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Item 2 is consideration of evidence for stage 1 of the Planning etc (Scotland) Bill. The committee has been asked to examine the part of the bill that deals with business improvement districts. I am pleased to welcome Tom McCabe, who is the Minister for Finance and Public Service Reform. He is supported by Billy McKenzie, who is from the Scottish Executive's council tax and non-domestic rates team, and Colin Gilchrist, who is from the office of the solicitor to the Scottish Executive. I invite the minister to speak to the bill, after which we will have questions and answers.
Good afternoon, convener and members. I thank you for introducing the staff who accompany me. I welcome the opportunity to explain the importance of business improvement districts to our number 1 priority of growing the Scottish economy.
I thank the minister for his introductory remarks, which set out the policy context of the proposal. Members may now ask questions.
I thank the minister for clarifying some of the issues around BIDs. Last week, we were given some information about the funding of BID pilots. What will the funding be used for? How might Scottish Executive funding be allocated to such developments in future?
In the initial stages, we will establish the pilot areas. We have said that we will fund the pilots to the tune of £50,000 in each area so that the BIDs can be worked up. We will test the success of the pilots within the local areas. If the pilots prove themselves, which we think they may well do, a local levy will be introduced to help finance BIDs projects.
Did you say £50,000 or £500,000?
I said £50,000, in each BID pilot area.
Okay. How will that money be used?
That is essentially a matter for the people who have submitted the successful applications. They will want to work up the BID pilots in their areas. It is for them to make the most appropriate decisions at a local level to ensure that the pilots are successful.
Can you comment on the size of area that might be encompassed by a BID? Need a BID be urban, or could there also be BIDs in a rural context?
In an urban setting, the size of a BID often settles itself because the local businesses tend to know the ideal geographical scope. Obviously, a rural BID would have to cover a larger area, but if businesses come together in the right way, there is no reason why a BID project cannot be set up in a rural area.
I am pleased to hear that each pilot area will potentially receive £50,000. However—this might not be true—last week we were told that there would be no levy on the businesses in those areas. In that light, is this really a pilot for properly structured BIDs? After all, those businesses will not have a longer-term commitment to support the revenue stream that is associated with any capital spend from the Executive.
In the pilot, the money is being made available to allow the BID proposal to prove itself. If that happens, there will be a levy on the businesses involved to sustain the BID when the legislation comes into force.
But a city centre partnership—like the one in Stirling—could use the money in the same way that any organisation involved in a BID would, because the partners are not expected to contribute any funding.
The £50,000 will allow each BID pilot to prove itself and it will enable businesses to take a view on how the money should be applied and on how the BID has worked in their area. If the bill is passed and it comes into force, people will be able to vote to retain the BID in the full knowledge that, if the proposal is agreed to, a levy will be applied to continue its funding.
I understand that, but I assume that, as in most of these situations, if £50,000 is given to a BID project, there will be a revenue requirement to support the project for future years. Of course, that would not happen with a straight capital project. If a BID becomes a reality under the legislation, but the businesses in the area decide not to vote for it, what will happen to the £50,000 and who will pick up the tab to ensure that the revenue costs are supported?
The money will be expended to allow the pilot project to prove itself. Clearly, we could no more get it back than we could in any similar situation.
But what if—for example—the businesses in the pilot BID decide to install closed-circuit television in the area? The £50,000 will provide the capital to buy the equipment, but it will not support the revenue costs. If the businesses do not vote for the BID, how will those costs be supported? Surely that is a reasonable question.
If any such initiatives are considered during a BID pilot project, the businesses will need to understand that spending money in a particular way will have on-going revenue costs. The people in those businesses will be knowledgeable enough to know that, during the BID pilot process, it would be unwise to engage in an activity—installing CCTV is as good an example as any—that required to be sustained over a longer period.
I may be getting hung up on the word "pilot". Perhaps the pilot is more of a pathfinder project to find out how BIDs would work. The word "pilot" suggests to me a scheme that is working in the way it is envisaged it would work for real. However, I understand why a pathfinder project to test how things would operate would be useful in the circumstances.
Perhaps you are mixing up the terminology.
I am not.
