‘(11) The Secretary of State may not by order appoint for this section to come into force until—
(a) he has published calculated estimates of the total numbers of those ratepayers who would be liable to pay more and of those who would be liable to pay less to their billing authority if this section were or were not brought into force, and
(b) he has consulted with representatives of those likely to be affected by the bringing into force of this section, after publishing the information required under subsection (11)(a).’.
Clause 22 is one of the most extraordinary clauses in what is a pretty extraordinary Bill. It will postpone the revaluation of business rates that was scheduled to take place from 2015, so breaking a tradition of more than 20 years of regularly uprating business rates according to an anticipated timetable that everyone understood, and which was not subject to political interference.
Amendment 92 has two purposes. First, it would require the Secretary of State, before bringing in the postponement of the revaluation by order, to publish estimates of the likely impact of that policy change on how many business rate payers are better off, worse off or unaffected. Secondly, it would require the Secretary of State to consult those affected before the introduction of the measure.
A shocking truth that emerged clearly from witnesses’ comments during our first few sittings was that none of them expected the proposal to happen. Even those who were neutral about it—for example, the CBI—expressed surprise that there had not been more consultation, but most were absolutely coruscating in their comments about the Government decision. I shall quote one or two of them. Mr Edward Cooke from the British Council of Shopping Centres said quite openly:
“We question the viability of the data that is being produced by the VOA. In its own words, the data is based on very limited market evidence…and it is not subject to the rigour of moderation or validation, so there are some big question marks over it and, therefore, the outcome of its assumption that 800,000 assessments would be better off.”
That is a pretty damning remark from someone who clearly knows the subject. He went on to say:
“I think that if the justification is to create certainty to business, then shifting the goalposts, as has been proposed, does quite the opposite.”––[Official Report, Growth and Infrastructure Public Bill Committee, 13 November 2012; c. 43-44, Q10-Q11.]
The people for whom this was supposedly being introduced are absolutely damning.
My hon. Friend the Member for Scunthorpe asked Liz Peace from the British Property Federation how she responded to the fact that Ministers had been
“saying that there were more winners than losers”.
She said quite simply:
“We do not believe that, frankly.”––[Official Report, Growth and Infrastructure Public Bill Committee, 13 November 2012; c. 46, Q18.]
This is an extraordinary situation.
My right hon. Friend mentioned Liz Peace. I would like to take him back a few sentences. She said that one of the problems with clause 22 was that she did not see how it related to the rest of the Bill. Does he agree?
I agree entirely. The only point of difference is that I cannot see how various clauses relate to the rest of the Bill. It is a strange collection of disparate elements. Liz Peace is right that the clause does not seem to have any relevance to the Bill’s objectives, which are supposedly to promote growth and infrastructure. It is very difficult to imagine how postponing by two years the impact of the revaluation could have any such effect.
Not only the witnesses who came before us are worried. I cannot say that I am a regular reader of Retail Life, but last week’s issue contained a letter from Poundland, which has 400 stores and employs some 10,000 people throughout the country. It states:
“I refer to the recent announcement of the Government’s proposal to postpone the 2015 rating revaluation until 2017 and write to provide comment on what I strongly believe is a reckless decision given the current decline of the retail market…Many retail centres have witnessed significant falls in rental value since 2008 and, as a result, the business rates liability as a proportion of the overall outgoings has increased. This is an anomaly many retailers nave relied upon being corrected as part of the 2015 revaluation. How can our Government possibly justify a postponement that will result in businesses continuing to pay rates based upon rents at the market’s peak in 2008 rather than have them readjusted to fit with the present economic climate?”
A wholly convincing argument, which Liz Peace picked up in her evidence to us:
“Parts of the economy are suffering, and it seems absolutely bizarre that you want to lock in their suffering for another couple of years. That is why we are fundamentally opposed to this. We accept that some areas that would have risen will not rise. Is that fair when their values have actually gone up and they might legitimately have been asked to pay larger rates?”––[Official Report, Growth and Infrastructure Public Bill Committee, 13 November 2012; c. 43, Q10.]
