Business Rates (Rural Areas)

– in Westminster Hall at 10:55 am on 8th September 2015.

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Photo of Jake Berry Jake Berry Conservative, Rossendale and Darwen 10:55 am, 8th September 2015

I beg to move,

That this House
has considered business rates in rural areas.

It is a pleasure to serve under your chairmanship, Mr Hollobone—not only for the first time this Session, but for the first time ever. It is also a pleasure to see my hon. Friend Mr Jones on the Front Bench as Minister and to have him respond to the debate.

I am pleased to have secured this important debate, in which I want to raise with the Minister the effect of recent changes to the policy and practice of the Valuation Office Agency, or VOA, and their effect on the rural economy. Our rating system is just over 30 years old. During his excellent Budget speech in March, my right hon. Friend the Chancellor of the Exchequer announced a review of business rates to see what more can be done to ensure that we have a fair system that supports businesses across our communities.

That is set against a background since 2010 of significant steps taken by the Government to support small businesses during the economic crisis. We have supported them by doubling the small business rate relief, ensuring that such relief is automatic, capping increases on business rates and introducing a new business rate discount for high street stores with a rateable value of less than £50,000. However, with the business rate review in mind, I want to draw the Minister’s attention to what I believe are anomalies in the behaviour and practice of the VOA that unfairly penalise people who choose to live and work in the countryside and contribute to our rural way of life.

My constituent Mr Alan Walker of Higher Fairbanks farm was understandably surprised to be contacted earlier this year by the Lancashire office of the VOA. The VOA told him that it wished to visit him to assess his domestic stabling for business rates, despite the fact that the stabling at his home is used solely to keep his family’s horses, which they regard as pets, and that planning permission for the stables specifically precludes commercial use. In what appears to be a classic case of mission creep, the VOA is visiting farms across Rossendale and Darwen assessing what, if any, part of the farm accommodation can be charged business rates.

When Mr Walker challenged the assumption that business rates should be charged on his stabling, he was told that it is a grey area of the law. That statement seems to be backed up by the VOA’s guidance, issued in February 2015, which states that every stable should be considered on a case-by-case basis. Mr Walker has, of course, appealed the VOA’s decision, but if his appeal is unsuccessful he could be charged £3,000 a year in business rates on his stables. Combined with his council tax, that will mean paying more than £5,000 a year in property tax on his home, although it has never been used for any commercial purpose whatever.

In Rossendale and Darwen and across our country, our equine community make a significant contribution to the rural economy. The changes will damage businesses such as our local farriers, vets, horse dentists—apparently such things exist—and farmers who provide feed, as well as businesses that supply tack.

As far as I am aware, this new way of taxing people’s homes has never been discussed in Parliament. It is bizarre that we seem to be applying business rates to areas of people’s houses where they keep their pets. What will the VOA come up with next—the kennel, or the rabbit hutch? I have spent long periods of my life in the doghouse—just ask my wife; I worry about the charge that might be levelled against me.

Sadly, the case I have mentioned is not the only example of unfair taxation being applied to the countryside economy. I was contacted recently by Live Nation, which is concerned about how business rates are assessed against agricultural land that hosts music festivals. They have also been subject to unannounced and undebated changes, putting at risk not only the music festivals, which are enjoyed up and down the countryside, but our Government’s commitment to support rural economies and rural businesses, many of which are struggling to remain viable.

We have only to look at the recent protest over milk prices to know what a tough time many of our farmers are having. Festivals and such events are a huge success story for the UK economy, and in terms of festivals, our music industry is now unrivalled around the world. An analysis in 2014 by the Oxford Economics Institute identified that 9.5 million music lovers attended festivals, gigs or other such events, generating £3.1 billion for our economy. At a time when farmers are struggling to compete and stay financially viable, events such as festivals are an essential part of diversifying their agricultural activity and generating supplemental income. That success story is endangered again by creeping changes by the VOA.

Currently, land on which festivals and events take place is exempt from business rates due to its status as agricultural land. However, the VOA has decided to revisit and reassess festival sites for business rates, resulting in sites being classed as rateable. As with the stables, such revisiting is particularly serious because the new classification is retrospective; landowners have ended up receiving large backdated bills for the past five years. Many sites receive no warning from the VOA that they should expect a retrospective application of rates or a large backdated bill. The large and unexpected bills are damaging to small and medium-sized festivals in particular.

