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(1A) The amount is £50,000.
(1B) The amount in subsection (1A) may be amended by regulations..
We turn to the question of an amount, £50,000, in connection not, I hasten to add, with any proposed amendments to the Bill, but with the threshold that the Government are minded to implement through regulations. In the debate about the previous set of amendments, I made the point about being clear to people about what is intended, and the Minister is absolutely right that he and his colleagues have signalled that intention throughout. However, it is an important principle that, wherever possible, as much information as possible be provided in the Bill.
On the amount, we heard witnesses from the Royal Institute of Chartered Surveyors, who thought that the threshold was too high, and Dr. Grail, from British BIDs, who thought that it was perhaps too low. So, I am not entirely wedded to £50,000; the point is that, as early as possible, the Governments intention should be published in the Bill. However, on the point raised by a Conservative Member about the amount being fixed in primary legislation, the amendment would allow it to be changed by regulation, as is the case in the current circumstances. An amount would be mentioned to start with, but we could revisit it in secondary legislation. The amendments only significant change would be the introduction of a starting point.
That is an important principle. These are highly significant changes to the operation of the business rate in the areas where it will be applied, and affected businesses will expect not only to be consulted on individual projects and, wherever possiblealthough sadly not in every caseto be consulted through a ballot, but to have every indication of how the provision will begin to bite, so that they can begin to plan accordingly. The principle is not that I think £50,000 is necessarily the right amount for ever, but merely that it is a starting point that might be amended by regulation; otherwise, the issue will be left hanging as the Bill makes its way through the House, and at some point regulations will be introduced. It is a fairly straightforward amendment, and I should be interested to hear the views of other Committee members.
Understanding as I do the motivation behind the amendment of the hon. Member for North Cornwall, for the reasons I advanced earlier in relation to previous amendments I am still not convinced about putting a sum in, even with the caveat of making it changeable by regulation. That would take us back to where we almost are anyway, where it can be changed by regulation in any event. However, the hon. Gentleman raises an important point that we need to explore. How is the £50,000 figure arrived at? What magicor otherwiseis there in that, and what justification do the Government use for that?
I am conscious that that figure stems partly from the Governments impact assessment and other soundings that it has taken. The impact assessment was, I believe, signed off on 28 November. However, although it is not apparent from the documentI am sure that the Minister can help us hereI imagine that the field work for that would have been taken among the business community at an earlier stage, when the degree to which businesses would become hard pressed by the recession was perhaps not apparent.
What thoughts have the Government had of reviewing the appropriateness of their initial estimate of £50,000 in the light of the ongoing economic developments and downturn that we been discussing? In a sense, £50,000 is signalling up what the Ministers starting point for the regulations will be, and in a way I am grateful to him for doing so. Without even getting to the stage of introducing regulations, should he be thinking again as to whether £50,000 is the appropriate starting pointnever mind whether we then need a power to vary it subsequently in the light of further developments? Have events since that idea came into his mind, and since the impact assessment, not already given rise to a need to revisit it? A commitment to do that before the Bill is enacted and the regulations are brought in would be a welcome reassurance to businesses.
My hon. Friend the Member for Cities of London and Westminster referred to retail in Oxford Street. We all know that the value of the pound has impacted massively on that area. I did not want to raise the hopes of Government Members in that respect.
I support the overall thrust of this amendment and the concern behind it. However, my reason for not being able to support it is that I genuinely think that it will build into the Bill a level which may well need to be higher. My concern is that the Government are minded to have a £50,000 limit, and I should like the Minister to say where the information came from to convince the Government that they should set the limit at that level. It is a pretty important figure and will impact upon the way people think about the Bill for many years to come. We are not talking about a frivolous figure picked from the air; it will have real import for business for many years.
I am concerned about that level, not least in relation to when the Bill takes effect, which is not until April 2010, as I understand it. That coincides rather nicely with a rate revaluation that is due to take effect that year. The concern must therefore be that many more businesses than we might think of at the moment will be caught in the BRS net because of that revaluation. Whereas £50,000 may seem a sizeable figure at the moment, it may be that after revaluation it will not seem so at all. That concerns me enormously, and I would like to hear the Ministers thoughts about that situation.
