I beg to move,
That this House
notes with concern that the effect of the five per cent. rise in business rates and the end of transitional rate relief will mean soaring bills at a time of deflation and recession;
notes the poor take-up of small business rate relief and calls for entitlement to be made automatic in England, as it is in Wales;
believes the complex and shrinking Local Authority Business Growth Incentive Scheme should be replaced with genuine incentives for local authorities to promote business growth;
further calls for local authorities to have the power to apply local business rate discounts;
expresses concern about the effect of the 2010 rates re-valuation on retail premises and urges a review of the re-valuation plans;
cautions that local firms will suffer as a result of the Government's business rate rises on empty property, new supplementary rates being imposed with no business say, and retrospective increases in rates on business by ports;
and asserts that the Government's policies on business rates are harming local firms during the recession.
I sometimes think that opening a second half-day debate is a bit like being in the second house in repertory, but I hope that we have a better audience than is sometimes the case in those circumstances. [ Interruption. ] As the Minister says, the quality sometimes comes on later.
I am sure, however, that everyone will recognise that this is a topic of the first order of magnitude. It is a topic of such magnitude because business rates are a significant part of the existence, and success or failure, of many parts of our wealth-creating sector. The debate is timely because on
Does my hon. Friend recognise that the debate is also timely because it is a quarter day? Up and down the country, thousands of small businesses will have to pay their commercial rents or land rents to landlords. Has he heard of any assistance proposed by the Government to allow those businesses to continue in existence, because if they do not, they will not be able to pay the rates either?
My hon. Friend makes a good point. The Government's amendment, which I shall come to later, makes a passing and broad-brush reference to certain proposals, but I do not think that they are adequate, as I hope I shall explain. His other extremely important point is the significant impact of business rates on the viability of businesses as a whole. Local firms in particular cite rates, after rent and staff, as their highest overhead. A significant hike in business rates, therefore, can be the difference between survival and prosperity or a business going down the tubes with jobs and prosperity being lost. That is why the effect of the proposed increase in business rates, compounded with the difficulties that many businesses in the small and medium-sized sectors are already suffering, makes the debate so timely. The situation for those people is particularly grave.
Against that background, it is not surprising that troubling figures are already emerging on the impact of business rate increases on top of other costs of the economic downturn. So far, the Local Government Association reports that four out of five councils have found an increase in empty properties in their town centres. That was before this rate increase happened; 80 per cent. of councils found that businesses are being driven out of our high streets, thanks clearly and firmly to the economic failures of this Government.
The LGA also pointed out a significant increase—of 56 per cent.—in the number of firms having difficulty paying business rates. That is an enormous increase, and if firms are having difficulty paying their business rates, they may well have difficulty in meeting their other obligations. Their viability is in danger. Why? It is because of the failure of the Government to do anything about proper liquidity for genuine and otherwise viable businesses—reflected in their failure to adopt the proposals advanced by my party for a proper loan guarantee scheme to get credit flowing—and because of the compounding of costs and regulations for those businesses. As a result, businesses are caught in a deadly pincer movement. Some eight out of 10 councils also found an increase in the number of small firms seeking business support. Those three sets of statistics from across the country are grim figures that are a serious indictment of this Government's handling of matters.
I turn to the impacts of the business rate that we seek to address in our motion, to some of the points where we take issue with the Government, and to areas where we believe that more can be done. The first issue is the increase of 5 per cent. that is due this year. That is especially hard for businesses to bear, because the methodology that the Government have adopted is difficult for many people to understand. It is based on rental values in April 2008, when the inflation index was higher than it is now. Businesses are facing an increase of 5 per cent. in rates when international price index—IPI—inflation is down to 0.1 per cent. and we are likely to experience deflation in the coming year. Businesses still have to meet the inflationary increase, which is based on thoroughly out-of-date figures.
That will make it hard for many small businesses to survive, yet, to revert to the point that my hon. Friend Robert Key made, the Government have made no suggestions about the methodology, which could be changed and improved. Indeed, we hear the contrary from the Secretary of State, who has not graced us with her presence today. I am sorry that she is not here, because it is always a pleasure to see her and look her straight in the eye, as perhaps I can— [Laughter.] If one has a unique selling point, one should not be afraid to flaunt it.
When taxed with the difficulties that businesses would experience, the Secretary of State's response was,
"it is essential to try to maximise the take from non-domestic rates".—[ Official Report, 20 January 2009; Vol. 486, c.608.]
That gives it all away. The survival of businesses and the viability of local services are not the Government's concern, but using businesses as a cash cow is. Businesses are being clobbered by the increase in non-domestic rates to bail out the Government's waste. Among other things, business rates are being used to subsidise the pointless VAT cut. On what would most people prefer public money to be spent? The Secretary of State's comment gives away the Government's position.
Businesses are suffering from the further complication this year of the end of transitional relief from the previous 2005 revaluation. It is likely that that will raise another £100 million, taken away from businesses that are already in difficulty. People therefore face a genuine double whammy. Again the Government have done nothing—not even expressed a hint of concern—about the impact of the cliff edge on which many businesses are perched.
Is my hon. Friend aware that the hospitality industry, including pubs and restaurants, is especially affected? This morning, I got an e-mail from Green's restaurant in Whitby, which has experienced a rates increase this year from £2,747 to £5,531. Several businesses in Whitby have contacted me to say that their rates have doubled through the combination of the end of transitional relief and the increase to which my hon. Friend referred.
My hon. Friend is right—all the surrounding evidence supports his point. Again, it is worth noting that the Local Government Association—a cross-party body—has identified exactly the same problem throughout the country and in all sectors as my hon. Friend identified in his constituency in the hospitality sector.
In the south-east of England, a public house has experienced an increase from £1,800 to £6,600. Elsewhere, different sorts of businesses, even small ones, are experiencing increases—from, for example, £10,500 to £31,500. That is a triple increase—impossible for people to bear under current circumstances. Not only small businesses are affected. Some large organisations in our main town and city centres are also badly affected. One of the large metropolitan councils has reported examples of bills increasing from £37,000 to £123,000, and from £36,000 to £203,000. Such increases are not sustainable. My final example is not even the largest in gross or percentage terms: it is an increase from £567 to £17,096.
I speak with feeling about that, because as some hon. Members may know, many years ago my mother ran a small shop. When we looked at the situation each year to ensure that things were kept going, we needed a reasonable projection of what the increases might be. However, no one can be expected to keep their head above water in the current climate with those sorts of increases.
When my hon. Friend's mother was running her shop all those years ago, the business rate was a local tax that was set by local authorities. A Conservative Government moved it to the Consolidated Fund and it has now become a substantial plaything in national revenues for distributive policies at the centre and therefore does not reflect the needs of local communities.
That is entirely right; my hon. Friend makes a valid point. The situation is compounded by the Government's current proposals, which left this House only a matter of weeks ago, to add a supplementary business rate, to which I shall return. To deal with my hon. Friend's point, I would like the power to be given back to local authorities to levy a discount on the business rate under those circumstances. We floated that idea during the passage of the Business Rate Supplements Bill, but I regret to say that the Government rejected it. Such a power is exactly the sort of local discretion that we ought to restore to the system, so it is regrettable that the opportunity was not taken.
I am listening with great interest and sympathy to the hon. Gentleman. However, rather than just giving local authorities the ability to levy a discount, why would he not go the whole hog and restore their ability to levy the local business rate, as suggested by Mr. Shepherd? Surely local authorities must know much better both how able local businesses are to withstand the payments and what sort of services they need.
As many hon. Members will know, my party recently published a policy document called "Control Shift", in which we put forward a proposal to encourage local authorities to attract new business by giving them a stake in the revenue that new businesses bring—enabling them to keep the increase in council tax from attracting new businesses, without its being lost through equalisation, for a period of six years. That is an important point that we need to consider.
I might add that it is ironic that we should be making that positive proposal to enable local councils when the Government have been slashing the support for business growth that they used to give through the local authorities business growth incentive—LABGI—which has essentially been emasculated for want of financial support from the Treasury. I may return to that point, which shows a clear contrast between the approach taken by the Government and that taken by the Opposition on support for businesses through local authorities.
The overall situation is a double whammy, with a 5 per cent. increase based on outdated methodology and data, and the loss of the transitional relief, as well as those other matters to which we have referred. There is also concern about the impact on particular sectors. It is worth remembering that the retail sector is particularly likely to be hit in the current situation, because at the time of the revaluation data, which go back to April 2008, retail rentals were at a historically high level and the market was rather distorted. Since then, they have fallen back and come closer into line with rentals in other sectors, which is also closer to the position in the previous revaluation, in 2003. Small shops are therefore likely to be suffering particularly badly from the percentage increase.
That is one sector that is being hit, but it is not the only one. There is also the whole question of small businesses, which are always particularly vulnerable to financial pressures. Equally, small businesses are particularly important to the economy, because they are the seedcorn of many others. I have always thought that when Napoleon called us a nation of shopkeepers he paid us a considerable compliment about the strength of entrepreneurialism and individual initiative that enabled this country to beat him at the end of the day. We therefore disregard small business at our great peril. It is particularly troubling, therefore, that so many businesses are in difficultly.
In its current form, the small business rate relief scheme, which was introduced in 2005, involves businesses making an application. That brings us back to an experience that many of us will have had in dealing with small business: at the end of the day, when people have been working extremely long hours, the more form filling, the more hassle, the more paperwork there is to do, the harder it gets, so the forms and applications are more likely to be shoved to one side as something that will have to be dealt with later. The first matter—of actually getting the money over the counter and through the tills—has to be dealt with first.
Has my hon. Friend heard the reports that I have regarding the small business rate relief—that many local authorities are simply not taking steps to advise small businesses of their ability to apply? In that respect, they are not helping with the processes small businesses have to go through at this difficult time.
To be fair to local authorities, I think that the picture varies, but the important point is that at the moment the system creates a burden for the individual businessman or woman and for the local authority. It is a burden for the business person who has to make the application; it is a burden for the local authority if—as, to be fair, many do—they seek to advertise what is available, which entails some costs. I commend certain local authorities—for example, Conservative-controlled Birmingham city council has sent letters to all potentially eligible businesses and dealt with some 6,000 applications; Harrow council, which also happens to be Conservative, is joint sponsoring advice days; and there are many others. The evidence shows a very wide variation in the take-up: the national figure is about 60 per cent., but in some areas in the north-east it goes up to about 80-odd per cent., while in some areas of the north-west, on the other side of the Pennines, it goes down to the mid-20s —a bizarre state of affairs.
The solution could be achieved very easily by adopting the measures proposed by my hon. Friend Peter Luff in his excellent private Member's Bill, which was debated in the House just a couple of weeks ago, and making the relief automatic. I know that the Under-Secretary of State for Communities and Local Government, Mr. Khan, who was present on that occasion, made charitable and sympathetic noises in his helpful way, but we have not seen any action. It would not take long for the Government to act, and I sincerely hope that they will. My hon. Friend showed good faith in not pressing his Bill, but we now expect the Government to show some good faith and take his measure swiftly on board.
When I last asked a parliamentary question on this subject, the Local Government Association got in touch with me to provide examples of good practice, some of which the hon. Gentleman has just mentioned. Does he think there is a greater role for the LGA to help to ensure that all local authorities do as well as the best in trying to drive up take-up of this relief?
