Clause 16

Business Rate Supplements Bill – in a Public Bill Committee at 9:00 am on 29th January 2009.

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Interaction with BID levy

Amendment proposed (27 January): 30, in clause 16, page 11, line 37, leave out subsection (1) and insert—

‘(1) Where a person is, by reference to a hereditament, liable for BID levy in respect of all or part of a financial year in respect of which the person is, in relation to that hereditament, subject to a BRS imposed by the authority, the chargeable amount payable in relation to the BRS shall be offset in accordance with subsection (2).’—(Robert Neill.)

Question again proposed, That the amendment be made.

Photo of Janet Dean Janet Dean Labour, Burton

I remind the Committee that with this we are taking the following: amendment 31, in clause 16, page 11, line 43, leave out—

‘to the extent specified in the rules’.

Amendment 32, in clause 16, page 12, line 4, leave out ‘subsection (4).

Amendment 17, in clause 16, page 12, line 8, leave out paragraphs (b) and (c).

Amendment 33, in clause 16, page 12, line 9, at end add—

‘(5) This section does not apply to the Crossrail project.’.

Clause stand part.

New clause 1—BIDs: supplementary provisions

‘(1) The 2003 Act is amended as follows.

(2) After section 41 insert—

“41A Additional arrangements where business rate supplement imposed

(1) In any business improvement district where a business rate supplement under the Business Rate Supplements Act 2009 has been imposed, a property owner BID levy may be imposed on the owners of non-domestic property, or a class of such owners, in the district.

(2) A non-domestic ratepayer who is liable to pay the BID levy on a hereditament is not liable for a property owner BID levy on that hereditament, and may not take part in a property owner ballot in respect of that hereditament.”

(3) In section 46(1) (description of non-domestic ratepayers liable for BID levy to be specified) insert at end “, and, where applicable, the description of property owners who are to be liable.

(4) In section 49 (BID proposals) after subsection (2) insert—

“(3) A levy on property owners may come into force only where it is approved by a ballot of the property owners in the proposed business improvement district who are liable for the proposed property owner BID levy.”

(5) In section 50 (approval in ballot) after subsection (6) insert—

“(7) A property owner BID levy is not to be regarded as approved by a ballot held for the purposes of section 49(3) unless the two conditions set out in subsections (2) to (6) are satisfied.”

(6) In section 55(2) (regulations about ballots)—

(a) in paragraph (b) after “ ratepayers” insert “and property owners”, and

(b) after paragraph (h) insert—

“(i) enabling the billing authority to construct a list of all property owners in the BID area for the purposes of holding a property owner ballot and billing.”’.

Amendment 45, in title, line 3, after ‘development;’, insert

‘to make provision about business improvement districts in consequence of the imposition of a business rate supplement;’.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

At the end of our sitting on Tuesday, I was near the end of my speech outlining the case for new clause 1 and amendment 45. I have a few additional points, which I will cover briefly now to complete the case.

The advantage of the proposal for a landowner levy to be an option in areas where there is a BID and where there might be an adverse impact from the introduction of the BRS, is that it would be permissive. There would be no obligation on local authorities to produce a register of landowners, which could be an onerous and expensive operation and could involve abortive expenditure. It would apply only in those cases where BIDs were up and running, where there would probably be a greater understanding of the ownership structure in the area. There would be an incentive to ensure that the BID, if it was working successfully, had the prospect of continued viability should it be threatened, as we heard from witnesses who gave evidence last week, by the arrival of the BRS. I therefore believe that there would be considerable advantages.

I accept, however, that more work might be needed if this particular option is to be progressed. There would almost certainly be a need for further guidance on the processes involved in compiling a register. If I can persuade my right hon. Friend the Minister for Local Government consider the proposition, I would be happy to offer any further thoughts outside the Committee on how that process might be undertaken.

It will be important to conduct some further research. A research study was commissioned precisely because of the anxieties about the non-contribution of landowners towards BIDs. I believe that that study, commissioned by the Department and undertaken by the university of York, has completed two stages. Stage 3 has been postponed because of the expected arrival of the BRS; that is an entirely proper approach by the Department, as it avoids anticipating conclusions to a research study that could be influenced by the impact of the BRS.

