Business Rates (North-East)

Angela Smith Excerpts

Tuesday 25th October 2011 Westminster Hall

[Julie Elliott]

Other parts of the country are in similar situations; the issue for the north-east is that the entire region is struggling.

The system the Government propose favours the growth of retail space and distribution centres, rather than small and medium-sized businesses and, most crucially in the north-east, manufacturing. Practically, that means that a hectare of land used for retail in the north-east will yield £1 million, compared with £200,000 for manufacturing. It feels as if my region is being punished for manufacturing things. We must remember that manufacturing needs to be at the heart of any national strategy for long-term economic growth. The sector contributes £7.5 billion to the north-east economy per year. We export more than we import, which is helping to rebalance the economy in these difficult financial times. Business rates may value retail and commercial sites the most, but they just do not reflect the way our region’s economy is made up, and with so many people out of work, increasing the number of shops is not the answer and would not be sustainable.

I would be interested to hear more from the Minister about the proposals for introducing mechanisms to overcome economic shocks, which are particularly relevant to the north-east, as we have already suffered from them.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

Yorkshire, particularly South Yorkshire, will also suffer quite badly under these proposals. Is it not important that any Government legislation makes clear the need for rebalancing by means of top-ups and tariffs, as areas such as ours diverge from richer, more prosperous areas? It should also give a clear indication of when that rebalancing would take place.

[Julie Elliott]

Absolutely. Again, that is why it is important to have this debate and to give the Government the opportunity to hear concerns from formerly heavily industrialised areas as we move forward and try to grow.

In the north-east, councils rely on a small number of larger businesses to generate business rates, but that arrangement can be volatile and vulnerable to shocks, as we have seen in shipbuilding, coal mining, textiles and, more recently, steel making. We need an effective mechanism to manage economic risks and provide protection for areas of poor growth. I support the Government’s view that some of the proceeds of the levy and the set-aside should be used to protect against volatilities.

The Government must recognise that some places have greater economic potential than others. A council’s ability to generate business rates is mainly the result of location, location, location, combined with some effort and a lot of luck. The Government must therefore take account of the issues I have outlined. In particular, they must take longer to consider the wider and unforeseen consequences of their proposals, put in place a regular review of the new system, create a mechanism to protect against volatilities and, most important of all, make sure the system is fair, equitable and based on need.

--- Later in debate ---

[Mr Ward]

The details are crucial, and that is why there is a need to take things slowly and not rush. At times trust between central and local government is tested to the limit. We need an established, agreed and fair starting point. At the same time that there are dampening effects on local government finance and a less than accurate assessment of spending pressures on local authorities, we are talking about a base of 2012-13. Many authorities have taken a real smack in the front-loading of the local government settlement and, if the base were 2010-11, that would paint a totally different picture of an area’s needs. That issue has been raised by the Association of North East Councils. We also need regular review, because things change rapidly, certainly in the economy. We need to review the baseline, and five years is too long. I would argue for the resets to be on a shorter time scale.

The point that I was making was about the possible transfer or redistribution of wealth, because £3 billion in additional business rates will be generated by 2014, but that will be happening at the same time that local authority budgets will go down. There may be a transfer of wealth to those areas that initially prosper well from business rate growth, from authorities that have large reductions in their revenue grant.

[Angela Smith]

To add to that point, it has been calculated that Sheffield and Barnsley would have to get significantly more growth in their business base and, under the new system, would have to grow at least at the national average, just to stand still. Does not that make the case for thinking again, and making sure that we get things right?

[Mr Ward]

Absolutely. That is the overall point. I have perhaps spoken too long, as I know other hon. Members want to get into the debate, but that point, more than any other, is the crucial one that we agree on. The issue is serious. The principle is good: we are signed up for the localism agenda. There may be good pressure to achieve growth, and many authorities will rise to that challenge, but the devil is in the detail, and in this instance the details are billions of pounds. There is a need to tread slowly and carefully.