Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.Donate to our crowdfunder
Good morning, everyone. I remind members of the Committee and witnesses that the evidence session this morning must end at 10.25 at the latest. I hope that I do not have to interrupt hon. Members or witnesses in the middle of their sentences, but I shall do so, if need be.
I welcome Mr. Healey and Mr. Khan as witnesses this morning. I understand that Mr. Healey would like to say a few words at the beginning of our sitting.
John Healey: Thank you, Mrs. Dean. I wished principally to welcome you to the Chair of what I believe is your first Public Bill Committee. I have found the evidence sessions very useful generally. They help all Committee members, as well as Ministers, to find their range on the issues and concerns relevant to a Bill.
We are legislating in the Bill for a revenue-raising power. Doing so is never easy, particularly at the time of an economic downturn; I recognise that. However, the Bill is part of the Governments programme to look beyond the short-term concerns that people understandably have about the economy at present, and on to the long-term policies, measures, projects and powers that need to be put in place to secure future economic growth and prosperitylong-term interests and projects such as Crossrail, and the long-term policies and powers that are needed in all areas of the country to secure growth for the longer term and to strengthen the economy. The legislation is for the whole of England and Wales. What is good enough for London is good enough for the rest of the country. I have no truck with arguments that the provision should be available only to London.
I am glad to say that the Confederation of British Industry, British BIDs and the all-party Local Government Association accept business rate supplements in principle, as we heard in a previous evidence-taking session. I am also glad that both Opposition parties accept the principlethey did not vote against the Bill on Second Reading. Some witnesses and members of the Committee have detailed concerns and objections, and Sadiq and I will do our best to deal with those, not only today, but throughout the Bills passage through Parliament.
Welcome to the Chair, Mrs. Dean.
I preface my first question by telling the Minister that I am sure he recalls that my party did not vote against the Bill on Second Reading clearly because of the inclusion of Crossrail and an extension of the measure to the rest of the country. If there is a desire elsewhere in the countrythe Mayor of London wishes to use the measure for Crossrail onlywhy were officials of the LGA, when they gave evidence, unable to name a single local authority that desired to take up the BRS power at this time?
John Healey: The point of the legislation is to put in a framework for the powers that may be appropriate, in some areas, at some time, to help to strengthen the local economy. London is a special case to the extentin my view, only to this extentthat in Crossrail we have a further advanced project with further advanced plans and discussions on its funding package, and a very clear view that a BRS is an essential element of that.
My original point was that in the 1980s and 1990s, policy making generally, but particularly economic policy making, was heavily skewed towards the preoccupations, concerns and principal position of Greater London; the problems and potential of the economy in other parts of the country were largely overlooked. We are not prepared to accept that situation and we have not done so in the past 10 years. A framework of new powers that is available to Londonto the Mayor and the Greater London authorityshould, in principle be available to other top-level councils and local authorities in England and Wales, should they, in detailed discussion and consultation and, in some circumstances, with a ballot of businesses, take the view that using the powers could help to strengthen their economy for the long term.
In such circumstances, is it not desirable to achieve, if possible, consensus between the taxor and the taxed? Does not the evidence that we have heard suggest that although in London there is a broad consensus with the business representative organisations, which accept the BRS as a mechanism for Crossrail, outside London there is strong opposition from business organisations, first because of the present circumstances and, secondly, because a ballot is not to be compulsory?
John Healey: To be honest, I find the logic of some of the evidence that we have heard from business organisations inconsistent and mixed up. We have heard, for instance, that the British Chambers of Commerce is concerned about a BRS without a ballot, yet the director general confirmed to this Committee that it accepted the 30 per cent. threshold. He acknowledged that
in a number of parts of the country...there is a need for more local determination and...for the ability to raise additional revenue from the business community.[Official Report, Business Rate Supplements Public Bill Committee, 20 January 2009; c. 20, Q85.]
The BRS will put in place the potential for local authoritiesthrough discussion and required consultation, and in some cases ballots, of their business communityto use that power for the interests and the economic long-term benefit of their area, which seems entirely right to me.
I have one final point I should like to raise. I feel that I am about to suffer the same senior moment that one of our colleagues had in the statutory instrument Committee yesterday. It is about to come back to me as I waffle my way through it. With luck, perhaps you could just help me on this last point, Minister.
Is there not a danger that, in the current circumstances, what the measure really represents is a shift in the burden of funding infrastructure improvements from the Treasury to local businesses, when you look at this power being coupled with the mainstreaming or the reduction in the amount of monies available under the local authorities business growth incentive scheme? If we are being generally localist, should we not also give local authorities a power to place a discount on the business rates as well as raise a supplement?
John Healey: Post-Lyons report and in the detailed discussions leading up to and after the White Paper, there was very little appetite in any quarter for a power to downward-flex the business rate at a local level. The reasons for this were threefold. First, there was a concern about its potential impact on local services, because business rates are a source of revenue to support local services. Secondly, there was an associated concern to protect the council tax payer in such circumstances, mirroring the way that this Committee is concerned about the interest of business rate payers with the prospect of a BRS. Thirdly, there was concern about the additional complexity in the tax systemsomething on which you and your colleagues, quite rightly, have been effective in pressing Ministers over the past decade. For a combination of reasons, principally adding up to a lack of appetite from any quarter for that downward shift, which may have been part of the original discussion on the BRS, we have not included that in the Bill.
