Business Rates — [James Gray in the Chair]

– in Westminster Hall at 9:30 am on 13th June 2018.

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Photo of Rachael Maskell Rachael Maskell Shadow Minister (Transport) 9:30 am, 13th June 2018

I beg to move,

That this House
has considered a review of the business rates system.

Thank you, Mr Gray, for being in the Chair for this important and timely debate.

Almost every day, we learn of a chain of retail stores or local businesses closing their doors, resulting in job losses, people’s lives being thrown into turmoil and empty premises along our high streets. The Centre for Retail Research has said that 10,000 stores will close this year alone, amounting to 384,000 jobs that are forecast to be lost over the next four years—unless, of course, the Government take urgent action now.

Businesses face many challenges at this time, not least the cost of property rental, and that leads into the issue of business rates. I would like those issues be addressed in today’s debate and I look forward to hearing the Minister’s response, because it is time for action to rescue businesses from the current crisis.

Front Street in Acomb once bustled with an array of independent stores serving the west of York. Those premises are now being exploited by foreign investors who are charging extortionate rents, which in turn is driving up the rentable property value, and thus business rates. Today, empty units line the street. York’s city centre is following suit, as are towns and cities up and down the country. This cannot continue to drag on.

The ever-inflation-busting rental levels have over-inflated the local property market. That is exacerbated by the empty property tax loopholes, resulting in units being left dormant, further blighting our beleaguered high streets and letting the owners of those properties off the hook.

The Valuation Office Agency has made its calculations based on this overheated market and set excruciatingly high levels of business rates, as determined by the Government. When I hold business meetings across York, everyone feels that they have been failed by the business rates system, and as the situation gets worse, they want to know why the Government are forever providing sticking plasters when major surgery is required.

In York, where the retail sector accounts for 13% of employment, the toll is being felt. However, it is not only the retail sector that is affected. The hospitality sector employs 2.9 million people across the UK and although it pays 10% of all business rates, the sector’s share of turnover is just 3%—as the sector puts it, it has made an overpayment of £1.8 billion.

Other businesses are also being impacted. In the last couple of years, I have witnessed major employers—employers employing hundreds of people—leaving the city of York, citing excessive business rates as the root of their decision, and moving to areas with lower business rates. The 2015 valuation took a particular toll on businesses in York. We have had increases as high as 600% for pubs and retail outlets, including a bicycle shop in the city. Our city centre is changing dramatically, with the loss of national chains. High rental rates and business rates are to blame.

Photo of Ruth George Ruth George Labour, High Peak

My hon. Friend is making an excellent speech, and setting out the key concerns for retailers and other businesses. Does she agree that the average £3,600 increase in rates for small shops over the next five years is contributing to the demise of high streets up and down the country?

Photo of Rachael Maskell Rachael Maskell Shadow Minister (Transport)

My hon. Friend makes an excellent point, because it is the small retailers that are really struggling to survive, and it is an issue of survival in the current age. Of course, it is business rates that are at the heart of the decision by businesses as to whether to remain open or close.

Other organisations have been brought to my attention that are even worse affected than those with the 600% increases I have cited. For instance, there are organisations that have had rooftop solar panels installed and then seen their business rates rise by as much as 800%, and all for doing the right thing. The Valuation Office Agency is discussing similar measures for battery storage, all at a time when green energy and microgeneration should be promoted; instead, people are being deterred from doing their bit for the environment.

Let us remind ourselves that business rates are set by multiplying the valuation rate—that valuation rate is based on the market rental value, as if the property was being placed on the open market—by a multiplier set by Government. In England, that is 49.3p, or 48p for small businesses. It cannot be raised by more than the rate of the retail prices index, or the consumer prices index from this year.

There are certain relief schemes in place. There are three tiers of arrangements to reduce the burden on small businesses, and there are an array of different arrangements for charities, rural businesses and community sports clubs. Last April, temporary relief was also introduced, with an additional relief fund of £300 million, which was to be shared between local authorities around the country over four years. Pubs with a rateable value above £100,000 were given relief at a flat rate of £1,000, which is subject to current state aid rules. I would like the Minister to examine that specific issue. There are also relief schemes for fibre infrastructure, local newspapers and empty properties.