The Federation of Small Businesses did not provide a glowing endorsement of BIDs. It reckoned that BIDs could be another financial burden. What is the minister's view on that?
The FSB expressed some reservations, but it also said that the bill went some considerable way towards alleviating some of its major concerns. The FSB was reassured by the fact that 5 per cent of local businesses will need to support a BID proposal before it can go to a ballot; 25 per cent of all eligible business will need to vote in order for a ballot to be valid; and the proposal will need to secure a dual majority. Although the FSB expressed some concern, it indicated that the bill offered considerable reassurance about its major concerns in those three areas.
Most retail areas contain a large number of domestic properties. Possibilities for BID expenditure include CCTV cameras, additional community wardens and litter wardens. Any of those would be a plus for the residents of a BID area. Is it arguable that everyone who lives within a BID area should contribute to it?
The levy will be for business improvement districts. I see no argument for pulling in the average ratepayer.
If the pilot projects are successful—as I hope they will be—will the money that they receive become the standard funding for the expansion of BIDs?
We still have to decide on that, so I do not want to give any further commitment than has already been given. We have committed a not inconsiderable sum of money, so we will wait and see how things develop in the areas concerned before we take further decisions.
One issue that was raised last week is whether business improvement districts will provide genuinely additional services or services that should be provided anyway. Does the minister have a firm definition of what constitutes additionality in the context of BIDs? If so, what is it? Is he confident that the bill will ensure that BIDs provide additional services rather than services that should be provided anyway?
That is an important point. I do not have a clear definition of what constitutes additionality, because I believe that the businesses and local authority involved in a BID should be able to decide on their own priorities. There is a fear that some projects that might emanate from BIDs will simply replace existing local government services, but local government exists and operates on the basis that it is interested in improving conditions in local communities. Local authorities are not instinctively minded to find ways of avoiding their obligations just because a BID has been put in place. That said, we have committed ourselves to monitoring how BIDs operate. Certainly, we would be extremely concerned if evidence arose that the net effect of a BID was to substitute activity that should have taken place anyway.
Following on from Tommy Sheridan's point about additionality, is there a requirement in the bill to establish on a statutory basis the baseline from which councils and others who are involved in BIDs are starting and against which additionality is to be measured?
The bill contains a requirement for people to define the activities that they currently undertake as far as they can, although margins will always be involved.
So although it is not an exact science, there will be—broadly speaking—a statutory requirement to establish a baseline against which additions or improvements to services can be measured. Is that correct?
Yes. We would be interested in that. As I said a moment ago, we are keen to monitor the experience of BIDs. If they simply replaced activity, we would be extremely concerned. If we are to monitor that situation, we will need something to judge it against, so that baseline will be important.
Do you accept that there is a baseline for what is currently provided and what people perceive should be provided out of general revenues rather than out of the levy?
I am not convinced that we would ever find an end to the list of things that people think should be provided—that is the nature of public life. To some degree, we are entering into the realms of local accountability, and councils clearly should be held accountable for their actions. If people at a local level felt that the level of services provided was lower than the level they were paying for, they could express a view through the conventional means.
Something that might be perceived as additional is the introduction of CCTV in a town or city centre. Do you perceive that as being installed exclusively for a business benefit or for a general public order benefit? If it is for the latter, why should it be paid for out of BID funding?
CCTV programmes operate in different parts of the country and in different parts of local communities. As with the provision of any public service, we do not please all the people all the time. In some areas, some people would be pleased only with 100 per cent coverage, but other people would say that that was too much. There may well be considerable CCTV coverage in local communities, but a business in a certain location might like something that is discreet and that serves it more directly. A business or a group of businesses might want to take that decision for a range of reasons that are pertinent to their activities.
Compared with the voluntary partnership arrangements that many local authorities have in relation to town or city centre management, is it fair to say that the essence and rationale behind the creation of the BID as a creature of statute is that it will enable those who see no value in what it will do to be compelled to contribute to its cost?
That would be a rather perverse interpretation. I do not see it in that way at all. The rationale behind the BID is that it provides the opportunity to involve the business community in a way that has hitherto not been possible. The business community would like to be able to work in much closer partnership with colleagues in local government, and the BID concept gives a far greater incentive for it to do so. We are convinced that we need to find ways in which the public and private sectors can work much more closely and in which the public sector can be a driver of economic activity that leads to greater overall benefit. We think that, over time, BIDs will make an important contribution to that.