We are not sure about the Governments thinking in the longer term and we are not sure whether they will increase the level in relation to revaluation. The chances are that, because they have said that they are minded to introduce £50,000, that will not be the case, so we can expect many more businesses to be involved. I have an especial concern in that respect for retail. Section 31 of the impact assessment, on page 13, states:
BRS will be based on the RV of non-domestic properties. Therefore, businesses likely to have high rateable values, such as retail, could be disproportionately affected by BRS.
That is immensely concerning. It is true that in the big city areas, most of the town centre businesses in particular, which sit in the areas of high rateable value in the centres and the main shopping areas of towns, lease their buildings. Section 31 goes on to tell us that
businesses which do not own their properties are likely to bear significantly less of the cost than owner occupiers.
That suggests that the whole process that has created what many call clone Britain in our high streets will be accentuated, accelerated and added to by the measure.
There is no doubt from a retail perspective that it is in the interests of a retailer not to own the property that they operate from. That is clearly stated in the assessment. That may be very well for Oxford street, where the big companies do not own the properties and lease them, but it is not very helpful for many of the businesses in our county towns and country towns, where the owner-occupier is the person who runs the business.
I have been immensely concerned about the decline of our community hubs in such towns and areas. Indeed, I had the privilege of heading up a commission that reported on that last July. There is no doubt that there is deep concern about the way in which our town centres in such areas are being denuded. They are being turned into clone Britain in one instance, and in other instances local businesses are being forced out. The vital point is that this will bear most heavily on the owner-occupiers of businesses in such towns, and it could be the last straw that breaks the camels back. If that is the case, we will do immense harm to those town centres in rural areas by this very activity. That is why I ask the Minister to consider, in the light of revaluation, an increase in the level at which BRS becomes relevant, in order to give some protection and hope to those businesses that will fall into this net on the basis that they are retailers and also own the property. It will fall most heavily on that particular group of business men in this country, to our detriment.
On this occasion I shall attempt to get my words to the item and I will not deviate whatsoever. My concerns are the same as those of my hon. Friends. Regarding my own constituency, in the current economic conditions, I would ask the Minister to look at reconsidering the level that has been set. I accept that there needs to be a level of flexibility and that the situation may differ from one region to another. As we heard from my hon. Friend the Member for Cities of London and Westminster, areas such as Oxford street and Regent street are different from my high streets of Barkingside, South Woodford and Hainault. I am sure that they would like the level of business that happens in Oxford street and Regent street, even in the present climate. However, we need an increase on the limit. The figure is not appropriate at this point. I do not believe that most businesses in constituencies up and down the country will be able to thrive with such a figure. We may be able to reconsider that view in the future, but at this juncture, I ask the Minister to look again at the limit.
On the amendment and the figure proposed by the hon. Member for North Cornwall, it would be helpful if the Ministerusing the work in the impact assessmentclarified whether the data collected in 2007, which estimated that 90 per cent. of properties fall below the £50,000 threshold, were primarily used to justify setting the threshold at this level. If the revaluation, to which my hon. Friend the Member for Nottingham
Indeed; Nottingham is another strong retail town. If the revaluation gives rise to a significant increase in the rateable value of properties, has the Minister done any analysis of what proportion of properties will fall below a threshold if it was set at a higher level?
In the light of the observations made by a number of hon. Members, I should like to add some thoughts for the Ministers consideration. The points that have been made are supported by some of the evidence given in the evidentiary sessions. I am referring to the question about whether the threshold should initially be set higher than the proposed £50,000. The British Retail Consortium tends to support the view that the downturn is disproportionately affecting the retail sector, and that the £50,000 is not a safeguard against that. Jane Milne said that over the coming months, it is expecting to see some 40,000 jobs go in the big chains. Those retailers may well be occupying premises that are above the current threshold and they will, therefore, be caught. None the less, they are as liable to be affected by this as any other organisation. I am talking about their cash flow and the risk to jobs.