York received £788,000, but the local council’s governance of the money provided by that fund has been extremely poor. It started with an application process in May to provide grants to businesses that were struggling and that could guarantee—that is, guarantee—they would be sustainable. However, because businesses were unable to give such an assurance, they were unable to apply. In December, the council therefore changed its mind. All businesses with premises that have a rateable value under £200,000 and that had experienced a business rates increase of over 12.5%—except for national chains and local government premises—automatically received a discount, meaning that the council did not even consider hardship issues; the discount was an automatic entitlement. The Government should have provided far better guidance for councils that were handing out taxpayers’ money; the councils really did not have the understanding of what was required of them to support businesses.

This year, York will receive £383,000; next year, it will receive £158,000; and the following year just £23,000. That tapering leaves businesses in an incredibly vulnerable position, without any long-term solutions being provided by the Government. Businesses are crying out for such solutions.

York is not unique, but it does provide the Government with an excellent case study as to why the business rates system is failing. I will provide some examples of the systematic problems that my city is facing.

Retailers in high-value rental areas pay the highest level of rates, whereas companies selling goods on the internet from warehouses in low-value rental areas pay the lowest level of rates. For example, Amazon is the largest retail business in the UK, with a warehouse of 65,000 square feet outside York. In York, Amazon pays £1.4 million in rates. Marks & Spencer in York city centre is seven times smaller in size, but it still pays £500,000 in business rates, or about a third of the amount that Amazon pays.

The smallest stores pay the most. For example, in York city centre small shops pay up to £950 per square metre, whereas larger companies benefit from a special larger store rate of £110 per square metre. If all companies in York paid the same as small businesses in York, Marks & Spencer would have a rateable value of £9 million and Amazon would have a rateable value of £61 million. Across the sector, the perception has grown that the Valuation Office Agency gives large companies favourable treatment to avoid lengthy and costly disputes, and clearly small businesses are suffering.

Photo of Bill Esterson Bill Esterson Shadow Minister (Business, Energy and Industrial Strategy), Shadow Minister (International Trade)

The comparison between what is paid by large out-of-town and online retailers and what is paid on high streets is extremely well put. Does my hon. Friend agree that the problem is that unless something is done—and it can only be done by the Government—to create a fairer business taxation system to even up the situation between online and out-of-town retailers on the one hand and the high street on the other, high streets and their communities will continue to suffer, and anybody who works in those areas, and their families, will be put under pressure? This issue has to be dealt with urgently, and the Government must intervene to address the problems of unfair business taxation.

Photo of Rachael Maskell Rachael Maskell Shadow Minister (Transport)

The point my hon. Friend raises is the point of this debate. The reality is that we are talking often about independent business in which families have invested, maybe for generations, building it up and building a reputation, only to find that the competition from online sales and out-of-town stores is challenging. In addition, such businesses then have the weight and burden of business rates to pay on top of high rental values for their properties. The sums simply do not add up, and it is driving them out of town.

That situation is why we are seeing so many closure notices on shops. Some shops have been part of communities for decades and are sadly no longer there. That is certainly true of York. Our communities are losing their identity as a result. It is changing what happens in our town and city centres. I could relate so many stories from York of how independent shops have disappeared to be replaced by vertical drinking establishments and other such premises. It changes the whole context of our city. It is vital that we get on top of the business rates issue.

We have to recognise that businesses are penalised when they try to do the right thing, as equipment adds to the rateable value of business premises. Companies are penalised for making improvements to their businesses. In Labour’s manifesto, we promised to exclude all new investment in plant and machinery from future business rates to encourage investment. We want to see employers investing in the future of their business, but they are deterred. If that investment will put up their rateable value, why would they take those steps when they are already struggling?

Photo of Ruth George Ruth George Labour, High Peak

Businesses often have to invest in CCTV because of rising crime rates. In doing so, they can help the police by providing footage to help catch offenders, but they are then penalised for doing the right thing and helping tackle crime when their business rates increase due to that investment. Does my hon. Friend agree that that is an anomaly that must be looked at?