But the essence of a BID is that it will compel people who would not contribute voluntarily to a scheme to do so.
People will be asked to vote and if the hurdles have been overcome—if 5 per cent of businesses support a proposal; if 25 per cent of businesses turn out for the ballot; and if there is a dual mandate in terms of the number of businesses that are in favour of the proposal and their rateable value—a democratic decision will be taken.
But we already have a democratic structure involving councils and the Scottish Parliament, through which people make substantial contributions. You are defining another subcategory of democracy and allowing a new democratic body to impose a compulsory levy on people who see no value in what it will do. Is that not correct?
We are taking to another level the fairly sophisticated model of democracy that we are fortunate enough to enjoy, which we think will be to the overall benefit of our community.
I was glad to hear the minister say that the average rate payer would not be expected to pay—by that, I assume that he meant individual property owners—but what would happen in circumstances in which the property holder did not operate a business per se, but leased a lot of property to people? Let us take the example of the St John's centre in Perth, which is owned by a major property holder such as Grosvenor. A business improvement project in that area might well result in an improvement in the area's atmosphere and ambience. Would you consider such a property holder to be a voter and, if the vote went the right way, would you consider them to be a contributor because they would gain net worth out of the BID?
Are you talking about someone from outwith the BID area?
I think that Mr Crawford is talking about someone who owns a shopping mall, for example.
Do you mean the landlord?
Yes.
I think that landlord involvement is already catered for.
In such circumstances, the landlord would get a vote and would have to contribute.
As you are aware, we have taken steps on the use of a section 104 order under the Scotland Act 1998, which we hope will progress through the Westminster Parliament. There are devolved and reserved issues around the concept of BIDs. We are doing our best to progress the issues that are within our competence and we are promoting a particular approach among our colleagues south of the border to the use of a section 104 order. For very good reasons, the approach that we are taking to BIDs north of the border is slightly different from the approach that has been taken south of the border.
With respect, that does not answer my question. In the circumstances that I described, would the property owner get a vote and would they have pay?
Yes—if the section 104 order goes through.
That is what that allows for.
Yes. However, I stress that that area falls within the remit of the Westminster Parliament. We have indicated the shape that we would like that order to take.
I am not aware that the committee has seen a copy of that order. We may have done, but—
We are still discussing the detail of that with our colleagues at Westminster.
I want to dig down a bit more. I can understand that it might be necessary to pursue such an order because the issue may well be reserved, but we are talking about the introduction of BIDs in Scotland. We need to define which property owners in a development area would be required to pay. Would a distinction be made between a property owner who owned two or three shops in the area and a property owner who owned a shopping mall? How will you arrive at who will have a vote and who will have to pay? That area is quite complicated.
I would not have thought that it was all that complicated. I am not entirely sure what you are driving at.
With a property owner who owns a mall, it is easy to define the area for which they are responsible. Will they get a vote and will they have to pay? What will happen with an individual who owns two or three shops in an area that are not part of a shopping mall but are nevertheless businesses? Under the section 104 order, will landlords of a number of such properties be in a position to vote and will they have to contribute?
The voting structure would make a distinction between the rateable occupier and the owner. The BID proposer could suggest what proportion of the votes could be allocated to whom.
You talk about a proportion of the votes being allocated, but at last week's meeting we heard that it would be one business, one vote. I am now being told something different. Forgive me for trying to tease out the matter, but it is important.
It is obviously not the most straightforward question. Billy McKenzie will have another go at answering it; we will keep trying until we get you the answer.
The issue is very complex.
I understand that. That is why I am asking the question.
I think that you are referring to the different layers of ownership that can occur. The plan is to allow the BID board to identify the owner who will receive the benefit and then to calculate the percentage of the levy that the owner and occupier would have to pay—depending on who received the greater benefit. The vote will be calculated in a similar way: if someone pays 60 per cent of the levy, they will get 60 per cent of the vote.