I think the LGA is very willing to help and it has encouraged good practice. It also supported my hon. Friend's Bill, which would have made the relief automatic—it would have taken good practice to its logical conclusion and rolled it out nationwide, while also having the advantage of lifting the burden not only on businesses but on local authorities, which would not have had to use their current funding to encourage take-up and could have used it to provide other means of business support. Adopting my hon. Friend's Bill would therefore be a win-win situation, which is why I hope the Government will move swiftly to do so.
It is never too late to follow good practice, and I hope that all local authorities will. It really is as simple as that.
I have been talking about the small business sector, which suffers particular difficulties, but relief on empty properties is another important issue. The reduction in the relief available has caused difficulties in many sectors. We could understand the concern if it were thought that properties were being deliberately left empty, but that is not the case. The difficulty that the economic downturn creates is that, invariably and inevitably in these economic circumstances, the void period that arises between one letting finishing—sometimes, I regret to say, because the business previously in the premises has ceased trading—and another business taking over is likely to be longer, because there is less demand. To clobber the owners at that stage seems unjust and is, I think, an unforeseen consequence of the Government's approach. That could be rectified, however.
There is concern about the growth in the number of empty shops on the high street. Again, the LGA has been doing its best. Only two or three weeks ago, it announced an initiative on good practice that can be rolled out to try to encourage other means of at least getting vacant units in use, having something in shop windows and having some activity, rather than the whitewashed windows that we see all too often. Again, that is an area where there has been a failure to support business.
Another sector experiencing difficulty is the ports, which are important. The Minister for Local Government and I have talked about the ports on a number of occasions in recent times, and I am sorry that his eyes look as if they might glaze over, but I make no apology for returning to the subject because the treatment of those businesses is shameful. Also, I make no apology for saying to him that until he and his colleagues wake up and take notice of what is happening in the ports, we will return to these matters again and again.
A thoroughly needless step has been embarked on: a retrospective revaluation of port tax, which is driving firms in the ports out of business and threatening the viability of a key sector of the British economy. This all stems from the inadequacy of a Government agency. I know that the Minister has spoken to operators and businesses in the ports, as have I and a number of hon. Members. The message from the ports sector, which I have received very clearly, is that everybody accepts the need to pay a fair share in rates. There is no problem with rationalisation of the previous system—the cumulo—by which rates were paid.
For those Members who have not followed the issue, I should explain that previously businesses within the 55 registered ports in effect paid their rates via the operator; some were paid over in total by the operator. A decision was taken that led to their being rated as separate hereditaments—separate rateable units. So far, all well and good, but the incompetence and delay shown by the Valuation Office Agency in drawing up new lists meant that those lists were not available until this year.
As I recall, that is a number of years on from when the lists should have been made available. The consequence has been a massive retrospective increase in the cost of rates, backdated to 2005, when the lists should have been brought into being. The inadequacy and bad management of the VOA meant that firms were not asked to fork out for those changed rates until this year—three years after the event.
My hon. Friend is making a powerful case. Is he aware that a delegation of shipping and shipping-related companies is going to the Department for Transport tomorrow to tell Ministers there that, because of that and the disgraceful swingeing and unjustified increases in light dues, they are thinking of pulling out of this country altogether? The effect of that would be a huge increase in traffic through Rotterdam, and hence by lorry through Dover, with all sorts of consequences for regional policy, congestion in the south-east and so on.
I am aware of that as it has been raised by my hon. Friend and a number of Members who sit on the Labour Benches, as well as by Members from all other parties. It is not a purely partisan matter, so it is all the more surprising that we have met with such a stonewalling response from the Department for Communities and Local Government.
It is worth examining these matters in a little more detail, because they clearly show the inadequacy of the Government's approach. Overall, there will be a very significant increase in the burden that the ports sector will have to bear. Not only is it retrospective, but it follows an increase that was imposed with no impact assessment, no consultation and no assessment of the effect on the wider economy. Moreover, the policy contravenes the Treasury's own guidance on retrospective taxation. That information does not come from me; all of it was obtained by hon. Members in answers to questions that they had asked the Government. The Government have breached their own rules.
Against that background, it is particularly invidious to use retrospective taxation. There are clear parameters for the use of retrospective taxation: it should be used very rarely, to preserve revenue and other significant interests. As there was never any assessment of the amount of revenue that might be raised, no one knew what there was to preserve. We have had enough stealth taxes from this Government in the past; now we have a backdated stealth tax as well, and that makes their action doubly invidious.
The Humber Docks Rating Group, which has met a number of Members, estimates that some 600 businesses could be affected. Firms are already going under. Three have gone under so far, and, although they are small firms, I believe that between 60 and 100 jobs have been lost. A number of other businesses have reported that they are in difficulty—and this is not just affecting the small business sector; it is affecting large multinationals as well. At a recent meeting at the House of Commons, DFDS Seaways made it clear through its UK managing director that unless the treatment of the ports sector changed, it would have to reconsider its investment and operations in the United Kingdom.
That underlines the point made by my hon. Friend Mr. Brazier. This is an area in which the United Kingdom's competitiveness is at stake. Organisations such as DFDS Seaways will simply relocate their operations in Europe—in Rotterdam—and, as my hon. Friend pointed out, the transhipments will then come by road, which will have bad consequences for the environment. This is the worst example that one could possibly imagine of the Government's lack of a joined-up policy.
While I entirely agree with all the concerns that my hon. Friend has expressed about retrospection, may I ask him what our party's policy would be for the period between 2005 and the present day, given that we obviously want to help the ports as much as we can?
What we have said is that we should postpone action so that we maintain the 2005 values until 2010. That would give the businesses a breathing space, and would enable the revaluation to be carried out on a proper basis with consultation, an impact assessment and a quantification of the revenue. That would enable the businesses—which know that there will inevitably have to be some uplift in their rates—to plan properly. The key point is that it was impossible for them to plan properly in this instance, because they were given no notice. In a number of cases, particularly at the smaller end of the scale, the amount demanded in back rates exceeded the annual turnover of the business. In order to pay the rates that will fall due in the coming week, businesses will technically be trading insolvent.
Apart from one of the blandest letters that I have ever seen, from the Insolvency Service, the Government have been able to produce no defence. When Mr. Mitchell—who I am delighted to see is present—initiated a debate in Westminster Hall, the Minister, as ever, put up a stalwart defence of the Government's position, but I felt he was a bit like General Custer at Little Big Horn. The only difference, apart from the fact that General Custer had long flowing locks, was that the Minister was at least able to walk away at the end of the day. The fact is, however, that he was surrounded, and there was no one to support him because the case was unanswerable.
When I was a barrister, I occasionally had to tell clients that they did not have a case. The Government are in exactly the same position. Their case is roughly the same as that of a defendant when his fingerprints have been identified, there is a DNA sample, he has signed a confession, and the Archbishop of Canterbury was an eye-witness. They have been caught bang to rights, and the sooner they accept that and move in the direction that has been suggested by my hon. Friend Mr. Field, the better. Otherwise, the ports sector in this country is at real risk of being dealt long-term damage.
I understand why the hon. Gentleman might want to have a dry run of a full debate we will have on this subject next week, but does he not accept that this is not, as he is trying to say, something new for ports? Does he not accept that although 500 or so businesses in ports are newly listed and liable to pay business rates, three times that number were already paying business rates separately before this period? Will he not also accept that what is new is the unprecedented period of eight years to pay these backdated, legally established tax liabilities, which we are proposing and he is opposing?
The Minister is game as ever, but he does not address the key points. The issue of the separate rating is not of itself the problem. What is new is the retrospective revaluation element; that is the bit the Government have not been able to address.
It is not new; it is an established part of the ratings system—it has been so in this period, and it was in the last period. More firms outside the ports are in the same position, because that is the way the rates system works, and the period we are allowing for payment will also help those businesses, especially in the current economic circumstances. There is nothing special about the position of these ports businesses, except that they are the subject of a review that the Valuation Office Agency has undertaken. It arguably could have done so more quickly, and it has conceded that point.
I know the Minister has his back to the wall, but, if I may say so, he really is struggling a bit. It is not, I hope, normal practice in the valuation business for changes to be carried out retrospectively without impact assessments and without consultation. If it is, that says a lot about those ultimately responsible for the VOA—and the ultimate responsibility lies, of course, with Ministers.
What is special about the ports sector is that it is particularly vulnerable to this measure, and firms are starting to go out of business. Nothing the Government can say will get them off the hook on this, and I regret that the Minister is, perhaps on orders from above, still digging himself into this position. That follows on from the response of the Department to the House of Lords debate last week, where the Government position was condemned by their lordships, and the next day the Government issued a statement saying, "Nothing has changed, and we carry on as before." This Government are turning into a modern-day version of the Bourbons, as that is an attitude we could have expected from Marie Antoinette and Louis XVI in Versailles. The only difference is that the Government are saying, "You can have eight years to eat the cake," but what they do not understand is that the cake will choke the businesses in the interim. That is why this is wrong. The Government have learned nothing and forgotten nothing.
If we add all these things together, we are left with a catalogue of failure. I have referred to supplementary business rates, but there is also the winding down of the local authority business growth incentives—LABGI—scheme. There have been wholly inadequate responses from the Government.
Well, in that case I suppose I should thank the hon. Gentleman for his generosity. On the LABGI scheme, does he agree it is reprehensible that some local authorities have this money in the coffers and are spending it on things other than what they should? One local authority chose in its budget for the next year to spend the entire amount over the last three years—£815,000—on job evaluation, rather than on assisting local business growth.
What is most reprehensible is that the Treasury cut the amount of funding available for LABGI by such an enormous amount, but that was not mentioned.
Having now dealt with LABGI, I will move on, if I may, to—
I have been more than generous in giving way to the hon. Gentleman, so I shall not do so again now—he is not going to get away with this again.
I do not want the hon. Gentleman to get stuck in the position he is currently in, as he might hurt himself. I have given a very clear answer. I am more than happy to encourage all local authorities to work seriously together, and I hope they will, but there is no point in masking where the real responsibility lies here: the Government have emasculated a scheme that could otherwise have worked well, and then sought to ignore what my party were trying to put in its place.
The hon. Gentleman has had two bites at the cherry, which is more than generous. I do not think I am usually difficult about giving way to hon. Members, but I am not going to have a two-way conversation with him, as that might get boring. [Interruption.]
Order. Two-way conversations from sedentary positions are not just boring; they are not allowed in the House. I have half an eye on the clock, and as a lot of hon. Members are seeking to catch my eye, perhaps we could press on with the debate.
I am happy to do that, Mr. Deputy Speaker. I have deliberately sought to take as many interventions as I can, in an effort to assist hon. Members in this debate.
Against the background that I have outlined, the Government have failed to deliver real assistance to small businesses. As we alluded to in our motion, there has been a smokescreen of measures that have never been delivered on the ground. I know that my hon. Friend Mr. Prisk is going to refer to those in some detail when he winds up. No real action has been taken, there has been no proper loan guarantee scheme, and we have not had the things that would really make a difference to business. The Government have not introduced anything that would provide a real incentive for businesses to come to a local authority area, such as the incentive scheme that we propose; nor have they given local authorities the ability to offer discounts to help businesses in trouble. Those things would really help business in this difficult time, but the Government ignore all those real actions; instead, there is a smokescreen of spin and a degree of reluctance to acknowledge reality. It does make one think that this Government are now firmly stuck in the bunker—Ministers are moving phantom armies around in Ukraine, while the threat to businesses is knocking on the door of Whitehall. That is the reality: the Government have lost touch on this issue, and business deserves better.