Photo of Rachael Maskell Rachael Maskell Shadow Minister (Transport)

My hon. Friend makes an excellent point. When people try to improve their community, and not just the business itself, it increases the rateable value. Business rates are built on that premise. In York, a company installed air conditioning. That might seem an obvious thing for a business to do, but doing so increased the rateable value by £275. That business now sees air conditioning as a negative, rather than a positive for itself, its staff and the public.

We have to be honest: business rates are an extremely antiquated system that is not fit for purpose in our globalised digital age. The UK now has the highest level of online shopping in the world, and it is essential that the duty that is paid catches up with that reality. We know that online shopping is increasing because when we go to our high streets, the stores that shoppers want to engage with are no longer there. There are also the wider trends we see across the world.

We need to ensure that we invest back into our city centres to revitalise them and ensure that they keep their identity. That is especially important for a city such as York, which has such a great heritage and attracts 7 million people a year. We want to ensure that people continue to come to our city not only for all the wonderful attractions, but to utilise the vibrant shopping area it once was.

Last April, following the revaluation, the average small shop was hit with an extra £3,663 in rates over the next five years, while many large online retailers saw their rates fall. Large supermarket chains saw a 5.9% reduction in their rateable value. There is huge inequality within the retail sector. Pubs are also being put at risk. They pay 2.8% of the total rates bill, yet contribute only 0.5% of the rate-paying business turnover—an overpayment relative to turnover of £500 million. That figure will increase by 17% by 2021-22.

It has been cited that the transitional relief scheme has been of detriment to some businesses. For instance, House of Fraser saw a 10% rise in business rates last year. As has just been announced, it is looking to close 31 stores, of which 28 have been negatively impacted by the relief scheme. It is clear that huge inequality has grown with the advent of large out-of-town retail centres and the online industry. The business rates system simply does not work in the modern age.

Reform has been called for, not least by the Business, Innovation and Skills Committee, as was, which in 2014 recommended changes to the business rates system. The Committee called that system

“a significant barrier to innovation.”

It recommended a Government review of the system to examine the following questions:

“whether retail taxes should be based on sales, rather than property;
whether the retail sector should have its own form of taxation, calculated in a different way from other businesses;
and how frequently the revaluation of Business Rates should take place.”

Since those recommendations were made, York Retail Forum has not been idle. It has carried out a thorough piece of work to look into the alternatives, and it has concluded that the best way forward for its businesses is to have a turnover tax. The Centre for Retail Research has come to the same conclusion. Clearly, if that formula were to be adopted, there would need to be tapering to address businesses with a high turnover but low profits, such as small convenience stores.

Local entrepreneur Phil Pinder, who chairs York Retail Forum, has looked at the figures. When just a 1% levy is placed on all online and high street businesses, the resultant revenue exceeds the current total raised by business rates. Governments gain, small businesses gain, local economies gain, high streets are revitalised, and tax-dodging multinationals like Amazon have to pay up. While the benefits for Government would be the same, introducing a turnover tax would be like handing thousands of pounds to small businesses and would help them to invest in developing their businesses and employing more staff.

Equally, a profit-based levy would provide for a fair system: the more profit, the more a business would pay proportionately. That is favoured by many businesses, as they believe that nothing could be more equitable, and certain exemptions would not be required. With either model, there could be some tapering, so that those with the greatest returns would pay more and those with the least would pay less. Social interventions could be made—for instance, some relief for those who invest in microgeneration of energy. There is scope to use the system to drive forward our future economies. Either way, we need to find a new way to bring in revenue from businesses to replace the business rates system—perhaps through another non-domiciliary, property-dependent levy. Whichever system is used, it would clearly be a lot easier to operate, to collect revenue, and to reinvest in communities and business growth.

One other point that I must raise in today’s debate is that the Valuation Office Agency is not fit for purpose. It has lost staff; its IT systems are creaking; its programme capability is questionable, having failed businesses; its “check, challenge, appeal” system is not thorough in responding to the grievances of businesses; and its time delays are causing more difficulty for businesses that are already struggling.

