Business Rates

Iain Wright Excerpts

Tuesday 30th October 2012 Westminster Hall

[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure, Mr Caton, to serve under your chairmanship. I congratulate my very good friend, my hon. Friend the Member for Rochdale (Simon Danczuk) on securing this important debate, and setting out the arguments effectively and stylishly.

As a north-eastern lad, I feel somewhat hemmed in by the north-west contingent, but I will do my best to set out some of my concerns about my constituency, and the impact of the Government’s policy on Hartlepool. I will mention five specific points.

First, any discussion of underpinning business rates in my constituency should take account of the Hartlepool economy’s peculiar characteristics. Hartlepool borough council must deal with high need and a low base, by which I mean that it must tackle complex and long-enduring social problems but is generally unable to raise locally the taxes to fund those services. That is why redistribution of business rates from more affluent areas to relatively deprived ones, such as my constituency, is vital. About a fifth of my population are over 65, and that percentage will increase in the next few decades, placing enormous strain on already tight social care budgets.

Hartlepool has 81 looked-after children per 10,000 population of children, which is four times the rate of comparable local authorities. The town suffers from one of the highest levels of youth unemployment anywhere in the country, with one in four young men without a job or not in education or training. Hartlepool borough council must tackle those problems, but finds it difficult to raise the necessary revenue because of the narrow local tax base. Only 43% of council tax is raised locally. Three quarters of properties in Hartlepool are in council tax bands A and B, and only 7% of properties in the town are in band D.

That brings me to my second point, which is the peculiar nature of my local economy when it comes to rates. Hartlepool collects around £27 million in business rates, and receives back from the Government around £40 million. That £13 million redistribution is vital for the complex social needs that I have mentioned. The nature of the town and our economy leaves the local authority hugely exposed to major financial and economic risks. As I said, we raise around £27 million a year from business rates, and over 40% of that—around £11 million —comes from only 10 businesses. Hartlepool power station alone—that one single business—contributes about £4 million, or 15% of the total revenue collected locally through business rates. That leaves Hartlepool borough council exposed to a huge financial risk. If one of these 10 businesses closed or relocated, or the power station, as it comes to decommissioning at the end of its life, reduced its output and, therefore, pressed for a lowering of its rateable value, Hartlepool borough council would be extremely vulnerable to a considerable financial shortfall. The Government’s proposals to set safety net thresholds at between 7.5% and 10% will not provide my local authority with adequate financial protection because of its high reliance on large business rate payers.

I raised the matter with the Minister about a month ago in oral questions, when he made his first appearance at the Dispatch Box, and he kindly offered to meet me to discuss it. I hope we can agree a time for that meeting soon, but I hope that he will outline today any protection that could be made available to local authorities such as Hartlepool that are exposed financially in this way.

The third issue is the effect of top-slicing of local government spending control, funded mainly from the business rate take, which the Government intend to implement before determining grant allocations for individual local authorities. The awards to be top-sliced are considerable, with £250 million to fund capitalisation allocations, and £500,000 for the new homes bonus allocations. One purpose of capitalisation allocations is merely to allow councils to pay for the costs of redundancy through borrowing. Hartlepool borough council, rightly and prudently, has taken the view that any redundancy costs should not be paid through capitalisation as it is not prudent to fund the cost of making people unemployed through loans, thereby increasing the budget deficit in future years.

Although Hartlepool is keen to build more homes, the configuration of the new homes bonus shifts the redistribution of business rates away from areas of high need and low base in the north to more affluent areas in the south. My local authority has stated:

“These arrangements change the basis for allocating total available funding and will reinforce the disproportionate impact of grant cuts on councils in the North East, including Hartlepool Borough Council, compared to other parts of the country”.

What is the Minister doing to mitigate the effects of that top-slicing of business rates, which impacts most harshly on local authorities such as mine and those throughout the north?

Fourthly, as every contributor to this excellent debate has mentioned, the Government’s decision earlier this month to delay the revaluation of rates—my hon. Friend the Member for Rochdale spoke far more eloquently about this matter than I could—will have a massive impact on retailing. The Government have form on this. My hon. Friend and I sat on the Enterprise and Regulatory Reform Bill Committee, so we know that on matters such as unemployment legislation, feed-in tariffs for solar panels, and the tax grab for oil and gas companies in the north-east, the Government implement measures without consulting business or providing them with the ability to adapt, and without providing empirical evidence. Why do the Government not provide such evidence for what they are doing, and why do they not have a pro-business policy to consult and engage with businesses about their decisions?

Changing shopping habits, the existence of three large supermarkets in the centre of town, and the general harsh economic climate in the north-east has had an impact on retailing in Hartlepool. As a result, it has the fourth worst-performing medium centre for retail, with a vacancy rate of 28.8% according to the local data centre. The decision to delay revaluation of rates—as hon. Members have said elsewhere, 2008 was the height of the property boom—will have a further hugely severe impact on retail in areas such as mine, and further closures are inevitable. Those high streets that are already struggling will be hit hardest. That has come out loud and clear during the debate. What will the Minister do to mitigate the detrimental impact of his decision on areas such as mine, and other high street centres?

My final point is one of context. Changes to business rates must not be made without considering the wider context of local government finance. Local authorities such as mine have suffered severely the brunt of Government cuts. Hartlepool borough council had disproportionate cuts in 2011-12 and 2012-13 amounting to about £150 per person, compared with the national average of about £50. The local authority faces cuts to its budget of around one quarter this year, on top of cuts of £10 million last year. In an area of high social need and economic deprivation, cuts of such magnitude will unleash enormous and potentially irreparable damage to the fabric of Hartlepool society.

Will the Minister reconsider what he is doing with business rates and the cuts to local government finance in general and, most relevant to the debate and my area, the redistribution element of his policy, which will see much-needed funds flow from high-need, deprived areas such as mine to more affluent areas? Hartlepool borough council needs that redistribution exercise to provide the services required by the town’s population and heritage. I hope that the Minister will respond positively, because my town really needs that redistribution.