Mr. Khan: On your first point, the picture you paint in your generalisation about businesses is just not true. We know that the relationships that councils and businesses have are far more productive and constructive than they were when you were first elected to a local authority, all those years ago. Also, it is simply a statement of fact that the proportion of revenue raised locally by business rates over a period of time, has gone down, whereas the revenue rates via other streamscouncil tax being one, grants from a generous central Government being anotherhave gone up. What we heard from the LGA and the evidence from other people was that there is now a healthy relationship with businessesone of partnership with local authoritiesand we want to engender that and make the relationship continue. This is one mechanism, one tool in the toolkit, for doing so.
Against that background, is the Minister going to bring forward proposals to enable local authorities to have an incentive to grow their business tax base?
John Healey: Yes. Such an incentivelocal authority business growth incentivehas been in place for the past three years, including this current financial year. As you will know, there are plans from next year to reintroduce that, not as a one-off grant scheme over three years, which is what the first LABGI scheme was, but to build that in as an integral part of the design of the business rate system. It seems right to us to provide both an incentive and some sort of reward to local authorities that take steps to foster their business base and promote business growth in their area.
I echo the hon. Member for Bromley and Chislehurst and the Minister, Mrs. Dean, in welcoming you to the Chair. I look forward to your chairmanship as we go through consideration of the Bill.
Having listened carefully to what the Minister has had to say, I will start by asking the key purpose of the Bill: Crossrail or a wider power for local authorities?
John Healey: The key purpose is the latest in a series of measures reflecting the analysis and conclusions drawn by Sir Michael Lyons that local authorities could benefit from greater scope to raise revenue at the margins in their local area, particularly to support business, economic development and the general long-term economic future of their area. That is the policy purpose.
As I said earlier, Crossrail happens to be a large project and the project most fully developed for which a BRS can form an essential element of the funding package. The Bill therefore both provides a framework for a BRS, which the Mayor has made clear will be used in London to support the Crossrail funding package, and rightly gives that same power and opportunity to local authorities across the country. As I said earlier, what is good enough for London is good enough for the rest of the country.
You talked about various parties support for the principle behind the Bill. I should take this opportunity to clarify the position of my own party: we are not opposed to the principle of a BRS where the business community has agreed to it through a ballot. We have been keen to point out that principle and will no doubt want to explore it further as we go through Committee. On that issue, why is there no provision for a ballot in all cases and why has a thresholda cut-off pointbeen inserted in the Bill?
John Healey: For these reasons, I think. The BRS is unlike business improvement districts, for which there is a ballot in all cases; we can explore that in a moment. Unlike a BID, a BRS is designed to apply across a wider area, bringing wider benefit, often for longer-term projects, which may be beyond the immediate self-interest of the businesses that contribute towards BID-style funding. As with Crossrail, in any potential BRS-supported project we can expect to see different funding elements reflecting the wider interests that may benefit; therefore council tax payers may play a part, as may the national taxpayer through Government grantjust as in Crossrailbecause of those wider benefits.
If the case is to be made for a ballot in all circumstances, the principal question must be, is it right that business should have a vote and a veto in all cases, when the funding comes from other sources as well as a BRS, the benefits are much wider and there is a will to see that funding and development go ahead? Is it right to enable business to block projects to which its funding contribution may account for a quarter, a tenth, or even a negligible proportion of the total? Through the conduct of a ballot, business potentially has the vote and the veto over such projects going ahead.
We have taken the view that that is not right. The all-party Conservative-led LGA, as you will know, takes the view that there should be no requirement to ballotthat it should be left to the discretion of local authorities. We have taken the concerns of business very seriously and believe there should be some safeguards, which is why we are proposing in the Bill that where the BRS forms more than a third of the funding of any project, and in those circumstances alone, business should have a vote and should, therefore, potentially be in a position to block not just the introduction of a BRS, but the whole project.
I think that it is a question of whether that is a veto, or just a decision reflecting whether they feel it is the right time to participate in such a scheme, but thank you very much.
I am very aware of that. I am sure that you have had the chance to look at the amendments in my name and that of Lorely Burt, which talk about ballots but exempt Crossrail from a ballot, for all the reasons we have talked about and because there is an Act of Parliament on the subject. But I thank the Minister for his contribution.
In a moment or two, I may come back to the subject of Crossrail. However, my fundamental question is: has consideration been given to a de minimis-type provision to ensure that the additionality issue can successfully be countered? We heard mixed views in the evidence on Tuesday. Some groups were firmly against the Bill, while others were broadly positive and could see where the Government were coming from.
Crossrail slightly clouds the whole issue, in that it is a practical proposition, on the table, for a £16 billion or £17 billion project, and everyone can see that benefits are to be gained from such a large-scale project, which could not be funded from the normal day-to-day business rates in London. Obviously, the question is: how far does the benefit go? Certain London boroughsthe Barnets and the Bromleys of this world in particularfeel that they will get little direct benefit, because of the artificial way in which the boundaries in London are created.
Looking at future projects, one of the things that could be most corrosive to the case for the measure would be if relatively small-scale infrastructure improvements, which one would generally think should be paid for out of normal rates, were subject to a BRS surcharge. Has thought therefore been given to precisely what sort of projects it should cover, and indeed in what sort of area? London is a city of 7 million souls. Are we looking to give the power to relatively small areas, where there might be only a couple of hundred thousand residents? What is the thinking on how to counter the idea that, in many ways, this is another stealth tax against business?
Mr. Khan: The concern that you articulate is one that we recognise. If you look at the historythe consultation that Lyons undertook and the Select Committees investigation and our responseyou will see that we recognise the need for additionality. By definition, this is supplementaryit is a business rate supplement. If you look at the Bill, you will see that we try to make it clear we envisage the BRS helping to finance projects that would otherwise not take place. That is crucial, and there are safeguards. For that reason it is upper-tier authorities, such as the GLA, that are tasked with using the power.