Ms Milne also raised concerns about the cumulative effect of the measure together with the annual uplift and the quinquennial review coming up in 2010. She was thinking of a £1.6 billion increase in business costs over that period. Some 90 per cent. of that was the result of the mixture of the uplift and the revaluation. Therefore, is that an argument for having the initial threshold set at a higher figure, because it would take more people out of liability?
There was support for those concerns in the evidence from Julian Lyon from the CBI. He said:
From the point of view of the £50,000 threshold, or whatever the threshold is, it is important to understand how business rates work in the market to establish whether the threshold is an appropriate mechanism.[Official Report, Business Rates Supplements Public Bill Committee, 20 January 2009; c. 34, Q140.]
The Minister will recall that he gave evidence of what could be an arbitrary working of the market. Businesses occupying a couple of floors rated as individual hereditaments could fall below the threshold, but if they have two floors that are on a single lease, or on a hereditament, that would fall within the scheme. That could mean that many high street operations have two separate leases and two separate hereditaments with a rateable value oflet us say£40,000 each, which means that they are not caught. If they have them on a joint lease, a single hereditament, and their rateable value is £60,000, they are caught and it will make an enormous difference to their business. Should that not be a reason for revising the starting point of the threshold?
Let me refer to the evidence of Dr. Grail, who was seen as an impressive witness by hon. Members from all parts of the House. She, too, had a concern. She said:
Another thing that I wanted to mention was raised previouslythe threshold. The earlier paperwork
I think that she was referring to things such as the impact assessment
suggested that a £50,000 threshold would safeguard BIDs.
She was concerned about the interaction of the business rate supplement with BID levies and the fact that that might damage the willingness of organisations to go into BIDs, but she was interested in this case in whether the threshold had a particular effect. In relation to the suggestion implicit in the impact assessment that a £50,000 threshold would tend to safeguard BIDs, because many companies would not be affected, she said:
Our evidence is to the contrary. We have done detailed analysis of 23 BIDs around the countryall different sizes and typesand 86 per cent. of the BID levy is over the threshold. In London, only one BID is unaffected by the thresholdthat is, it falls so far below it that...it would be okay. The rest are not safeguarded by that figure at all.
Her conclusion was that if we want one of the impacts of the thresholdI appreciate that it is not the sole impactto be safeguarding the viability of BIDs,
the threshold needs to be way higher, to give the majority of BID levy payers a safeguard.[Official Report, Business Rate Supplements Public Bill Committee, 20 January 2009; c. 53, Q212.]
Does the Minister not think that that evidence, which we heard only last week, strongly reinforces the arguments advanced today by hon. Members for revisiting the appropriateness of £50,000 even as a starting point, never mind what flexibility we build in later?
I shall be brief. I simply want to bring us back to reality rather than theory. The hon. Member for Northampton, South stressed that he was a practical man and did not want to talk in theoretical terms; he wanted to examine the impact. I remind Opposition Members that the Mayor of London has made it clear that he requires the revenue predicated on the £50,000 threshold for Crossrail, and that if they press the case for amendment of the threshold, which would reduce the number of potential business rate supplement payers, that could damage the funding of Crossrail.
Opposition Members have said that they support Crossrail. They have said that Crossrail is an exception and because it is an exception, they accept that it should proceed without a ballot. Of course, they have the Mayor of London in their party and they have made it clear that they support what he is doing. I just put it to them that if they believe that, they should tonight accept the logic of the £50,000 figure on which the modelling has been done and examine the evidence from the Mayor of London, which shows how that disproportionately focuses the business rate supplement levy on properties predominantly in central London and along the main axes
I am most grateful to the right hon. Gentleman for giving way. He is held in very high regard in Northampton, not least because he is a native of the town. Will he accept that this is the weakness of tying in Crossrail in this respect? Although it might be important for Crossrail to raise that amount of money, should the fact that it may well be doing sizeable damage to the societies in other parts of the country not be considered? Should we not be fighting for our communities and saying, Maybe we ought now to look again at Crossrail, not least because you wont get a return from the City anywhere near the size of the one that you expected when you first talked about the financing arrangements for Crossrail?