Is it not ironic that, when we have attention on the high street from the Portas initiative—small amounts of money available for some communities—such a disadvantage should be built into high street communities and retailers in areas such as my constituency by the lack of revaluation on the timely basis that they expected?
My hon. Friend hits the nail on the head—he beat me to it. I was going to refer to the Portas report, but I will not need to because he made that point forcefully. When people are trying to think about what can be done to save high streets that are suffering, postponing the impact of the revaluation is, in Liz Peace’s words, a “kick in the teeth” to the retail sector. The Government have made an extraordinary decision.
The one justification we have heard from Ministers is that the number of businesses that will gain from this measure is far greater than the number that will lose, and therefore there is benefit for business. That is the one argument they have deployed that might have had some credibility. However, now let us listen to the comments of the experts. Members of the Committee will all have received the letter dated 28 November from Jerry Schurder of Gerald Eve. Jerry Schurder is one of the most respected figures in this sector, and he wrote to us just a week ago. I will quote the relevant parts of his letter.
“We refer to our written evidence dated 12 November and in particular to paragraph 6.3 in which we made initial reference to the document issued the same day by the Valuation Office Agency. ‘VOA’s high level estimates of non-domestic rental and rating assessment movements for England’.
We have now had an opportunity to read and analyse this data and are able to expand upon and justify the comment we made at 6.3b that ‘The only basis on which the VOA is able to claim that 800,000 businesses would have seen increased bills at the 2015 revaluation is to include in that number the 520,000 hereditaments which on its own admission it had no data readily available to analyse and therefore it had to make an unsubstantiated assumption that they would have faced increases in rates liability.’”
I am delighted that my right hon. Friend read from that letter to the Committee. The VOA’s own analysis shows, at table 2 on page 5 that was attached to the impact assessment, that apart from retail in the east midlands and parts of London—similarly for office and industrial—everyone would have either saved a little, saved none or been better off. The only thing skewing the figures were these 520,000 properties that increased by 5%.
My hon. Friend makes an incredibly telling point. It is astonishing that these 520,000 properties played a key role in the VOA’s assessment that 800,000 would have lost, and therefore would benefit from postponement, when, in practice, there are no data readily available to analyse those cases, and the VOA had to make an unsubstantiated assumption that they would have faced increases in rates liability.
The letter continues:
“Gerald Eve subscribes to a database which provides fortnightly updates of the entire Rating List which has enabled us to identify the numbers of properties within each of the property uses referred to in the VOA analysis.
In justifying the postponement of the 2015 revaluation of business rates, Valuation Office Agency data has been used by ministers to claim that ‘800,000 premises would have seen a real term increase in their rates at a 2015 revaluation. This compares to 300,000 seeing reductions’.
These estimates are by the VOA’s own admission high level, imperfectly calculated and not a projection of what would happen at an assumed 2015 revaluation antecedent valuation date of 1 April 2013.”
The letter then continues with a detailed breakdown of all the component parts. Members of the Committee will have seen that and therefore I will not take them through it. I will simply read the conclusion:
“In conclusion, the number who would benefit from the revaluation is on the VOA’s own data clearly far greater than the Government claims and the suggested 800,000 increases is incorrect on the VOA data and requires sweeping unjustified assumptions.
Based on what can be reasonably inferred from the VOA’s estimates and the evidence it says it has collected, about 350,000…premises would see their bills fall, and about 377,400…premises would see their bills rise.
There is no justification or support for the claim that 800,000 premises would have seen increases.”
That comes from one of the most respected businesses in the field, and it tears to shreds the Government’s position. That is the basis for my amendment. Given that devastating critique, the Government should withdraw the clause altogether, but if they do not, they cannot justify opposing amendment 92, which simply states that before introducing the provision they must publish estimates of the consequences of postponing the revaluation, which one hopes will be sound and properly based, and must consult those affected. That is the least that they owe to the business community, which is rightly alarmed by the proposal and the consequences for large numbers of businesses that are suffering at the moment and face the prospect of having to pay more in business rates for two years longer than they should have because of the postponement.