That is one of the reasons why Tuesday was so frustrating. There seems to be a lack of understanding of the difference between purposes envisaged for BIDs and for BRS. They are tools at the disposal of local communities, one more local and designed for micro-level than the other; one more long-term than the other, which is for a finite period of five years; one that will benefit short-term occupants and one that will benefit long-term occupants plus property owners; one that will, by definition, benefit a small community, and one that will benefit wider communities. Barnet and Bromley may not directly see the benefits of Crossrail, but all the expert advice is that there will be 110,000 jobs, and many people in Bromley and Barnet may get some of those jobs.
Mr. Khan: Because they have a great MP, who will, I am sure, support the Bill on Report and Third Reading, as well as in this Committee. That is one of the differences. One of the frustrations, Mark, is that it seems to us that people have not understood what BRS is planned for. I know that one of your questions will be about the borrowing part of Crossrail and whether that could happen without guarantees of an income stream coming in. That is the frustrating thing. When you have a long-term project with different funding streams, you need certainty. If there was a potential veto, which is what this sword of Damocles wielded by businesses would be, do we honestly think that the other income streams would come in? That is one of the real questions that you and other Opposition Members will need to grapple with in Committee, on Report and at Third Reading.
John Healey: If I may say so, Mr. Field, you are right to have this concern and you are right that it has been reflected to us by witnesses who have given evidence. However, I think that you are wrong to say that Crossrail clouds the issue. I think it helps to clarify the approach. It is a developed project. It shows us the principles on which we would expect a business rate supplement to work elsewhere. In other words, the business rate supplement that will form part of Crossrails funding is not substitute funding for other things that are already being undertaken. That is in the Bill and is part of the prohibition. It will be fleshed out in guidance. Secondly, the BRS provides an additional source of funding without which Crossrail will not go ahead.
In relation to any project in any other part of the country where the BRS may form part of the funding package, we will look for that to be spelt out very clearly. As in Crossrail, it must form an additional element of the funding package without which the project would either be in jeopardy, or definitely held in the starting gates. Crossrail helps us to see how a business rate supplement should operate.
Let me say, Mrs. Dean, that to help the Committee, before we sit next week, I intend to produce the draft of guidance for consultation and for the Committees comments on how to deal with matters like additionality, economic development, definitions and some of the other aspects that are central to the proposition of a business rate supplement.
I appreciate that you do not necessarily want to have a totally inflexible arrangement, but could you give at least an indication of the size of the projects you have in mind? Crossrail is probably going to be one of the very biggest and most expensive projects in the foreseeable future and in the first 20 years in which this Bill will operate. Some £3.25 billion will be raised from a large net of businesses that happen to be in the capital for a project that will cost £17 billionobviously, we will only see in the outturn just how much it does cost. No one would dispute what you said: the mechanism of a BRS works for a project of that magnitude. Clearly some businesses and business organisations will be against the idea of a BRS as a matter of principle, but those who are open minded about the prospect will think that Crossrail clearly falls into the box and that this is appropriate.
My concern is this. Take a higher-tier authority such as a unitary authority in Luton or Swindon where there was a rail or metro-type project costing perhaps £200 million, with a business contribution of £50 million. You are then in the grey area with people saying, Hang on a second, this is what we pay our general rates for. This is an ongoing project. To get a BRS is a slap in the face and another stealth tax. Could such a project be the subject of a BRS, or is it too small? Are you comfortable with the idea that if a local authority and other stakeholders proposed it, it could be subject to a BRS-type scheme?
John Healey: It is a question of relative scale. Crossrail is a special project by dint of its large scale. The BRS element is significant, largely because the capacity across the 32 boroughs of Greater London means that they could raise £178 million a yearthat is what the latest figures suggest. Compare that with an area closer to home: in Northamptonshire, the potential total from a BRS is £9 million and in Shropshire it is £1.8 million. Such sums could be equally essential elements of funding a large-scale, long-term investment project in those counties, which would be unlikely to go ahead without that contribution, but would clearly be far smaller than Crossrail because of the nature of London and of the project itself. In principle, it is a difference of scale and relative figures rather then character that makes Crossrail unique and, therefore, a special case warranting special treatment within the provisions of the Bill.
With your permission, Mrs. Dean, I want to touch on Crossrail and the assertion made by both witnesses that without the BRS, Crossrail will fall.
We know how the politics are. I was delighted to hear you say such positive things about the work of the aggressively Tory-run Wandsworth council and the local businesses. I am sure that the people in Tooting will be delighted to hear your endorsement.
On a serious level, with Crossrail we are talking about relatively small chunks of moneya fifth of the overall funding package. We have gone through the long rigmarole of getting the hybrid Bill through Parliament and the Standing Committee. Crossrail is now one of those big infrastructure projects that we should obviously move on with fairly quickly if we are going to pump-prime in a Keynesian way, particularly given the difficulties in the London and south-east economy. There are already parcels of moneyover 80 per cent. of the total budgetso are you saying that we could not go ahead and find a way of squirreling out a further 18 or 19 per cent. without the Bill?
John Healey: The only alternatives are that the national taxpayer pays morethey are already going to contribute a bigger proportion of Crossrail than the BRS will deliveror that the local taxpayers of London do more of the heavy lifting. If you are proposing that alternative, I, and the taxpayers in London, will be interested to hear about it.
You will be aware that the City of London Corporation has not only agreed to put the money up, as has the Canary Wharf Group, but has also said that it will try to squirrel out a further £150 million from various City connections. That will be a rather harder exercise today than it might have been a couple of years ago, but obviously we do not know how things will pan out. It is not as if all elements of the package are entirely robust and in place.