The answer is no because, as the hon. Gentleman will know, the Bill provides the flexibility for authorities to choose alternative thresholds. If they want one higher than the minimum, they can raise it. I hope, therefore, that if Northampton chooses to consider the possibility of a business rate supplement and the hon. Gentlemans fears are real, he will prevail on the local authority, along with the business community in Northampton, to go for a different figure to reflect that point. The flexibility is there to do so. But the key point is that the project that depends on the passage of the Bill, the project that will proceed only if the business rate supplement is agreed, has been modelled on the basis of a £50,000 threshold and the Mayor of London says that the passage of the Bill on that basis is fundamental to funding Crossrail. I hope, therefore, that Opposition Members will be practical when they consider how to vote on the clause and that they will not press an alternative figure, which could only undermine the viability of
Does the right hon. Gentleman not recognise that there is an inherent contradiction in what he says? He says that the passage of the Bill is fundamental because Crossrail is modelled on a £50,000 threshold, but the £50,000 never appears in the Bill. What it is predicated upon is the use of the regulation. It is a matter of whether the Minister feels that it is appropriate to use the flexibility of the regulation to have a different starting point in a different part of the world to deal with that issue.
That is a good try, but when the hon. Gentleman looks at Hansard he will recognise that I referred to the modelling that has been done by the Crossrail team, under the overall tutelage of the Mayor of London, which is based on the assumption of a levy with a threshold of £50,000. That is the basis, and I am urging Opposition Members to be realistic and practical in their approach and to recognise that the one scheme that we know is dependent upon the business rate supplement will not proceed if their flights of fancy about alternative thresholds are pursued.
This is an important part of how a business rate supplement may work and therefore requires the sort of serious consideration given by the Committee this afternoon. It is good to see a contribution from all the Opposition Members on the issue, and I quite understand why.
Amendment 16, tabled by the hon. Member for North Cornwall, would put the £50,000 rateable value threshold in the Bill, rather than setting it in secondary legislation, as currently drafted. When I saw the amendment I was puzzled. Apart from providing the basis of a debate such as this, I could not see why he would want to press the amendment into primary legislation. In his opening remarks, he said that it was because he wanted to ensure that business had a greater certainty about the threshold. The exchange that we just heard between my right hon. Friend the Member for Greenwich and Woolwich and the hon. Member for Bromley and Chislehurst on the Opposition Front Bench also underlines the importance of certainty for any potential levying authority in being able to model a potential yield from BRS as a possible contribution towards larger project funding. For that reason, back in the October 2007 White Paper, we said that we intended to set the threshold at £50,000. The Committee knows that I have been consistent about that ever since. To use the words of the hon. Member for Bromley and Chislehurst, we have signalled up the £50,000 threshold since that time, and we were right to do so.
I have three points to make. First, in response to the question of when we confirm the threshold value, we did that back in October 2007, for those reasons. The second question, which the Committee has been chewing away at, is whether £50,000 is the right level. The third is the one that the amendment deals with, which is whether the threshold value should be in primary legislation or whether we should have the flexibility to deal with it in secondary legislation. To be fair, the amendment would put it in the Bill but retain the flexibility of subsequent amendment by regulation, which sort of undermines the case for introducing it in the first place.
Having dealt with the importance of consistency and certaintythe reason why we announced our intent to set the threshold at £50,000 early, and our continued intent to do soI turn to the question of the £50,000. It is, in the end, a judgment, based on a number of factors. The critical factor is the extent to which a potential business rate supplement, even with safeguards such as the 2p limit, would place a burden on business, and the extent to which we can deal with that through a thresholdone that would nevertheless give the levying authority the sort of yield that makes the BRS worth while.