That brings me to my key point: the Government have prevaricated for far too long over business rates, and we have on our hands a serious crisis on our high streets. Last year, in the light of the business rates crisis, many of us in Parliament gathered momentum to call for change. On 8 March 2017, a business rates review was announced by the Chancellor. Since then, I have continually asked questions about when that review will begin, and have been passed from pillar to post—from the Ministry of Housing, Communities and Local Government to the Department for Business, Energy and Industrial Strategy, and from there to the Treasury. That resulted in my having to raise a point of order with the Speaker to identify who was responsible for what, and even then, discussion ensued on the Government Benches.

Businesses are saying that they cannot wait any longer, and the daily announcements of closures testify that that is the case. The Government have to get on and start their major review of a new business levy. In moving today’s debate, I am calling time on this broken system on behalf of businesses in my city and up and down the country, and asking the Minister to carry out the following with immediate effect.

First, I ask the Minister to open a complete review of a new business levy system to report in the autumn, with recommendations being made in time to be implemented in this year’s Budget. Secondly, I ask him to open the consultation to all businesses across the economy and to commence the review before the summer. Thirdly, I ask him to identify some case studies to gain an in-depth understanding of why the current system is failing. I suggest York would be a good case study for the Minister to look at, and I am sure other colleagues would be helpful in advising why their communities would provide good examples too.

Fourthly, I ask the Minister to look at the offshore rental market and its impact on our high streets and businesses, and at the extortionate rents that people have to pay. There is often no connection between the local community and the offshore business entrepreneurs who seek to reap as much revenue as they possibly can, at the expense of the high street. We need reparation there, too, because that feeds into the business rates crisis that we see today.

There is an existential crisis on our high streets as they are drained of the vital enterprises that give life and character to our communities. There is no scope for further delay. I urge the Government to bring a laser focus to this issue, and I call on the Minister to act. I trust that he will be willing to meet me and other hon. Members to help move the issue forward for the sake of our communities. There needs to be a radical reform of the system. The Chancellor said it was his desire to move away from a bricks and mortar-based system. The review was promised in the Conservative manifesto, as well as in ours, so progress should not be delayed. Time is running out.

I trust that the Minister will respond clearly to the matters I have raised and tell us what actions he will take to secure a new business levy system that is in place in time for an announcement in the autumn Budget.

Photo of Hugo Swire Hugo Swire Conservative, East Devon 9:51 am, 13th June 2018

I congratulate Rachael Maskell on securing this important debate. Anyone looking into this Chamber from outside will be surprised by the lack of Members taking part in this debate on an important issue—a non-political issue, almost, that affects all of us and our high streets all over the country. Perhaps Members feel that there is no point in rehearsing the arguments because they will not change anyone’s mind and the Government will do nothing. I know better than that because I consider the Financial Secretary to the Treasury, my right hon. Friend Mel Stride, to be a personal friend of mine, as well as a neighbouring Member of Parliament in Devon. I know he cares as passionately about his high streets in Crediton and elsewhere as I do about mine in Exmouth, Budleigh Salterton and Sidmouth.

The hon. Member for York Central made extremely good points and I wholly concur with her. I went with a company I am no longer involved with to the Valuation Office Agency, and it was a truly horrible experience—we saw overwhelmingly underpowered officials there. I know it is an arm’s-length body, but I urge my right hon. Friend the Minister to look at the VOA and some of the decisions that it makes, because it is crippling some of our companies. The onus seems to be on the companies to disprove what the VOA asserts, which can leave companies paying outrageously high rates for many months when in fact they and the VOA know that in the end they will get a rate rebate.

My right hon. Friend—unlike many others in the House, unfortunately—comes from a business background. He is a successful businessman, so his sympathies lie naturally with the business community. We face what I described in a public meeting in Sidmouth a couple of weeks ago as an unhappy coincidence: an unhappy coincidence of people’s behavioural patterns when purchasing goods. I am a living example. Without making a gender-based remark—well actually, I am going to make a gender-based remark—I think the majority of men probably shop more online; I certainly do the majority of my shopping online. There is a gravitation towards that, coupled with the issue of business rates and the perfectly hideous decisions by successive Governments to be too loose in granting planning permission to out-of-town megastores. That has not been mentioned so far this morning, but that is also partly responsible for the desecration of many of our high streets.