John Healey: You are right to pay tribute to the City of London Corporation; just before Christmas, Sir Michael Snyder said:
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.
He is right.
I do not disagree, but I am trying to get to the bottom of it and it is important that it not be used simply as a political football. All sides want to get Crossrail moving. By questioning elements of it, we are doing our bit to try to scrutinise it on behalf of business, which is concerned about additionally. In fairness, there is less concern in London about how the project will work, although I cannot speak for all the suburban areas. A lot of businesses will regard the additionally as another stealth taxlittle parcels with bids.
Mr. Khan: Under the terms of the statutory consultation required, a local authority would need to persuade businesses that it had exhausted all other avenues of funding and state what other income streams there are and what its plans are, and it would have to persuade businesses to join. Some almost pejorative comments were made about consultation by witnesses on Tuesday, but let us be clear that there is a statutory requirement to consult. Forget the ballot, which is stage 2 of consultation if it is more than one third. Consultation would iron out some of the problems you have identified. If businesses felt that they were being made to pay a stealth tax, that would come out during the process, and if a local authority still steamrolled ahead, it could be challenged. As John has just said, we will be publishing the full first session, which should hopefully assure you that this is not a backroom way of turning business into a cash cow.
I wonder whether we could take a more national look at things and remember that we are a national Parliament, rather than an extension of the LGA. One of the witnesses from the LGAI think that it was the independent representativesuggested that the lower-tier authority should decide that, rather than the upper-tier authority. Would you give us your comments on that, with regard to two-tier authority areas, obviously?
John Healey: There are two things to consider. First, with regard to business rate supplements, we are doing something that is different in several respects from business improvement districts. BIDs are a power for billing authoritiesin two-tier areas, districts rather than counties have the capacity to introduce them if they wish.
Secondly, because the projects to which we will restrict the potential use of business rate supplements are generally larger scale and longer term, it will be the larger authorities that are likely to be in a position to develop and see delivered projects of that scale, for which the BRS may form a part. That is why we have taken the view that it should be available to upper-tier authorities only. Also, we resisted the view of the LGA, which, after all, represents authorities of all levels, that all authorities should have the power to raise their business rate supplement. We took the view that it would be complicated, uncertain and to a degree unfair on businesses if they were open to a potential business rate supplement levied by both their district and county councils.
Can I give you a couple of examples of areas in which a BRS might be considered by the authorities? The first example is the second Mersey crossing, in the constituency of my hon. Friend the Member for Halton. I have no idea whether they are thinking of using the BRS. Greater Manchester had a bid that was recently voted down, and there was a meeting this week to decide how we go forward to address the transport problems in Manchester. In London, there is an overall authority, the Greater London authority, which is the upper tier. In Manchester, we have 10 district authorities. If we were to put in a bid for a transport project in Manchester that was similar to Crossrail, would the Greater Manchester authority or the passenger transport authority be considered the upper-tier authority, or would it be the 10 district authorities?
John Healey: It would be each of the 10 district authorities, all of which have the scope to consider a business rate supplement either on their own or in combination with other authorities, which is perfectly possible. I pay tribute to the way those 10 authorities in Manchester have worked so closely together for a long time. They could combine to propose a business rate supplement as part of a project that was Manchester-wide, bringing those wide and long-term benefits to the wider city area. Latest figures suggest that, if they chose to do so, they could raise up to £29 million from the business rate supplement each year.
But do you appreciate that it would be difficult to persuade some of the outer local authorities? Wigan is the only one that does not have a border with the city of Manchester, but there are others on the outer fringes that may not see an immediate benefit from the package, which would mainly affect the centre of the sub-regional area. It would make it difficult for them to get approval for a BRS bid.
John Healey: Well, Mr. Turner, you know Manchester and the dynamics between the 10 authorities much better than I do. That may or may not be the case. If it is the case, it is part of the challenge within Manchester of considering to what extent support should be given for a project that can carry the case for a business rate supplement in Manchester.
Let me return to something that Mr. Rogerson said. He seemed to indicate that if a ballot by businesses went against the BRS, it would not result in a veto although it would be a major part of the consultation process. Can you confirm whether that is true, and whether you envisage a BRS ballot taking place and businesses turning it down and voting against the proposal? Under those circumstances, can you see the BRS going forward?
John Healey: No. If a ballot is required and the businesses that are eligible to vote do so against the proposition, it would stop the proposal for a business rates supplement dead in the tracks. Members of the Committee must be clear about that. In the end, that is the nature of a vote. A vote gives the potential for a veto and would potentially allow businesses to block the use of a BRS, and therefore the development of any project that depends on that funding.
Thank you for clarifying that. That was my understanding, but Mr. Rogersons questions seemed to indicate that there was some doubt about it. I am very unhappy, or uncomfortable, with the idea of a double vote. People who work in or own businesses have a vote as citizens. I am not comfortable with them having a second vote as part of a business. I am certainly not happy with the idea that they could veto a project. That is just a comment.
John Healey: I accept that. That argument has been put to us by some parts of the local government field. In the end, when framing this legislation we took the view that business has understandable concerns about the prospect of a business rate supplement. That is why there is a series of safeguards in the Bill, including the 2p limit on how much can be raised through a BRS. In our view, where there is a case for doing so, a ballot should be held. Other safeguards attempt to strike a balance between what are inevitably different views about the proposition, and different interests regarding how it might operate if it goes ahead.
Mr. Khan: On that point, on Tuesday Derek asked some questions that reminded us what life was like in the 70s and 80s regarding the relationship between local authorities and businesses. We are trying to walk a tightrope while ensuring that the productive and good partnershipthis disciplinecontinues. It is about listening to the two extremes that we heard on Tuesday and trying to find a compromise.
