Local Government Finance Bill

Heidi Alexander Excerpts

Tuesday 10th January 2012 Commons Chamber

[Heidi Alexander (Lewisham East) (Lab)]

Given the time constraints, I will focus my remarks on part 1 of the Bill, which deals with local business rate retention. I have concerns about the localisation of council tax benefit, but I will save those for another day.

Earlier today we had a lecture from the Secretary of State on how councils need to be financially incentivised to encourage business growth and start-ups. We were told that the current arrangements, whereby central Government redistribute national business rate income to councils based on local need, is a complex and opaque system that does little to encourage an authority to foster economic growth. But the reality is that the partial business rate retention scheme that the Bill proposes will simply replace one complex system with another. It will not boost economic growth as the Minister claims. It is the wrong policy at the wrong time.

The idea that a council’s ability to fund child protection or elderly care should be determined by the number of businesses it boasts is not right. The idea that councils will act to improve their area’s economic fortunes only if they stand to gain some direct benefit for their coffers is insulting, and the idea that this policy is the correct one at a time when businesses are paying off debt rather than investing in new facilities goes to show how desperate the Government are. I am not suggesting that councils do not have a role to play in local economic development—far from it—but I am realistic enough to know that the actions of an individual council will only ever be one part of the jigsaw.

Let us take Lewisham as an example. Lewisham has one of the smallest business bases in London, as 70% of its working population leave the borough every day to go to work. The police station in the heart of the town centre is the borough’s ninth largest business rate payer, the other large rate payers being supermarkets and schools. It is a densely populated residential borough. There are pockets of prosperity, but there is also high unemployment. Before becoming an MP I was Lewisham council’s cabinet member for regeneration. Despite what Government Ministers might think, I did not sit around twiddling my thumbs and thinking that if only we could retain growth in future business rates we would do X, Y or Z to stimulate development. Funnily enough, I remember doing quite a lot to try to grow the local economy, not because it would mean money for Lewisham council, but because it was the right thing to do for Lewisham people.

A huge amount has been done to try to stimulate local economic development, but Lewisham’s business rate growth over the past few years has been modest, from a small base. The biggest business rate payer is a media company based in offices above Lewisham’s bowling alley. It is paying £2.8 million in business rates this year, an increase of over £2.7 million from the £80,000 it paid in 2008. Why the sudden growth? What did Lewisham council do to encourage that growth? The honest answer is very little. The business did not undergo development, expand its occupation or intensify the use of its site. Basically, the company had to pay business rates on the fibre-optic cables it had laid across London. Its offices in Lewisham are the biggest it has in London, so Lewisham collects the £2.8 million. What does that experience tell me? It exemplifies how an increase in business rate income may have very little to do with the actions of the local authority and that, although economic growth might be encouraged by a council, unless a range of other positive factors coalesce, businesses may not grow and start-ups may not emerge.

Old Street’s silicon roundabout was always more likely to develop in Old street than, say, Catford. Why? Old Street is on the tube map and Catford is not. Extend the Bakerloo line to Lewisham and on to Catford and we might have more of a chance. Even if we regenerate Catford town centre, would we be able to woo those high-tech start-ups from Shoreditch? I suspect not, because businesses like to locate next to other similar businesses—the agglomeration economies we all learnt about in our geography lessons—and success breeds success.

I believe that councils have differing potential to attract and grow business in their areas, and I do not understand why that gives local authorities the right to grow their resources in order to be able to provide extra services to their local population. The factors that determine growth in an area’s business rate income will sometimes have little to do with what a council is or is not doing. It will never bear any relation to the number of elderly people who require care packages or the number of children who require child protection plans. Linking the two, albeit through a convoluted system with all manner of supposed checks and balances built in, does not seem right to me. I cannot help but think that this is another case of the Government trying to pass the buck and shift the blame for their own failings. Councils are not the reason why the economy is flatlining, but they might be part of the solution. The ultimate responsibility lies with the Government.