A wide-ranging review into business rates

Chief Secretary to the Treasury, Danny Alexander, on launching the most-wide ranging review of national business rates in a generation.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The Rt Hon Danny Alexander

Good morning – it’s great to be here speaking at Cambridge Business Week.

My theme today is success – which I am sure is a theme close to your hearts. It is close to my heart too.

Freedom is at the heart of my beliefs. And as well as freedoms of speech, movement and expression, I believe in the freedom to innovate, to reap the rewards of entrepreneurship – and to succeed.

So today, I will talk about what the government is doing to help business continue to succeed and drive our national recovery.

And I will also talk about how we can empower our cities and regions to put in place the policies that can best help them succeed.

By any standards Cambridge is a successful city. All the factors have come together – in a sort of “perfect storm” – to make it one of the most thriving places to live and work in the UK.

So what are these factors? What makes a city successful?

Geography, of course. Industry. Civic pride. Education. Innovation. Embracing new technology. The “cluster effect”, where success in one sector breeds success in another. Support from the centre, balanced with the responsibility to run your own affairs.

66 years ago, here in Cambridge, the writer and scientist CP Snow identified the establishment’s disdain towards science and technology as a risk for the UK’s long term prosperity. The world back then still steered its brightest and best away from laboratories and into humanities. By contrast, economies such as the US and Germany were more open-minded – and consequently more fit for the technological era. The UK risked falling behind.

Looking at Cambridge today, I am glad to say that we have proven Lord Snow wrong.

You have embraced technology. You are carrying out world-leading scientific innovation. Silicon Fen is taking advantage of all that Cambridge has to offer, and it has become the envy of the continent.

The challenge is: how do we replicate this success story across the UK?

I would suggest a two-pronged approach. First: as a government, be resolutely pro-business. And second: set your cities and regions free.

The economic recovery we have seen over the past five years has been the healthiest sort of recovery: because it is fuelled by businesses, by entrepreneurship, and by private sector job creation.

Britain has become a business-creating powerhouse.

And we have a lot to be proud of.

There were a record 5.2 million private sector businesses in 2014 – over three quarters of a million more than at the start of 2010.The UK is recognised as the most entrepreneurial economy in Europe.

We have created over 2 million private sector jobs and 2.1 million apprenticeships in this parliament.

The British Business Bank has loaned and invested £3 billion since it was set up.

UK Trade and Investment have almost doubled the number of companies they help export.

We remain number one in Europe for foreign direct investment.

We’ve held a bonfire of the regulation which holds you back, with our One-In-Two-Out rule.

We’re creating a tax system which is both internationally competitive and more difficult to abuse than ever before.

We’ve made significant investments in research and development, too – with a £5.9 billion package of science capital investments over the next six years.

And here in Cambridge, that’s recently helped projects such as the Maxwell Centre, which will be a centrepiece for industrial partnership in the physical sciences; and the Cambridge Institute of Therapeutic Immunology and Infectious Disease.

This has been a pro-growth, pro-business approach. Because we know that you can only have a fairer society on the back of a stable, stronger, healthy economy.

Over the next 5 years, our task will be to introduce more policies to boost fair and sustainable growth – and to give the UK a business environment fit for the 21st century.

Business rates are a classic area where we had simply not kept up with the times. They’ve existed in some form or another since 1601. With 1.8 million properties in England now paying them, you might agree that they are due for a review!

We’ve already done a lot. In April 2014, our £2.7bn package of business rates support – the largest in twenty years – came into effect. And we’ve made a further £1bn of support to build on this available from this April.

In every year since 2011, we have doubled small business rate relief, helping over a half a million of the smallest businesses, many of whom now pay no rates at all.

And for 2015-16 we have increased the retail discount from £1000 to £1500 to support shops, pubs and cafes on our high streets.

These are big numbers, making a tangible difference up and down the country. But I know we can go even further.

We heard businesses’ concerns loud and clear: that business rates needed to be looked at again, to make them fit for purpose for a 21st century economy. That they should be more responsive to the property market. That they should take into account the size and nature of their business, not just the value of their property. And that they should not penalise businesses who invest in their property.

So today, having heard these concerns, I am delighted to announce that we are today launching a wide-ranging, full, comprehensive, review of business rates, reporting back by Budget 2016.

Right now, you can go to the government’s website and formally submit your views on this important issue to help us make the changes that are needed. Though certainly feel free to stay and listen to the rest of my speech first!

This will be the most-wide ranging review of business rates in a generation. We want to consider all alternatives and assess a full range of options.

So we will look at the different ways in which businesses are using property – now and in the future.

We will examine alternatives for raising money through a local tax.

And we will look at what other countries do, and what we can learn from them.

Our preference is that business rates should remain a property tax – for stability, efficiency and because they raise revenue in a way that is less distortionary than other taxes.

And in line with our priority to reduce the fiscal deficit, the review also needs to be fiscally neutral and aligned with our wider fiscal plans.

But that certainly doesn’t rule out wide-ranging reform. We will be seeking ideas for reform within the widest possible context.