I do understand that. However, a scheme that needs to go ahead and is seen as important by most citizens could be voted for by them through the normal electoral process and then vetoed by somebody who has a second vote. I am uncomfortable with that, but I understand the point that was made.
It is a pleasure to serve in Committee under your chairmanship, Mrs. Dean. It is the first time that I have done so. I apologise for not being in Committee at our first sitting. I was hit by a virus, which I pray you do not catch.
I was interested to learn that business men in a given area have a vote, although they might not live in the area. That seems an odd concept. In Manchester, many business men live in Cheshire and have no input into the local government decision making in Manchester. We must bear that in mind. I wish to question the use of money. Mr. Khan said that people have not understood what BRS is for. That is partly because the Bill is unclear about its purpose. It is not sure whether it is to finance Crossrail or whether the local government element for the rest of the country has been added on as a way in which to raise extra revenue.
I am particularly concerned about what seems to be a lack of clarity with regard to a period for which a BRS runs for longer than one year. My first question, therefore, is could a BRS be used to supplement private finance initiative schemes?
John Healey: Quite comfortably, if that were the decision. There is no time limit in the legislation on the length of time that a BRS might run, but in any plans set out in a formal prospectus for the project for which a BRS may be a proposed part of the funding, the period for which a BRS is proposed to run would have to be spelt out. The flexibility under the Bill would allow, if other sources of funding from whatever source were perhaps designed to support the development and cost of a project over 20 years, the BRS to run for 20 years. The Mayor made it clear in his evidence to us that he expects the BRS in London for Crossrail to run for 24 years. He and the GLA have the flexibility to propose a BRS for London in order to support Crossrail throughout that 24-year period.
So a business in a given area might find itself committed to an extra taxation of that kind for 20 years. What assessment have you done of the impact on fair trade in relation to that? How does it impact on a business man with one particular business in Manchester that has a 20-year commitment to a PFI scheme and a business in Yorkshire that does not? How does it impact on fair trade? You are increasing costs for one business, and not for the other.
John Healey: I accept that general proposition. Part of the assessment of the impact, the potential costs and the potential benefits of the project with a BRS component that may be proposed in an area will have to be prepared and set out publicly in the prospectus and formally consulted upon. That will be the economic analysis and assessment that a local authority, with others, will need to undertake as part of the preparation of the case for a BRS. They would take such a factor into account for their area.
John Healey: Let us put it this way and use Crossrail as the example to clarify rather than cloud the situation. The business benefit to many of the businesses in London may be long termthat is generally regarded as well establishedbut may not be immediately apparent on their bottom line in 2010: for instance, when the introduction of BRS in London is proposed. That is one of the principal differences with business improvement districts. To that extent, with the immediate levy on the business rates for a BIDto produce trees in the street, extra street cleaning, CCTVs or some community police constables in the areathe immediate benefit and potential impact on the business bottom line is arguably more direct.
What marks out the BIDs from the business rate supplement is the sort of activity or project that they are likely to support and the time scales over which they are likely to run. That is the reason, to come back to your original starting point, why there is no time limit on BRS in the Billthat will need to be set out in the prospectuswhereas for business improvement districts there is a time limit of five years, although some are shorter, after which, if the project wants to continue, there has to be a fresh consultation and a fresh mandate to do so.
I just have a short point to make. Mr. Binley raised the issue of people in Cheshire with businesses in Greater Manchester who would not have had the vote. I make the point that it is the people of Greater Manchester who would have been paying the Greater Manchester Passenger Transport Executive precept, so it is a question of no representation without taxation.
May I change the focus of the questioning slightlyto the issue that came up once or twice during our evidence sessions on Tuesday? The issue is freeloading and the position of landowners as against tenants, and it has been around since the introduction of BIDs, when concern was expressed that landowners would get the benefit without having to make a contribution. That applies even more so in the case of BRS, because the benefits, as you have been rightly emphasising, are likely to be longer term, whereas the payments, as with Crossrail, begin long before the benefits will be perceived. The tenants will, essentially, be paying the levy, while the landowners will get a benefit further down the line without having to make a contribution, unless they do so voluntarily.
The problem is not new, but it is a real one, which will lead to a certain amount of resentment on the part of some elements in the business community if a solution is not found at some stage. I am not suggesting that it is required immediately, but the issue has to be addressed. I would very much welcome your views.
John Healey: There are perhaps two aspects here, and no one sitting in Committee understands or knows them better than you, Mr. Raynsford. On property owners, the issue was confronted by you and the House with the introduction of legislation for BIDs. There is a practical difficulty in identifying, levying and enforcing any compulsory levy on property owners, many of whom may well not be based in this country anyway. By and large, as we heard from the representative of British BIDs on Tuesday, with the BIDs that have been put in place, there is a problemshe was very clear about thatbut, generally, they have found workarounds that are satisfactory in those local areas.
You made the point that, because of the long time scales of BRS-related projects, the problem is likely to be greater. In fact, the economic modelling that has been done suggests the opposite. In other words, if the time scale is 20 or 25 years instead of three or five years, as with BIDs, work done by Cambridge Econometrics suggests that, where the costs of a business occupier rise due to a business rate supplement, its capacity to pay certain levels of rent will be reduced, and the likelihood that those costs will be passed to the property owner or the landlord is increased by the long time span. You might say that that is a question of economic modelling and that it depends on the assumptions madewe all know that economics assume everything except responsibility. It does not get away from the practical problems that you raise, or the perceptions that inevitably are created where it is the occupier or the tenant, rather than the owner and the landlord, who may be liable for a BRS. Having looked at the matter closely, however, it is not apparent that there is an easier or more obvious way of dealing with it than there was when you and the House looked at this same problem, with the introduction of business improvement districts.
