail is unique by definition, because it is unique to London, but it is not unique as a major transport or infrastructure project that might benefit different parts of the country.
I will not speak for Greater Manchester, Warrington or Wigan or even as far as Runcorn, but in north Staffordshire for example, where there is a very active chamber of commerce, some of our transport links are the worst in the country. If you can get into the centre of Stoke, you will find that it is very difficult to get out. My constituency, Newcastle-under-Lyme, has the distinction of being, post-Beeching, the largest town in Britain without any form of railway. If a scheme in north Staffordshire were to be constructed on the table, with different innovative sources of finance, as was the case with Crossrail, which has the support of many London Members, I suspect that the chamber of commerce, given that it is screaming out for better transport in the area, might take a different view. I suspect that that might be replicated around the country. Have you considered that?
David Frost: Having followed for many years the unravelling debate about the great separation of the A500 through north Staffordshire, I fully appreciate the interests of the area. I come back to the point about what may well happen in the community in north Staffordshire. I strongly suggest that because of the impact of the downturn, not least on the ceramics sector, there will be a debate about how that area is regenerated. It is about much more than building roads.
The business community wants an open and transparent debate about, first, what is needed from a range of options and, secondly, what method will be used to fund itand we want a vote on it, which is where the BID comes into get rid of the concern that, after we have paid for something that will be in place for many years, the local authority will propose yet another levy to do something else, so that business communities, during an immensely difficult economic time, will find that more and more costs are being ramped up on them.
To talk specifically about transporta question that is constantly thrown at me as I go round the country to talk about congestion charging, workplace parking and whateverthat is why we are expected to provide more money when we are already paying nearly £50 billion in road tax. People ask Why am I expected to pay more money at a local level?
To examine your stance in more detail, I think that you are right to moderate the stance that you have taken in your submission, in response to the question from my right hon. Friend the Member for Greenwich and Woolwich, because it is feasible that around the rest of the country the proposal might be a goer, and the answer Well you cannot have it because it is only for London would not be satisfactory.
I want to ask one final counter-factual or hypothetical question. Given that the business rate is nationally determinedthere is a nationally determined pricing systemand that, particularly with the current slump, certain areas of economic activity could be spurred by business rate reductions, has your membership given any consideration internally to the question of whether chambers of commerce would support a business rate reduction Bill, which might apply locally in different areas?
David Frost: I am not sure we want to get into business rate relocalisation. There is a view that there should be much more local determination but, equally, many of our members and I have long memories and remember the early 1980s, when local authorities were in difficult times and levied substantial increases in the business rate, often beyond 15 per cent. That acts as a drag on any debate about relocalisation, which must be introduced if we are talking about business rate reduction.