Business Rates (North-East)

Tom Blenkinsop Excerpts

Tuesday 25th October 2011 Westminster Hall

[James Wharton (Stockton South) (Con)]

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.

It is not unusual, as a Conservative Member for a constituency in the north-east, to feel a little outnumbered, and today the odds are perhaps slightly on the side of the Opposition, as far as weight of contribution is concerned—although perhaps not quality; we shall find out about that.

The way we fund local authorities is very centralised and has been for some time. The OECD says that we have less funding autonomy for local government than France, Germany, Spain, the United States and Japan. That is not sustainable, and successive Governments have considered, and commissioned reports about, ways to move funding, to give local authorities more responsibility over what happens in their area, to allow them to benefit from success, and to transfer responsibility, so that local democracy can be more effective in holding to account the representatives who run an authority. More than half our local authority funding, on average, comes from central Government grant—money redistributed through the Treasury.

What the Government appear to be trying to do is to reverse that trend. We have seen in areas other than funding, such as localism legislation, that councils are going to have a general power of competence. Local authorities will be empowered to do things that are in the interest of the communities that they represent. In doing that, there is a need to reform funding and the way in which local authorities receive their funding, so that they will have autonomy, freedom and the local accountability that comes with such autonomy and freedom. I am prepared to believe—giving credit to the Government—that that is the foundation for the proposals on business rate retention.

Local authorities collect about £19 billion in business rates annually. That goes to the Treasury, which redistributes it. As the hon. Member for Hartlepool (Mr Wright) pointed out, some authorities get more back than they put in. That is quite right, because there is a discrepancy in the ability of different local authorities to raise rates from the existing infrastructure in their areas. The challenge for Government is to find a fair way of tying future growth and so incentivising councils to promote growth in their authority area without unduly disadvantaging areas that will find it more difficult to do so.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

Does the hon. Gentleman not think that the Government’s policy at the moment is slightly counter-intuitive, given that the Tees valley local enterprise partnership has a manufacturing-led sector growth policy? If manufacturing per hectare brings in only a fifth compared with retail, does he not think that the new policy could hinder the sector growth policies of business-side LEPs?

[James Wharton]

The hon. Gentleman makes a valid point, and I will touch on that later in my brief comments. We are consulting on how the policy would work, and there is a challenge for the Government to ensure that the areas that promote a manufacturing base as the driver for economic growth are not disadvantaged. It is a valid point, but we must not jump the gun and assume that it will be a problem, because we do not yet know what the framework will be—it is a matter for consultation.

There are weaknesses with the current system, such as accountability, which I have touched on, and a weakness in the freedom of local authorities to respond, because they are so dependent on central Government grants. We have seen, over many years, the problems of the central Government grant funding system, which include its complexity and how it often plays out in ways that cannot be easily predicted and are not necessarily to local benefit. There is also a problem regarding the incentive that it gives to some local authorities and councils, which may perceive that they can get more benefit for their area by lobbying central Government for more support than by focusing on promoting growth and improving their area.

What are the Government doing? The first and most important point, which some hon. Members, to give them their due, have touched on this morning already, is that there is a consultation, which is an opportunity to feed in, talk about and outline proposals, and to ensure that the concerns of local authorities in places such as the north-east, where there is a genuine fear that they may be disproportionately disadvantaged by any move towards local retention of business rates, are properly taken into account.

--- Later in debate ---

[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.

[Ian Swales (Redcar) (LD)]

It is a pleasure to serve under your chairmanship, Mr Amess. I congratulate the hon. Member for Sunderland Central (Julie Elliott) on securing this important debate.

As an accountant for ICI in the mid-1980s, I remember signing cheques for more than £6 million for local authority rates and the furore in 1988 when the then Conservative Government decided to centralise business rates, take money from the industrialised north and move it to the leafy south—as it was portrayed at the time. It is somewhat ironic, therefore, that we are now having this debate about taking money from the deindustrialised north and again moving it to the leafy south. Although I speak for the Government I also speak very strongly for my constituency and as a member of the north-east community of MPs; both of those come ahead of my party or Government loyalty on this issue.

