It is a delight to serve under your chairmanship, Mr Caton.
Since I became Rochdale’s Member of Parliament, the local business community has raised business rates with me time and again, which is one reason why I initiated this debate. The other reason is that I believe the Government’s handling of this particular tax is doing real damage to economic growth. It is also fair to say that, in many ways, the Government’s handling of business rates mirrors the way they have mishandled other broader economic issues and failed to manage Government change.
I will start by providing some broad examples. The Government have talked tough on red tape, but their handling of business rates is making life a misery for thousands of businesses. The Government claim to be interested in helping the high street, but they ignore every retail voice that raises concerns about business rates. The Government talk about transparency and accountability, but they are moving business rates revaluation without consulting business first. This weekend, through the Deputy Prime Minister, the Government talked about rebalancing our economy away from the City’s square mile to the rest of the country through more city deals, but they are now postponing business rates revaluation, which will have a major adverse effect on businesses in every region except the south-east.
The Conservatives have often peddled the myth that they are on the side of business. Well, if there is one policy that demolishes that myth—most businesses now know this—it is business rates. The Government are playing politics with business rates, which is hurting the high street and the wider business community.
On the recent business rate increases, the Government said in their recent circular:
“As business rates are linked to inflation, there will be no real terms increase in rates”.
“only an inflation-level rise”.—[Hansard, 2 July 2012; Vol. 547, c. 567.]
Do the Government think businesses believe that rhetoric? Does the Minister think that businesses are oblivious to the fact that last year’s increase was based on an exceptional September, when RPI was at 5.6%? Does the Minister think businesses are not aware that that major rise in business rates gave his Government a windfall in revenue? In 2011, the increase was 4.6%, a cumulative rise of more than £0.5 billion over those two years. Businesses see this Government as disingenuous when they talk about business rates increasing only by inflation.
Although the Government have had a windfall in business rates, including much from the retail sector, they have dedicated little to helping the high street. From the £350 million extra income last year, the Government spent just £10 million on the various Portas programmes. Latest figures show that more than 30 high street chain-store shops are closing every day. Empty shop numbers have gone up, year-on-year sales are down, footfall is down and insolvencies are up. That is the picture of the high street under this Government, and their mismanagement of business rates is a major factor in that.
Every week the newspapers are full of stories of businesses citing high business rates as their reason for pulling out of an area or being forced to close. The chief executive of Britain’s third largest shoe retailer, Kurt Geiger, recently said:
Retail has accounted for 20% of our gross domestic product, and it accounts for 11% of UK jobs and is the largest private sector employer. Retail is often the first rung on the ladder into employment for young people, but the ladder is now being pulled away by the Government.
We are all aware of the Government’s Portas review, and we all had high hopes for what it might achieve. But we now know the Portas review was just window-dressing. It is no wonder that Mary Portas is now telling industry conferences that she fears her review may have been a “Government PR stunt.” One of Mary’s recommendations in her 28-point plan presented to Government was:
“Government should consider whether business rates can better support small businesses and independent retailers.”
Those words must have gone in one ear of Government and straight out the other, because they have been flatly ignored. Straight after the recommendation, the Government introduced the biggest business rates increase in 20 years.
“I want to make myself obsolete.”
I do not have a problem with the Minister making himself obsolete—indeed, I welcome it—but I do have a problem with him and his Government making the high street obsolete.
Because of the inflation-busting business rate increases, it is no wonder the Valuation Office Agency has a total of 241,700 outstanding appeals on business rates for the fourth quarter of 2011-12. In that quarter, the VOA managed to clear just 11,960 appeals. Many businesses in Rochdale have testified to the slowness of that process.
I congratulate my hon. Friend on securing this debate and on all the work he does on this subject, which is valued and noticed by the House. He is right to highlight the problems with the Valuation Office Agency, and CVS, a major business rates specialist located in my constituency, has expressed its view that the delays are compounded by cuts in staff at Her Majesty’s Revenue and Customs. Does he agree that that is part of the problem?
I do agree with that statement. I am also familiar with the work of CVS, which does excellent work in championing appeals for businesses across the country. The lack of resources in the VOA is a concern that I will address in a moment.
It is clear that businesses are having to wait years for the VOA to get round to processing their appeal. By my calculations, the VOA will now take five years to clear its 2010 revaluation appeals. That is just not good enough. In that time a lot of businesses will go bust, having had to pay unfairly high taxes. Setting the taxes at a fairer level could make all the difference and allow those businesses to stay in business.
The question now has to be asked of the Minister: is the Valuation Office Agency fit for purpose? The VOA pointed out in its 2011-12 annual report that it had closed nine offices and that complaints had increased due to the length of time that business rates appeals take. The truth is that the Government have starved the VOA of resources, that appeals are taking far too long, and that as a consequence many businesses are paying too much in taxes, which is putting many businesses out of business.
That is absolutely right. The failure to run the appeals process successfully is damaging businesses, particularly small and medium-sized enterprises.
As if that were not bad enough, out of the blue, with no notice given, the Government then told us that they had decided to stop the 2015 business rates revaluation and carry it out two years later. There was no consultation with business, no detailed discussion of how the policy might affect economic growth, no consideration of how the policy might prevent the economy from being rebalanced along geographical lines. The British Property Federation’s chief executive says that the move
“embeds injustices in the current system”, and the British Council of Shopping Centres says that it will have a “very negative impact” on the high street. Those organisations are big figures on the distressed retail property taskforce, which the Government are backing, yet Ministers will not listen to them.
I congratulate the hon. Gentleman on securing this important debate. One issue on high streets in my constituency is that landlords are having to pay business rates on empty properties and therefore do not have the cash to invest in those properties in order to attract new tenants. The previous Government introduced that system. Does he acknowledge that it might have been a mistake?
That is an interesting point about empty property taxes. I will not address it in my speech, but it undoubtedly deserves examination and should be investigated further to see what impact it has on businesses.
Let me make it clear: I have yet to hear a single retail voice supporting the Government’s proposal to cancel next year’s revaluation. The Minister seems to think that he is right and everyone else is wrong. If he can identify somebody who supports the revaluation, I would be interested to hear who it is.