I entirely understand that, which is why I did not press for an instant solution, but I do believe that the issue will not go away. It will return, partly because the approach adopted in the case of Crossrail has broadly mirrored that of BIDs. There have been voluntary contributions from some business elements, which will get large immediate benefits because stations adjoining their premises will give them a considerable additional market. A similar pattern is emerging with BRS as with BIDsof voluntary contributions from some, and the levy paid by all those who are liablebut that still leaves scope for some beneficiaries to choose not to make a voluntary contribution, while benefiting enormously, which will lead to resentment within the business community.
While I accept entirely your long-term economic argument, I am reminded of John Maynard Keynes famous phrase:
In the long run we are all dead.
A business that is facing financial difficulty and might go out of business in the next five years would not be terribly impressed by the argument that its long-term ability to negotiate a lower rent with its landlord might be helped by paying the business rate supplement. May I ask you to respond to that? Might there be scope to explore ways in which that particular problem might be addressed in the longer term?
John Healey: In general terms, in framing the BRS legislation we have been keen to draw what we can from the BIDs model. In our discussion and examination already we have been keen to draw what we can from Crossrail, as a forerunner project in this field. It may well be that we should encourage such an approach, through guidance, for any BRS-related projects that may be developed in other areas. I shall certainly look at that.
May I move to the interrelation between the BRS and BIDs? There is a nervousness on the part of some BID companies that the arrival of a BRS may prejudice their prospects of securing a renewal of the BID mandate. We heard that in evidence from British BIDs on Tuesday. I fully understand the steps that the Government have taken, particularly the options for mitigating the impact of a BRS. However, I would be grateful for your thoughts on whether anything else might be done to overcome that problem, particularly if it appears that the number of new BIDs falls off after the introduction of a BRS, or a number of existing BIDs cease to operate because they failed to get a mandate.
John Healey: As you say, within the Bill there is provision for BIDs payers to be exempted from any BRS. There is obviously scope for local authorities to offer discounts, as well, in relation to any BIDs payers. No doubt we will consider that closely in Committee.
The difficulty at the heart of the matter is one of principle. But if we consider the situation in London, where the Mayor has been clear that he does not propose to exempt BIDs payers from the BRS, we would have to say to those who would propose that, What is the basis for exempting a business in the Angel, Islington, or in the town centre of Kingston? Both of those areas have small, localised BIDs areas designed to improve, say, the street signs, the trees or the police community support officers who patrol that area. What is the principled case for such businesses, which contribute to the local, immediate and practical upgrades of their areas, to be exempted somehow from making the same contribution towards Crossrail as other companies, despite the fact that they, like businesses generally in London, stand to gain from it in the long term? The benefits of Crossrail are entirely different from those arising from their BIDs contributions. At the heart of the matter there is a principled case, as well as a practical concern, that needs to be established.
In our view, rather than trying to legislate for that, we have given the local areas the proper discretion and flexibility to be able to take local circumstances into account and, if it is appropriate, have given them powers in the Bill to exempt or vary the levy for those already paying the BID.
Mr. Khan: The interesting thing about your question is that we know that, across the country, approximately 80 per cent. of mandates are successful regarding BIDs. There is an interesting piece of work that would answer your question about whether there is any evidence. In respect of 2015, for arguments sake, we could look at an analysis of the Crossrail-affected area of London and see what percentage of the BIDsin 2010, to start off withhad a positive mandate. Then we might look forward five years to 2015 and see whether there is a curve going downwards or whether it has stayed the same. That would answer your question about whether your fear is real or is a theory.
John Healey: Just to reassure you, Mr. Raynsford, we highly prize business improvement districts, as do the 67 areas that have introduced them. We do not want to see them damaged. Where there is a case and a will to see them continue, or to be established, we want to encourage that. So we take seriously the concerns coming from some BIDs areas and from Dr. Grail, who gave evidence to the Committee on Tuesday, but at present we think that probably the best approach is the one set out in the Bill as a flexibility to be able to deal with those circumstances through local decisions and through the consultation that will, inevitably, have to play a part in the process.
I am a great fan of BIDs. One of the great successes of the scheme is that the businesses feel directly involved and they vote on it. We launched a new BID proposal in my area only two weeks ago, and it is a much harder sell now than it was last year and it will, perhaps, be harder still in a few years time. Because the businesses had the ultimate say about a BID, they were able to buy into it. Are you concerned that, because people will not have the ultimate say, they will not be brought into the process in the same way? Are you concerned, or not?
Mr. Khan: The beauty of BIDs is that you see the fruits within a short period of time. You can see a tangible benefit within months. That is short period of timefive years maximumso you can see what has happened locally. I can see that there will be an issue in respect of persuading businesses to look slightly beyond the horizon with regard to the fruits further down the road. But that is why, without being complacent, we do not think that there is a conflict between BIDs and BRS: they are for different purposes. Mark has touched on some of the history with Crossrail, including some of the steps that we have gone through and some of the benefits that will lie just outside his constituency.
BIDs and BRS are different things. But the problem with your argument is that it only works if you assume that statutory consultation is meaningless. We do not think that it is. We think that businesses will be involved at an early stage. If an authority has got animus from all the businesses, forget about the authority not going through with it; other sources of income will say, Sod this, it is just not worth having it. You have seen the ambition from outside London articulated this morning, and we share that.
Okay. I take on board the fact that you are saying that businesses will be involved and that they will be consulted in the same way for BIDs, but that they will not have an ultimate decision in the same way for BIDs.