Our assessment of business rates and the size of business suggests that the proportion of costs for businesses with a turnover of about £100,000 is significantly greater than for bigger firms. We are concerned about small firms. For those with a turnover of between £500,000 and £1.9 million a year, business rates as a proportion of their costs generally tail off significantly. That is particularly so for firms with a turnover of more than £1.9 million.
I accept that those figures will not be precise in all circumstances; I am giving the Committee an indication of the sort of analysis and modelling that led us to our decision on the figure of £50,000. Businesses with a rateable value of more than £50,000 will, on average, have a turnover of £1.9 million or more. It is logical. The larger the company, the more likely it is to have premises with a higher rateable value; the larger the turnoverthe larger the companythe smaller will be the relative proportion of the business costs, of which business rates form part.
I understand the logic of the Ministers argument; the impact assessment shows how those figures are arrived at. In a sense, he flagged up my concern when he said that the £50,000 threshold was mentioned in the 2007 White Paper. I understand how those figures might have been arrived at then, but has he asked his officials to revisit themin particular, the suggestion that businesses with a rateable value of more than £50,000 will on average have a turnover of at least £1.1 million in the light of the economic developments since October 2007? That proportion may have changed, and many businesses that had a turnover of £1.1 million may no longer do so, but the rateable values will not have changed.
The hon. Gentleman is probably overstating his argument. I shall deal later with other flexibilities that are intended to allow scope for the introduction of the business rate supplement. That may help the Committee.
Essentially, businesses with a rateable value of £50,000 or less are responsible for about only 40 per cent. of the total business rates yield. By setting the threshold at £50,000, given the general correlation with turnover and recognising the relatively small part of the yield from business rates that is returned from businesses with a rateable of less than £50,000, we can protect most small and medium-sized companies from being liable to the business rate supplement. In other words, we can protect up to about 90 per cent. of small companies from paying it and still allow the BRS to raise a revenue stream that makes its introduction worth while.
Does my right hon. Friend agree that the Opposition seem to suggestI go back to the crux of the argument about trusting local government and its responsibility to make a decision without some form of ballotthat despite the economic downturn and the resulting business difficulties and loss of jobs, local authorities would not take account of the problems? In the current economic climate, what local authority would want to push firms out of business and make people redundant? I find that bizarre. The crux of the Oppositions argument seems to be that because of the downturn the measure is surplus to requirements, and that we need to raise the threshold because we cannot trust local authorities to take account of such factors.
My hon. Friend is right. In an earlier debate we mentioned the requirement for local authorities to make that sort of assessment if they are considering any proposal for a business rate supplement. A number of Members have made the point that no local authority, whatever the nature of the area or its political leadership, is likely to want to introduce policies that drive businesses in its area out of business.
All the evidence on parking charges in our towns suggests that they are so desperate for money that they will forget the importance of business. That is one of the major concerns of retail outlets in my constituency in relation to the massive business charge rises in my town. I do not buy the argument about the honour of local government when it is under pressure for money, as many authorities are. However, my real concern relates to the points that I made about the revaluation that we expect by 2010.
I will deal first with the question of the £50,000 threshold. Essentially, the threshold will allow us to protect about nine out of 10 businesses from liability for the business rate supplement while protecting the yield from a business rate supplement to make it worth while as a source of funding for big projects. I think that all Members would recognise that the provision to set the threshold in regulation rather than on the face of the Bill gives the flexibility to ensure that the threshold can be updated, if it is warranted, to continue to offer protection to small and medium-sized businesses, as rateable values may fluctuate considerably over time.
To respond to the hon. Member for Northampton, South, the Bill is given effect by Royal Assent. The date that he mentioned, 1 April 2010, is the date from which the Mayor of London has declared his intention to use this legislation to introduce a business rate supplement for London in order to make his contribution to the funding of Crossrail. The hon. Gentleman is right, as are other Members who made the point, that April 2010 is also the start of the new period for business rates listing. It will be based on a comprehensive revaluation being conducted at the moment by the Valuation Office Agency. The provisional revaluation list will be published, as my hon. Friend the Under-Secretary of State for Communities and Local Government mentioned, in the autumn of 2009.