I applaud my right hon. Friend’s work on this exceptionally well-crafted amendment. Reading it is like reading poetry, in many respects. The amendment is useful because it insists on consultation and holding the Government to account. In fact, both amendments would do that. The amendments are about transparency and accountability in government.
Like my right hon. Friend, I should like to draw on some evidence that we heard. The CBI said:
“The business-wide benefits of changes to the business rates regime are overstated” and
“the CBI has concerns about the lack of consultation and impact assessment that has taken place on this policy. Ministers themselves admit that the assumptions behind the change are based on ‘limited rental market evidence’”.
“Rather than creating certainty for businesses the postponement in fact creates uncertainty.”
“A delay till 2017 will also result in even greater changes in values and larger swings in liabilities creating even more uncertainty”.
It also said:
“The purpose of revaluations is to redistribute liability in line with relative movements in property values since the previous revaluation. Delaying the revaluation creates unfairness by requiring struggling businesses to subsidise those that have fared relatively better.”
I will return to that point.
The British Property Federation said:
“Clause 22 is of grave concern.”
My right hon. Friend quoted Gerald Eve, which said that,
“the 5 year gap has been accepted since 1990 and is generally viewed as the maximum appropriate period”.
That period is being extended. Gerald Eve continues by saying that Sir Michael Lyons’s review of local government finance in 2007 clearly made the point that Sir Michael was supportive of revaluations occurring more frequently than every five years, not of extending that period.
Colliers says that,
“the Government are ‘throwing a spanner’ in the workings of the market”— a Conservative Government are throwing a spanner in the workings of the free market—and that:
“By ‘kicking the can’ of the revaluation further down the road, all they are doing is storing up further problems”.
That is what the experts say. I am interested to hear Ministers say whether anybody out there is in favour of the revaluation.
My hon. Friend lists a spectrum of businesses that will be affected. Looking to see how far that goes, one of our most beleaguered industries must be the pub trade, the chief executive of which said:
“The revaluation is an opportunity to get a fairer rates bill, so any delay is very unwelcome.”
What a blow it is to that industry, too.
My hon. Friend is right. For Committee members who are not aware, business rates are usually based on the rentable value of the property, but as my hon. Friend will know, in the pub trade they are based on turnover. There is no doubt that revaluation would be an opportunity. The pub trade has been struggling recently and it would expect to pay reduced business rates were the revaluation to go ahead.
Does the hon. Gentleman accept that there will be pluses and minuses? A large majority of manufacturing companies will probably see a rise in their business rates, because they have invested in new and more advanced properties. That would certainly create big problems in the north of England, where the hon. Gentleman has his constituency. Companies in the manufacturing sector may have to lay people off to cover the extra cost of the business rate. Does he accept that there are pluses and minuses in everything, and this measure needs to be studied very carefully?
To follow the previous intervention, surely if such concerns are being expressed by Members on the Government Benches, accepting the amendment and bringing forward the evidence to try to investigate whether or not manufacturing would be badly hit is something that should happen in the Committee before we determine a clause that may have pros and cons for a whole variety of sectors.
My hon. Friend is absolutely right. The revaluation has significant consequences and I am in no doubt that rather than stimulating the economy, it will have an adverse impact on a good many businesses.
My hon. Friend makes a good point. Before I move on to the geographical aspects of the business rates, let me make another point; I am trying to assist the Minister here. Lots of rumours and gossip are swirling around, suggesting the real reasons why the Government have decided to postpone the revaluation. First, it is suggested that the Valuation Office Agency is so busy dealing with the repatriation of business rates to local government that it does not have time to do the revaluation, which starts in 2013. I hope the Minister will come forth and tell us whether that is true.