It would be sensible to have a specific element in the research study looking at the experience of introducing, on a voluntary or a permissive basis, a landowner levy in one or more BIDs districts, where the imposition of a BRS can be anticipated and where there might be an  impact. One might suggest the possibility of a control study, using one or two BIDs districts without the landowner levy and one or two with the landowner levy, to compare and contrast the experience of those two.

There are very strong grounds for considering the option. The issue has been with us right from the origin of BIDs. We heard evidence that the success of BIDs might be undermined following the introduction of the BRS if progress is not made on the funding package to keep BIDs viable, and we know that the contribution of landowners could be critical.

I hope that I have said enough to persuade my right. hon. Friend that the idea is worthy of further consideration. I accept entirely that my new clause and amendment are unlikely to be accepted today. I shall be happy not to press them if my right hon. Friend indicates that he is not happy to accept them, but I hope that he will be willing to give further thought to the concept.

Photo of Dan Rogerson Dan Rogerson Opposition Whip (Commons), Shadow Minister (Communities and Local Government)

Welcome to the Chair, Mrs. Dean.

I will speak briefly to the amendments proposed by the hon. Member for Bromley and Chislehurst, but also to amendment 17, which stands in my name and that of my hon. Friend the Member for Solihull. First, on amendment 30 and the consequent amendments, an automatic offset—which I believe is the underlying principle—is problematic. In many areas BIDs and business rate supplements will be doing entirely different things. With reference to our previous debate, had there been a ballot in both cases, it would have been easier to reconcile the two, because that would have demonstrated that the business community had opted for both. However, an automatic offset is potentially problematic.

The new clause, to which the right hon. Member for Greenwich and Woolwich spoke, is attractive and absolutely right. During evidence sessions, he consistently drew attention to the lack of a mechanism to enable a more formal role for property owners, as opposed to tenants, to participate in BIDs and a BRS. I am therefore attracted to his proposals. As he said, this is an exploratory process and he does not intend to press them to a vote. We are all the better for his having done that and I congratulate him on raising those points.

Amendment 17 takes a different approach to that proposed by the hon. Member for Bromley and Chislehurst in his amendment, in that it seeks to give flexibility to local authorities. Our colleagues at the Local Government Association may not be happy with some of my remarks about ballots, but perhaps they will be slightly happier with these ones. Under amendment 17, a local authority that wished to put in place a BRS across its entire area, where there might be one or two BIDs, could take a different approach to BIDs within that area, depending on local circumstances—for example, how advanced the BID was or how close it was to concluding. Of course, that would be done in consultation with the business community in the area, because there might be specific reasons why an offset would be preferable in that area. In conclusion, amendment 17 would give flexibility to a local authority, in consultation with its local business community, to achieve a local solution.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

It is a pleasure to serve under your chairmanship this morning, Mrs. Dean. I hope that the Committee will make as much progress as it did on Tuesday.

We have had a full debate on this group of amendments, which is right because of the number of concerns voiced in last week’s evidence sessions. The concern to protect the future success of BIDs was clearly part of our thinking when framing the legislation. Interesting and important points have been raised about the interaction between BIDs and a business rate supplement, and our debate has been well informed by and drawn from the evidence that we took last week. That underlines the value of the new Public Bills system, which allows evidence taking before the start of the scrutiny sittings. To help the Committee to consider the proposals in two stages, I shall deal first with the amendments that suggest an automatic offset for a business improvement district levy from the business rate supplement; and, secondly, with the new clause tabled by my right hon. Friend the Member for Greenwich and Woolwich.

Like other members of the Committee, I listened carefully to the evidence last week and to this debate. I am conscious of the arguments and recognise the concerns about BIDs within any new system. It is encouraging that there is—unlike in 2003—a very clear view on all sides of the House about the importance of the success and future value of BIDs. We want them to continue to thrive alongside a business rate supplement. The fact that we are so conscious of BIDs’ value is a real tribute to the work that my right hon. Friend the Member for Greenwich and Woolwich put in as the Minister responsible for that policy and legislation five years ago.