Photo of David Simpson David Simpson Shadow DUP Spokesperson (Business, Innovation and Skills), Shadow DUP Spokesperson (Environment, Food and Rural Affairs)

My apologies, Mr Hollobone, for being late. I congratulate the hon. Gentleman on obtaining the debate. He touched on diversification. It seems that farmers are being penalised. It is Government policy to encourage them to diversify into different areas to subsidise their income, yet when they do that, they are penalised. Surely something should be done to give them a period during which they would not be liable.

Photo of Jake Berry Jake Berry Conservative, Rossendale and Darwen

I thank the hon. Gentleman. There is an opportunity to take advantage of the small business rates exemption, and some farmers in my constituency and beyond who have holiday accommodation have used the exemption where they can have it for free. I hope that the Minister will take all the issues on board, including the hon. Gentleman’s eloquent point, in the reassessment of the way that business rates are charged, with a particular focus on agricultural communities.

Festivals have had to pay large backdated business rates bills to avoid enforcement proceedings by billing authorities. As with Mr Walker and his farm, that has led many festivals to appeal the bills, imposing additional costs and burdens on the VOA. The VOA has provided little justification or explanation as to how it is taking into account the individual circumstances of different festivals, and, as with the stables, there is a serious lack of clarity in the existing ratings manual, making it effectively for a festival organiser to know whether rates will be levied. I gently say to the Minister that although music festivals are not for everyone—they are not for me—they have notable supporters. He will recall that in 2013 the Prime Minister was photographed at the Cornbury music festival—without his shoes on I believe. I hope that when the Minister considers the issues, he will think of those notable music festival fans who may control our future careers.

The final point I wish to make about business rates in today’s debate is the rateable charge levied against cash machines. Over recent years, our rural areas across the country have lost literally hundreds of banks. Every Member here today will be aware of the bank closure programme in their constituencies. It has meant that, for many people, the hole in the wall or the through-wall ATM at the village shop or post office is their last access to cash. The importance of such facilities reflects the fact that about 80% of transactions are still in cash.

In the past five years, the number of ATMs liable to business rates has risen from about 3,000 in 2010 to over 12,000 this year. Each through-wall ATM that is liable to business rates has an average charge of £3,600. Major supermarkets or petrol retailers, such as Shell or BP, may be able to absorb such costs, but a small village store or post office will not. A small village store or post office may be exempt from business rates, due to this Government’s action, through small business rates relief, but creating a second rateable unit at the shop means that it is hit with a bill in excess of £3,000.

Photo of John Howell John Howell Conservative, Henley

My hon. Friend describes a situation in which a bank has been closed down in a constituency, which often happens in rural constituencies such as mine. Has he found that the current position inhibits people from taking up ATMs in the transfer of that banking business to another business?

Photo of Jake Berry Jake Berry Conservative, Rossendale and Darwen

I thank my hon. Friend for his contribution; I will come on to the effect of that, but the short answer is yes. Cash machine operators have warned that the attachment of business rates to through-wall ATMs makes them uneconomic, particularly in rural areas where there is low footfall and their use is not as common. They have estimated that 1,000 existing ATMs, let alone ones that we would hope to bring into our communities following a bank closure, are at risk.

An additional danger for our village shop, post office or former bank is that many of the small businesses in the village will do the majority of their transactions in cash. If people’s access to cash is suddenly a car or bus journey away, some of our most vulnerable rural residents, who will not have access to transport, will be forced to leave their village or small town to access cash and, having made the journey, will also do their shopping outside the village. As with festivals and stables, taxation of ATMs is described by the VOA as an area where some inconsistencies exist. Those inconsistencies are leading to the removal of cash machines or large, historical and significant claims for rates. It is currently estimated that 1,000 or so cash machines are at risk of removal due to the charge.

I believe that the charges were brought about by action we took in 2012. Correctly, in an attempt to encourage local authorities to seek business growth in their areas, the Government empowered local authorities to retain 50% of business rates, with the idea that they would go out and find new businesses, in the towns, villages and countryside, and encourage them to open in their areas. Local authorities now collect £26 billion a year in business rates—to put that into context, I should say that it is a bigger money spinner for local authorities than the fuel duty.

