Mark urges Ministers to give business rates back to local communities

February 28, 2006 12:00 AM
By Mark Hunter in Parliament

• Can I start by congratulating my honourable friend for raising this issue today. It is clearly one that is important to the local community in South Gloucestershire and I know his sentiments are shared by businesses, residents and councils up and down the country.

• It is widely accepted that the overall system of local government finance is now discredited. After all, if there weren't't fundamental problems with the system, the government would not have set up the wide-ranging Lyon's Review and it wouldn't be taking so long to report. The debate this morning has highlighted one of the key reasons that the system is in crisis, namely the lack of control and accountability over the financing of local services.

• The fact that local communities and their elected representatives do not determine their own fate when it comes to funding for local services is - I believe - a major factor in the public's lack of confidence in local democracy as a whole and the issue of business rates is a shining example of the kind of centralism that stifles local decision-making.

• It always seemed strange to me as a council leader that we were obliged - by law I believe - to consult the business community when formulating annual budgets yet whatever they said, the council could not alter either its rate or the total amount the authority raised from it. This was one of the more bizarre aspects of an already strange system.

• I know there are a number of arguments to retain the status quo, there always are. I haven't seen any compelling evidence, though, that conclusively shows that businesses would move out of high-rate areas in favour of lower ones. That didn't happen when the rates were localised and I don't believe it would happen now.

• Neither do I believe that councils are itching to increase local taxation. In fact, the steep increases we've seen since 1997 in council tax have been caused largely - according to the Audit Commission - by the kind of gearing and central control of the system that we are debating this morning. It is the kind of attitude where government seems to believe that local matters are best dealt with from an office in Whitehall that denigrates our democratic system.

• And I find it patronising - at best - to listen to arguments that democratically elected representatives somehow are unworthy or not to be trusted with tax-raising powers. Local government - I'm sure the Minister will agree - has moved on since the days when Militant occupied Liverpool City Hall when councillors might have been tempted to 'let rip' with these kinds of powers. These days, you will find a much more professional, dare I say businesslike approach in our Town Halls where local authorities - including Lib Dem run Liverpool - work closely and constructively with their partners in the commercial sector. Anyway, this government isn't afraid to cap.

• And of course, a new system of localised business rates could not be implemented overnight and transitional arrangements could be put in place to offer assurances to businesses. For example, start by localising only part of the rate with the other part remaining linked to inflation or maintain the national system for large businesses at least in the short term.

• Businesses are part of their community and I believe it would be doing a disservice to local representatives to suggest that they would abuse any extra powers in this area. Businesses would then have a much greater stake in their local authority. And safeguards can be applied to the system, for example by linking levels to Council Tax increases if that is required once the two systems have converged. By localising rates in this way, we would be restoring accountability to the system and encouraging responsibility.

• The fact is, however, that my party is not asking for more taxation, we are asking for fairer taxation. Recent trends mean that the burden of local authority finance has been shifting away from businesses and on to council tax payers. And that burden falls disproportionately on those in our community who are least equipped to pay it. It's not just that businesses in South Gloucestershire are being ripped off, it's the fact that pensioners and people on low and fixed incomes are paying for it that really wrangles.

• And on a very limited scale, raising money from businesses at a local level, through Business Improvement Districts has proved to be successful and I don't see why those successes can't be repeated more widely.

• Of course there is a risk involved in changing a policy like this. But I believe the government should be bold in handing powers back to local authorities. We've heard plenty of rhetoric from Ministers about the localism agenda and empowering communities but that's about as far as it's gone. Local government has seen creeping centralisation for too long and it is as a result of that centralisation and the gearing effect that council tax for the vast majority of people is spiralling.

• So I hope that when Lyons does (finally) report, he will take on board views like the ones expressed by my honourable friend this morning. After all, one of his key tasks is to restore confidence in the system of local government finance and I think reallocating business rates to local councils would be an excellent place to start.

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