I beg to move an amendment, to leave out from "House" to the end of the Question and add:
"notes that the Government has recognised the problems that many businesses face and is committed to do all it can to help them through these testing times;
recognises the action the Government has taken to give targeted support to businesses including a £20 billion working capital scheme, an aim to pay Government suppliers within 10 days, a cut in the main rate of value added tax to 15 per cent., a deferral in the increase in the small companies' rate of corporation tax, free business health checks, more than £100 million towards debt advice, the HM Revenue and Customs Time to Pay scheme benefiting 93,000 firms by deferring £1.6 billion in tax, and extension of Empty Property Relief;
believes the Government's commitment to the annual Retail Price Index cap means that there has been no real terms increase in business rates since 1990;
welcomes the Small Business Rate Relief scheme benefiting 392,000 businesses by £260 million in 2007-08;
recognises that funding of almost £1 billion since 2005-06 has been provided through the Local Authority Business Growth Incentive scheme;
further supports fairness in the system that ensures that properties are revalued every five years with transitional relief to phase in significant increases in bills from revaluation;
and acknowledges help provided for businesses, including in ports, receiving unexpected and significant backdated rates bills by introducing an unprecedented eight years to pay, as part of a package of measures that ensures through the rates system there is certainly, fairness and appropriate relief for businesses.".
This is an important and timely debate on business rate taxation. It is also an interesting one, because what we have just heard from Robert Neill, the Conservative Front-Bench spokesman, is a strong case for a fiscal stimulus and tax support. On that basis, I am glad that he is part of what is now an inter-party international consensus that knows that Government action is needed to slow the global downturn, to speed up the chances of recovery and to regulate better the international financial system for the future. I am glad that he also seems to know that Governments must act to help families and firms through this recession, even if—I have to say this—the shadow Chancellor and his party's leader do not appreciate that.
As the Prime Minister and the Chancellor have made clear—this is where the real difference between the two sides of this House lies—we will take whatever action is needed to see us through the credit crunch. We will do what it takes, as we have done, to prevent the —[Interruption.]
Order. May I repeat what I said earlier? If anybody wishes to intervene, it is much better for the structure of the debate and for general order if they intervene from a standing position in the normal way, rather than chunter from a sedentary position.
I was trying to take the chuntering from the Opposition Front-Bench team seriously, Mr. Deputy Speaker. I am not sure how they can say that no action has been taken and everything is simply spin, given that we stepped in to prevent the collapse of the banking system. We did so because it is important to savers, pensioners, householders and mortgage payers—all of us—and businesses that we have a banking system in which banks do not go bust and which gets back as quickly as possible to the proper of business of banking: lending to support the British economy, lending to support firms and lending to support families. Similarly, I should mention the help that we have given to try to keep companies in business, people in work and families in their homes, and the action that we are now taking to try to ensure a proper international system of regulation in order to cut the risks of such a meltdown in the global financial system in the future.
What would the Minister say to Ahlmark Shipping (UK) Ltd, which contacted me this morning to say that it had received a backdated rate demand for £750,000? Nobody from the Valuation Office Agency, or indeed anyone else, approached the company about this new system of paying direct rates—it already had a negotiated cumulo contract with its port supplier. The first that the company heard about this was in March 2008. It now faces a bill for the sum that I mentioned and it says that it has no chance of recovering those costs from its customers. It states that this
"will make our company insolvent with job losses inevitable."
If the business is faced with such a business tax demand, it should have been paying business taxes a good deal earlier than 2005. I would also say that businesses in the same port—possibly ones in direct competition with the one that the hon. Gentleman mentions—have been paying business taxes on their own account during that period. Finally, I would say that the Opposition should not vote down the measures that we will seek to put in place next week that will give that firm and others in a similar position eight years to pay the backdated business rates that they are now legally liable to pay.
The Minister said that the stabilisation of the banks is important, and I am sure that everyone agrees. But we are seeing, especially in the west midlands, rapidly rising unemployment. It is now 2 million and may be 3 million by the end of this year. Despite that, the Government are persisting with increasing the taxes on business and therefore harming the prospects for jobs. That is what the uniform business rate is doing now, and surely the Minister's argument requires some balance to try to get the equation right.
Well, that is another argument from the Opposition for a fiscal stimulus. It also overlooks the fact that we have put in place the VAT cut, and the Office for National Statistics suggests that 70 per cent. of the cut has been passed through into prices. Other independent commentators have said that it is the equivalent of a 1 per cent. interest cut. The hon. Gentleman also overlooks the fact that in the pre-Budget report the Chancellor said that he would not proceed with the increase in the small companies rate that was scheduled.
Is the Minister really saying that he thinks that the VAT cut has worked? Does he think that many small businesses have found it possible to make the reduction in VAT given the administrative costs? Would it not have been simpler and more direct to have helped them through the rates?
It is not what I say: the Office for National Statistics has said that the VAT reduction has been passed through to consumers in some 70 per cent. of prices. The independent Institute for Fiscal Studies says that the VAT cut has had the same effect as a 1 per cent. interest rate cut. Goldman Sachs has said:
"The VAT cut appears to have had a clear positive impact."
The problem is clearly focused in small businesses, and many of my hon. Friends are very concerned about that, but it is also much wider on the high street. Some big chains are in marginal trading positions now, and they are big sources of employment. The Government will lose revenue and costs—through social security—will rise. Would it not be better to stabilise matters by retaining the situation as it was before all these proposals started to increase the burden on employment?
As the House would expect, we are in close contact with businesses and have detailed discussions with those from all sectors and all parts of the country. I am conscious of the particular pressures in which business rates have played a part. I said earlier that the Prime Minister and Chancellor have made it clear that during this period of unprecedented economic downturn and pressure, we are prepared to take whatever action is needed to try help business and the economy through it.
Will the Minister also look into the case of my constituent, Mr. Thompson, who runs one of the many excellent village pubs in my constituency, the Anchor Inn in Hartfield? Even though the rateable value of his pub has gone down this year, the rates payable have gone up from £10,622 to £16,967, an increase of 60 per cent. Will the Minister meet Mr. Thompson and others to explain to them how, in these incredibly difficult times, they are expected to find that sort of money, which represents a £600 a month increase in the amount that they have to pay in business rates?
My diary secretary hates it when I come to these debates. I will not meet the hon. Gentleman's constituent, but I will meet the hon. Gentleman if he wants to run through the details of the case with his constituent beforehand. Having heard only what the hon. Gentleman has outlined, it is difficult for me to comment on that situation. It might be a product of the end of the transitional relief, which has dampened the increases in the business rates that his constituent was liable to pay for the past four years. We legislated for that scheme and put it in place before the 2005 ratings list came into operation, so that his constituent and any other of the 1.7 million businesses in Britain would know—because of that provision and other stable features in the system—their likely rates liability for each of the five years of the ratings list. When one is running a business, advance knowledge of a potentially significant element of overheads does not mean that the liability to pay changes, but that the ability to plan and to try to manage those pressures is improved.
That, of course, is precisely what has not happened in the case of companies such as Ahlmark Shipping and other companies subject to port rating. They were given no notice of any kind. Many renegotiated their rent, sometimes on contracts that ran five or even as many as 30 years ahead, on the basis of the existing cumulo arrangement. Will the Minister at least accept that even if the logic of his argument is correct—I do not accept that it is—recalculating those payments cannot then be a private matter between the port employer and the port tenant? Often, those employers who have benefited, who, in many cases, were warned about the changes when their tenants were not, are competing against their tenants who have warehouses on a different rating.
This debate is in danger of foreshadowing a debate that we are likely to have in the Chamber next week. In general terms, I do not accept that the separate listing and liability for business rates for some of those businesses came completely out of the blue for three reasons. First, we made it clear well before 2005 that we intended to end the system of prescription. Secondly, a large number—more than 1,500—of businesses based in ports were already paying business rates on their own account and not through the port operator before the listing period started. Thirdly, although I accept that communication from the Valuation Office Agency could and should have been better and that it should have been distributed more quickly, information about the ports review was disseminated widely across the sector from an early stage in the process.
May I say how delighted I am to hear my right hon. Friend reiterate that the Government will do whatever is necessary? Does he agree that it is necessary to ensure that the LABGI—or local authority business growth incentive scheme—money is not spent on other causes? For example, one local authority has chosen to put £815,000—three years' money—into job evaluation rather than making it available to local businesses through its budget for the next year. Will the Minister do something about that to ensure that that money, which is earmarked for businesses, goes to local businesses?
The LABGI scheme—to use a rather ugly and awkward acronym—was a three-year scheme from the outset. The hon. Member for Bromley and Chislehurst misleads the House when he says that the amount for the scheme has been slashed— [ Interruption. ]
Thank you, Mr. Deputy Speaker. I do not wish to accuse the hon. Member for Bromley and Chislehurst of misleading the House, so of course I withdraw that word. However, he is mistaken if he describes it as a scheme that has had its funding from the Treasury slashed. I say that because I was the Treasury Minister responsible for introducing it. I devised and funded it as a three-year scheme: over the three years, almost £1 billion has been made available as a reward to local authorities that played a part in helping businesses in their area to grow.
My hon. Friend John Mann makes a really important point. The money is a reward and a recognition, yes, but it is also an encouragement and an incentive to local authorities to do more to support their business base, and to bring jobs and long-term prosperity to their local economy. That is the sort of investment and activity that we wish to encourage local authorities to increase, but the Government—and especially my Department—have a principle to which we hold quite strongly. We believe that, where possible, we should allow local authorities to take decisions for themselves about how best to spend their money and about what is best for their area.
I thank the Minister for that answer and for giving way again, but does he understand the anger of the very large number of business people in my constituency who have contacted me in the past few days? They have been astonished to find that Bassetlaw council has earmarked the LAGBI money in its budget for next year for job evaluation, and not towards giving local businesses the support that they currently need.
I can understand the reaction of business people in Bassetlaw. If what my hon. Friend says about his council's use of the money is correct, that places it out of step with the mainstream of councils that receive LAGBI money. Most councils see the reason for the money and understand its value, and they have been able to use it to support local jobs and businesses, particularly during this difficult time when the economy is on a downturn and businesses are under new pressure.
We are conscious of the pressures on business at present, and of the pressures that business rates can produce, but I remind the House that rating systems of one type or another have been in place in this country for more than 400 years. The present system is central to providing the revenues that support those local government services—such as education, housing, waste, social services and planning—that benefit us all.
This year, business rates should raise around £20 billion—all of which, I point out to Mr. Hendry, is redistributed to local authorities, rather than going into central coffers or the tax pool.
Looking around the House, I do not see many hon. Members—if any—who were present when this measure went through. The key word is "uniform", and the distinction is that this is now a national taxation at the command of central Government. As a result, it does not reflect the two important features of rates that have been key for all their 400 years—less 20 years—of history. That is, that the money was at the disposal of local authorities to compensate for the nature of business in their areas, and that it therefore flowed to those areas around the country—market towns, for example—that encouraged business. This uniform thing merely makes the tax divisive across the country, and thus very different by nature from what preceded it.
I am interested in the common cause that the hon. Gentleman is making with the Liberal Front-Bench team. Setting the business rate nationally is a way of making sure that the revenues available are redistributed fairly, particularly to poorer areas. It also ensures that the system itself is fair in that, when a local economy or area has relatively few businesses, the ones that do exist are not disadvantaged by having to pay a higher rate. The business rate system we have today is a way of ensuring in a number of ways—not just that one—that there is a fair system of taxation for all businesses in all areas.