To put it bluntly, the business rates revaluation postponement is no way to do government. The decision to postpone next year’s revaluation of business rates has compounded the sense of injustice already felt by retailers and other businesses. To add insult to injury, the Minister has defended the policy by saying on radio that it is simply like being locked into a fixed-rate mortgage. What he did not tell radio listeners is that it is like a fixed-rate mortgage with an interest rate set at more than 40% for many customers. The Government must think that businesses are daft. Current business rates are based on rents that were set close to the property boom peak in 2008. Since then, property prices have fallen by up to 40% in many parts of the north and elsewhere in the country.
I congratulate my hon. Friend on securing this timely and important debate. Does he not agree with the Association of Convenience Stores that what is needed now is a full consultation with business about the right approach going forward and a radical way of looking at business rates, instead of Government ploughing forward in a furrow of their own?
I agree with the ACS. It does excellent work. The lack of consultation on the revaluation is a massive part of the problem in which the Government now find themselves. In fact, the property agents Colliers have called the decision
“nothing short of a scandal” and have accused the Government of trying to
“pull the wool over the eyes of business.”
The policy will mean that many businesses will continue to pay more business rates than they should, and it will disproportionately hit regions outside the south-east. I cannot put it better than Richard Farr of Sanderson Weatherall chartered surveyors, who said in Newcastle’s The Journal:
“Those in lucrative locations such as London and the south-east, where rental values have increased, will benefit from the move, whilst hard-hit retailers in northern cities and elsewhere will continue to be suffocated by being charged business rates based on pre-recession values.”
“revaluations are revenue-neutral overall...Suspending the revaluation will not earn the Government a penny”.
What he failed to tell business is that by suspending the revaluation now, he need not increase business rates in the south-east and reduce them elsewhere. Like other examples such as the local government settlement, the new homes bonus and public health funding, business rates have been adjusted to serve a political purpose. If next year’s business rates revaluation were to go ahead as planned, new rates would come into force in April 2015, a month away from the general election. Rates would undoubtedly increase in the south-east and decrease significantly across the north and elsewhere to reflect the adjustment in property values. That is not the kind of news that the Government want to present to heartland supporters a month away from elections.
To top it all off, the Government are attempting to defend their policy further by telling journalists that the move to postpone next year’s revaluation will provide stability for businesses, and that they want to avoid the volatility of significant changes to business rates. The Government do not appear to understand the system of transitional relief, which is designed to reduce the impact of any significant changes in the rateable value.
Much of the hon. Gentleman’s argument seems to be predicated on the north-south divide. However, there are town centres throughout the country—in the south-east, the south-west, the north, the midlands and across the piece—that are struggling. Does he not agree that the issue is not just a north-south issue but relates to the whole country?
I agree. Not only the north but other areas outside the south-east will be adversely affected.
The Government also boast of offering small business rate relief, a policy introduced by the Labour Government. They say that they have given local authorities the power to reduce business rates under clause 69 of the Localism Act 2011, but what they never make clear is that the local authority must pay for any reduction in business rates. In order to cut business rates, a council must cut back on care for the elderly or disabled services. What a fantastic choice to offer local authorities. In Greater Manchester, an area with some of the highest numbers of empty shops in the country, freedom of information requests have shown that not one local authority is using clause 69 of the Localism Act 2011 to reduce business rates. It is a shocking indictment of a toothless Government policy that has made no impact whatever since it was introduced in April and is a completely ineffective tool against high street closures.
To conclude, the Government are trying to postpone a business rates revaluation to protect the south-east while being dangerously complacent about the consequences of businesses elsewhere having to pay until 2017 excessively and unfairly high rates that have lost touch with rental values. The Government are using the desperate euphemism of “stability” when what is really meant is political expediency, and they are boasting about localism powers to reduce business rates that councils are not using and cannot use due to massive budget cuts.
I say clearly to the Minister that businesses do not want an out-of-touch Government telling them that they will have to pay unfair taxes regardless. They want someone on their side who is prepared to fight for a system that takes a fair proportion of taxes and gives businesses the breathing space and support to grow and lead a proper, sustainable recovery.
It is a pleasure to serve under your chairmanship, Mr Caton. I am grateful to my hon. Friend Simon Danczuk for securing this debate, and I welcome to the Front Bench my neighbour, the Under-Secretary of State for Communities and Local Government, my hon. Friend Brandon Lewis.
I welcome the debate, as this is an opportune time to review the future of business rates. Business rates are attractive to the Treasury and always have been, no matter which party has been in Government. They are easy to collect, difficult to avoid and highly productive, representing 5% of the UK’s tax bill. However, there is concern that the Treasury’s over-reliance on business rates is having unintended consequences. First, it is hitting high streets particularly hard, contributing to the large number of vacant units. Secondly, it is holding back economic growth, as the retail sector in particular is an important engine of the economy. Thirdly, it hits hard businesses that are property-reliant and must be in a specific high-value location. Many profitable internet-based businesses that are less property-intensive are not penalised to the same extent.
I am not an expert on the subject of business rates, but I do have an interest in the subject: before I came here, I was a chartered surveyor for 27 years. I dabbled occasionally in business rates, but it is a very specialist subject. I am interested in playing a small role in encouraging the renaissance in the high street, and I commend the Government for the work they have done in that respect. Lowestoft, in my constituency, is a Portas pilot, and the town team is setting about its work with relish. It is important that we in this place provide the framework through which its work can come to fruition.
I shall concentrate on the retail sector, which pays a significant portion of all business rates—more than a quarter, at 28%. On average, 14.6% of retail units in our high streets are vacant. That is due to a variety of factors: the growth in out-of-town retail parks, the rise of online shopping, falling consumer demand and high business rates. In some cases, the business rates are higher than the rent. Often, a retailer is interested in a particular unit; the rent looks okay, and he is working things out, and then suddenly he is hit with how much the rates will be. Mary Portas has said that high rates are a deterrent to investment in town centres and to retailers occupying shops.