Let me explain why in many ways the amendments cut across the ethos that we have tried to enshrine in the Bill. We aimed to establish the principle that local authorities will work together with businesses in their area to develop proposals for major investment and projects that will strengthen the long-term economic development and success of their area. In other words, the responsibility and decision making will be devolved to the local level. The Bill, therefore, essentially gives a decentralised but circumscribed power to local authorities to play that future role in the economic development of their area.

In keeping with the desire to decentralise such decisions so that they can be made appropriate to the areas to which they apply, authorities will also have flexibility—again, within certain limits—to design the levy, as well as to determine whether to introduce a BRS and decide to which projects they should contribute funding. Local authorities can therefore decide whether to offer more generous safeguards to business; to set the threshold for the liability to pay the BRS above the £50,000 that we propose; and even to decide to exclude empty properties from liability. With that general approach, it is only right that we should leave to the local level the decision on whether there should be an offset for those paying BID levies. The Bill offers local authorities the power and scope to make that decision. If Members pause to think about this, they will see that it is self-evident that circumstances will vary considerably in different local areas with different BIDs. The Government have therefore framed the legislation to make provision for the arrangements of BIDs to vary.

I turn now to amendment 17, which stands in the name of the hon. Member for North Cornwall. Clause 16 in general requires the levying authorities to set rules on the extent to which BID levies can be offset against a BRS liability. However, the clause also requires those  authorities to apply the same rules to all BID levies throughout their area. I am not sure whether it is what the hon. Gentleman intends, but treating BID areas differently could allow levying authorities to draw up different rules for different BID areas. That could contravene some of the state aids legislation and competition rules and therefore favour certain types of undertaking in certain areas. The hon. Gentleman quite rightly described the proposition in amendment 30 as problematic, but the proposition in amendment 17 is equally so.

Amendment 30 would require an offset for BIDs in all circumstances except, of course, Crossrail and London. The evidence that we heard from the chief executive of British BIDs, Dr. Julie Grail, was particularly impressive and informed, as well as extremely helpful to the Committee. I took on board and understood her concerns about BIDs, particularly in areas where there may be a BRS and there is a desire to introduce new BIDs or perhaps to refresh the mandate to continue a BID. I will give further thought to her views, because they were echoed by my right hon. Friend the Member for Greenwich and Woolwich, who said that he had a genuine concern that reflected Dr. Grail’s.

Beyond the concern about the risk and therefore about the protection of BIDs within a BRS system, it is important that this morning we subject the case in principle on whether there should be an automatic exemption to careful scrutiny. Doing so will lead to a judgment, which has to be made, on whether that is the right approach. BIDs and the BRS are different policy measures designed to deal with different types of project and activity. In deciding whether to have an offset, levying authorities will need to consider the benefits from a BID to those paying for it and the benefits from a BRS-funded project to those paying the supplement.

Although we followed the approach to BIDs to a great extent in framing the legislation for the BRS, the two are different. That is one reason why the power to levy for a BID lies with lower-tier local councils, while the power to levy a BRS is restricted to the upper-tier or unitary authorities in an area.

There are several other differences between the two. First, they are different in purpose: a BID is essentially short term, and the levy generally funds immediate activity, such as community wardens, street cleaning, pedestrianisation projects and CCTV cameras; a BRS, in contrast, is longer term and more suited to large-scale investments and capital projects. BIDs also tend to reflect directly and immediately on the bottom line for individual businesses. A BRS, on the other hand, brings longer-term, much wider and perhaps less specific and less easily quantifiable benefits for an area, including the businesses in it. BIDs typically run for a term of three to five years—their mandate must be re-established every five years. In contrast, the BRS is for longer-term investments—there is no fixed time limit. For instance, for Crossrail, the Mayor proposes to use a BRS for a 24-year term.