While my right hon. Friend is right in saying that this taxation system is not particularly new, what is relatively new is the early imposition of business rates on empty property, following the Barker review. In times such as these, no sane property owner will needlessly hold on to empty property, so although the focused support for smaller businesses is welcome, will my right hon. Friend review the level at which that assistance comes into play? In my area, companies are struggling to let properties while desperately trying to meet business rate demands they cannot cover.
I shall make sure that my hon. Friends at the Treasury take that as a Budget representation from my hon. Friend. I am glad he welcomes the change that we shall be making from April this year, which means that there will be a higher threshold and thus no new liability to pay on probably about 70 per cent. of empty properties. He urges us to review the operation of the scheme and we shall of course do so once it is in place.
I turn again briefly to the questions about the business rate system as I think it would be useful for the House to understand how we have tried to design it so that it is fairer for businesses—I have mentioned the benefit of a nationally set rate in that regard. The system is based on the hypothetical rate that an occupant would pay to use a property. If a property is in a better location or provides better amenities, the rent that someone may be willing to pay will be greater and the rateable value and the rates that flow from that are, therefore, also greater.
The hon. Member for Bromley and Chislehurst talked about the multiplier. He is right: the actual amount a business pays in business rates is calculated as a function of both the rateable value and the multiplier. Contrary to the assertion that through the business rate system, business is a cash cow for Government funding, or even local government funding, business rates rise only by the rate of inflation. Each year since 1990, and consistently since 1997, the rates have risen only in line with inflation. That has meant that since 1997 the proportion of local government funding from business rates has dropped from about 25 to 21 per cent.
Before anyone from the Opposition jumps to their feet, it is not the case that the proportion of the council tax contribution to council funding has risen in a mirror image. Investment from central Government has increased above inflation every year since 1997, but the proportion of local government funding from council tax has been roughly the same over the past decade.
As the system stands, that would be the effect on the business rates multiplier for the following year, if RPI is negative in September. The multiplier is capped each year by RPI—inflation. Through the cap and by setting rateable values for a five-year period, we can give businesses certainty about the level of their business rate liability.
In addition, where we think there is a strong case, we have been ready to introduce reliefs to make the system fairer still. There are now mandatory reliefs for charities and community amateur sports clubs of at least 80 per cent., which last year were worth almost £800 million to those bodies. We introduced rural rates relief, which has been available since 1998. Pubs and post offices in rural areas can get 50 per cent. rate relief. I have to say that the Conservative party opposed the legislation that introduced that relief.
The hon. Gentleman shakes his head, but his party voted against the Second Reading and the Third Reading of the legislation that brought in that measure. However, he is, I am pleased to say, a strong advocate for that relief, as is the Conservative party now. According to the last figures, that relief is worth about £260 million to nearly 400,000 small businesses. So there is relief in the business rates system, particularly for small firms, where there is a good, principled case for it.
Of course, the Minister is being a bit tendentious. We opposed the Bill for the bad things that it did. The relief provisions were a good thing in it that we always supported, so he was not right to say what he did. The automatic rate relief was always supported by Opposition Members. I support it, and I am glad that the Government embrace it. I have had constructive discussions on making that relief automatic in my private Member's Bill. He has indicated that he is in constructive discussion on the issue with other parts of Government. I have now examined all the arguments against making it automatic, and none of them has any validity. May I join in pressing him to make Budget representations to the Chancellor, and ask him to make sure that automaticity forms a part of the Budget measures next month?
I shall personally forward a copy of the Official Report to the Chancellor tomorrow, and I shall highlight the hon. Gentleman's contribution with my doughty yellow marker pen, which I have here. Let me mention revaluation, because the Conservative Front-Bench spokesman raised the subject. It is a major part of the rating system—and, I would argue, of the fairness in that system. That fairness comes from the regular five-yearly revaluations.
I am grateful. The Minister has been extremely generous in giving way today; I think that we all appreciate that. Last week, I was approached by someone whose business operates from small, one-storey premises. It is charged the same business rates as a much larger, two-storey building on the other side of the road. He has been in contact with the Valuation Office Agency, which said that it would take him to court, before offering him a payment plan. He has been told that it will cost him about £800 to challenge the decision. Is that fair? What sort of help can the Minister offer to businesses in that situation that are being treated unfairly? There does not seem to be equity in some cases.
I think that it is reasonable that the hon. Gentleman's constituent should question the Valuation Office Agency's rating valuation. If his constituent is still contesting the view that the agency takes, he has the right to challenge it. He has the right to take the case to a tribunal to have it properly adjudicated. I would encourage the hon. Gentleman to encourage his constituent to do just that, as is his right. The Valuation Office Agency is there to deal with people's questions or challenges in the first instance, but the independent tribunal is there to adjudicate between the assessment made by the agency and the evidence that people such as his constituent produce.
Let me return to revaluation. It ensures that businesses contribute at a level that is based on up-to-date information. The next revaluation is due to take effect from
I am grateful to the Minister for giving that indication. Will he confirm that the transitional arrangements will be, at the very least, no less generous to businesses than the current arrangements, and will he consider looking again at the methodology for calculating the revaluation?
I can confirm that we are considering the appropriate methodology at the moment. I can further confirm that we aim to publish the proposals for consultation later this summer. I look forward to debating them, and to hearing the hon. Gentleman's representations on them.
Let me move on briefly. I said earlier that we were very conscious of the economic pressures on business at present—the pressures that the international credit crunch and the economic slowdown are having. That is why, contrary to the argument that we heard earlier, there is a range of practical measures in place that is offering real help to businesses, particularly to small firms, in the face of not just a credit crunch, but a crunch of confidence, demand and, increasingly, jobs. Not to act, as independent commentators and some of the specialists have said, is likely in the long run to cost us more than the action that we are taking.
To help cash-flow pressures from business taxes, those measures include putting in place a mechanism for deferring tax payments. Since it was announced in the pre-Budget report, HMRC has done so for 93,000 businesses at a value of £1.6 billion. The measures include help to secure finance for small and medium-sized enterprises through the Government enterprise finance guarantee. That enables banks to provide an initial £1.3 billion of lending to SMEs that have viable business plans but find that their normal commercial sources of support may have been choked off in the current circumstances. So far 26 lenders have signed up to the scheme and 20 of those lenders have already made offers; 1,300 businesses have been registered as eligible for support, and support to date totals almost £150 million.
I am grateful to the Minister. He is always generous in giving way and, as my hon. Friend Andrew Selous said, it is appreciated. What assessment have the Government made in relation to deferment of VAT payments with regard to indebtedness? When a drowning man sees something in front of him to grab hold of, he grabs hold of it. My concern is that the degree of indebtedness that might be incurred will make more people insolvent, rather than fewer.
The Government have not made a precise assessment of that, but the general concern, particularly about cash-flow pressures and sources of credit that will help see companies through this period, has been at the root of the schemes that are now in operation. That was the root of the deal that we did with the European Investment Bank to make sure that we have £350 million for small and medium-sized firms, which has been agreed by UK banks. It is also why we want our banks to lend responsibly again, so that those banks that have taken a good slice of taxpayers' support are required in legally binding agreements to increase the level of lending that they will undertake next year. So Lloyds will increase its lending in the next 12 months by £14 billion over last year's figure, with £11 billion of that to business. RBS will lend an extra £25 billion, £16 billion of that to business.
In conclusion, I return to the speech that we heard from the hon. Member for Bromley and Chislehurst and to the motion. The speech was long on criticism, as I have come to expect from him, but it was short on solutions and even shorter on commitments that businesses could take seriously, rely on and expect from the Conservative party. Faced with an unprecedented failure of the global financial system, which is now having severe repercussions on jobs, confidence, credit and demand, there are easy criticisms, but there are only hard decisions that need to be taken.
Recognising the problems, as we do, and recognising the pressures that business faces, we have been clear and committed and are acting in every way we can to help them through the period. That is why we have in place targeted support for business, we have deferred the increase in small companies corporation tax, we have carried out almost 36,000 business health checks, we have the lending schemes in place, an extra £100 million has gone into debt advice, and it is the Government's aim and commitment to try and pay invoices, particularly to small firms, within 10 days.
On business rates, the Government's package of measures includes, among other things, the commitment to the annual retail prices index cap, the introduction of the small business relief scheme and the regular revaluation every five years. That combination of measures enables the business rate system to raise revenue vital for local services while being certain and fair and, when appropriate, providing reliefs for specific businesses. That is what our amendment to the Opposition motion sets out, and I urge my hon. Friends to support it.
More than 20 years ago, my company moved into its first commercial premises. My shock on receiving my first non-domestic-rates bill stays with me to this day: "You mean I have to pay all that without even having my bins emptied? What am I paying the rates for?" I cried. I imagine that that innate sense of unfairness at the Government's milking of a person's business for cash has been replicated among many business owners throughout the years.
On complaining to my local authority, I discovered that it had no hand in setting the rates, which had been set by central Government; the local authority would not have any interest in providing a service, given that the money that it was instructed to collect went straight into Government coffers. I know that some of the money is reallocated back and that local authorities see some of the fruits of their labours, but it seemed wrong to me then that I, the business rate tax payer, was powerless, and that the local authority had no power either. It just played the role of tax collector.
There have been a number of attempts to link various payments from businesses to the quality of service that they receive. There are business improvement districts, for example. When businesses are strong participants in a bid, the districts seem to work well, although some have enjoyed mixed success. However, at least businesses get a vote and a say in such a bid.
As has been mentioned, we recently debated the Business Rate Supplements Bill. We supported it because we recognised that major infrastructure developments such as Crossrail need businesses to support them financially and that businesses along the route supported Crossrail. Such a big project would not be able to survive without business support. The Liberal Democrats tabled several amendments to the Bill in an attempt to introduce a ballot for all businesses that were to be levied. The measure was supported by the Federation of Small Businesses, the Institute of Directors, the CBI, the Royal Institution of Chartered Surveyors and the British Chambers of Commerce—but not by the Government. We tabled amendments to give businesses a say by means of a project delivery board, through which the expertise of business could be used in the delivery of improvements supposed to be for the benefit of all. Nevertheless, all those amendments were rejected or talked out.
Businesses are back more or less where they have always been: paying the piper, but never calling the tune. The Conservative motion proposes that local authorities should have the power to apply local business rate discounts, and there has already been some discussion of that. The proposal goes in the right direction, but it is still only tinkering about on the edges of the problem. We need a proper relationship between the local authority and the businesses operating in its area.
Businesses might be more willing to pay business rates if they could see what they were getting for their money and if services could be tailored around them; they might be more willing to pay if they had some say in the matter. However, under this Government—or the Conservatives—the chances of that happening are about as likely as Fred Goodwin's getting a Christmas card from the Prime Minister.
Yes, he did, but that was some little time ago; I doubt if he would get one today.
In their amendment, the Government cite no fewer than 12 initiatives that they purport to have introduced to help business, some of which are most welcome. The HMRC scheme allowing deferral of tax payments is welcome. The local authority business growth incentive scheme was welcome, if overly complex to administer, but I understand that its funding has now dropped to £150 million. Why, at a time of crisis, have the Government reduced the ability of local authorities to extend help to local businesses in their area? Perhaps the Minister could comment on that in the wind-ups.