Mr. Khan: Well, they would if more than a third of the funding comes from business rates as well. They will be involved in statutory consultation. The prospectus will go out. If more than a third of the funding comes from business rates, there will be a ballot as well. You should make sure that the prospectus is transparent, clear and lucid about the plans.
But you do, I am sure, share some of my concerns that the business community might be somewhat sceptical about consultation in that, in the past, businesses have been consulted on things and not necessarily agreed with them, but they have still gone ahead. There would be that level of scepticism. Do you agree that it will be vitally important how the deal is sold, and how they can be convinced not be sceptical about it?
Mr. Khan: That is really important. That is why we are pleased that it is not controlled from Whitehall. We are devolving down a power to local authorities to work with the communities they know best to carry it through. That is why it is for local authoritiesupper-tier onesthat know their businesses better than us to decide what is best for their communities. I am sure that the businesses will have a good relationship because it will affect those businesses with a rateable value of more than £50,000 a year. We would therefore expect those businesses to have a dialogue or relationship with local authorities, and we hope that that dialogue would take place long before plans were materialised for a massive infrastructure project.
You will know about the discussions that have taken place during the past two decades between large businesses, those responsible in London and the Government. That has meant that no one can say that they did not know about Crossrail. We would not expect a 20-year lead-in with regard to the next major project, but we would expect conversations and discussions to take place. Is that not consultation? We think that it is. It is a two-way process. Do you need a ballot at every stage of the process? We do not think so. We think that that would be a bureaucratic nightmare. We, like you, are in favour of reducing bureaucracy and red tape.
I just want to pursue two points. First, I do not want to labour the London-centric view. I was the Minister when the Crossrail Bill was drafted. I therefore understand the strong arguments for it, and I remember the many months of hard work to get it into a state to go forward. Relatively speaking, it is not as though there are not equally important projects. I understand that we are not talking about a £16 billion or £17 billion project, but relatively speaking such projects are essential for certain areas of the country. I was interested that the CBI evidence said that, in one sense, the principal view was that there must be a vote, but that that will be overlooked for Crossrail. It had no view about what the balance of funding should be in terms of local government and central Government for what is happening in local authority areas, although it is opposed to localisation. That is a bizarre view.
I shall give a good example. My hon. Friend the Member for Wigan made the point that, in my constituency, the second Mersey crossinga project of about £600 millionwill be part paid for by the Government and tolls. It is just about to go to a public inquiry. By the way, the previous Government refused to approve it. This Government have approved it. It might have been an ideal candidate for the measure if that was in place then. The project would not just benefit Halton, but the whole of Merseyside and Cheshire, which is why all the local authorities support it. A lot of the drive to get it off the ground was from local business because it was so important. Do you have any comments on that before I go on to the next point?
John Healey: You are absolutely right. For me, there is no difference in principle or in practice between Crossrail and other big projects that may be appropriate for a BRS. Some of the transport projects that you will know about very well, Mr. Twigg, having served as a Transport Minister, also require private or hybrid Bills in this Parliament, so they may well have legislation behind them. They may be smaller in gross terms, but their relative importance and relative investment for an area outside London may be similar to Crossrail.
As for the second Mersey crossing, if a legislative requirement were in place and if the will and other sources of funding are available, the BRS in future may play a part in allowing it to go ahead. It may well be that your councils capacity to raise over £1 million through a BRS in your area alone, or Cheshires capacity to raise £8 million each year from a BRS, could form, as it does across London, an important element of making that go ahead.
In such circumstances, to come back to the ballot side of things, if Parliament has considered and approved any necessary legislation, if there is a will to go ahead, certainly from local authorities, but also from local business, and if the potential BRS element forms a relatively small partlet us say less than a third; perhaps a quarter, a fifth or a tenthit seems to me wrong rather than right that business should have a vote and a potential veto that could halt what would otherwise have quite widespread support and what people would like to see go ahead. However, it is right that any businesses that may be liable to pay a BRS be properly involved in the development of the projectthe prospectusand formally consulted on that, whether or not there should be a ballot if they contribute more than a third of the total project cost.
The second issue, which I have been asked to pursue by a couple of people from the business sector, is local authorities and the change in how they deliver economic development and take a lead. It is clear that some things would just not happen in a number of areas unless the local authority showed the initiative in making them happen; would the Minister agree? As he knows, the former chief executive of my local council of Halton, who is now chief executive of the Ministers local authority, was employed specifically by Halton to lead on economic development, because of his background in that. That is a reasoned decision, to have someone like that in such a position. I have not heard as much from the Opposition, but is it not the case that the position of local authorities today in leading economic developmentmaking sure that it happens in many caseshas changed completely over the past 10 or 15 years? That is what we are doing in the Bill: recognising that and complementing what councils are already doing. I know that my own area has an excellent relationship between local business and the local authority, but Halton has done some amazing work in economic development.
John Healey: Indeed, and the chief executive you are talking about, Michael Cuff, has brought a similar strength to the role of my borough council, Rotherham council, in trying to support developments in the local economy. He, like me, serves as a director of our local chamber of commerce. The local authority now has relations with the local business community and business organisations that are light years away from the situation that typified local authority-business relations 15 or 20 years ago. Thinking of the situation in my own area, were there to be discussions about a potentially big, long-term investment in which BRS may play a part, that would be likely to be initiated around the local authority. However, I have to say that the first place where it would be discussed would be at the local strategic partnership, and that would be dealt with by a board there that is chaired by one of our local business figures. It would be discussed at a very early stagecertainly well before any of the preliminary work to produce a prospectuswith the chamber of commerce and others in business in the area.
