Local Government Finance Bill

Damian Collins Excerpts

Tuesday 10th January 2012 Commons Chamber

[Damian Collins (Folkestone and Hythe) (Con)]

In the short time available I wish to focus my remarks on business rates and tax increment financing. I will pick up on an issue that has been raised throughout the debate, particularly by Opposition Members, which is that the partial retention of business rates is unbelievably complicated and that it is somehow a centralising step; it is anything but that. The fundamental principle is incredibly simple: it is about creating a mechanism whereby there is a greater degree of common cause between business growth in the business community and the decisions a local authority might take.

I have heard no one in the debate support a totally localised system, with councils keeping every single penny of business rates. That would exacerbate the problems that Opposition Members have spoken about, which is why that is not what is set out in the Bill. A totally nationalised system would be totally centralised, taking business rates completely away from local authorities. What is proposed instead is a very simple and powerful idea: giving local authorities, in a fair way, the power to retain some of the business rates they collect, creating a much more physical link between them and the local business community. When we talk to constituents, we often find that they think that that happens anyway. Some are surprised to learn that business rates are simply passed up the chain, and that the link between the local business community and the local authority is not there to the extent that it used to be.

That link will help councils to develop proactive strategies on regeneration beyond those they have at the moment, and to develop better relationships with their major employers, so that they can work together to see how they can foster business growth. Although these are difficult economic times, some businesses are looking to expand. I see them in my local authority, and the council is having discussions with them on what it can do. The business community wants a greater sense of urgency on the part of local authorities—even local authorities that have a good relationship with their businesses—in planning decisions and consultations, and in working together and saying, “What can we do to help you to grow your business?”

I agree with the hon. Member for Lewisham East (Heidi Alexander) that it is difficult to see how growth can be stimulated in local authorities where there are pockets of deprivation and low business activity. Such problems have existed in Folkestone harbour and the east end of Folkestone since the departure of the channel ferry business and the closure of the traditional port. There, a private investor and philanthropist has invested to create a new business community based around the arts and creative industries. I wholeheartedly support that scheme, which has been driven by big private investment, but the challenge is to ask what the local authority can do alongside that to help drive the process forward, rather than simply taking planning decisions and having a friendly relationship. Can the local authority look to invest alongside that development, to create a new raison d’être for that local economy that will attract other businesses?

In that respect, the tax increment financing powers are interesting and important, because they create a mechanism whereby local authorities can borrow to invest to improve business infrastructure to attract business. We know that in areas of market failure, market forces on their own are not enough to drive regeneration. There are fundamental reasons why the business base in that area has collapsed, and it needs special help and support. The tax increment financing powers in the Bill can deliver that, and the incentives for local authorities to grow their business rates. They will know that doing so gives them more money to spend on local resources. The powers will also give local authorities an argument to make to local people when they are considering planning applications for business expansion. They can say, “The community gets something back from the local authority’s proactive relationship with the local business community and from seeing business rates grow.”

Tax increment finance powers enable local authorities to behave in the way that a major commercial landlord of a large estate would behave. In most parts of the country, town centres are not dominated by a single landlord, but we find that situation in the centre of London. Such a commercial landlord will invest heavily in improving the quality of the business stock and business infrastructure, in the knowledge that they will gain when the higher rents come in.

Some landlords that operate in central London, such as the Grosvenor estate, which operates a mixed commercial and residential portfolio, invest in commercial areas and give discounted rates to make the community a nicer place to live, knowing that they can recoup the discount through the residential income they get from rent on their properties. They take a view on investing in their estate and getting the money back. In areas of the country where no single dominant landlord can do that, taking such a view is a role for local authorities. With the new relationship with the business rates and the powers of tax increment financing, we give local authorities a way to develop a local plan for regeneration that will be better and more targeted than any Government Department could ever devise for that community.