The amendment mentions the aim of paying Government suppliers within 10 days. I understand that the practicalities of that are causing difficulties, because 10 days is something of a random number, and implementation even of the aspiration seems to be pretty random. If all taxpayer-funded suppliers were paid even within 30 days, that would be a huge improvement for many companies who are having to wait months for payment on Government contracts. The amendment refers to free business health checks. The Minister said that 130,000 have already been carried out, but I would be interested to know what percentage of businesses know about the checks, especially those in the smallest business categories.
This blizzard of Government initiatives sounds great, but are they achieving any real penetration? Are we just skating about on the surface of an iceberg whose depth we do not know?
Will my hon. Friend also consider the possibility of the Government trying to simplify the procurement system so that small businesses can apply for and win contracts much more easily than through the current process, which requires endless forms and delays? Is not that another initiative that needs to be speeded up?
My hon. Friend makes an excellent point. Procurement is hugely important. Where local authorities have a responsibility to procure locally, simplification of the approved supplier status would be tremendously helpful. Some organisations are trying to work on a simple one-size-fits-all approved supplier application form. I hope that the Government will take that on board and give it some consideration.
Does the hon. Lady agree that the Minister said nothing that will help the 272 businesses in my constituency which, at the end of transitional relief, face increases of between 5 and 1,000 per cent.? There is no way in which some of those businesses will be able to withstand those sorts of bills.
I am grateful to the hon. Lady for that intervention. We have been tantalised with a suggestion from the Minister that some form of transitional relief system will be introduced for businesses that will have large increases. I look forward to hearing a little more detail on how that might operate.
Then there are the big initiatives mentioned in the Government amendment. The £20 billion working capital scheme sounds fantastic, but the wheels are turning too slowly and the money is not getting through. Giving an instruction is not like waving a magic wand. Our beloved Chancellor is not Jean-Luc Picard, captain of the Enterprise—he cannot just say, "Make it so," and have the crew comply with miraculous speed. We are not in warp drive; we are not even moving in the right direction. In reality, the Chancellor is more like the captain of the Titanic. There is the iceberg—the ship is moving inexorably towards it. He has given the order to change course, but the crew will not turn the ship around fast enough. In fact, the crew are not obeying orders at all. The captain has failed to supervise them properly, and they have become dissolute in their ways. They need taking in hand by a stronger, more far-sighted captain—one who saw that iceberg looming years ago. He is a captain who would take firm control, nationalise the banks, which are already in majority public ownership, and steer the ship back on the course of prosperity. I refer of course to the cultured, erudite Captain Picard of the Liberal Democrats, my hon. Friend Dr. Cable.
I could go on, but to return to earth for a moment, we should consider another benefit mentioned in the Government amendment, which is the extension of empty property rate relief for businesses with a rateable value of £15,000 or less. I wonder what sort of small business in London would benefit from that empty property rate relief—a purveyor of broom cupboards perhaps, or a car park space owner. The CBI has calculated that at least 5 million sq ft of property has been demolished already to avoid that tax, which is an absolute scandal for business and for the environment. I ask the Minister if we can please see in the Budget an extension of the upper limit on empty property rate relief, at least, which would be sensible.
Yes, I think that there is one on the A40 coming into London, and it is a travesty in every sense of the word. We need a regime that does not force business people, such as one of my constituents in Solihull, to let business accommodation at 50p per sq ft because they cannot afford to pay the rates. Companies should not be profiting from carrying out wanton destruction of perfectly good buildings.
Would my hon. Friend agree that the problem is not just the demolition of existing buildings? In Chesterfield, for example, a developer was planning to build three office blocks on a brownfield site at one of the gateways into the town. Having built one, and been hit by the empty business rate at a time of recession, it is not prepared to go ahead with the other developments. Those developments would have meant that office blocks were available to attract new businesses when we come out of recession.
My hon. Friend makes a valid point. By the time we get to the end of the recession, where will the buildings be to house the new industry that we will need to prosper?
The Government amendment refers to the deferral of the small companies rate of corporation tax. That is a big deal, but why did the Government raise it in the first place? They are saying, "We will tax you more, but we will leave it a little bit longer before we do in the hope that you survive long enough to be able to pay." Well, thanks very much indeed, Mr. Chancellor—that is really big of you.
Small business rate relief is welcome, but even more welcome for the Chancellor is the fact that the Government still get most of the revenue. It is a great gesture, but it does not have the Heineken factor. It does not reach the companies that other initiatives cannot reach because it is not automatic. If the Government are serious about helping the smallest, most vulnerable businesses, they could make that change at a stroke, and I am delighted to hear from Robert Neill that there is a glimmer of hope from the Government on this matter. I hope that there will be an announcement to that effect in the near future.
The amendment mentions other matters, such as the backdating of rent increases for businesses based in ports, which has been discussed at some length. I do not believe that the Government understand what the measure has done to business confidence. How can a business consider with enthusiasm investing in the United Kingdom when the playing field on which it thought it was operating is suddenly turned upside down and it is landed with retrospective rates? Indeed, we have heard that companies are actively considering pulling out of ports. Although the eight years to pay is welcome, the principle has been damaged. The message that the Government are conveying is the worst possible to potential investors.
Let us consider the latest cause of worry for business and examine two factors that the hon. Gentleman rightly called a double whammy: the abolition of transitional rate relief combined with an average 5 per cent. increase in business rates. Scrapping transitional rate relief will cost business an estimated £100 million. The scheme is due to be implemented on
The second element of the double whammy is pushing ahead with business rates at a 17-year high increase of 5 per cent. at a cost of £1.15 billion to business. The retail prices index today stands at 0 per cent., but business rates will be increased by more than 5 per cent. If any member of the Government perceives logic in that, I would be grateful for an explanation. I know that the rates are normally calculated from the RPI in the previous September, but the Government have shown themselves able to act swiftly in announcing new initiatives when crisis measures are needed.
We must also consider the impact of the revaluation, the implementation of which the Conservative motion asks to be delayed. Some businesses might benefit from the revaluation, and I am glad that the Minister said that some sort of phased transition could be an alternative to delaying it. Of course, we must do something.
Does my hon. Friend share the anger of businesses in Chesterfield, which recently contacted me? First, there is the shock of the 5 per cent. business rate increase when inflation is so low, then they find that it is nothing to do with the local council, but all imposed by central Government, to whom the money is sent off, with only 25 per cent. returned to Chesterfield. They do not even get the benefit of its being spent on the town centre in Chesterfield to improve its attractiveness to businesses.
Indeed. That is the reason for our policy of returning the ability to determine the rates to local authorities. We understand that there must be some sort of redistributive mechanism to take account of more and less wealthy areas, but the complete dislocation of the payment from what local authorities receive is unhelpful for local authorities and business.
To continue the Starship Enterprise theme, if a tourist group of aliens visited Britain today, I wonder what they would make of it. "So let me see," they might say—they have west midlands accents, by the way—"business funds the economy, which pays for everything. This country is in the worst recession in human living memory, but the Government are not only putting up the taxes that businesses pay on their premises, but making it doubly hard for businesses, by removing the smoothing mechanism that, until things got really bad, helped them to manage the increases in their payments. The Government think that business activity is going to shrink by more than 3 per cent. and that there'll be more than 3 million unemployed by the end of the year. Hmm, and the Government are really unpopular. Well, we don't need our superior intellectual powers to work that one that." That is hardly the way for the Government to live long and prosper, is it?
The Conservatives are hardly the ones with the answers. The only policy that I can detect is the business loan guarantee scheme. I have listened in vain for new policies and for their announcements of help for business. No fiscal stimulus, no tax support—as the Minister said, the Conservatives are short on solutions. However, the main Liberal Democrat response has to be: "Not good enough, Mr. Chancellor. We'll be voting with the Conservatives on this occasion."
Order. Mr. Speaker originally put a 15-minute limit on Back-Bench speeches, but as we now have so little time left, I propose to reduce that to seven minutes, which applies from now on.
I wish to speak exclusively about port rates, so far as they affect my constituency and the Humberside port. A serious situation is developing that will create a mess in the ports, thanks to the inefficiency, the failures and the understaffing of the Valuation Office Agency. It is an institution that combines quite horrendous powers, such as the imposition of retrospective rates, with crippling inefficiency, rather like Her Majesty's Revenue and Customs.
It was decided in 2000 to end prescriptive rating of the statutory ports and to replace it with individual rating of port businesses, which was to be introduced in 2005. The Minister said that people should have known that that would happen, but so should the Valuation Office Agency. It should have had the valuations prepared for 2005, when individual rating began, but it did not. The result was that port businesses continued to pay rates under the old system, which was the cumulo system, whereby the rent on the property paid by the operator included the rates, which were then paid by the port owner—Associated British Ports in Humberside—to the local authority.
The Government's little homily—that not having individual rating of the port businesses would disadvantage other competing businesses—is therefore so much nonsense. They are asking businesses to pay rates twice, because the cumulo system continued up to last year. That means that if port businesses are to be charged retrospective rates as well, they will be charged twice, which is not exactly a system to advantage businesses in the ports.
Meanwhile, like Rip Van Rating, the sleeping Dutchman, the Valuation Office Agency woke up in 2006 to the fact that it needed to reassess all those businesses. However, it did not do so until 2008 in many cases. In 2008, businesses in Humberside were getting big new assessments and, both this year and last year, a demand for retrospective payments of three and a half years of rates on those big new assessments. That is crippling. Those businesses cannot make the money back by making charges on the transactions that they completed over the past three and a half years, so how are they to pay those big retrospective rate bills?
What has happened is unjust, unfair, incomprehensible and any other adjective that one might care to use—I have not had time to go through the thesaurus, but there must be lots more adjectives that describe that monstrous procedure whereby businesses are being asked to pay two sets of rates, one of them retrospectively, on a big scale. What is so farcical about the situation is that Ministers have gone to ABP, the port owner, which has received rebates on the rates that it paid on behalf of other port businesses, and asked, "Please would you give this money to the port businesses that paid it in the first place?" and ABP has said no. That is ludicrous and double impotence on the part of the Government. They tell us that they cannot stop retrospective rating, but they also tell us that they cannot get the money back from ABP that was paid in rates in the first place. It is like a chorus of castrati—double impotence all over the place! It is just not good enough for Ministers to be telling us that there is nothing we can do in this ludicrous situation to get the money back to the people.
The Government tell us that they cannot get the money back retrospectively without changing the law. Well, I have not noticed that we are overwhelmingly busy in this place, passing legislation every day, with a frantic legislative programme. There is plenty of time and space: the Opposition have said that they will support it; the Liberals have said they will support it, so what is holding us back from doing what is obviously necessary? I cannot accept the Nuremberg defence that we are only obeying orders and must do this.
Next week, we will be debating orders to provide for the eight-year payment scheme, which is itself an aid to industry that the Government claim they cannot give by abolishing the retrospective rating. We will have to make a decision. If we reject it, it will put port businesses in a mess, as they will have to pay immediately, but it will also put the Government in a mess, as they will have to decide what to do about the situation.
I am intellectually puzzled and mystified as to why we are doing this and persevering with it, although I am delighted to see that the Opposition have taken up my solution, which is to scrap what has gone before, begin over again in 2010 with new assessments that year, and forget the whole business—putting it down to the inefficiency of the Valuation Office Agency, which caused the problem in the first place. Why do we not do that? It could be that we want to give a good campaigning issue to the Opposition; they are not doing particularly well in the polls at the moment. It might be that they will benefit from this exciting issue. At this stage of the electoral war, we might need a futile gesture—but I do not know; I am not master of the political science behind this issue.