Another rumour is that the VOA, with a backlog in excess of 247,000 appeals—that is a quarter of a million businesses appealing their business rates—is unable to cope with the number of appeals. On the current performance of the VOA, it would take about five years to clear the backlog, and new appeals are coming in every day. It is suggested that the Government are postponing the revaluation to create some time and space for the VOA to get on top of the backlog.
It is also rumoured that the Government want to advantage businesses in the south of England at the expense of those in the north of England. Rent levels have gone up in many parts of the south of England, but they have gone down in the north.
One final rumour is that the Government do not want increased business rate bills landing, as they would have done, in April 2015, literally days before a general election. The impact of that on the south of England, in the current heartlands of the Conservative party, is another reason why the Government may not want to carry out the revaluation.
Let me make it clear to the Committee that I do not trade in rumours or gossip. Hard facts and evidence are all that I am interested in. Let me deal with the Government’s own admission, which was mentioned by my right hon. Friend the Member for Greenwich and Woolwich. The Government admit that 300,000 businesses will be worse off because of the clause: 300,000 businesses will not get the reduction in their business rates that the revaluation would have given them. That is the reality.
My hon. Friend gets to the crux of the clause. Regardless of the non-evidence or the arguments the Government advance, this is about fairness. The whole system of rates is that if people are to pay less they pay less and if they are to pay more they pay more. It is all about the success of their business and supporting businesses across sectors.
I could not agree more with my hon. Friend. If the revaluation could go ahead the VOA would have to take into account the reduced rents that many businesses now pay. Current business rates are based on high rents that were set in 2008 when property had a very high value. While rents may have remained high in some localities, particularly in the south, they have dropped significantly in parts of the north.
Does the hon. Gentleman accept that it is all about relative drops in rents? I would suggest that his data on parts of London and the south are not as accurate as he may think. There have been considerable falls in comparison with minor falls in the north of the country.
There is no doubt that there are winners and losers from the clause and the policy. The point I am making is that it should be about fairness. It is about redistribution so that those who should pay more, pay more and those who should pay less, pay less. It is commonly said that business rates are the third greatest expenditure of any business. First it is wages; then it is rents and then it is business rates. That is a commonly held view and fairly accurate. I went into a shop in Rochdale three or four weeks ago. The business rates on that property were higher than the rent, so business rates now outstrip rent levels. They are the second biggest outgoing for business. That cannot be right. We cannot have a system that does that.
A Conservative-led Government, ably assisted by the Liberal Democrats, are making businesses pay more taxes than they should. That is the reality. Instead of a fair and proper tax system the Government are making at least 300,000 businesses pay more. It is a bizarre situation that the Government find themselves in with the clause. It is as though they are asking individuals across the country to complete their tax return, then telling those in the north of England that they have to pay more taxes to subsidise those in the south who can pay less. That is what the clause does. It is no way to do government.
Gordon Birtwistle rose—
Would the hon. Gentleman like to bring into his argument the business rate relief that the Government are giving small companies at the present? A lot of small businesses are receiving business tax relief. He makes it sound as though they are all going under because they have to pay too much in business rates.
There are two important points to make in relation to that. The business rate relief that currently exists for small businesses was introduced by the previous Labour Government. It is an excellent policy and I am sure the hon. Gentleman is paying tribute to that Government, as I am. The reality in terms of the geography is that businesses in Rochdale now have to subsidise businesses in Regent street in London.
While I accept that point, it is actually a very complex pattern and it varies both from region to region and from sector to sector. It is not just a simple matter of north versus south. My hon. Friend paid tribute to the wording of my amendment, but I take no credit for it at all. I pay tribute to the Clerk who helped me draft it and ensured that it was written in such an impressive and poetic way. The purpose of the amendment is to ensure that we have some genuinely serious figures that can people look at and form a judgment on, rather than having this particular policy presented to us on the basis of figures that have collapsed under scrutiny.
