Business Rates (North-East)

Iain Wright Excerpts

Tuesday 25th October 2011 Westminster Hall

[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Amess. I congratulate my hon. Friend the Member for Sunderland Central (Julie Elliott) on securing the debate, which I think we all agree is vital to the economic future of the north-east.

The Government’s proposals on business rates discriminate against the north in favour of the south, against smaller authorities with less potential for growth in favour of larger, more metropolitan areas with a wider economic and tax base, against deprived areas with greater social and economic problems, in favour of their more affluent counterparts, and against manufacturing industry in favour of retailing. If the proposed changes to the redistribution of business rates were to take place while everything else in local government finance remained equal, they could at best be given serious consideration. However, we all know that the proposals are made in the context of the most radical, disruptive and damaging changes to local government finance for more than a generation.

I shall concentrate on the borough of Hartlepool and the impact of the proposals there. For the two financial years 2011-12 and 2012-13, Hartlepool borough council’s cuts amount, in terms of the total expenditure slashed by central Government, to some 20%, or an annual change of £10 million. Put another way, the cuts to local government finance in Hartlepool mean a reduction in spending of some £150 for every man, woman and child in the borough, as opposed to a national average reduction of some £50. On top of that, if the business rates redistribution system were to be changed, the borough of Hartlepool could lose upwards of £13 million every year. That is the difference between the amount of business rates collected locally—£27 million—and the £40 million that is redistributed back to the town from the Treasury through the national business rates system. I think we would all agree that such a proposal could not be maintained in any sustainable way for Hartlepool.

[James Wharton (Stockton South) (Con)]

With the proposed tariffs and top-ups, is not that exactly the sort of situation that should not arise? Hartlepool would receive a benefit, added to the business rates that it collects, to top it up to the relevant level, starting at a base point to maintain its funding level in the year of the introduction of business rate retention.

[Mr Wright]

Those last few words are the key phrase. It is what will happen after 2013 that I worry about. There will be potentially very damaging consequences for the north-east economy, and for the services that local government provides to the most deprived communities in our areas, about which we are most concerned.

A further difficulty in Hartlepool is the specific nature of the tax base. It is difficult to raise revenue locally. Forty-three per cent. of council tax is raised locally, as opposed to similar areas which could raise as much as 80% or 90% locally. Three quarters of properties in Hartlepool fall within council tax bands A and B. My hon. Friend the Member for Sunderland Central mentioned a figure of 9% for properties in band D. In Hartlepool that figure is 7%, so on top of the proposed changes in business rates, the borough’s ability to raise taxes locally is limited, and the Government are doing nothing to address that. The way they are stripping demand out of the local economy through cuts is making things worse.

I mentioned earlier that Hartlepool collected £27 million in business rates. The Hartlepool economy—my hon. Friend touched on this question with respect to the wider north-east economy—depends on a small number of business rate payers. Ten businesses contribute £11 million, or nearly 40% of the annual business rate revenue collected in Hartlepool. One business alone contributes 15%, or £4 million, of the rates collected. If one of those businesses were to relocate or cease trading, the effect on the finances of Hartlepool would be catastrophic. The Minister must appreciate that it would be impossible to regain such revenue for many years in the event of such a large business leaving. What will the Government do to mitigate that risk?

In his statement to the House on 18 July, the Secretary of State said at column 672 in response to a question from me that Hartlepool would not be worse off as a result of the proposals. Following the intervention from the hon. Member for Stockton South (James Wharton), I think it is fair to say that that will be true until 2013-14, but what happens afterwards? It is important for the council’s planning that it be given more details, so will the Minister provide more information on such matters as the basis for setting the baseline; setting the initial tariff and subsequent top-ups; whether such top-ups will be uprated through RPI, CPI or some other measure; and the frequency of resets within the system, to allow councils to plan?

The policy of the Government, certainly when it comes to tackling public finances, and particularly with regard to the relationship between central and local government finance, is to target higher grant cuts on those local authorities with relatively greater dependence on grants and with more deep-rooted social and economic problems. The proposals on business rates make such problems even worse and target the north-east and authorities such as Hartlepool particularly severely. I hope that the Minister will think again.

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[The Parliamentary Under-Secretary of State for Communities and Local Government (Andrew Stunell)]

It is a pleasure to serve under your chairmanship, Mr Amess. I congratulate the hon. Member for Sunderland Central (Julie Elliott) on securing the debate. I think that this is the second time that she and I have found ourselves discussing matters of importance to the north-east in this Chamber. The proposed reforms are important, not just for local authorities in the north-east but, as some Members have noted, for areas throughout the country. There are implications beyond the north-east.

I thought that there was general agreement and consensus that this country has the most centralised and complex local government finance system in the world, with the possible exception of Malta, which has a much simpler governance structure in any case. In all my time in local government—I served on three different local authorities in the north-west of England—I never liked the decisions of any Government on local government finance. I have seen a series of disastrous mistakes, resulting in more power and responsibility being taken away from local authorities and their being subjected to choices—sometimes arbitrary and, clearly on many occasions, not taking account of local services—made in Westminster and Whitehall.

[Mr Iain Wright]

Will the Minister give way?

[Andrew Stunell]

I will give way to the hon. Gentleman, who is a former Communities and Local Government Minister and one of those who has delivered so many arbitrary decisions to people like me.

[Mr Wright]

I am grateful to the Minister, who is my successor at the Department for Communities and Local Government. Does he think that, with tariffs, top-ups, resets and redistribution, the system that he has to implement will be less complex than the current system?

[Andrew Stunell]

Yes, most certainly. It will be transparent. I think that the hon. Gentleman, for whom I have a great deal of respect, knows that the formula system, which was made even more convoluted during his period in office, has clearly passed its sell-by date. It is impenetrable, even to chief finance officers of local authorities, not to mention voters on the street.

In the time remaining, I will explain some of our proposed scheme’s features and talk about the consultation process. The aim of the proposals is to change the dynamic from a centrally controlled system to a locally controlled system. That is the purpose of the reform.