To be fair to the Government, they recognise the vulnerability of small businesses to high rates. There is a small business rate relief scheme, a business rate deferral scheme and discretionary rate relief. The problem is that those schemes have had a limited impact and are of limited benefit to many small retailers. As was mentioned, the retail sector is the UK’s biggest private sector employer. It provides crucial first jobs to approximately 1 million 16 to 24-year-olds. There is real concern that another hike in rates will lead to fewer chances of work, less investment in the fabric of our town centres, which are so important to the country as a whole, and a more troubled high street.
Any decision to postpone the five-yearly revaluation review needs more consideration, scrutiny and consultation. I note that the British Chambers of Commerce was taken by surprise by that postponement. I hope that as the Growth and Infrastructure Bill progresses through Parliament, we have the opportunity to consider the matter in more detail. Any property tax requires frequent revaluations to ensure acceptability and fairness. The five-yearly reviews that have been in place for more than 20 years are well understood and provide a level of certainty. A break in that precedent creates an air of uncertainty—people will not know whether a review will take place.
It is also important to take into account that relative property values change over time. Relatively, rents in some sectors and locations will rise, while those in others will fall. It is important that the rating system has an in-built review system that reflects the dynamic nature of the property marketplace. We can then be sure that the tax burden is spread fairly—that those with the broadest shoulders pay the most, and those whose business may not be as profitable at a particular time pay less. Liz Peace, the chief executive of the British Property Federation, sums it up well:
“A revaluation should shift the burden from those who are suffering to those who are prospering.”
With the proposed freeze, there is concern that those in lucrative locations will benefit and those in hard-hit areas will suffer.
Will my hon. Friend mention the tax on empty properties? That causes me great concern. People who want to start a business need access to a small property. Landlords who find themselves having to pay enormous rates on empty properties are literally flattening them, so that they no longer have to pay. That removes the amount of start-up properties for those businesses.
I am grateful to my hon. Friend for raising that important issue. I was not going to raise it myself, but I take account of what he says. The tax on empty properties was introduced under the previous Government. I was still practising then, and there were concerns at that time. I have seen a number of units—they may not have been in the best condition, but they were available, often with a low rental value—demolished by landowners and landlords. Reducing the supply of accommodation can lead to an increase in rents for small businesses that are just getting started.
On that subject, does my hon. Friend agree that empty property business rates are also an impediment to developers and investors who wish to invest in new build in our town centres, as they may not be able to fill them with tenants straight away? The measures introduced by the previous Labour Government are leading to a situation that is stifling investment in our town centres, rather than encouraging it.
Yes, I agree. Investing in major town centre refurbishment schemes is expensive and challenging. Such schemes take a long time—often a number of property cycles. We therefore need to provide every incentive and encouragement for investors and developers to invest in town centres; otherwise, they take the easy option of going for out-of-town locations, which exacerbates the vicious circle of draining life and vitality out of the town centre.
I take note of the Valuation Office Agency’s research, which shows that 800,000 premises will see a real-terms rise in rates, while only 300,000 will see their bills fall. Having said that, I am also mindful of the views of Gerald Eve, which I think is recognised as the leading private practice firm in the specialist field of rates. It disputes the VOA’s contention and has carried out its own research, which reaches a different conclusion. We also need to bear in mind that at the time of the current valuation, April 2008, the market was at its peak. There is concern that postponing the review will lead to retailers facing incorrect and historical values for far longer than they should.
My hon. Friend the Member for Rochdale mentioned the backlog of appeals. One reason for postponing the revaluation is to address, and not add to, the backlog. We need to take urgent action to clear the backlog, and
I would be interested to hear from the Minister on what proposals there may be. I hasten to add that I have no continuing involvement with any private sector firms, but we need to consider whether this is something that the private sector can do.
Let me turn to the annual increase in business rates. We need to review the mechanism by which that takes place—the increase in line with the retail prices index every September. If, next April, we keep to this September’s 2.6% rate, business rates will have gone up in the past three years by a compound rate of interest of 13.33%. That will mean that £500 million is added to the retail sector’s rates bill. At a time when council tax is frozen, Britain’s shopkeepers are carrying too heavy a burden on their shoulders.
I should like to mention three issues in closing. First, I hope that the Government, as soon as they are able, publish the data on which they have based their decision for postponement. We need to scrutinise this and have a consultation to look at it more closely. Secondly, we need to review the RPI link. Property is a declining proportion of the total economy, yet we are taking more out of it. I do not think that the golden goose has many more eggs left to lay. Thirdly, we need to look closely at the formula by which business rates are calculated. In particular, does the formula accurately reflect the rental value of out-of-town shop and retail park units? In the high street and town centre, people have to pay for a council car park, whereas car parking for out-of-town retailers is right on their doorstep and free. That is a real draw for shoppers, but it is not accurately reflected in the rates formula. I am grateful to hon. Members for listening to me.
It is a pleasure to serve under your chairmanship, Mr Caton. I congratulate my hon. Friend Simon Danczuk on securing this important debate on business rates and on his comprehensive analysis of the effect that increased business rates will have on our high street.
Like many towns, Stockport is being squeezed extremely hard at the moment. We have one of the highest numbers of empty shops in the country, with nearly a third lying empty. There are various reasons for this, which I will mention later, but continuing high business rates are a major contributor to a difficult trading environment. The trend is that business rates are too high as a proportion of rents, and consequently many retailers are struggling to stay afloat. Small and medium-sized businesses are suffering disproportionately.
I have been looking in my constituency at the balance between rents and rates of many empty shops, which we desperately need to reopen. The problem was articulated by the head of north-west high street chain, Timpson, at a business event in Manchester on
“Business rates have got completely out of hand. It’s become a real stifler and is stopping businesses from taking more space and trying new things. The higher the business rates the harder the gamble is to pay off.”
The Minister will be aware that last year’s 5.6% rise in business rates was the biggest increase in 20 years. If a chain like Timpson’s is being put off by high business rates, what can it be like for other businesses? As banks are very risk-averse, the current level of business rates must deter them from lending to those wishing to start a new business or extend an existing business. It makes little sense to exhort banks to lend while loading additional costs on business.
Two examples of empty smaller shop units in two key areas of Stockport that we need to develop further —the Market Place and the Underbanks—show the disproportionate level of business rates to rent. In one empty shop in the Market Place, which the council has spent much money on refurbishing, the rent is £9,750, yet the business rate bill is more than half that, at £5,287. In another empty property in our unique Underbanks area, which we are looking to revitalise, the former Greggs bakery, the rent is £15,000 a year but the estimated rates bill is £6,862. Many bigger shops in Merseyway, which we need and which must stay in Stockport, are appealing against their high rateable values.