My constituency and that of my hon. Friend the Member for Bradford East (Mr Ward) share the distinction of being the two constituencies on the Government side of the House with the worst unemployment rates, so it is a pleasure to see my hon. Friend in the Chamber. My constituency also shares a lot of characteristics with Sunderland, Hartlepool and a number of the other areas that have already been mentioned.

We have not spoken about the views of business. Some 66% of businesses have spoken in favour of the move, and only 20% against. It is important that we listen to them as part of the consultation. Businesses want to be part of their local communities. They want their success to be shared in the local community. Most of them do not want to see any benefits being siphoned off to Whitehall. Apart from Malta, we have the most centralised tax system in Europe, so some move towards localisation of tax raising is surely sensible.

I do not know how many hon. Members are friends of the complex formula grant system. Only last weekend, I joked in a speech that I thought that my hon. Friend the Minister was probably the only person who really understood the full detail of the formula. Of course most north-east councils are not happy with the current formula grant system. It is too complicated and too subject to the whim of Whitehall. I do not know who its friends are, but I would not mourn its passing.

There seems to be a lot of misreporting or misunderstanding of the scheme the Government propose. As I understand it, no one will be worse off in the first year, although some speakers today have suggested that they will be. Both the Deputy Prime Minister and the Secretary of State for Communities and Local Government have said that the starting point will be equalisation, top-ups and tariffs, so in the first year of launch all councils will be in the same position. Obviously what happens after the first year is a concern. We have talked about industries dying and being born. I think that the Government have spoken about what they will do in those circumstances but we need more detail, as previous speakers have said. I hope that the Minister will respond to that point.

The proposals include provision for a full 10-year review of where the system has got to, but nobody seems to be recognising that. Hopefully, the Minister will give us more detail about the review.

There is nothing to stop councils pooling resources or using other arrangements, if they feel that they want to share the benefits or issues in their area. We should all welcome the freedom that local councils will have. Nobody has spoken about the effect on local councils of the new Government scheme; I hope that the Minister will do so. From the way people have been speaking so far in the debate, there seems to be an assumption that every council is unitary, but I have had a letter from the Cleveland Local Councils Association asking what the effect of the new scheme will be on its members. Our parish, town and district councils are not clear about how the new scheme will work for them. As I say, I hope the Minister will address that point too.

Some interesting points have been made in the debate, but the overwhelming feeling of the speakers so far has been pessimism. That is one of our problems in the north-east; we are generally seen to be pessimistic.

[Tom Blenkinsop]

The pessimism among Labour MPs that the hon. Gentleman is probably referring to might be born from, for example, the Government’s programme on the regional growth fund. We have waited six months for funding. It will be welcome funding, for example for a potash mine in my constituency, but it still has not arrived. That type of practical example might lead to pessimism.

[Ian Swales]

The local enterprise partnerships are doing a good job, certainly in our area, and with the regional growth fund there is a simple due diligence process going on. There is a project starting in my constituency right now, with holes being dug in the ground this week. That project has attracted £7 million of regional growth fund money. The time lag has simply been to ensure that the schemes that will be supported are the right ones.

I want to pick up on the point about manufacturing versus retail. Clearly, it is a fallacious comparison, because manufacturing takes up more space than retail. Right now, a manufacturer in my constituency wants another acre of land to add to the acre that they already have. There is no retailer asking for another acre of land, so the basis for saying, “It’s all about retail, not manufacturing”, does not stand up at all.

I am optimistic, because we have enormous potential in the north-east. The other night, I went to the launch of Energi Coast, when 19 companies involved in the offshore renewable energy industry came together to launch joint marketing. They are all talking about a boom time, like the start of the North sea oil industry.

Nevertheless, I worry about the proposals. We need a lot more detail, but we also need a can-do attitude. I say that to my local council all the time, because it often does not have a can-do attitude when it comes to new business. Sharing the benefits of business growth is in all our interests.