As we hoped, we have seen significant behavioural change by both local authorities and the VOA since 2012, but not in the way we hoped. Instead of localism and the encouragement of new businesses, local councils seem to have been inspired to carve out stables in people’s homes for a pet tax, festivals for a party tax and ATMs for a cash tax. I hope that the Government will urgently address such anomalies in their business rate review.

I make a final appeal to the Minister. During that review, can we look at putting a mechanism in place so that, when the VOA changes policy on the collection of business rates, that is announced and we have the opportunity to discuss the impact of that change here in the House? I say that because these unknown changes, which MPs find out about through their postbags, are seriously impacting on and damaging rural businesses. I hope and believe that, as part of our review, we will ensure that that does not continue.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

If the Minister would allow me 30 seconds at the end of the debate to put the motion to the Chamber, that would be appreciated.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government) 11:10 am, 8th September 2015

Thank you, Mr Hollobone, for calling me to speak. It is a pleasure to serve under your chairmanship.

I congratulate my hon. Friend Jake Berry on securing this debate on the important issue of business rates, and in particular on how business rate rules apply in rural areas. I assure him that during this debate I will not take off my shoes, and I hope that I will not end up in the doghouse as a result of my comments.

My hon. Friend referred to several rural businesses. The rural economy is significant, contributing around £120 billion to the English economy in 2013. Our commitment to supporting businesses, including rural firms, was reflected in the Budget, when the Chancellor repeated what we have always said; the best way to create jobs and raise living standards over the long term is to support businesses, to increase productivity by making them more competitive, and to prioritise investment in skills and infrastructure. Therefore, the Budget set out a plan to back business and support productivity by introducing another cut in the corporation tax rate, increasing the level of the annual investment allowance, raising the employment allowance, introducing high-quality apprenticeships and committing sustained investment to the strategic road network.

As for specific support for rural areas, between October 2012 and March 2015 the five pilot rural growth networks helped more than 3,200 businesses, gave advice to more than 1,000 individuals interested in starting a business, created 530 new businesses, and created and safeguarded more than 1,200 jobs. As part of the new £3.5 billion rural development programme, the Department for Environment, Food and Rural Affairs is also investing nearly £500 million to benefit rural businesses, people and communities.

Before I talk about the future of business rates and our review of them, I will set out the action that we have taken on those rates since the 2010 election. We have doubled small business rate relief for more than five years. We have also given local authorities powers to grant their own discounts entirely as they see fit, because they know their local areas best and can use those powers to support any rural business they choose, and where they provide relief we automatically fund 50% of the costs. We have also introduced the business rates retention scheme, which provides an incentive to authorities to encourage local growth. In addition, we have introduced more than 20 enterprise zones, and we have plans for more.

I turn now to the reviews that we are currently undertaking. Through our review of business rates administration, we have listened to businesses to find out the changes to business rates that they want to see. Therefore, we will ensure that from 2017 the business rates system properly reflects the structure of a modern economy, and provides clearer billing and better information-sharing. The Enterprise Bill will also introduce a faster and more efficient appeal system. In addition, in the 2014 autumn statement the Chancellor announced a wider review of business rates, and I assure my hon. Friend that in that review we will certainly take full account of the position of rural businesses and the other matters raised in this debate. We expect that review to report by the end of 2015.

I turn now to the specific issue of cash machines and business rates. Business rates are paid on non-domestic properties and are the means by which those businesses contribute towards the cost of local services. Cash machines are a non-domestic use of property and therefore are included in business rates. It is for the Valuation Office Agency to decide, based on the facts, whether an automated teller machine should be separately assessed for business rates. That is decided independently of Ministers, based on the facts of each case, and we do not intervene. However, where cash machines are assessed for rates, it is fair that the cash machine operators, which include banks and other financial organisations, pay rates alongside other sectors, such as retail and offices. The rules also ensure that the rates assessments of cash machines reflect the value of specific sites. Busy sites have a much higher rateable value than quiet sites, and this approach is based on actual market rents that are agreed and paid by the cash machine operators.

Furthermore, we have given local authorities the power to grant local discounts. We have urged them to support access to cash machines that are free to use through their local discount powers. Those powers can also be used, for example, to support cash machines on high streets or in rural locations, so they take into account the comments made by my hon. Friend. Where councils use those powers, we will automatically meet 50% of the cost. As I said earlier, we are currently conducting a review of business rates and we will certainly take into account the comments on business rates of my hon. Friend and those of other hon. Members who have contacted me on this issue.