There is no doubt that business rates are a barrier to new entrants to the high streets and a drag on investment and growth for small business. A recent survey of small shops identified that business taxation was one of the top five barriers to growth. As co-chair of the all-party group on retail, I tabled an early-day motion earlier this month, calling for a freeze of business rates next year to save jobs and prevent more shops becoming empty.
There is widespread concern that a 2.6% increase in business rates in April 2013 would impede retailers’ ability to invest and create jobs, particularly for young people. The retail industry, as hon. Members have mentioned, is the UK’s biggest private sector employer, providing crucial first jobs to a million 16 to 24-year-olds. In Stockport, 5,700 are people employed in the retail industry. Business rates have already risen dramatically in both 2011 and 2012, by 4.6% and 5.6% respectively, a cumulative increase of more than £500 million.
The early-day motion also calls for a review of the mechanism by which rates are increased, to ensure a fairer and more sustainable formula for the future, based on an annual average of the consumer price index, rather than the lottery of using only September’s RPI. The RPI is unpredictable and usually higher than the measure that the Government choose to use for pensions and benefits.
I, like many colleagues, am also unhappy that the Government are postponing the 2015 rates revaluation until 2017. That will punish northern businesses particularly, by keeping them locked into 2008 rates, set near the peak of the property boom. The rationale for this decision is that local firms and local shops will avoid unexpected hikes in their business rates bills over the next five years. I quote the Minister in a recent article in The Daily Telegraph:
“The best thing Government can do to help such businesses is to provide them with a stable economic environment. This is why we want to protect local firms from soaring tax bills.”
Which businesses is he trying to protect? From the Government’s own calculations there are 800,000 winners and 300,000 losers from the postponement of the revaluations. Those figures, as Peter Aldous said, probably require closer analysis and examination.
I shall make a helpful comment. Does the hon. Lady agree that, in some instances, local authorities are taking enforcement action against premises that have gone to appeal against their revaluation? It is crazy that there is a risk of their going out of business because of overburdening action by the local authority, pending the outcome of the appeal. Surely, local authorities could at least wait till the appeal is heard before going after the money.
The hon. Gentleman makes a good point. We must have systems in place that support local businesses and do not create extra barriers and difficulties for them. He is right about that.
Colliers International research shows that prime rents in Stockport fell by 29% between 2008 and 2012, so Stockport will not be a winner in this postponement; we are going to be losers. The winners and beneficiaries of the revaluation’s postponement will be those shopping centres where rents have risen, such as premium centres, which are still doing well. Shopping centres that need to be protected from “soaring tax bills”—I quote the Minister—are going to get hammered.
Mary Portas identified high levels of business rates as both a deterrent to investment and a disincentive to occupy physical shops. This policy can only add to the demise of our high streets. This is unfair and has been called the retail equivalent of the poll tax. I urge the Government to think again.
In addition to the high level of business rates, there are other important reasons why many high streets, particularly those in medium-sized towns, are struggling. They include major changes in shopping trends and habits, which have been accelerated by the economic recession, including fewer shopping trips, increased internet shopping, lack of investment and forward planning over the decades, and the continuing trend towards premium shopping centres. We also see a polarisation of consumers: those on low incomes struggle and shop in Poundland, bargain basement shops and charity stores, whereas those on high incomes continue to spend on designer-style goods in premium centres. There is a classic squeeze of middle shops and middle-sized shopping centres with smaller units.
We have to recognise that some high streets might never go back to being the destination of choice for major purchases, as nearby regional centres act as magnets, drawing shoppers from an ever-wider catchment area. We can, however, rebuild new and unique styles of shopping and experience, and towns such as Stockport need to have a distinctive shopping offer. We are looking at doing that based on the town’s cultural and heritage sites. We are one of the Portas pilots and we are looking at a culture-led renovation of our Underbanks and the Market Place, building on exciting national screening events at the Plaza, teenage and vintage market events and the High Peak beer festivals. We are doing all we can to attract independent retailers to the Underbank area, and some new specialist shops have opened.
Too many shops open and close, however; the economic environment is tough and we need retailers starting a new business to be successful and to expand. I therefore urge the Minister to take heed of the exhortations of the hon. Member for Stockport and other Members in all parties who are passionate about and interested in retail and to think again about postponing the revaluation exercise, freezing the business rates for next year. Please will the Minister give our entrepreneurs the space to take a chance and to build for future jobs and prosperity?
Thank you for allowing me to speak in this important debate, Mr Caton. It is a pleasure to follow Ann Coffey, who set out a great advert for Stockport and what it has to offer. I congratulate Simon Danczuk on securing the debate; I have great respect for his work on issues relating to town centres and our high streets.
I have been slightly disappointed by the debate’s lack of acknowledgment of the general economic picture. Nor has much mention been made of the state of the public finances, which is another extremely important part of the context for the debate. It is worth restating, in support of the coalition Government, that when they came to power in May 2010 there was a car crash of a situation in the public finances and we had the largest deficit in the G20. To put things into perspective, the Government have had to make difficult decisions over the past two and a half years, but positive progress has been made. The deficit has been reduced by 25% in those two years and, throughout the world and in the markets, our country’s economic position is seen as stable. That is reflected in the low interest rates that we still have and which we would not have had were the Opposition in government; those low rates are allowing people to go out and use our shops to support our retailers.
Perhaps the hon. Gentleman also wants to put on the record that when the previous Labour Government left office the economy was growing and unemployment was falling. This Government have presided over the longest double-dip recession that we have ever seen, and that is why people do not have money to spend in shops.
The coalition Government should not take any lessons from the Labour party on economic management. We all know that we had the biggest bust in living memory under the previous Government, that under them the country was running a structural deficit long before the banks went bust and that since this Government came to power 1 million jobs have been created in the private sector. Growth might have only just come back into the economy and things might be slow, but we are building on a sustainable basis and not on the basis of borrowing and more spending, as we saw under the Labour party.
