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Commission on Local Government Finance FSB Wales Response 28 October 2015 Commission on Local Government Finance FSB Wales FSB Wales welcomes the opportunity to present its views to the Commission on Local Government Finance. FSB Wales is the authoritative voice of businesses in Wales. With 10,000 members, a Welsh Policy Unit, two regional committees and twelve branch committees; FSB Wales is in constant contact with business at a grassroots level. It undertakes regular online surveys of its members as well as a biennial membership survey on a wide range of issues and concerns facing small business. Introduction FSB Members have long been concerned about the shape and funding of Local Government in Wales, and with current proposals for reorganisation and the stresses on budgets, we have worked closely with some of Wales’ leading academics to examine many of the issues raised in this call for evidence. Of particular interest are seminar papers produced for FSB Wales’ seminar series by Professor Calvin Jones (on the future role of Local Government)1 and Professor Gerald Holtham (on Non Domestic Rates)2, which examine some of the issues raised by this call for evidence in some detail. These papers have informed FSB Wales’ thinking, but do not constitute our policy view, which is contained within this submission. Financial Overview With potential re-organisation parallel to the examination of Local Government financing, it will be necessary to ensure that form and funding follow function. That is, that the statutory and non- statutory services Local Authorities are expected to deliver are fully funded and re-organisation creates structures able to deliver these services. Whilst the full implications of the Well Being of Future Generations (Wales) Act are unclear, it is also important to ensure that any potential new functions and responsibilities arising from this Act are adequately funded. This principle holds true across the range of devolved responsibilities. 1Jones, Calvin (2015) Public Services and Economic Development in Wales, FSB Wales Seminar Series 2 Holtham, Gerald (2015) Non-Domestic Rates in Wales, FSB Wales Seminar Series 2 The key role of central funding, primarily through the current Revenue Support Grant (RSG), should be to ensure that Local Authorities are able to deliver statutory services. A secondary role is to ensure that the policy priorities of central Government are delivered. The size of the RSG, currently worth c£4bn3, is likely to decline in both real and cash terms over the lifetime of the next Assembly and other sources of income for Local Authorities will become more important. Council Tax and Non-Domestic Rates together collect around £2bn4 a year and are the second biggest source of income for Local Authorities. There may be merit in looking to retain NDR locally in the same way as Council Tax. Wales is facing a rapidly ageing population, with high levels of deprivation and poor health, this means the pressures on the social care sector in particular will be high – especially in rural areas. Local Authorities will have to find innovative ways to cope with these pressures in times of tightening budgets. It is particularly important that the role of economic development in delivering healthy and prosperous communities is not forgotten. FSB Wales has called in its manifesto5 for the 2016 Elections in Wales for Local Authorities to be given a statutory responsibility for Economic Development in Wales, and crucially that funding and staffing for these functions should be devolved from Welsh Government to Local Authorities. We believe this will have a transformational effect in regional regeneration and economic development, and give Local Authorities a greater stake in the economic success of their communities. Council Tax, Business Rates, and other forms of income FSB members’ primary concern is often Business Rates, and FSB Wales has for some time warned that Business Rates are in need of significant reform. In their current form, Non-Domestic Rates are unresponsive to economic trends, and can act as a disincentive to smaller businesses looking to expand and invest. We have also argued that the lack of a meaningful link between Non-Domestic 3 https://statswales.wales.gov.uk/Catalogue/Local-Government/Finance/Non-Domestic- Rates/Collection/collectionofnondomesticrates-by-year 4 http://gov.wales/statistics-and-research/welsh-local-government-financial-statistics/?lang=en 5 FSB Wales (2015) A Better Way for Wales 3 Rates receipts and the Local Government grant means Local Authorities have little incentive to pursue policies which support local business growth. Non-Domestic Rates are a source of c£1bn6 a year in revenue for the Welsh Government (and subsequently Local Authorities) and FSB Wales recognises the need to protect this revenue stream, and to grow it in line with economic growth. Indeed business rates’ relatively “static” pot, whilst not reflecting