[Martin Caton in the Chair] — Business Rates

Part of the debate – in Westminster Hall at 10:28 am on 30 October 2012.

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Photo of Helen Jones Helen Jones Shadow Minister (Communities and Local Government) 10:28, 30 October 2012

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.