I ask my right hon. and hon. Friends, and particularly Treasury Ministers, whether they want to hit small and medium-sized businesses at the docks when we are trying to help small and medium-sized enterprises. Do we want to bankrupt port businesses when we are trying to develop an export drive based on the competitiveness given to our industries by devaluation? Do we want to put port employees out of work at a time of rising unemployment? Do we want to cripple ports that are big business—certainly in Humberside, and we rely on them—and drive business elsewhere, perhaps to Europe, perhaps to other British ports, or perhaps put them out of existence?
If my right hon. Friends want to do all that, I say that they should persevere and carry on: let us go ahead and watch the payments coming in, if they do come in, month by month, and watch the businesses go bankrupt month by month. If they do not want to do that—and I hope no Labour Ministers are that daft that they do not want to change this incomprehensible system—then for heaven's sake change it, and act quickly.
You can get a better class of metaphor in Grimsby than you can in Solihull, Mr. Deputy Speaker. It is a great pleasure to follow Mr. Mitchell, but I am not sure that Ministers appreciated the metaphors that were directed at them. If I am right, they were not meant personally.
I had hoped to talk a little about the local situation in Evesham and Droitwich in my constituency in order to illustrate the broader national points, but time is against me and I approve of the reduced limit so that others can enter the debate. Let me just say, then, that business rates are surprisingly important to business. We must not lose sight of that.
The Forum of Private Business did a survey this month of 6,000 small firms. When asked what were the most important issues facing them, 65 per cent. of respondents said that it was restoring business confidence. The second most important issue, mentioned by 63 per cent., was restoring consumer confidence. The third, at 59 per cent., was business rates. What rather surprised me was that access to finance and the cost of finance came in 11th and 12th respectively at only 35 per cent. and 29 per cent. Clearly, we are not discussing a side issue in the economy; we are talking about a central issue for small and medium-sized businesses in particular.
This issue is particularly important for one simple reason of which we must not lose sight: business rates have to be paid in full and on time irrespective of the state of one's business. They cannot be cut or negotiated; the rates are a given. It may be possible to negotiate over staff and rents, or perhaps with suppliers about long-term credit. There are all sorts of things that can be done—cutting electricity bills by using less electricity, for another example—but the rates bill is a given, and it was the third largest cost, as well as the third highest priority, after staff and rents for those businesses.
"Opposition Members have a choice: they can either say to their constituents that there is no help and that nothing can be done, and wring their hands, or they can work to support businesses and bring schemes forward."—[ Hansard, 4 March 2009; Vol. 488, c. 845.]
I have to say that I was rather disappointed by the remarks that the Minister for Local Government made in his opening speech, as he seemed to echo the idea that Conservative Members are suggesting nothing. I was sorry, too, to hear the Liberal Democrat spokesman, Lorely Burt, say the same thing. It is just not true.
We have suggested a list of initiatives and the most powerful of those is the national loan guarantee scheme. If it had been embraced by the Government—we suggested it in November—business would be in a much better situation. The Government have brought forward partial schemes, one of which, the working capital scheme, is still not even in place, but we have suggested reform of the financial services sector, action on council tax and action on savers—a raft of specific, well-targeted measures that would make things better. I reject absolutely the suggestion made by the Minister, who has fallen below his usual high standards in repeating that old canard.
For my part, I have tried to do something on small business rate relief with my automatic payment Bill, which was debated in the House on
My Select Committee, as part of its inquiry on post offices, recently went to Wales to see the work that the Welsh Assembly Government are doing. It sticks in my throat a little to say it, but the work that they are doing in this respect is excellent, not only in automatic rate relief for all small businesses within a slightly less generous scheme, but in 100 per cent. rate relief for all small post offices. That is an excellent idea, because those small post offices are some of the most vulnerable and most important businesses in deprived urban and rural communities. That is another suggestion that we should consider embracing in England. Those small sums of money could make all the difference. So often in the House we talk about billions and trillions, but hundreds of pounds can be the difference between survival and failure for so many of the smallest businesses in our land.
My measure is supported by a bewildering array of organisations, including business organisations and, above all, the Local Government Association, which recognises the difficulty in getting all those small businesses to apply for the relief to which they are entitled. It wants them to get that relief, because it recognises that local authorities will have less work to do in picking up the pieces when companies go bust—doing the Government's dirty work for them, chasing business rate bills that are going unpaid. Local authorities believe that it is in the interest of their communities for the Bill's provisions to go into law and for rate relief to become automatic.
Ministerial objections have been raised. Ministers say that it would be difficult for local authorities to implement the measure, but local authorities do not agree. The risk of payment being made to ineligible people has been raised, but I have proposed measures that would deal with that comprehensively and effectively. Increased costs for larger businesses have been mentioned. I understand that, but such costs would be nugatory and what they were paying anyhow a couple of years ago. Small businesses, which are the most vulnerable businesses in our society, have a right to expect that from the bigger suppliers, which often do not treat small suppliers with the dignity, respect and commercial sense that they ought to.
Bizarrely, the Minister offered the idea that not so many companies as we thought are not receiving the relief, but that is an argument for proceeding, because the cost would be cheaper. In the House of Lords last week, Baroness Andrews suggested that putting the measure in place would in some way prevent the Government from doing other things to help small businesses. I really do not understand the logic of that argument and would love to have a private chat with the Minister about what she meant.
The sum of all small things is a big thing. I am suggesting a small thing, but business rates are a big thing for businesses. The opportunity to deal more broadly with the issue was squandered with the VAT reduction. Forget the arguments about the merits of a fiscal stimulus. That £12.5 billion could have been used so much better to address this problem, protect jobs and protect businesses. We now know that 98 per cent. of Federation of Small Businesses members and 83 per cent. of Forum of Private Business members say that the VAT cut has had no beneficial impact whatever on them.
I thank my hon. Friend for giving way on the point about VAT, because every single one of my businesses that attended my small business summit, with help coming from the chamber of commerce, said that not only is the cut having no impact, but that in many cases it is costing them money. It is having a negative impact, if it is having any impact at all. It is not beneficial.
I am glad that I gave way to my hon. Friend. She is absolutely right: small businesses are paying a very heavy price for the VAT reduction. It is doing them harm, not bringing them benefit. Even bigger members of the British Retail Consortium have complained about the bureaucracy and cost involved in its introduction, and are very worried about the timing of the return to a 17.5 per cent. rate during the winter sales period. They are pleading with the Government at least to delay it for an extra month. Today's newspapers are full of stories about retailers quietly putting prices back up this month in order to put the VAT cut on their bottom line instead, thus restoring their margins. It is possible that 70 per cent. of the rate reduction was being passed through, as the Minister said in his opening speech, but I think he will find that that is changing quite fast.
The priority for the last fiscal stimulus should have been businesses, not consumers. There are many things that it would be good to do, but can we afford to do them now? The Governor of the Bank of England says that we cannot, and I have to say reluctantly that I agree with him, but when it comes to business rates, can we afford to stay where we are? The Government are in a mess that is entirely of their own making, but I plead with them to stop digging and at least to do the smaller, cheaper things that they can do irrespective of the wider fiscal situation in which they find themselves, such as providing automatic rate relief for small firms. Even now, they could cancel the VAT cut immediately and use the money saved to bring about real change that will save jobs and businesses.
It is a pleasure to follow Peter Luff. I am only sorry that I was not here on the Friday when his private Member's Bill was debated. He put forward an excellent idea, about which I shall say more in a moment.
Today's debate had not been proceeding for long before the first hon. Member mentioned that today was a quarter day. Businesses large and small in high streets up and down the country are being asked for three months' rent, which for some is the last straw that will break the camel's back. It was reassuring to hear the trade body for British property managers say today that it recommends its members do all that they can to help people to pay their rent, which includes accepting payments monthly even if they are legally entitled to payment for the full three months. I hope that we shall all watch property managers assiduously to ensure that they are being as reasonable as they can be to businesses that might otherwise be struggling. As Robert Neill pointed out, if that does not happen we shall see more and more gaps opening up in our high streets, which would be very damaging to local businesses as a whole.
Last Friday I met members of my local chamber of commerce for one of our regular discussions. The issues that they raised with me were the continuing difficulty of obtaining credit from banks and a reasonable performance by Her Majesty's Customs and Excise, in most cases, in allowing time for taxes to be paid. They also made a point that has been made today about prompt payment of bills. They said, "If only people would adhere to the terms and conditions and pay within 30 days as they are supposed to, that would benefit us greatly." They drew attention to the huge purchasing power of the public sector in procurement contracts, and pointed out that much more could be done locally in terms of goods and services, food, and printing and advertising. Stafford contains the local council's administrative headquarters, a prison, a university, a police headquarters and several hospitals. All those are huge players in their procurement power.
Of course, members of the chamber of commerce mentioned rates. They were still very annoyed about the business rates on empty properties. I was nervous, even in a rising market, about the implications of those. I saw the argument—in a rising market—in favour of trying to put pressure on people not to leave properties standing empty, but to reduce their rents if necessary in order to obtain tenants. It was a reasonable argument in a rising market, but the market in property prices has now collapsed. The least that the Government can do is provide what they have announced so far—a temporary relief that will benefit around 70 per cent. of properties—but my first Budget representation in this debate is that we need to go further. I think that we should preferably provide a complete temporary relaxation of the tax, but, if we cannot do that, we should certainly do something that will benefit more than 70 per cent.
I appreciate how difficult the Government's finances will be when it comes to the Budget. If anyone was in any doubt about that, their doubts will have been dispelled by the Governor of the Bank of England yesterday. However, this is an important issue, which is why I have made my representation.
I, too, have been having meetings with Stafford chamber of commerce, as I am sure the hon. Gentleman will be aware. We had a very good meeting today with the Under-Secretary of State for Business, Enterprise and Regulatory Reform, Ian Pearson, and with other Members of Parliament, regarding many of the questions that have been raised. Will the hon. Gentleman go so far as to endorse our motion, or will he vote with the Government?
Well, the hon. Gentleman can see how I vote later on. As a Labour MP, I support the Labour Government, but I am making my views about what I think should be done in next month's Budget very clear.
The small business rate relief is a benefit for many small businesses. Sadly, however, not enough of them even know that it exists, or how to apply for it. A lot has been done to notify people that they can claim and to make it easy to claim, but many still do not do so. That is why the Bill promoted by the hon. Member for Mid-Worcestershire was a good measure, and my second Budget representation today is that that relief should be automatic. Beyond that, local authorities have a discretion to grant business rate relief in any other circumstances where there is hardship or another statutory provision allows them to do so. Some of the cost of giving the relief falls on the local council, which makes it difficult for it to give that relief, and the rest falls on the business rates pool generally.
I think local authorities should by now have in place their strategies for responding to this crisis of the business recession and difficulties in keeping people's jobs going, and they ought to have a strategy for giving relief where they possibly can. In my area—Stafford and Staffordshire—we recently benefited from the release by the Government of the last of the LABGI money. I am grateful to the Government for releasing that money. In Stafford and Staffordshire together, it amounted to more than £1 million extra. I have made my representations to the two local authorities that there is a pot of money, which they had not been expecting when they set their budgets, that can be used as part of a strategy for helping businesses that are asking them for help. So there is a possibility that help can be given.
