Business Rates (North-East)

Debate between Alan Campbell and Tom Blenkinsop

Tuesday 25th October 2011 Westminster Hall

[Mr Campbell]

If we are talking about what the hon. Gentleman has not done, he has not shared the information that, of all the councils in the north-east, only Stockton council stands to gain from the proposal—some £4 million.

Whatever argument there is for localising business rates, concern has been expressed on both sides of the Chamber today about the impact that the policy might have on the north-east. We welcome the opportunity to play a constructive part in the consultation and the wider debate.

Why should the north-east have cause for nervousness? I am reminded of the comments of the then Leader of the Opposition, now Prime Minister, on the eve of the general election. He said that when the changes and cuts in public spending are made, it will be the north-east that can expect to be hit hardest out of any region. That is why local authorities in the north-east are united across the parties under the banner of the Association of North East Councils in the information that they are providing to the consultation. I believe that that is also why the wider business community shares those concerns.

I want to address the concerns not from a political point-scoring perspective, but in the context of what the Government say they are trying to achieve for the region. Under this change, my local authority, North Tyneside, stands to lose £19 million, which is half as much again as the level of cuts that are necessary because of local government funding changes. The region as a whole stands to lose a third of a billion pounds. Compare that with an area such as Westminster that generates £1.8 billion in business rates each year. The fundamental question is how local economies in the north-east can compete with areas that have a large business rate tax base and the resources to invest not only in attracting future jobs, but in continuing to provide local services. The Government’s own local growth strategy aims to rebalance the United Kingdom’s economy, but if we are not careful, this proposal will have the opposite effect. London and the south-east are not the only areas that stand to do well. Scotland will continue to have Scottish Enterprise, which will attract businesses and jobs. The north-east is losing its development agency and its regional growth fund is proving ineffective.

[Tom Blenkinsop]

My hon. Friend is making a good case. Middlesbrough stands to lose £27.5 million a year as a result of these changes and Redcar and Cleveland borough council stands to lose £18 million a year. Is my hon. Friend also aware that the unemployment rate in Middlesbrough is 14.3% and it is 12.4% in Redcar and Cleveland? Many of the issues outlined by the Government in the consultation are counterintuitive to their own growth agenda, especially in an export-led manufacturing recovery.

[Mr Campbell]

As ever, my hon. Friend makes a better argument than me. His point is precisely the one that I am trying to make. If we are not careful, the results will be counterintuitive to what the Government say they want to achieve. We all want to see economic growth in the north-east. It is not only good for the region but the best way in which to cut the deficit. The Government want to see economic growth, but I am not sure whether they know how to achieve it. The north-east has a good record of growing small and micro-sized businesses, yet those are the very businesses that do not generate high levels of business rate income, at least in the short term.

The Government also say that they want to see the growth of manufacturing. Again, we all want to see that. The north-east has a proud manufacturing tradition, but it cannot make a living in a modern world on tradition alone. The manufacturing sector is still an important part of the north-east economy, but the most recent report from the north-east chambers of commerce expresses concern about the weakness of manufacturing in the area. Again, as we have already heard, manufacturing tends to generate less business rate income than large retail businesses. Therefore, if a local authority is looking to regenerate an area to increase its business rate and to create jobs in an area, would it be better to have a retail or a manufacturing development?

If we are to see a more level playing field with regard to public spending, we should do what was done in the past and bring infrastructure project investment to the north-east. We are told that the Government are considering bringing forward infrastructure spending to get growth started. Certainly, investment over and above the return of business rates will be necessary if we are to unlock the potential of the north-east economy. Take for example the next stage of the improvement of the A19 at the junction of the Silverlink roundabout. The previous Transport Secretary had a very strange view of cost-benefit analysis. In his new role, such a view would equate to him requiring soldiers to pay for half of their tanks and sailors to pay for half of their ships. If the Government are looking to grow businesses that then pay business rates and to rebalance the economy at the same time, it really will require a joined-up approach. They must be careful about the impact of this particular policy.

If these changes go ahead, can the Government assure us that councils will be given time to adjust? How large will the safety net be? Will there be a long-term approach to adjustment? If not, the situation for councils will deteriorate year upon year. Will any adjustment mechanism take into account inflation, which is high and rising? Above all, will the new system be fair? Will it have a national element? The localisation of business rates in the north-east is important, but so too is the localisation of business rates across the country as a whole. If we do not have a national element, the system will not be redistributive in any way.

What would be indefensible is for richer areas in a region or council to have to subsidise poorer areas. We need to see richer areas of the country subsidising areas that require support. Will the new system be fair? Despite the improvements of the past decade, we have higher than average levels of deprivation. Child poverty and the calls on the health services are high and we have an ageing population. This is not special pleading, but a request to the Government to give the north-east a fair deal. Without a careful examination of their proposals to ensure that they are fair, the north-east will be in for an even more difficult time than we imagined.