Photo of John Howell John Howell Conservative, Henley

I wonder whether the Minister will allow me to give a plug for that review. I am conducting a review of businesses in my own constituency, and I know that they see business rates as just another tax. It would be extremely good for them to see something in return for paying their business rates—something that they have control over.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I thank my hon. Friend for that intervention and it is always good to get the views of businesses, both in Henley and across the country. I will certainly take into account what he has said and I will feed those comments into the ongoing review.

I turn now to the issue of stables and local taxation. Property is subject to either council tax or non-domestic rates, which are commonly known as business rates. The boundary between the two can certainly be complex, but broadly speaking stables are only likely to be included within the council tax band if they are sited within the domestic curtilage of a property and used for purposes on a domestic scale appropriate to that property. It is for the VOA to apply the legislation and case law to the facts of a particular case.

All ratepayers have the right of appeal to an independent tribunal. Of course, a stable property that is separately rated may be eligible for business rate relief, which I think is the case in the situation that my hon. Friend the Member for Rossendale and Darwen referred to. Where a stable is taken into account in a council tax assessment, that may well result in a council tax band increase. So it is not necessarily the case that someone will pay more when a stable or stable block is separately assessed.

Photo of Caroline Nokes Caroline Nokes Chair, Speaker's Advisory Committee on Works of Art

I thank my hon. Friend the Minister for giving way on that point and I appreciate his comments about stabling with regard to non-domestic rates or council tax. Does he agree that the British Horse Society has made an excellent submission to the Treasury’s business rate review, which brilliantly highlights, first, just how complicated and grey an area stabling can be and, secondly, the many anomalies that exist for those who run equestrian premises as part of either an agricultural holding or a domestic property?

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I thank my hon. Friend for making that point. It is extremely important that organisations such as the one she mentioned bring forward their views and concerns during the review process. I will certainly take them into account, as I am sure my colleagues in the Treasury will, and I will also take into account the views put forward by my hon. Friend the Member for Rossendale and Darwen, who secured today’s debate.

I turn now to the matter of festivals. The VOA has a duty to maintain fair and accurate rating lists, and it is of course right that music festivals and other such events pay business rates, just like any other occupier of non-domestic property. However, I assure my hon. Friend that if there are no permanent physical adaptations to the land to facilitate festival use, and the duration of the festival is only a matter of a few days, it is unlikely to attract a rating assessment in its own right. Any assessment would be proportionate to the scale of the festival. Of course, if a ratepayer is unhappy with their assessment, they have a right of appeal to an independent tribunal.

The VOA is working with the Events Industry Forum to draw up guidance to help organisers better understand when rateability will arise. We will certainly take into account comments made by my hon. Friend and other hon. Members during the review process.

Photo of Jake Berry Jake Berry Conservative, Rossendale and Darwen

Does my hon. Friend acknowledge that backdating the rate bill for five years for such events, and sometimes for stabling, is putting their viability at risk? Those involved in setting up events in 2010 or 2011, for example, had no possible way of knowing that they would be hit with a large historic bill that could make the future of those events unviable. Will my hon. Friend undertake to ensure that there is a conversation with organisers, in respect of historic bills charged to music festivals, to find out whether there is a fair or reasonable way of charging them that would enable them to stay in business? If they do not stay in business, we will be shooting the goose that lays the golden egg.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I thank my hon. Friend for making that important point. He made certain points about the collection of taxation, but that is difficult to change retrospectively. Having said that, I am more than willing to make further inquiries and to respond to him in writing soon.

Picking up the other point made by my hon. Friend in relation to the VOA making unexpected changes, I reiterate that the VOA is there to interpret the law made in this House, and it does so; and it also works on the basis of case law. We can certainly consider that matter during the current review, which I have mentioned once or twice during this debate. However, it is important to say that we must have a mechanism for interpretation of laws made in this House, rather than have this House interpreting laws that we Members make. We need to bear that in mind.

In conclusion, we have taken significant action to support the rural economy, including through the business rates system. We will certainly take into account matters mentioned by my hon. Friend and other hon. Friends and colleagues during this debate. Once again, I thank my hon. Friend for securing this debate and giving me the opportunity to set out the Government’s position on these important issues.

Question put and agreed to

Sitting suspended