The Bill therefore contains a flexibility for the Mayor of London, in the light of any assessment that he might make of the revaluation rateable values and the yield required in order for the business rate supplement to fulfil his obligation as part of the Crossrail funding package, to propose his business rate supplement at a threshold above £50,000. Future clauses contain a number of flexibilities available to any levying authority, which will allow it also to phase the introduction of the business rate supplement, taper it or introduce differential rates. There are flexibilities for the levying authority, in this case the Mayor of London, to deal with any consequences thrown up by the revaluation process.
The hon. Member for Ilford, North made an interesting point; I am sorry that he cannot stay for the rest of our discussions. He said that different areas might warrant a different approach, drawing a distinction between his constituency and the situation in Oxford street that was reported to the Committee. He is quite right. That is precisely why we have provided the scope to allow authorities to do things differently in their area if the circumstances of their project or businesses warrant it.
Beyond the question of the new valuation lists, clearly in the long term we will want to see how any BRS works, including the one that the Mayor of London plans to introduce from April 2010. In the longer term, we will also want to take a view on whether the £50,000 threshold remains appropriate. The regulation-making power gives us the scope to vary that threshold, straightforwardly and swiftly, should it be appropriate. The £50,000 threshold will be set in regulations, as long as Parliament agrees to them, but no levying authority will be bound to use it, if it wishes to introduce a BRS with a higher threshold, and if the circumstances of its businesses and project allow it to do so. I hope that that has been helpful and that, in the light of our discussion, the hon. Member for North Cornwall will not press his amendment.
It has indeed been an interesting debate, and I am glad that I have had the opportunity to prompt that, if nothing else. The Minister rightly said that the Government signalled their intention, way back, to set £50,000 as the limit. The right hon. Member for Greenwich and Woolwich hit the nail on the head when he said that the threshold has been so set because that is what suits Crossrail, not because it has any inherent benefit across the rest of the country. However, my party supports Crossrail, so it seems to be a sensible provision, in the light of the fact that currently the only proposal likely to be enacted any time soon is Crossrailin terms of the imposition of a supplementary business rate.
The amendment was prompted by my dislike of doing things later by secondary legislation. I think back to my experience on previous Bills. Many of the questions and concerns raised by organisations, whether professional bodies, non-governmental organisations or whatever, concern what is to come laterthe devil being in the detail. Arguably, a greater level of scrutiny is possible when primary legislation is being considered.
I apologise if the hon. Gentleman feels that I am using him as a vehicle to raise a point with the Minister that I failed to flag up quickly enough earlier. Does he agree that perhaps one of the reasons for the concern that he and I share, which was expressed by businesses in their evidence, resulted from a phrase in the impact assessment, where it mentions the £50,000 threshold, which it states will be set out in secondary legislation? He just referred to that. It continues:
To provide consistency, this threshold will be standardised across England.
That might have led people to fear that the threshold could not be set at a higher level in other areas. That appears now to have been conceded by the Minister. Does he agree that it would be helpful if the Minister could make it clear that £50,000 is the standardised minimum threshold, but that it can be set higher? That might affect peoples attitudes.
The Ministers argument seems to be that the Government have been very clear that £50,000 will be the threshold, so it does not need to be in the Bill. My point of view up until now has been that if it is going to be £50,000, it might as well say it in the Bill. We take slightly different views. In my view, if the threshold has been made clear, there is no reason not to put it in the Bill, rather than make it the subject of regulations. The intention is clear, at least in the short term for the one likely major project, so we might as well put it in the Bill.
I have a personal dislike of leaving primary legislation as vague as possiblewith all due regard to flexibilityand allowing things to be settled in another Committee, at another time, when perhaps less attention is focused upon it. However, as we have had the chance to debate the issue and I have heard the views of the Committee, it is clear that although there is a range of views, it would be inappropriate to include the measure in the Bill. I beg to ask leave to withdraw the amendment.