I appreciate the intervention from my right hon. Friend. I must say that he has gone down slightly in my estimation, regarding the wording of the amendment, but the Clerks have clearly gone up in my estimation; there is no doubt about that.
Let me finish by making this point. Why do the Government not come clean with businesses and explain why they are making at least 300,000 businesses pay more in business rates?
Before I call the Minister to respond, first it should be known that the Clerk may well take full credit for the poetry in the amendments but not for the content. Secondly, I know that we prayed in aid the former poet laureate this morning, but let me just remind the Committee of the words of Mario Cuomo:
“You campaign in poetry. You govern in prose.”
I call the Minister.
As introductions go, that probably gets quite near the bottom.
Let me first outline our principal concerns with amendments 92 and 93. Revaluations do not raise any extra revenue; that is the first essential point. Instead they redistribute the total rates burden among ratepayers, based on up-to-date rateable values. That means that although the total business rates paid do not change at revaluation, it does result in some ratepayers seeing increases in their bills and some seeing reductions.
I quite understand the right hon. Member for Greenwich and Woolwich wanting to know as much as possible about what would have happened to business rate bills in 2015. The Valuation Office Agency has produced initial estimates of the 2015 revaluation, which it published on 12 November. Contrary to what Gerald Eve has said, the VOA’s work suggests that 800,000 premises would have seen a real-term increase in their rates, compared with only 300,000 premises that would have seen a reduction. That analysis has been published in full and I can assure the right hon. Gentleman and the rest of the Committee that it represents the best available estimate of the number of ratepayers affected by the clause.
We have heard claims that particular towns and other locations would have seen reductions in rate bills at a 2015 revaluation. Many of those claims have been made by commercial firms and rating agents who advise ratepayers on making appeals. Often their claims are based only on selected prime locations or selected commercial sectors, and they ignore small and local businesses, as well as other sectors such as industry. The VOA’s analysis covers all sectors and all locations, and has been published in full.
The Minister started with prose, but what he has just said is not quite what the VOA analysis says. Table 2, which I referred to earlier, shows that out of retail, office and industrial, only the east midlands and London, in terms of retail, would pay more and everyone else across the country and across the sectors would pay the same or less, with the exception of the 560,000 other properties that are categorised, for which we do not know the breakdown either geographically or in terms of what they are. The VOA is actually saying that there are very few areas where the rates level would go up.
I shall come to the regional breakdown in a moment.
The point I am making is that although the analysis has been published in full for all sectors and all locations, we cannot fully and accurately understand the exact impact of the revaluation without doing the valuations themselves, and that would mean spending around £43 million of public money. What we do know from the analysis is that some sectors would have faced very big hikes indeed: petrol stations would have faced a 28% increase in their tax; the self-catering industry and caravan parks would have faced a 29% increase; hotels would have faced a 6% increase; theatres would have faced a 25% increase; and pubs would have faced an 11% increase. Overall, retail would have seen a tax rise of about 1% above inflation at revaluation 2015, with food retail and convenience stores facing significant tax increases. Shops in some regions would have seen much greater tax hikes than those.
It is also quite wrong to suggest that postponement helps the south at the expense of the north. On the contrary, the Valuation Office Agency analysis suggests that London would have seen by far the greatest reductions in tax paid had the 2015 revaluation gone ahead. Based on the VOA’s estimates, London offices would have seen their rates bill fall in 2015 by some £440 million a year. The Opposition side of the Committee make rather unusual friends of Canary Wharf in that respect.
I listened carefully to what the Minister says. Was he as surprised as I was, when listening to the evidence given to us by business leaders, by how opposed they were to the delay in the revaluation of business rates and how surprised they were that it was taking place without any proper consultation with them or others prior to its happening?
I certainly accept that the decision may well have come as a surprise to them and that they may well have not anticipated it. It is self-evidently true that if they said that they were surprised, they clearly were surprised. However, many of them speak for particular groups and, as I said, particular types of location. It is more interesting that we have seen a more measured response from organisations, such as the Federation of Small Businesses, that cover the whole country and different types of business.