I was struck by the evidence of the Local Government Association into the proportion of BRSs that might fall on publicly owned occupiers. I noted in your opening remarks, Minister, that you very properly said that you were going to listen to evidence and take account of it in the remaining proceedings of the Committee. Have you managed to give any thought to the comments of the LGA about the potential for exempting buildings such as schools or hospitals from such a charge?
John Healey: We have considered that. The BRS legislation here is built on the business rate system, which, you will know, creates a liability for businesses of all types, with no exemption for public sector operations from that liability. We have taken the same approach to the business rate supplement.
I was also struck by the comment from the representative of British BIDs that the reason why BIDs have been widely taken up and regarded as successful by many of the businesses participating is that business people who pay the tax are also involved in the delivery of the project. What notice did you take of that evidence and what have you done to consider some form of accountability to business, which will be paying the supplement?
John Healey: I was interested by that remark and, given the sorts of activities that BIDs generally support, I can see that that is sensible. It has a benefit and is easy to set up. I find it a little more difficult to see how you would legislate to structure in that sort of approach for, say, the development of the Crossrail project, but we are open to suggestions. As I said, perhaps before you were able to join us, before the scrutiny stages of our Committees work, I intend to produce draft guidance that will deal with some of these problems. We may get views on that point as a result of that consultation.
I am pleased to hear that. I was present when you made that announcement, which is encouraging.
My third question relates to the interaction between the BRS and BIDs. The Bill makes provision for voluntary offset on a case-by-case basis. Will you clarify why you think that should be voluntary and not mandatory?
Mr. Khan: Mark gave some very good examples on Tuesday of how one could envisage local authorities around LondonI will put this as generously as I candeciding to come up with BIDs as a way of not having to contribute towards the BRS. There is clearly an question of mischief there, but it is also a way of not having funds diverted to the BRS, which is the Mayors plan. The Mayor has told us quite forcefully that if he is going to guarantee the loans that he wants via the BRS, he cannot have an opt-out for those businesses that are involved in BIDs.
The third point to make is that BRS would apply only to those businesses with a rateable value over £50,000. The vast majority of businesses involved with BIDs tend to be the smaller businesses which can see the benefits immediately on their doorstep and on their street. We hope that the overlap will be minimal, but also we are alive to the fact that the Mayor has a serious point about being able to guarantee moneys coming in each year via BRS.
John Healey: That is correct. I think in the end that they are different. BIDs and BRS bring different benefits; they serve different purposes; they raise different types of funding; and they last over different terms. That is the view we have taken. It is the view that we heard from the CBI and from British BIDs. It was acknowledged by the Royal Institution of Chartered Surveyors and it is the view the Mayor takes, too. BIDs and BRS are different.
I note that the annexe to the impact assessment states:
BRS could be used to fund smaller, less expensive initiatives, such as promoting an area to tourists, or for investment, or using the supplement to provide skills training.
Those are very much the sort of things that BIDs are currently used for.
John Healey: I am not aware of BIDs being used for skills training. The examples you quote from the associated documentation to the Bill are simply illustrative of areas in which there may be projects or investments related to economic development that could therefore fall within the permissible parameters of the Bill for a contribution from BRS. It would be for the local authority to make the case for that type of investment if they wanted to base it on some form of funding from a business rates supplement.
I know that we are running out of time, so this is my final question. The impact assessmentwhich I must say is a very thin documentestimates that the types of businesses that will be most affected by the Bill are those with high rateable values such as retail businesses. We heard evidence from the British Retail Consortium on Tuesday. With a 2p levying rate, the impact will be an increase of around 5 per cent. in business rates. What assessment has been done by your Department into the proportion of net margins and retailers that would be absorbed by such an increase?
John Healey: The preparatory analysis and assessment that we have done is consolidated and published in the impact assessment. I found the evidence from the British Retail Consortium less convincing and persuasive than that given by some of our other witnesses on Tuesday. It is not necessarily the case that retail is somehow likely to bear the greater part of the burden of any BRS. In the argument about BIDs versus BRS, it is the case that many of those making a contribution in BIDs areas will fall well below the proposed £50,000 threshold and will not be eligible to pay a business rates supplement if it is introduced.
John Healey: If you look at the analysis regarding premises that tend to be rated over the £50,000 threshold, large retail outlets do figure. However, businesses that tend to be in that bracket sit alongside other employers and businesses from other sectors. Although they are big in numerical terms, they make up a minority of even those in the retail sector. We tried as a Committee to get something on that from the British Retail Consortium on Tuesday, but were not able to very clearly.
And when preparing the Bill, you did not think to ask your officials what the impact would be on the net margins of the different categories of businesses that might end up paying this?
John Healey: Mr. Dunne, the Bill sets out a framework in which local areas, led by local authorities, can consider whether they want to see long-term investment projects in their area, of which BRS may form a part. If they do, that sort of assessment and analysis, both of the benefits that it could bring to their area and the potential impact on business, will make up part of what they pull together for their case. It will be confirmed in the prospectus and then formally consulted on. Surely you would accept that such work should properly be done area by area as part of the consideration and consultation before any proposition goes ahead? Any aggregate analysis that could be done at a national level at this time is probably not a good indication
I am sorry to interrupt, but we are about to finish. When introducing legislation, you as the Minister responsible are obliged to undertake an impact assessment. The work that has been done on page 13 of your assessment is one of the thinnest and weakest pieces of work that I have seen in an impact assessment for a Bill on which I have served.
On a point of order, Mrs. Dean, you will note that we are clearly not going to get on to the area of consultations, ballots, exemptions and reliefs. I wonder if you could just take that into account when it comes to the debate itself. I would be most grateful.