That is slightly different from what we heard last week—although the witness was speaking not on behalf of the Scottish Executive, but about the experience south of the border. Their understanding was that it would be one business, one vote. However, if we are having weighted voting, I imagine that the Federation of Small Businesses will be concerned. With weighted voting, a large business could have more votes than the two or three shops next door.
Landlords are not involved south of the border, but we are trying our best to ensure that they are involved here in Scotland.
It is still weighted voting though, rather than one business, one vote.
You talked about the experience south of the border, but landlords are not involved there.
But here, we are talking about having voting that is weighted depending on scale; we are not talking about one business, one vote.
But the vote is weighted on the rateable value of the property. Each individual still gets one vote.
Okay. I think that we will have to think about that a bit more.
In practice, I do not think that there would be anything to prevent that from happening. However, anyone who was involved in the project would have to receive a benefit. By the same token, there would be nothing to prevent people outside the BID project from making a voluntary contribution if they felt it appropriate.
How many groups came forward for the pilot schemes? What criteria were used for the six pilot schemes?
Originally, 13 groups submitted proposals. The organisations that I mentioned analysed the proposals and recommended which ones should go forward.
How were they chosen? What were the criteria for a pilot scheme?
Various criteria were considered for each application. The main criteria were the involvement of the business community in a BID proposal, and the long-term sustainability of the proposal. The details of the projects are limited at this stage, although they will build up in the next year. However, a view was taken on whether the projects were reasonable within the given timescales.
I am confused. Last week, we heard about several problems in Inverness. Is the Inverness scheme one of the pilot schemes? I understood that it was. Last week, it did not seem as if the criteria were sustainability and the involvement of the business community.
That may have been the impression that you were given last week, but people come at these issues from different angles.
Yes—absolutely.
Of the 580 businesses in Inverness that were surveyed, 69 per cent supported the BID proposal, 8 per cent were against and 23 per cent were undecided. When a survey was circulated to the same businesses with some further questions about the proposal, 89 per cent supported it, 4 per cent were against and 7 per cent did not know. An impression might have been created last week with regard to Inverness, but the evidence that we have at our disposal suggests that the reality is somewhat different.
I apologise for coming in late, convener. If my question has already been asked, please let me know and I will read the answer in the Official Report.
We have been working with and consulting the same organisations. The responses that we are receiving and the early impressions of the projects down south seem to chime very well with the proposals in Scotland.
When we took evidence from the FSB last week, there seemed to be a degree of hostility to the idea, yet the organisations that it represents are similar to those that are participating in the BIDs in England. Has any analysis been done of cultural differences? Why would there be hostility from shop owners in Scotland but not from those in England?
I do not think that there is any evidence of hostility from shop owners or people who lease properties in Scotland. Some people may think that it is in their interests to create a different impression, but we have no evidence base to support that. The FSB undoubtedly raised some concerns in its evidence, as was mentioned earlier, but it acknowledged that some of its major concerns had been assuaged by the bill. In general, there is a strong body of support for the concept in the business community.
A question arose last week about not-for-profit businesses such as charity shops. In England, different BIDs take different approaches to the question whether such businesses should contribute to the levy. Does the Executive have a view on that or will you leave it to individual BIDs?
The bill tries to adopt a flexible approach to that. It allows charity shops to be exempted from the BID process.
If a charity shop is exempt from the BID process under the bill, why would it rush to volunteer to hand over any of its hard-earned charitable cash to contribute on a voluntary basis?
Sorry?
As I understand your previous answer, you said that the legislation already allows charity shops to be exempted from payment.
What I meant is that the bill allows individual BID boards to exempt them if it chooses to do that.
So they are not exempt on the face of it. In other words, standing a decision to exempt them, they are liable. Is that correct?
The facility exists for the BID board to exempt them if it chooses, yes.
So, if the board does not specifically exempt them, they will be liable.
Yes.
Thank you.
That brings us to the end of our questions, minister. Thank you for your evidence. I also thank Mr Gilchrist and Mr McKenzie.
We put on the record our congratulations to the minister.
Indeed. I am sure that all members of the committee will want to congratulate the minister on his marriage at the weekend. We wish you many years of happiness, minister.
Thank you.
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