There were also concerns, which the right hon. Member for Greenwich and Woolwich touched on, that 530,000 of the 800,000 losers at revaluation 2015 fall, in the VOA’s analysis, within the single category of “other”. The truth is, however, that the VOA has looked at some of the larger categories of property within that class, including petrol stations, hotels and pubs, which would all show increases, so there is evidence and there is the VOA’s professional judgment to support the figure of 800,000 losers.
The amendments also seek to ensure that we consult with representatives of ratepayers before we postpone the revaluation. Of course, we understand the importance of consultation. Both the Government and the Valuation Office Agency have regular forums to discuss business rates. In recent weeks, the Department for Communities and Local Government has held several meetings with those affected by the postponement, including the British Retail Consortium, Energy UK and the Association of Convenience Stores. More such meetings are planned during the passage of the Bill.
The Minister talks about the VOA evidence, but there were certain groups in the “other” category, including, as he mentioned, petrol forecourts and hotels, that actually would have faced increases had the revaluation proceeded. The Gerald Eve letter states:
“The VOA claims to have evidence to support increases for sectors that make up just 87,400 properties out of this 477,500”.
It is a small element of the total and certainly does not lead Gerald Eve to support the claim that there would be 800,000 gainers from the postponement.
“This indicative assessment suggests that around 800,000 hereditaments would fall into categories that would see an overall rise in tax payable, despite most of those seeing a fall in their rateable value, and around 300,000 would fall into categories which would see an overall fall in tax payable”.
That is the Valuation Office Agency’s estimate, and I think that Gerald Eve and the right hon. Gentleman would do well to study it.
The Minister has either been provided with selective information or is being selective with the information that he is offering the Committee. There is no doubt that London retailers are better off than Rochdale retailers. We can talk about office space in Canary Wharf and everything else, but if we get into the detail, which is what the amendment asks, there is no doubt that London retailers are better off, and are being subsidised by those in Rochdale. That gets to the crux of it. The reality is that it is only an estimate.
I will get to the crux of it, Mr Howarth. I was addressing the issue of fairness. It is not fair that 300,000 businesses are still subsidising other businesses. Why is that?
There is of course fairness and unfairness, and winners and losers, in any revaluation, but I caution the hon. Gentleman to be careful, even about describing London as a whole. There will be those on the outskirts of London who will not be gainers in the way that some of the London offices clearly would have been.
If the Minister is using the figures to justify the position of delay now, what will the projected figures of winners and losers be, come 2017? We could be in an even worse position in the balance of who wins and who loses.
Of course that is possible. In any revaluation there could be more winners, or fewer, but the point now, given the uncertain economic climate, is to give all our businesses some certainty for the next five years, before the revaluation process starts to raise any doubts about their future rate bills. It is because the revaluation is a statutory exercise that we are using primary legislation to stop it for the moment, and have included the measures in the Bill. By putting the date of the next revaluation in the Bill, as well as the requirement for five-yearly revaluations thereafter, we have shown our commitment to keeping rateable values up to date.
I need, finally, to answer one question. The hon. Member for Rochdale asked me what the work load of the Valuation Office Agency was. A number of rumours swirled around the Committee during his speech, and I would like to lay this one to rest. The Valuation Office Agency is well placed to clear the backlog of appeals and deal with the rates retention scheme. It has a network of more than 70 offices, and it plans to clear the 400,000 appeals over the next two years. It is perfectly capable of doing that.
I am sorry that the Minister has not accepted my amendment, which simply sought to ensure proper figures, and to enable a proper judgment to be reached and for there to be consultation with affected bodies. There is clearly grave doubt about the evidence that the Government have prayed in aid in support of the clause, and deep suspicion and hostility among large sections of the business community, and I therefore ask the Committee to vote for the amendment, to improve what is otherwise a wholly unsatisfactory clause.