The uses of the funds are also different. Generally, funds raised from BIDs support revenue spending, and they often raise the lion’s share of the funding for a particular project in an area. On the other hand, the  BRS—certainly for Crossrail—supports the capital required for a long-term project. The geography, too, is generally different. BIDs are specifically designed and set up in a highly localised area—often, but not exclusively, a town centre—so they are small in scale. The BRS, in contrast, is designed to benefit a much wider area, and the liability is therefore applied in a wider area. It may often apply to more than one local authority area, as in the case of London, and perhaps others in the future.

Finally, in many cases, the businesses that are liable and paying for a BID will be different from the businesses that will be paying a BRS, particularly given the threshold that we propose to set. In other words, the majority of businesses paying for a BID are unlikely to fall into the category that will be liable to pay a BRS.

We heard from the Confederation of British Industry, British BIDs, the Royal Institution of Chartered Surveyors and the Mayor in his written evidence, and it is quite telling that their view is that BIDs are different from the BRS. The argument that the hon. Member for Bromley and Chislehurst advances in his amendment—that there should be an automatic offset—does not, therefore, have a strong, principled basis, and I hope that he will not press it to a vote.

In fact, the hon. Gentleman did, in many ways, help me make my arguments. In our earlier sittings, he accepted that there are clear differences between BIDs and the BRS. He acknowledged that there may be some overlap, but that is precisely why the Bill gives the levying authority the power to consider whether there should be an offset when a case can be made that there is an overlap in a local project. That is why there is flexibility in the Bill.

Photo of Dan Rogerson Dan Rogerson Opposition Whip (Commons), Shadow Minister (Communities and Local Government) 9:15 am, 29th January 2009

Although I entirely take the Minister’s point that amendment 17 might be leading us into the dangerous territory of competition, my intention was to reflect the point he has just made on specific local circumstances. It would increase flexibility for local authorities because those circumstances might apply to one BID area and not to others in a large rural area.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

I understood why the hon. Gentleman felt that this proposal should be looked at, but I have already explained the problems with it and why I cannot accept it. I hope that he will treat this discussion as a useful airing of the issues and not press amendment 17 to a vote.

The hon. Member for Bromley and Chislehurst suggested that another way of offering an offset might be to have a reduction in the business rate multiplier. He mentioned in passing the point he made on Second Reading that the Government have not provided in the Bill the option for a levying authority to reduce the business rates and give a reduction rather than a supplement. We raised that question in the White Paper in October 2007, but decided not to pursue the idea in the Bill because detailed discussions with business, local government and other interested parties revealed no real appetite for it and, in fact, a number of problems were foreseen.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

If I continue for a minute before giving way, I may answer the hon. Gentleman’s question.

In the end, the principal problem was that people found it hard to see how the proposal could work in practice without having an impact on mainstream local authority services, as it would take funding from them. It could also have an impact on council tax payers, who would have to meet any shortfall caused by a reduction in the business rate. For those reasons, we did not pursue that proposal in the Bill.

Photo of Bob Neill Bob Neill Shadow Minister (Communities and Local Government), Deputy Chair, Conservative Party

I am grateful to the Minister for that explanation and for his earlier explanation of the Government’s thinking on the automatic offset. He will not be surprised to hear that I am not entirely convinced. The issues of local flexibility, resolving potential conflicts with mainstream revenue and the impact on council tax payers could have been addressed had the Government provided for an automatic ballot in all cases. Had they done so, those issues would then be part of the local debate and it would be for local people to decide whether to go ahead with the BRS.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

I am interested in the hon. Gentleman’s point. Does he mean a ballot of council tax payers, as they would pick up the tab, or is he returning to his argument for a ballot of business? The logic of his proposal for a ballot was that all businesses that would have to pay more through business rate supplements should be balloted. With a reduced business rate, the extra burden would fall on the council tax payers. Logic demands that he is now proposing a ballot of council tax payers rather than businesses.

Photo of Bob Neill Bob Neill Shadow Minister (Communities and Local Government), Deputy Chair, Conservative Party

That is a good try by the Minister. He knows that our point is that a ballot of those who pay under the BRS scheme would inevitably be informed by the views of the council and the council tax payers who are the customers of the businesses. Such a ballot would naturally generate a public debate in the area. A ballot of council tax payers is not required, as they will get their own vote in the council elections. At that point, they can judge the wisdom of the local authority in embarking on such a scheme.