So my challenge today is: please engage with the review, let us know how the system can be improved, and let’s work together to get a system in place which will be good for businesses and good for the public finances.

Good for our cities and our regions too. One of the areas I am most interested in is how we can incentivise local authorities to put in place the pro-growth policies which work best for them. Because I believe, as a rule of thumb, that there should be much greater local control of business rates revenues.

In April 2013, we introduced the business rate retention scheme, allowing the local government sector to retain 50% of all business rates receipts, and therefore 50% of any growth.That increased the incentive to go for growth and to encourage enterprise.

I think we should now be willing to take it up a gear.

One possible way of doing this would be to allow local authorities to retain 100% of any additional growth in business rates above existing forecasts. On this model, all additional income retained by local authorities would be free to be invested in new growth-enhancing and infrastructure projects.

We want to pilot this new approach. I am delighted to say that Cambridgeshire is one of the leading contenders to pilot this new freedom. I hope we’ll be able to make progress in this direction before the election.

And if those pilot schemes are a success, then that, I think, will be a decisive step towards greater freedoms for our cities and our regions.

Because central government cannot and should not do everything. Rather, the centre should devolve power as much as possible, and decisions should be made as closely as possible to the people they affect.

Do locally what is best done locally – regionally what you can best do regionally – and nationally what you can best do nationally.

Look at Cambridge. You opened yourself up to businesses – and they flocked here. That’s a perfect example of a region capitalising on its natural advantage. Central planning could never have done this as efficiently.

And this government has a proud record on decentralisation, putting control in the hands of those who know best locally.

We have established Local Enterprise Partnerships, created the Regional Growth Fund, worked with cities to negotiate bespoke City Deals, and agreed local Growth Deals, backed up with at least £12bn of central government money, with every Local Enterprise Partnership.

These programmes have mobilised billions of pounds of private investment. And every single area of England, whether urban or rural, is receiving extra powers from Whitehall to deploy as they see fit.

This will need to continue over the coming years. Our aim should be a new kind of relationship between Westminster and the regions. One where Westminster continues to provide funding and support – but one where our cities and our regions have much greater freedoms.

And it should be a relationship which is not afraid to push the boundaries, and seek the next level.

Look at the Greater Cambridge City Deal. This Deal, signed in June last year, is already helping Greater Cambridge maintain and grow its status as a prosperous economic area.

It will create a fund for infrastructure investment; speed up the development of over 33,000 planned homes; create 45,000 new jobs and 400 new apprenticeships for young people; and provide £1 billion of local and national public sector investment.

That is great news. But how can we take it to the next level?

Well, I would like to explore if we can actually go further and turn this into a devolution deal for Greater Cambridge.

So here’s my challenge to you: let us know which powers you would want, and that formal proposal will be considered in the next Parliament.

And where Cambridge leads, I am sure that other cities will follow.

We are keen to see more devolved City deals. And I am personally prepared to go as far as freedom on revenues from taxation – whether that’s business rates or even stamp duty.

Because that is how you achieve that new, mature relationship between Westminster and the regions. And that is how you free up cities and regions to grow and flourish.

So, for example, I am very aware that here in Cambridge you are keen to do more to promote inward investment.

And to this end, UK Trade and Investment is engaged in discussions with the Cambridge Network, the Local Enterprise Partnership and others on the best way to promote Cambridge and the wider area as an international destination of choice.

One particular area worth discussing is about how you give investors the “red carpet treatment” – like the concierge service we see offered by other cities, such as the other Cambridge, in Massachusetts.

Of course, that will mean deciding on priorities within existing funding. But we will provide the support, and the advice, to help you meet your ambitions.

And when you grow, when you flourish, you will need more accommodation.

As the recent review of the local authority role in housing supply by Natalie Elphicke and Cllr Keith House made clear, local councils are uniquely placed to ensure the housing needs of local residents are met – through their role in planning for housing need, unlocking land and leveraging investment.

But the House-Elphicke review also made a compelling case for greater support to councils, so they can increase their capability and skills to leverage private finance for major housing projects.

And I want to support councils in their role as Housing Delivery Enablers by ensuring that we share best practice and provide targeted support. Because central government is uniquely placed to be able to bring different ‎partners together to achieve that.

So today, I am delighted to confirm that we will provide exactly that. We will be working with Keith House and Natalie Elphicke, with the Local Government Association and the business community, to implement a Housing Finance Institute, as recommended by their review.

From now on, councils will know exactly who to turn to for the kinds of specialist knowledge and expertise that can help them make a difference to housing supply in their area.

Because as you receive have greater powers, we will match those powers with greater support from central government.

The new, devolved world we are looking at is an exciting one.

It gives you greater freedom. Greater opportunity. Greater responsibility. And I would argue it gives you the best of both worlds.

You have that greater freedom, opportunity, responsibility – but within the structure of a prosperous and flourishing United Kingdom.

And that is the world we have been laying the foundations for.

Thank you for listening.

Published 16 March 2015