That brings me on to the points that I would like to make with my other hat on, as chair of the all-party group on town centres. I am passionately interested in issues relating to town centres, so I am concerned about the effect of delaying the revaluation. Town centres have been under the cosh for a number of years, internet retail is booming, out-of-town shopping centres are still buoyant and having an extremely good time in the main, and the net effect is that our town centres are currently in decline. Many of the national multiple retailers, which, only a few years before 2008, many of us were probably criticising for creating clone town centres, are now retrenching and consolidating their estates; when leases or break clauses come up, they are deciding to close town centre stores in favour of stores in large retail parks and of investment that they can make in internet retailing, because they can see that the writing is on the wall.
If we decide not to proceed with the revaluation at this point, we risk causing further damage to our town centres. Since 2008, town-centre property values in my constituency have fallen like a stone, and rental income has reduced in the prime rental areas by 38%. Business rates are predicated on property value, and not revaluing the businesses in town centres seriously undermines the progress the Government have made on these issues. I welcome the Mary Portas review and am glad that the Government have taken on most of her recommendations, although such work could be undermined by the current proposals and, as my hon. Friend Peter Aldous mentioned, by local authorities that consider their car parks to be cash cows and think nothing of putting up car-parking charges year on year. We need to be careful that we do not price our town centres out of existence in a number of ways.
It is incumbent on the Government to be more creative. I would not personally advocate putting up business rates throughout the country, but the situation needs to be re-examined. My hon. Friend the Member for Waveney was critical of the valuation office figures for the proposed review, because they were now probably well out of date given the difference in economic circumstances between 2008 and now. The issue, therefore, needs to be looked at more carefully; we need to look at what we can do to support our town centres.
I hope that the Minister can give me, as chair of the all-party group, more confidence that the Government are listening to the concerns of those running businesses in our town centres—small, independent retailers and the large, multiple retailers which are seriously considering withdrawing their stores from many of our town centres. I hope that he takes the message back to the Government and that they reconsider what we can do to support such a vulnerable group of businesses in our community hubs. Most of our constituencies rely on town centres as the community centre for a local area, and we ignore that fact and the community values of our town centres and what they provide at our peril.
It is a pleasure, Mr Caton, to serve under your chairmanship. I congratulate my very good friend, my hon. Friend Simon Danczuk on securing this important debate, and setting out the arguments effectively and stylishly.
As a north-eastern lad, I feel somewhat hemmed in by the north-west contingent, but I will do my best to set out some of my concerns about my constituency, and the impact of the Government’s policy on Hartlepool. I will mention five specific points.
First, any discussion of underpinning business rates in my constituency should take account of the Hartlepool economy’s peculiar characteristics. Hartlepool borough council must deal with high need and a low base, by which I mean that it must tackle complex and long-enduring social problems but is generally unable to raise locally the taxes to fund those services. That is why redistribution of business rates from more affluent areas to relatively deprived ones, such as my constituency, is vital. About a fifth of my population are over 65, and that percentage will increase in the next few decades, placing enormous strain on already tight social care budgets.
Hartlepool has 81 looked-after children per 10,000 population of children, which is four times the rate of comparable local authorities. The town suffers from one of the highest levels of youth unemployment anywhere in the country, with one in four young men without a job or not in education or training. Hartlepool borough council must tackle those problems, but finds it difficult to raise the necessary revenue because of the narrow local tax base. Only 43% of council tax is raised locally. Three quarters of properties in Hartlepool are in council tax bands A and B, and only 7% of properties in the town are in band D.
That brings me to my second point, which is the peculiar nature of my local economy when it comes to rates. Hartlepool collects around £27 million in business rates, and receives back from the Government around £40 million. That £13 million redistribution is vital for the complex social needs that I have mentioned. The nature of the town and our economy leaves the local authority hugely exposed to major financial and economic risks. As I said, we raise around £27 million a year from business rates, and over 40% of that—around £11 million —comes from only 10 businesses. Hartlepool power station alone—that one single business—contributes about £4 million, or 15% of the total revenue collected locally through business rates. That leaves Hartlepool borough council exposed to a huge financial risk. If one of these 10 businesses closed or relocated, or the power station, as it comes to decommissioning at the end of its life, reduced its output and, therefore, pressed for a lowering of its rateable value, Hartlepool borough council would be extremely vulnerable to a considerable financial shortfall. The Government’s proposals to set safety net thresholds at between 7.5% and 10% will not provide my local authority with adequate financial protection because of its high reliance on large business rate payers.
I raised the matter with the Minister about a month ago in oral questions, when he made his first appearance at the Dispatch Box, and he kindly offered to meet me to discuss it. I hope we can agree a time for that meeting soon, but I hope that he will outline today any protection that could be made available to local authorities such as Hartlepool that are exposed financially in this way.
The third issue is the effect of top-slicing of local government spending control, funded mainly from the business rate take, which the Government intend to implement before determining grant allocations for individual local authorities. The awards to be top-sliced are considerable, with £250 million to fund capitalisation allocations, and £500,000 for the new homes bonus allocations. One purpose of capitalisation allocations is merely to allow councils to pay for the costs of redundancy through borrowing. Hartlepool borough council, rightly and prudently, has taken the view that any redundancy costs should not be paid through capitalisation as it is not prudent to fund the cost of making people unemployed through loans, thereby increasing the budget deficit in future years.
Although Hartlepool is keen to build more homes, the configuration of the new homes bonus shifts the redistribution of business rates away from areas of high need and low base in the north to more affluent areas in the south. My local authority has stated:
“These arrangements change the basis for allocating total available funding and will reinforce the disproportionate impact of grant cuts on councils in the North East, including Hartlepool Borough Council, compared to other parts of the country”.
What is the Minister doing to mitigate the effects of that top-slicing of business rates, which impacts most harshly on local authorities such as mine and those throughout the north?