I understand and accept the Minister’s point about the difference between the BRS and BIDs, particularly from the point of view of Government and local authorities. Does he concede that from the point of view of the businesses that will have to pay, the BRS and BID levies will come out of the same pot? From their point of view, both affect their bottom line and their cash flow. That is why the automatic ballot might have resolved the questions we are discussing.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

I do not want to re-rerun the arguments on the compulsory ballot that the hon. Gentleman has lost for now. He is right that a business may have to find a BID levy and a business rate supplement. However, to return to my general argument, if in an area there is a case for both, the benefits likely to be derived and the purposes for which the two charges might be introduced are different, so one cannot automatically and fully offset the other.

I shall now move on to the new clause proposed by my right hon. Friend the Member for Greenwich and Woolwich. I am grateful, as are other members of the Committee, for the opportunity to debate the issues  that arise from his proposal. On Tuesday, he was right to hope that I would be sympathetic to the new clause but also to suspect that I would be unlikely to accept it. I want to give further careful consideration to what he described as a fundamental problem with BIDs, which is that the levy cannot be applied to the owners of business properties. I know that he has regarded this as unfinished business since the Local Government Act 2003.

My right hon. Friend mentioned the research that we undertook. He correctly stated that we did two stages of research on property owners and BIDs. Both sets of research were inconclusive—in other words, they demonstrated that BIDs could go ahead successfully without contributions from property owners and that some went ahead successfully with voluntary contributions from business owners. He is also right to say that we pulled or perhaps postponed the third phase of the scheduled work, not least because the prospect of the BRS suggested that that was sensible, which is the stage we are at now.

As I understand it, my right hon. Friend’s proposal is that where a BID is in place in an area that is likely to be subject to a BRS, the BID body would be able to decide whether the owners of the properties in the BID should be liable for the BID levy. A register of the BID owners in that area would therefore have to be prepared. By enabling property owners to pay towards the BID, extra revenue would be available to offer occupiers a reduction on their BID payment. I think that that is the logic behind what he has in mind and how it would operate. In effect, it would be an offset for the occupiers, or a cushion against a BRS, where local judgment suggested that it would otherwise place a BID in jeopardy.

I agree with my right hon. Friend that his proposal is elegant—in many ways, it is. If he wants to intervene, I will be interested to know the extent to which he has discussed his proposition and approach with some of the obvious interested organisations, such as British BIDs. I am interested in that because clearly the proposal would break new ground.

Photo of Nick Raynsford Nick Raynsford Labour, Greenwich and Woolwich

I am most grateful to my right hon. Friend for inviting me to intervene. I shall try to answer his question as quickly as I can because interventions should be brief. I have held discussions with the British Property Federation about the concept of a power being available to allow a levy to be raised following a ballot of property owners—that ballot would be essential. The proposal is the result of those discussions. I have consulted interested people, but I have not specifically discussed it with Dr. Grail, although I would be more than happy to do so.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government)

That is helpful. It indicates both the serious intent and the how early the stage of examining and developing the idea is. I shall respond to my right hon. Friend on that basis.

Photo of Philip Dunne Philip Dunne Opposition Whip (Commons)

I am always helpful. I am sure that the Minister has seen the note prepared by the British Property Federation in connection with the new clause. It claims that the new clause has the “explicit support” of not only the British Property Federation, with which the right hon. Member for Greenwich and Woolwich held discussions, but the British Retail Consortium, British BIDs and London First. If the Minister has not received a copy of that note, I will be happy to provide him with one after the Committee.

Photo of John Healey John Healey Minister of State (Department of Communities and Local Government) (Local Government) 9:30 am, 29th January 2009

As the hon. Gentleman promised, that was a helpful and useful contribution to the Committee’s debate on this approach.