business conditions, is a virtue from the point of view of the Government as it provides a predictable and secure stream of revenue. However, it is our view that the tax currently falls disproportionately on those small businesses with premises, something implicitly recognised by the now year-on-year retention of the Small Business Rates Relief scheme, which should be extended and made permanent. There are strong arguments to be made that receipts from the collection of NDR should be retained by Local Authorities and that the RSG becomes the main stream of central funding for Local Authorities, and we urge Welsh Government to come to a position on retention early in the next Assembly. On October 5th 2015 the UK Chancellor, George Osborne MP, announced that Local Authorities in England will retain 100% of their business rates, alongside the abolition of the Uniform Multiplier7. These announcements will have significant impacts in England and are likely to have cross border implications for the business environment in England and Wales and those businesses which operate on both sides of the border. We await further detail with interest, but it is now even more pressing for Welsh Government to agree a position on the retention (or not) of Business Rates in Wales, and to move ahead with examination of alternative models of taxation. FSB Wales has8, alongside other commentators, including the Business Rates Panel9, called for a fundamental re-examination of business rates in Wales, with a look to replacing the tax in the medium to long term. However in the short term there are some key areas that should be examined 6 https://statswales.wales.gov.uk/Catalogue/Local-Government/Finance/Non-Domestic- Rates/Collection/collectionofnondomesticrates-by-year 7 http://www.bbc.co.uk/news/business-34445311 8 See the FSB Wales manifesto for the 2016 Election 9 http://gov.wales/docs/det/publications/150202-devolution-of-business-rates-en.pdf 4 in order to make the system fit-for-purpose, much of the reasoning for these positions are included in the attached annexes. These key areas are: More frequent revaluations, as seen in other countries with similar models of taxation, would allow for a better reflection of current business circumstances without compromising the size of the Business Rates pool. The Uniform Business Rate should be linked to CPI rather than RPI. There should be a split in the UBR such that large and small businesses are subject to different multipliers, as occurs in England and Scotland. Extension of Small Business Rates Relief and the application of a flat line taper from a rateable value of £10,001 to £18,000. The valuation of land and property separately by the Valuation Office Agency, to allow for full modelling of the potential impact of moving to land value based systems of business taxation. Exploration of models for retention of business rates by Local Authorities. 5 Federation of Small Businesses Wales 1 Cleeve House Lambourne Crescent Llanishen CARDIFF CF14 5GP Telephone: 029 2074 7406 Email: [email protected] Web: www.fsb.org.uk/wales The Federation of Small Businesses Wales The FSB Wales is non-profit making and non-party political. The Federation of Small Businesses is the UK's largest campaigning pressure group promoting and protecting the interests of the self- employed and owners of small firms. Formed in 1974, it now has 200,000 members across 33 regions and 194 branches. FSB Wales currently has around 10,000 members, a Welsh Policy Unit, two regional committees and twelve branch committees meaning FSB Wales is in constant contact with small businesses at a grassroots level in Wales. Lobbying From the Press and Parliamentary Affairs Office in Cardiff, FSB Wales campaigns with AMs, MPs and MEPs in Cardiff Bay, Westminster and Brussels in order to promote our members’ interests. FSB Wales also works closely with local, regional and national media outlets to highlight our members’ concerns. Development Managers work alongside members in our regions to further FSB Wales influence at a regional level. More widely, the FSB has Press and Parliamentary Offices in Westminster, Glasgow, Belfast and Brussels to lobby the respective Governments. Member Benefits In addition, Member Services is committed to delivering a wide range of high quality, good value business services to members of the FSB. These services will be subject to continuing review and will represent a positive enhancement to the benefit of membership of the Leading Business organisation in the UK. Vision A community that recognises, values and adequately rewards the endeavours of those who are self employed and small business owners within the UK. The Federation of Small Businesses is the trading name of the National Federation of Self Employed and Small Businesses Limited. Our registered office is Sir Frank Whittle Way, Blackpool Business Park, Blackpool, Lancashire, FY4 2FE. Our company number is 1263540 and our Data Protection Act registration number is Z7356876.