Fourthly, as every contributor to this excellent debate has mentioned, the Government’s decision earlier this month to delay the revaluation of rates—my hon. Friend the Member for Rochdale spoke far more eloquently about this matter than I could—will have a massive impact on retailing. The Government have form on this. My hon. Friend and I sat on the Enterprise and Regulatory Reform Bill Committee, so we know that on matters such as unemployment legislation, feed-in tariffs for solar panels, and the tax grab for oil and gas companies in the north-east, the Government implement measures without consulting business or providing them with the ability to adapt, and without providing empirical evidence. Why do the Government not provide such evidence for what they are doing, and why do they not have a pro-business policy to consult and engage with businesses about their decisions?
Changing shopping habits, the existence of three large supermarkets in the centre of town, and the general harsh economic climate in the north-east has had an impact on retailing in Hartlepool. As a result, it has the fourth worst-performing medium centre for retail, with a vacancy rate of 28.8% according to the local data centre. The decision to delay revaluation of rates—as hon. Members have said elsewhere, 2008 was the height of the property boom—will mean a further hugely severe impact on retail in areas such as mine, and further closures are inevitable. Those high streets that are already struggling will be hit hardest. That has come out loud and clear during the debate. What will the Minister do to mitigate the detrimental impact of his decision on areas such as mine, and other high street centres?
My final point is one of context. Changes to business rates must not be made without considering the wider context of local government finance. Local authorities such as mine have suffered severely the brunt of Government cuts. Hartlepool borough council had disproportionate cuts in 2011-12 and 2012-13 amounting to about £150 per person, compared with the national average of about £50. The local authority faces cuts to its budget of around one quarter this year, on top of cuts of £10 million last year. In an area of high social need and economic deprivation, cuts of such magnitude will unleash enormous and potentially irreparable damage to the fabric of Hartlepool society.
Will the Minister reconsider what he is doing with business rates and the cuts to local government finance in general and, most relevant to the debate and my area, the redistribution element of his policy, which will see much-needed funds flow from high-need, deprived areas such as mine to more affluent areas? Hartlepool borough council needs that redistribution exercise to provide the services required by the town’s population and heritage. I hope that the Minister will respond positively, because my town really needs that redistribution.
It is a pleasure, Mr Caton, to speak under your chairmanship. I congratulate my hon. Friend Simon Danczuk on securing this debate. Since he came to the House, he has been a powerful advocate for his constituency, and has done an enormous amount of work with businesses to try to promote growth in Rochdale. We congratulate him on that. He made the point that the Government are failing to manage that change and to consider important issues, such as rebalancing the economy, the gap between what is happening in some of our more deprived areas and in other areas, and the gap between the Government’s windfall from increasing business rates and the money being spent on the Portas pilots to help our high streets.
Other hon. Members have also made powerful points. Peter Aldous, who gave a thoughtful and considered speech, mentioned the reasons why the high street is being hit hard—the changes in our buying habits, the growth of internet sales, and so on—and he made the point powerfully about the differences between out-of-town shopping centres and high streets. That issue must also be considered. My hon. Friend Ann Coffey has consistently put the case for retail, and especially for smaller shops, and she showed how rental values in Stockport have fallen enormously, by 29%, so that they are now totally out of line with the business rates paid. My hon. Friend Mr Wright, who was not only an accountant but a very effective Local Government Minister, pointed out the real problems of low tax bases in places such as Hartlepool, as well as the need for a redistribution of business rates, and the high risk that authorities in those places have when they are dependent on a few large businesses for a high proportion of their rates. We raised those issues during the passage of the Local Government Finance Bill, and I will return to them shortly.
In the Growth and Infrastructure Bill—never has a Bill been more inaptly named—the Minister has decided to bring forward proposals to delay the revaluation of business rates. We want to support business in any way possible, but during the passage of that Bill, we will want to scrutinise the evidence that he is bringing forward—evidence that has been queried in today’s debate. We will also want to look at exactly where the winners and losers are, and what the effect would be on our regional economy. There is no doubt, as hon. Members have said, that the rise in business rates has had a huge impact on businesses, particularly small and medium-sized enterprises and the retail trade. We have all seen it in our constituencies, as many hon. Members have said: we have seen shops closing and young people unable to get jobs. I know many graduates who cannot get jobs aimed at their level of education, and who have sought jobs in retail to show that they are willing to work. Businesses, however, are simply not taking them on as they used to. They cannot afford to.
As my hon. Friend the Member for Rochdale pointed out, last year the rise was 5.6%. The RPI figure in September was 2.6%, and even though that is lower, it will mean an extra cost of £175 million for businesses. Some of those businesses are in areas where rental values have fallen alarmingly, and they are struggling to survive. We all know that business rates are the third biggest outgoing for most firms, after rent and staff costs. As has been said, the current business rates use the rateable values from 2010, which were based on the rental values in April 2008, when property values were close to their peak. Many businesses therefore find themselves in a trap: in many areas, they are paying high rates while struggling to cope with the effects of a recession.
When the Minister made his announcement about revaluation, he said that the five-yearly review will resume
“once the economy has had a chance to recover fully from the financial and fiscal crisis”.—[Hansard, 18 October 2012; Vol. 551, c. 33WS.]
Perhaps when he responds he might tell us when that will be. He clearly does not think it will be by 2015, which is what the Chancellor told us originally. Is he confident that it will be by 2017, and that another review will be carried out then? If he cannot say that, he is simply introducing more uncertainty for businesses.
Whatever the answer, it is clear that the system is not working as well as it should; that is evidenced by the number of outstanding appeals, to which my hon. Friend the Member for Rochdale pointed. There are 241,700 of them, and the Valuation Office Agency is struggling to clear the backlog. One thing the Minister could do is ensure that the VOA has more resources to tackle that backlog, so that at least businesses could have their appeals dealt with and can pay the right level of business rates. I hope that he will commit to that.
As the Minister will be aware, although the Localism Act 2011 introduced more powers for local authorities to grant discretionary rate relief, that power has rarely been used, because the councils that would most need to use it are often precisely those that have had the biggest cuts in their budgets, and they cannot afford to. As with everything the Government have done, it is the poorest authorities that have seen the biggest reduction in their spending power. In this Alice in Wonderland—or should I say “Through the Looking-Glass”—world that the Government have created, those who most need to offer discretionary rate relief are the least likely to be able to afford to do so. How does the Minister plan to tackle that problem?