I know that we are under time pressure in this debate, but I just want to mention that the LABGI scheme in my constituency has been extremely beneficial for all three years. Every year Stafford has performed well in new businesses starting up and the council benefiting from LABGI. We are one of the best performers in the whole region in gaining that money. As the west midlands has a lower than national average gross value added—GVA—such an initiative to help councils to help businesses to start up is very beneficial. I know that my right hon. Friend the Minister for Local Government is aware of that, because he was in Stafford last week, but I wish to point out that the local county council froze the rents on its enterprise units this year, again to try to help small businesses through the recession.
A big procurement contract that is possible all over the country right now is Building Schools for the Future. It has come to Staffordshire, and anything that the Minister can do, along with his colleagues in the other Department that is responsible for that project, to make sure that contracts are let in ways that enable local businesses to benefit as much as possible from them, will be very beneficial. In Stafford town centre currently, the county council has a project at Tipping street for a complete new building for the council and local retail units. Given all the construction workers in my constituency who have come to see me because they are out of work, that is clearly very valuable.
My final point is that the number of people going through the door of the jobcentre in Stafford has doubled in a year. This is a time of great pressure on the staff who work there, and they are doing a tremendously good job. Whenever a job cannot be found for someone, there is always pressure for training, training, training. Any initiative to get people into training is very valuable. I noticed one this week from universities called "Enrol for free" for people in receipt of jobseeker's allowance. That is a very useful tool, which I hope we will see more of in the coming weeks and months.
I shall be brief because I know that time is short. I represent an area where, sadly, the unemployment figure is considerably higher than it was when my party left office in 1997, there are many empty premises and, throughout the constituency, only 160 job vacancies are advertised through Jobcentre Plus. The issues that we are discussing are crucial because the one thing I do not want to see is that unemployment total going even higher, and I fear that unless we do something about business rates, among other issues, it will do so.
I make no apology for running through some specific concerns about business rates that have been raised with me directly by local businesses. One small business woman came to me not long ago concerned about how the valuation office had come to her shop and done a quick zap with a laser gun; although the people had been there for only a couple of minutes, a few days later she got a bill for an extra £900. She complained to me that no account had been taken of local conditions.
A business man whose business is close to that lady's said—I raised this with the Minister earlier—that his business is paying the same amount as is being paid on a much larger building opposite. A firm has offered to challenge that situation, but it will take £800 to do so. The Minister has said that a procedure involving tribunals is available, but it is complicated and it costs money; it is a bit like saying that a judicial review is open to everyone—it is not if it costs money. There are thus some issues to address regarding fairness.
Someone from a small engineering business has complained that her business is not eligible for the small business rate relief because it was registered only in June or July, and was not on the register on
The Government are always telling us about the initiatives that they have introduced for business, but I wish to read a quote from a local business person in my constituency, who said that she had contacted the valuation office. She stated:
"I am not going to hold my breath as we have had so many government leaflets, brochures and advertisements about how to save your livelihood during this credit crunch but to be truthful not a lot of practical help is available and the money spent on all that paper work and people" could be better used. Those are not my words; they are the verdict of a local business woman on what the Government have done. Something on business rates would be practical, it would help cash flow and it would be much more use.
The central point I wish to make to the Minister is that I do not think he or the Government have grasped the fact that many of these small businesses will not be around to pay business rates in future unless we do something now. We all understand the arguments for a sustainable tax take to pay for decent public services in the years to come, but unless we do something now the base of businesses that there will be to pay business rates in the future will be severely diminished. Something needs to be done urgently—even if the relief is only for a year or two—and I would have used some of that £12.4 billion that the Government wasted on that VAT cut. They did that when we already had discounts of 70 per cent. or so in our shops and businesses, as my hon. Friend Anne Main pointed out to the Prime Minister and others very eloquently.
Of course, I back the automatic small business rate relief and, as an Englishman, I find it preposterous that it is available in Wales but not to businesses in my constituency or throughout the whole of the United Kingdom. Let us have a bit of equity. I would like to know how the Welsh got this without our getting it, as would some of my local small businesses.
My party has very practical proposals to ensure that local councils could keep any increase in business rates over and above what they were expecting to receive for a six-year period. That would give local councils an incentive to get more businesses into their area—there has not been enough incentive, and not enough of our local councils are hungry to attract extra businesses to their area. That proposal is a thoroughly good one, as is our proposal to allow councils to provide discounts on business rates, provided they could make up the income foregone or reduce costs in other areas. Those are practical measures; they are local solutions for local areas, and that is entirely sensible. Of course, these go alongside the proposals that we have made for a national loan guarantee scheme, cuts in corporation tax for small businesses, cutting the national insurance contributions for some of the smallest businesses, and deferring VAT bills.
I have to express my own reservations, echoed by a business man in my constituency to whom I talked last week, about the loading of taxes on empty premises. What is the point of destroying our stock of business premises? It is the seedcorn for future jobs and that has not been a good move.
Shortly after university I started a small retail company. It is still going, and I remain a director, so I declare that interest as recorded in the register.
The full title of this debate is "Implications of business rates and the recession for businesses", and I am very pleased that the Economic Secretary will reply to the debate, because he and I both represent constituencies in the black country. In fact, Walsall is the centre of the Black Country chambers of commerce. Aldridge-Brownhills reflects many of the issues that are at the heart of this debate and will be so for many an industrial town.
The transition to the uniform business rate took money away from industrial areas and distributed it to other areas. I see that my right hon. and learned Friend Mr. Clarke is in his place, and he knows the Birmingham area well. Walsall lost £5 million from the change from the old business rate system while Worthing gained a great deal of money. I do not know the circumstances of Worthing, but the argument was always that the dereliction and the industrial illnesses that followed industry were compensated by the fact that the towns set an industrial rate for their area—localism, perhaps.
The UBR went through the House easily, and the property industry was slow to pick up on what it actually meant. The costs lie at the heart of the unemployment issue, and that is a serious charge. The Economic Secretary will remember the early 1980s, which saw almost the collapse of large-scale manufacturing industry in the west midlands—it was not the only part of Britain in which that happened, and there were reasons for it. So severe was that collapse that the Government of the time created rate-free industrial areas, which meant that factories could be built there without having the burden of rates. That is how serious it was.
Some people are now predicting that unemployment will rise to 3 million, and possibly more. That would be worse than the unemployment of the early 1980s, but the Economic Secretary will remember the vast areas of dereliction that followed when companies were forced, before the scheme came in, to demolish buildings. The pious and the wise said that they were old buildings anyway and it was just as well to get rid of them, but they were the source of much employment. I think it was Lord Heseltine who came up with the idea of designated business-rate free areas. There was one in London and one in Liverpool, and the west midlands definitely had one. That shows the severity of that recession.
Now we face a different problem. Many areas are hurting, such as recently built shopping malls, where properties are rated at the highest end of the rentable market, invariably with clauses that say the rents can only go up. No one should think that employment in retail is negligible in this economy; it is in fact significant and substantial. These shopkeepers include some large companies. We saw Woolworths go—we can wave that goodbye—but a lot of people were employed by that company and it provided employers' national insurance at 12.8 per cent. while the employees paid nearly 10 per cent. too. Those revenues to the Government sustain employment, and so the increases are very worrying.
I shall give an example of a building that is designated new build, although it was a very elegant refurbishment, in central London. I can talk about this from personal experience, so it is not a vague or illusory illustration. The rent for a less than 5,000 sq ft shop in a central London borough is £270,000, set in 2004. The uniform business rate for the same shop, last year, was £124,740. That is what is confronting many a small business. This business employs about 60 people, some of them part-timers and all of them paying national insurance contributions while the employer pays the employers' national insurance contribution. That is a huge sum for that business to pay, yet it is providing employment in these dire times.
Today, I walked from Tottenham Court road to see what has happened there. At one time, the area was the centre of London's book trade, but now there are empty shops and fast food outlets. That is where we are getting to. I urge the Government to take seriously the employment side of all their equations and to think about what is happening. The uniform business rate and the nearly 50 per cent. multiplier of whatever the rent is are what kills the prospects for many companies and thus the employment of many people.
I have a quick and simple message for those on the Government Front Bench. I want to concentrate on the plight of small business and to make the point that it is in serious trouble, much of which is due to this Government. The Government are doing lots of things not very successfully because they did not take into account the fact that they had to administer and manage their projects. Also, I want to say that they could have seen rates as a real way of putting capital into local business, but they failed to understand that. The difference is that loans must be paid out, but rates, if the Government wish to offer relief, do not have to be taken. That was the major point that I wanted to make.
There are a number of Government schemes—I have all the figures here—but they are not working. It is very simple. Business rates in the UK are three times higher than those in any other European country and higher than those in the USA—what a millstone to put around the necks of our businesses. The Government could have helped by ensuring that there was real relief for small business, but that has not happened. My hon. Friend Peter Luff has proposed an action that I hope the Government will take up, but we have not yet heard that that will happen. Perhaps we will tonight.
Finally, the Government have decided that they will go ahead with a 5 per cent. increase in business rates. At this time, that is sheer madness, and I hope that even at this late stage they will rethink and will give small business some hope by saying that they have decided to use the present rate of inflation, at the very least, rather than the rate that was relevant when they decided to levy a 5 per cent. increase on business rates. I hope that they will change their minds.
This debate has been short, but timely. It has shown that the Government's policies on business rates are causing real harm.
We began with an excellent contribution, as one would expect, from my hon. Friend Robert Neill, who brought to bear his characteristic charm and tremendous experience in the field. I thought that he exposed very neatly the weaknesses in the arguments over ports, and in the other issues raised by hon. Members on both sides of the Chamber.
We then had a characteristically generous contribution from the Minister for Local Government. I confess that I have soft spot for him, as we spent more hours than I care to remember in Committee Room 10 debating the Finance Bill. He has always been what he was today—the defender of the indefensible—and he was on particularly good form this afternoon. I noticed that he struggled a bit when the googly came from his own side, in this case from Mr. Todd, but he did do one very important thing: he put it on the record, I believe for the first time, that the Government are committed to reducing the poundage and therefore the burden of business rates if the retail prices index is negative in September. We look forward to holding the Government to that commitment.
We then had a contribution from Lorely Burt that was literally from another planet. It was a fascinating run through "Star Trek" and, I think, "Titanic". I suspect that the ending was nearer that of the latter movie than the former and, being a gentleman of a certain age, I thought that the metaphor was perhaps a little stretched. However, the hon. Lady is often right about these matters, and she made a good point about there being a genuine cost to small businesses.
Mr. Mitchell made a contribution, and then we had an excellent speech, as one would expect, from my hon. Friend Peter Luff. He was concise but thoughtful, and he set out the key arguments about why we need to look at making small business rate relief automatic.
Mr. Kidney made an excellent contribution, and his remarks were intelligent and balanced. I was pleased to see that, like the Minister for Local Government, the hon. Gentleman indicated his support for making small business rate relief automatic. We look forward to them joining us in the Division Lobby, should the opportunity arise.
My hon. Friend Andrew Selous made an excellent contribution and, as he often does, he highlighted the human cost of failed Government policies. He did that in an extremely powerful manner, and he quoted a constituent of his who said that the problem with the Government is that there is not a lot of "practical help", and who wondered why the money could not be used better.