As my right hon. Friend the Member for Greenwich and Woolwich has acknowledged, should we be able to make a response to the concerns raised by Dr. Julie Grail, one of the things we will need to deal with is the principal problem of 2003: bringing property owners into the BIDs framework. The problem at the time was that BIDs were based on the ratings system, in which liability for rates falls on the occupier rather than the owner in most cases. The view at that time was that including them would have amounted to a new tax on property owners. That is why at that stage, the provision was made elegantly for property owners to make a voluntary contribution towards the BIDs. That is the approach that we have followed with the Bill. I referred to that last week in my evidence to the Committee.

The other principal argument for taking that approach in 2003 and in the current Bill is provided by Cambridge Econometrics, which has looked at evidence for the feed through of business rate rises from property owners to occupiers. It found that the majority of the change in business rates is passed on through reduced rents. While the formal burden of taxation for business rates falls on occupiers, the economic incidence—the actual costs—passes on to the landlords in large part, if not in whole, in the medium term. That raises a question about the extent to which property owners should be required to contribute, particularly for a medium or long-term project facing levies such as the business rate supplement.

There are other questions about the proposition in the clause that come to mind. There are practical questions about the suitability of a double-lot ballot and the prospect of property owners voting to reject a levy, and the question of not guaranteeing that any additional contribution by property owners to the BID would be passed on to the occupiers. Finally, there is the question of the administrative burden on billing authorities to set up a register.

I say to my right hon. Friend that I will consider this further and consider the scope for property owners to be bought more fully into the BIDs system. I would be very pleased to meet him to discuss that further, if he wants me to, when he is ready. I hope that, on that basis, he will not press the new clause to a vote—I think he has indicated as much to the Committee.

Finally, I return to the question of the automatic offset, which has been raised by a number of outside organisations and is on the agenda as amendment 30. There are voices calling for that, but others are arguing the opposite case. Let me finish, therefore, with a couple of quotes from important and informed sources. The first is from the South Bank Employers Group—an  association of major organisations on the south bank in the Waterloo and Blackfriars areas—which helps to deliver a BID-type benefit for their local area through an alternative but voluntary BID levy. Members of the group, comprising a high proportion of the largest business rate payers in the area, decided not to propose a BID. Their view was that the present voluntary arrangements worked extremely well in their area and that a BID would not bring greater benefits. They have also looked at an automatic offset and their view is that having an offset for BID payers would be unfair. The group said:

“The fact that business have chosen to contribute to this fund of local additionality...should not in any way relieve them of the obligation to contribute to a major pan-London project like Crossrail. This would be seriously unfair on major businesses which are not in BID areas, whether because they have voted against the BID proposals or because a BID proposal has not come forward, or because the area is not seen as suitable for a BID.”

If Opposition Members are going to press the case for an automatic offset to the business rate supplement for BIDs levy payers, they have to deal with the argument of the association that represents the BIDs themselves, which we heard in evidence last week from Dr. Julie Grail:

“a full offset in London would be a ridiculous and dangerous move and would give an open door to every business community in London to go and get itself a cheaper business rate supplement”.——[Official Report, Business Rate Supplements Public Bill Committee, 20 January 2009; c.47, Q200.]

Photo of Bob Neill Bob Neill Shadow Minister (Communities and Local Government), Deputy Chair, Conservative Party

I hear what the Minister says. Sometimes when there is conflicting evidence, people come to different conclusions, and I think that that is where we are at. The South Bank Employers Group’s argument would have been met in the event of a ballot—I am not going to repeat the point again after this—because that would have involved an informed choice. On the second piece of evidence, the exemption for Crossrail would have dealt with that issue.

So, grateful though I am to the Minister for his detailed and helpful response, and alive as I am to the very valid points raised by the right hon. Member for Greenwich and Woolwich, I hope that I do not damage the chances of his proposal going forward if I commend it to the Minister for further consideration, as well. None the less, my hon. Friends and I will seek to press our amendment 30 to a vote.

Question put, that the amendment be made.

The Committee divided: Ayes 4, Noes 9.

Division number 5 Nimrod Review — Statement — Clause 16

Aye: 4 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Clause 16 ordered to stand part of the Bill.