Need is particularly acute, at a time when the Treasury is getting increased revenue from business rates. Over the last four years for which we have the figures, the contribution to the national pool has gone up by £3.5 billion, not because there is a hugely growing economy, but because the rates were calculated at a time when property values were high. That has particularly hit the retail sector, because year-on-year growth for retail has averaged only 2.1% over the past two years, while consumer spending fell for three quarters in a row.
The Government, however, are facing another problem, which my hon. Friend the Member for Hartlepool touched on. The Local Government Finance Bill makes local authorities more dependent for their income on business rates. They will get back 50% of their business rates. I believe that the Government’s intention in the long term is to get out of paying grants altogether—grants are discretionary under that Bill—and put more reliance on business rates. Local authorities, however, do not set the rate. It would be out of the scope of the debate to go through the whole Bill, but I suspect that the Government have clocked a real problem. If they have a revaluation in 2015, some local authorities could see their income fall drastically because their rental values have fallen. I have high respect for the guile and cunning of the Secretary of State. I suspect he has seen that problem, and has seen that what he is setting up in the Local Government Finance Bill might well implode as a result, which is part of his reason for wanting to postpone the revaluation.
If the Government are going to use that postponement to consider how business rates should be set, which I hope they will—as hon. Members have said, there are issues about whether we should take a 12-month average based either on the consumer prices index or RPI; whether we should take the RPI based on one month; how often revaluation should be done; and so on—they need to involve those who receive business rates as well as the businesses that pay them. That means not simply the Treasury, but local authorities as well. It is even more important to do that, because as we have heard today, the postponement of the revaluation is being viewed very differently in different parts of the country. It is not simply a north-south divide, although I accept what my hon. Friends have said about it impacting hugely on the north. Businesses that were hoping for a better alignment between rental values and the business rates that they are paying have been hugely disappointed. There is a big difference between what has happened in, for example, Rotherham, where rental values have fallen by 35% between 2008 and 2012, and what has happened in Bond street, where they have gone up by an average of 50%.
In that context, I wonder what the Minister plans to do to assist businesses, particularly small and medium-sized enterprises, in areas where rental values have fallen and business rates are now totally out of line with the values that currently apply. I hope that he will be able to answer some of the fundamental questions that we have posed today, because he will simply be creating more uncertainty and more difficulties for business if he cannot resolve those problems. Hon. Members have made that clear in the debate, and I hope that we will now hear more from the Minister about how he intends to respond to those concerns.
It is a pleasure to respond to the debate under your chairmanship, Mr Caton. I join other hon. Members in congratulating Simon Danczuk on securing the debate, which is indeed on an important subject. I thank him for drawing it to the attention of the Chamber, and I thank all hon. Members who have spoken so passionately on the issue. It is useful for me to be able to set out the Government’s position on business rates, and on revaluation in particular.
First, let me correct the fundamental misunderstanding that some people have about revaluations. They do not change the amount of revenue raised through business rates. Revaluations simply redistribute the rates burden among ratepayers. Therefore, what revaluations ensure is that the share of the national rates bill paid by any one business reflects changes over time in the value of its property relative to others. That means—this is the important point—it is likely that very many businesses whose rents have fallen, but by less than the average, would have seen a tax increase from 2015. The detailed work of reassessing all 1.7 million properties has not yet started, but the estimates prepared by the Valuation Office Agency suggest that 800,000 premises would have seen a real-terms increase in their rates in a 2015 revaluation. Sectors facing big hikes would have included retail as well as petrol stations, hotels and pubs. My hon. Friend Mr Jones mentioned pubs; as the Minister responsible for community pubs, I fully appreciate that point.
Let me set out the action that we have taken. To provide certainty and stability to all businesses, the Government intend to postpone the next revaluation from 2015 to 2017. To answer one of the points raised, the date of 2017 is in the Growth and Infrastructure Bill. Thereafter, revaluations will continue to take place every five years. The required legislative changes are in the Growth and Infrastructure Bill.
As I published yesterday, the Valuation Office Agency’s view is that about 800,000 premises would have seen an increase and about 300,000 a decrease. We are talking about the retail sector, petrol stations, hotels and pubs. Those kinds of business would have been most affected by hikes. Postponing the revaluation—
At the moment, the estimate is done across the country. We are looking at publishing these estimates, but what the Valuation Office Agency can and will publish is a matter for the VOA. We are looking to ensure that that is resolved before the Bill’s Second Reading on Monday.
Postponing the 2015 revaluation in England will avoid local firms and local shops having to face unexpected hikes in their business rate bills during the next five years. As business rates are linked to inflation, there will be no real-terms increase in rates over the period. The reform therefore provides certainty for businesses to plan and invest, supporting local economic growth.
Since the last revaluation, which was based on 2008 valuations, the economy and property market have faced exceptional changes. A revaluation at this point would therefore be likely to result in sharp changes to business rate bills in many parts of the country and in many sectors. Tax stability is vital to businesses that are looking to grow and to help improve the economy. The Government are committed to maintaining up-to-date rate bills through regular five-yearly revaluations, which will resume, as I said, after 2017.
We can look only at estimates for the revaluation in 2015, because the detailed work has not yet started. The estimates have been prepared by the Valuation Office Agency and are based on professional judgments informed by limited rental market evidence up to January 2012. They suggest that many smaller and medium-sized firms would have seen rate increases in 2015. Overall, the estimates suggest, as I have said, that 800,000 premises would have had a real-terms increase in their rates from a 2015 revaluation. The retail sector, some parts of which have criticised our decision to postpone the revaluation, would have faced big hikes in bills in 2015.
As I have said, the publication of the figures is a matter for the VOA, and one that we are looking to resolve before the Bill’s Second Reading on Monday, but those are the figures from the VOA that we have at the moment. To do the full, detailed calculation, we would need to go through the full revaluation procedure, and the figure for that is just under £50 million. I will come back to that in a moment. We have taken steps to change the legislation, but both Houses—I think that my hon. Friend Peter Aldous raised the point about reviewing and looking at what is happening—will of course have the chance to examine the policy fully during the passage of the Growth and Infrastructure Bill.