Finally, my hon. Friends the Members for Aldridge-Brownhills (Mr. Shepherd) and for Northampton, South (Mr. Binley) both made strong and excellent contributions. Both have always fought the corner of small firms and, although my hon. Friend the Member for Northampton, South made a short speech, it was as effective as ever. I hope that the Economic Secretary to the Treasury was listening to what my hon. Friends said, and that he will answer the points that were raised when he replies to the debate.
As you know, Mr. Speaker, Ministers' press releases regularly claim that they are providing real help for businesses, yet the view of business is that it is all talk and no action. For example, the Government's amendment talks proudly of their flagship working capital scheme. It was announced eight weeks ago as the centrepiece of Government proposals, and it was meant to provide £20 billion of loan guarantees from
Or what about the automotive assistance package? Promised in November and launched in January, it was valued at £2.3 billion and we were told that it would provide "real help" to the car industry. What has happened? How much of that money has reached businesses? Well, according to the answer from the Minister and despite all the talk, not a single loan guarantee has been issued yet.
Since the fall of Lehman Brothers last September, it has been clear to everyone that urgent action is needed, both in the banking system and to deliver working capital to the rest of the economy. That is why Conservatives set out a plan last November for a single, national loan guarantee scheme that would help viable businesses of all sizes and in all sectors. It would be simple, easy to access and of course easy to understand. As several Members pointed out, had Ministers taken our advice then the scheme would now be up and running, helping businesses through the recession.
Despite Ministers' protestations that somehow the Opposition have nothing else to offer, the truth is that we have proposed a number of schemes, as my hon. Friend the Member for Mid-Worcestershire rightly pointed out. Payroll taxes for the smallest employers should be cut by 1 per cent. Small company corporation tax rates should return to 20p in the pound.
As we have heard from many Members, rising business rates are causing real problems. When I meet businesses, as I am sure other Members do, one of the critical questions that is always raised, especially in small businesses, is about rates. The reasons are simple. First, firms pay out thousands of pounds in bills but they receive nothing directly in return. The hon. Member for Solihull was right to make that point.
Secondly, business rates are a fixed overhead. They remain the same in the good years and the bad, so when the economy shrinks business rates hurt all the more. That is why we believe that the Government's rates policies cause serious damage. After all, what is the sense of imposing £1 billion of extra business rates on empty property just as we head into a recession? Why compound the problem with up to £600 million in supplementary rates? It just adds insult to injury.
We heard a powerful contribution from the hon. Member for Great Grimsby about how the Government's policies on ports damage those enterprises. Without consultation or proper economic assessment—as the Minister admitted—the Valuation Office Agency issued new bills to each separate occupier. Those bills are retrospective and reach right back to 2005. As we have heard, the result could be ruinous for port businesses across the country; from London to Liverpool, from the Humber—it was nice that one of its representatives, the former Deputy Prime Minister, could join us, albeit momentarily—to other ports such as Falmouth in Cornwall.
I represent Felixstowe, which is a major port. Is not the problem that the tax is retrospective, so no one could have taken it into account? No business can operate in that way. Is it not another example of the fact that nobody in the Government seems ever to have run a business, so they do not understand that such measures damage businesses irretrievably?
My right hon. Friend is absolutely right. He shows his business experience. If people are not advised in advance, they cannot plan. Despite all the Minister's protestations at the Dispatch Box earlier, the simple truth is that time and again the Government have shown themselves economically illiterate. I am afraid many businesses feel that is representative of all Ministers in whatever Department they happen to sit—although it is nice to see the Economic Secretary on day release from the Treasury. We look forward to his contribution. I hope that he will be able to improve the standard of economic literacy.
I shall be honest. The Chancellor has made a concession on the issue, but his decision to let firms pay in instalments completely fails to tackle the problem in company law. It was touched on by the Minister, but the result is that the huge tax bills will still count as liabilities and could thus in some cases make firms insolvent. I conclude on that topic with the questions the hon. Member for Great Grimsby asked of his own Government—I am sorry he is not in the Chamber at the moment. Do we really want to cripple ports? Do we really want to put people out of work? I hope that the Economic Secretary will answer his colleague's questions.
It is not just the ports that are suffering. As we heard from my hon. Friend the Member for Bromley and Chislehurst, the majority of councils have already reported that firms are struggling to pay their business rates, with small firms most at risk. Worse is to come. Over the next few weeks, thousands of firms will face a double whammy when rate bills rise by 5 per cent. and transitional relief ends. As several Members mentioned, the annual uplift of 5 per cent. is based on last September's retail prices index, yet, as we have also heard, that month's figure was a 17-year peak and is in sharp contrast to RPI today, which stands at zero. The cost? For business, it will be £1 billion. The cost in jobs will be equally grim.
The uplift comes just as transitional relief from the last revaluation ends. That unhappy combination means that for some firms, the increase in their rates bill will be enormous. We have today heard of increases of 30 per cent., 100 per cent. and, in some cases, perhaps over 500 per cent. Retailers alone face paying an extra £250 million—a sum that they can ill afford, given the difficult state of our high streets. As my hon. Friend the Member for South-West Bedfordshire pointed out, it is often the smallest firms that hurt the most. In London council areas, the typical local newsagent faces a rise of £400 to £500; many of us can relate to that situation in our constituencies. For some small firms, that is £500 that they simply do not have. Of course, the arrangements for transitional relief and for the annual uplift have been in place for some time, but that makes it all the more puzzling why Ministers who profess their wish to help have stood idly by and, in the Prime Minister's phrase, done nothing.
The same question hangs over small business rate relief, which was introduced in 2005. It provides up to 50 per cent. relief from business rates on premises worth up to £15,000 outside London. As such, it rightly seeks to help the smallest firms, yet last year it became increasingly clear that many firms were not claiming the relief. The Federation of Small Businesses estimated that up to half of eligible businesses were missing out, and many Members mentioned that we are talking about a potential saving of £1,100 each year. Although there were wide variations in take-up, it is clear that many businesses were either unaware of the relief or deterred by all the red tape and bureaucracy.
For that reason, last year we put on our party website a very simple ready reckoner that would make the system simple and easy. That is the crucial reason why we want to make sure that the rate relief continues. Since then, of course, my hon. Friend the Member for Mid-Worcestershire has introduced his excellent Bill. He is right to raise points on the subject, and to question the Minister. I hope that the Minister will reply to those questions in his speech.
To conclude, I have no doubt that Ministers wish to help, but when it comes to business rates, their policies are causing harm, not helping. Instead of helping retailers, they are taxing them another £250 million. Instead of promoting trade, they are retrospectively taxing our ports. Instead of keeping costs down, they are adding another £1 billion to rates bills, just as the recession bites. To cap it all, those poor souls who see their business fold will find that there is another £1 billion in tax on the properties where they once worked. There is a growing gap between ministerial rhetoric and the reality for businesses on the ground. My fear is that as a result of the gap between Ministers' words and deeds, hundreds of firms and thousands of jobs could yet be lost.
Today's debate demonstrates the strength of feeling among all Members of the House about the importance of small businesses to the UK economy. We know that small businesses employ more people than any other kind of businesses in the private sector, and that there are a record 4.7 million small businesses in the country today. The UK business environment is recognised as being among the best in the world.
Given the limited time that I have to respond to the debate, it is clear that I must focus on some of the major issues. My hon. Friend Mr. Mitchell spoke exclusively about rates in ports. Rather than responding in detail now, I refer him to the fact that there will be a debate on the Floor of the House next Wednesday on the regulations that the Government propose to introduce, so he will have the opportunity to debate them.
My hon. Friend Mr. Kidney made an important speech. I very much take his point about the need for property managers to act reasonably at this time. He is also right to emphasise the procurement powers of local authorities. As my hon. Friend knows, the Minister for Local Government visited Staffordshire recently. We certainly welcome the freezing of rates for business centres across the county, to which he referred. That is a great example of a Labour-led county council taking effective action. I note the Budget representations that he made to me on empty property relief and on small business rate relief. Obviously, the Budget will be announced next month.
Mr. Shepherd, a black country neighbour of mine, will no doubt welcome the fact that 7,340 companies in the west midlands have so far deferred taxes, to the tune of £134 million. I agree with him about the importance of retail to the economy of the west midlands and of the UK as a whole, and in many cases I do not think the importance of retail to regeneration has been properly emphasised. He talked about the recession of the early 1980s, which I remember well. I also remember the extremely limited policy response at that time, by contrast with the active measures that the present Government have introduced.
Mr. Binley did not have the opportunity to do much more than clear his throat, but I am sure we will benefit from his wisdom on another occasion.
In the remaining time available, I want to cover the Government's response. First, I shall address the subject of the VAT cut, which was raised by a number of hon. Members. There is clear evidence that that cut has been passed on through reductions in prices, and it is transparently the case that it is a £12.4 billion boost to the economy. Opposition Members say that they would not have introduced the VAT cut, they would have done something else. They need to think about whether they are prepared to support a fiscal stimulus to the UK economy. They have opposed us on that all along the road, but they cannot spend money if they are not prepared to commit the resources.
That is exactly the case with the Conservative proposals in relation to the loan guarantee scheme, which was raised by Peter Luff. The Conservative party is split on that. The shadow Chancellor says that he wants a loan guarantee scheme and pretends that it will not cost any money. The shadow Business Secretary says clearly that the taxpayer will take some of the hit. Whether on the loan guarantee scheme or on inheritance tax, there is clearly a difference of opinion at the heart of the Conservative party.
Let me move on and explain the Government's enterprise finance guarantee. Hon. Members should be realistic about Government programmes. The enterprise finance guarantee is up and running and is providing support to businesses. The actions that the Government have taken to stimulate extra lending into the economy have, through the asset protection scheme commitments made by Lloyds Banking Group and by RBS, led to an additional £27 billion being introduced into the economy and made available for loans over the next 12 months.
Under the enterprise finance guarantee scheme, about £30 million was offered to business last week. That is real progress. On the working capital scheme, a Government guarantee that supports £500 million more lending cannot be rustled up overnight. It requires extensive negotiations with the banks because it involves, potentially, taxpayers' guarantees that may be called. If the Opposition are serious, they should consider where the money will come from. They should recognise that such schemes take time and need to be negotiated. They must be right if the taxpayer is not to be exposed to completely unfair liabilities—
Question accordingly negatived.
Question put forthwith (
Question agreed to.
The Speaker declared the main Question, as amended, to be agreed to (
That this House notes that the Government has recognised the problems that many businesses face and is committed to do all it can to help them through these testing times; recognises the action the Government has taken to give targeted support to businesses including a £20 billion working capital scheme, an aim to pay Government suppliers within 10 days, a cut in the main rate of value added tax to 15 per cent., a deferral in the increase in the small companies' rate of corporation tax, free business health checks, more than £100 million towards debt advice, the HM Revenue and Customs Time to Pay scheme benefiting 93,000 firms by deferring £1.6 billion in tax, and extension of Empty Property Relief; believes the Government's commitment to the annual Retail Price Index cap means that there has been no real terms increase in business rates since 1990; welcomes the Small Business Rate Relief scheme benefiting 392,000 businesses by £260 million in 2007-08; recognises that funding of almost £1 billion since 2005-06 has been provided through the Local Authority Business Growth Incentive scheme; further supports fairness in the system that ensures that properties are revalued every five years with transitional relief to phase in significant increases in bills from revaluation; and acknowledges help provided for businesses, including in ports, receiving unexpected and significant backdated rates bills by introducing an unprecedented eight years to pay, as part of a package of measures that ensures through the rates system there is certainly, fairness and appropriate relief for businesses.