Variation in business rates can have a significant impact on businesses. As has been noted, business rates can add 50% to property costs and can equate to 7% or more of turnover. Large-scale changes in these costs can be very disruptive to businesses at a time when they want to concentrate on delivering growth. That is why we felt that postponing the revaluation was the right thing to do. It provides certainty and stability, allowing businesses to have confidence in what they are doing.
I am aware of concerns that have been heard recently from organisations such as the British Retail Consortium that business rates are generally too high and should not be increased in line with inflation. In fact, the system of increasing the rating multiplier only in line with inflation, which was introduced in 1990, has provided valuable certainty for businesses over the years. It has meant that they have been able to forecast their business rates bill between revaluations and plan accordingly. That was touched on by Helen Jones, I believe.
The Government have said that they will review the case for uprating in line with CPI instead of RPI, or using a 12-month average instead of the September inflation figure. That commitment still stands. I do understand that in the current economic climate, there are retailers and other businesses that would like lower business rate bills, and there are businesses that would like the Government to raise less money from business rates at the next revaluation. When we consider calls, such as those made today, for lower business rate bills, we have to balance that not just against a system that has capped business rate yields for 22 years, but against the Government’s deficit reduction priority and the tough decisions needed to reduce the deficit. To back up the comments made by my hon. Friend the Member for Nuneaton, it is important, if there is to be that deficit reduction, that we do not make further spending pledges, which is, to an extent, what hon. Members have invited me to do today.
To date, the approach to granting business rates relief has been to target it where support is most needed—on, for example, small businesses, charities, and businesses in hardship. However, we find discussions with groups such as the British Retail Consortium helpful—I will meet it in the next couple of weeks—and will of course continue to keep the rating system under review.
Let me touch on a couple of specific points that were raised. I am aware that there have been delays in relation to rating appeals at the VOA. It has devoted extra resources this year to help to clear the backlog. My officials have regular meetings with the VOA to discuss the appeal numbers. Postponing the revaluation will allow it to deploy more resources to clear the appeals, but we will also be looking to work with the VOA to see what more can be done to clear appeals.
I am grateful for that assurance. We look forward to seeing the impact of the additional resources. Will the Minister also commit to ensuring that up-to-date data about the VOA’s performance continue to be published? There have been delays in publishing the statistics, which might mean that worse performance is deliberately being suppressed.
I will certainly take that point back to the Department. May I highlight that any ratepayers with an outstanding appeal who are in financial hardship or facing enforcement action from a local authority should contact the VOA directly, because it will look at bringing appeals forward in such cases?
The hon. Gentleman invites me to stray well outside the scope of the debate, but I take his point on board and will take it back to the Department. My offices speak and meet with the VOA regularly, and I will ensure that that matter is considered.
A specific point on out-of-town car parks was raised. The VOA independently assesses all properties, including out-of-town retail premises, for business rates on the same basis—annual rental value. I assure hon. Members that the rateable values reflect the value of car parking in an out-of-town location, to the extent that it is reflected in rents. I know that there is an issue with some councils seeing car parking in town centres as a cash cow; we have made changes to the rules around the transparency of car parking charges, so that residents can understand fully what councils are doing.
Of course, the Government have already taken action on business rates. We have doubled the level of small business rate relief in England for two and a half years, so the higher level of relief will apply throughout the 2012-13 billing year. We estimate that more than 500,000 businesses in England are benefiting, with approximately a third of a million businesses paying no rates. The measure therefore reduces fixed costs for existing and new small businesses, helping them to make the most of opportunities as the economy returns to growth. It is a useful measure. My hon. Friend Mr Spencer, who is no longer in his place, mentioned empty shops and start-up ventures. It is an interesting point, which I will take back to the Department to look at.
Through the Localism Act 2011, we simplified the process for claiming small business rate relief; waived £175 million of backdated business rates demands levied on businesses, including some in ports; and gave local authorities wide-ranging discretionary powers to grant business rates discounts. We listened to concerns about the RPI increase for 2012-13, and gave businesses the option of spreading the increase over three years.
As has been mentioned, we are also introducing the new business rates retention scheme. We want to give councils every encouragement to drive growth, so that they fully play their part in growing our economy through the planning system and their other levers. The business rates retention proposals represent a fundamental shift in the way that local authorities are funded. They give councils a strong financial incentive to drive local economic growth and to engage with local businesses to develop a positive approach to growth. Subject to the Local Government Finance Bill receiving Royal Assent, we will introduce the business rates retention scheme in April 2013.
We have taken other steps to boost the high street and growth. We have doubled the number of Portas pilots. Following applications by local MPs, over 300 town teams have signed up to become town team partners, and will benefit from a package of support. In March this year, we announced a £10 million high street innovation fund for the top 100 places most affected by the riots, or with the highest empty shop rates. In August, we announced the £1 million future high street X-fund. For those who have not yet applied, its closing date is
We will shortly announce the details of a £500,000 fund to help set up business improvement districts. We will continue to support the high street by working with areas to remove barriers that prevent local high streets from prospering. We will publish a further response to Mary Portas’s review in spring 2013, building on the knowledge from the pilots, experiences across the country, and the progress that we have made on many of the other recommendations in the review since last December.
As was mentioned, next week is the Second Reading of the Growth and Infrastructure Bill, which will help the country to compete on the global stage by setting out a comprehensive series of practical reforms to reduce confusing and overlapping red tape that delays and discourages investment, new infrastructure and job creation. Postponing the revaluation until 2015 in England is the right thing to do.
The Minister’s figures confirm that at least 300,000 businesses will pay more than they should in business rates for two years, from 2015 to 2017. Many businesses will have many more than one premises, so we cannot assume that that is 300,000 shops. Is that the right way to run a tax system?
The hon. Gentleman omits to point out that 800,000 businesses would have had to pay more, and does not mention the uncertainty that would have been created over the next couple of years while businesses worked through the situation. That is not sensible in the current exceptional economic climate.
We want to provide local firms and local shops, including many of the most disadvantaged, with the certainty that they need to plan, invest and grow. VOA estimates suggest that the change will save 800,000 premises from a tax hike and protect key sectors such as retail. We recognise that regular revaluations are important to maintain up-to-date rates bills, but such immense volatility is not, at this time, in the public interest. Postponing revaluation will provide businesses with a stable economic environment in which to deliver growth.