We should not be Luddites. We cannot turn the clock back. We should remember that many mews houses were used for horses 100 years ago, but they are now converted and life moves on. Patterns change and the pattern of life accelerates, so we should move with the times. Interestingly, a recent report showed that the loss of shops on the high street is actually less than the public’s perception. None the less, it is a major issue.

I pay tribute to the dogged determination of a local reporter, Beth Sharp of the Sidmouth Herald, who, along with Alistair Handyside, who does so much for tourism in the south-west and rightly got recognised in the Queen’s birthday honours list, helped organise a very good meeting I went to with some of the retailers in Sidmouth. It is clear that the unhappy coincidence of events is having a negative effect. A hotelier at the meeting, Mark Seward, said that his rates have increased by 244% in a decade—they are now £17,000 a month. That is what he has to make before he pays any of his suppliers and before he pays the living wage to his employees. Before he does anything he has to pay money straight out.

It seems to me that we have not moved with the times. I had an interesting meeting with the Under-Secretary of State for Housing, Communities and Local Government, my hon. Friend Jake Berry, the other day. We talked about what new initiatives might come from the Government in relation to our high streets. The accepted wisdom now is that the Mary Portas review addressed some of the problems, but did not go far enough, and we now need to look at things in a different way. There are things that we can do.

In the meeting in Sidmouth, I gave an example. Some time ago I went to a shop in Sidmouth that sells kitchen utensils. I said, “How is business?”, and the shopkeeper said, “It’s terrible. Business is terrible,” so I asked why. I said, “Surely when it rains all the tourists come in here.” He said, “Yes, all the tourists come in here. Historically, they would have come in here, looked at all our kitchen utensils and thought they were marvellous. Then they would spend a little more time here. They would buy things and then go home with these wonderful things.” He said, “Now they come in out of the rain and look at all the stock. They see something they like—a nice kitchen utensil to better stir their concoctions at home—and what do they do? They whip out their iPhone, take a photograph of it and then go home and buy it online.” The shopkeeper said, “I am becoming a shop front for these products that I have had to buy anyway, which are now being bought online and undercutting me.” He has to pay the rates and Amazon or eBay do not, or not on the same scale, and that seems to be the kernel of the problem.

Then there is an issue where we have to tread carefully. I am very proud of some of the charities that I am involved with. I am vice-president of the West of England School and College for those with little or no sight—WESC—based in Exeter. I opened its charity shop in Sidmouth and I am proud that it can raise money in that way. We would all support charity shops. The problem is that charity shops now often sell new stock. Historically, charity shops sold things that we gave them. As a charity shop, it does not pay rates. Now they sell brand-new products often totally identical to those in the shop next door, but they can afford to charge less because they do not pay any rates. As part of a wider review we have to look seriously at charity shops. Perhaps the number of charity shops should be fixed at a certain percentage or perhaps there should be other ways of making sure they do not compete with those who are still obliged to pay rates.

There are practical things that the Minister and the Government can do. First, business rates are easy to collect, but they are no longer fit for purpose because of the changes in shopping behaviour. I agree with the hon. Member for York Central that we have to get smarter in how we tax online retailers. It is extraordinarily difficult, whether we call them tax avoiders or tax evaders—there is more than a semantic difference there. The point is that they are dominating the virtual high street, and it is manifestly unfair that there is no levy or taxation on them.

If we could come up with some smart way of taxing such people, we could either do away with business rates for high street retailers or seriously support high street retailers; the issue is not just about keeping shops open in our town centres, but what the community looks like. We have already suffered from identikit high streets, where every other shop is now a coffee shop. I am pleased to say that in Sidmouth and some of my other towns, such as Budleigh Salterton, there are still individual retailers. That is the way forward. Towns have to rediscover local retailers and offer something other than multiple chains. Clearly we need to look at finding a way of applying a levy to online retailers.

Secondly—this has been done in towns and cities up and down the country—we need to look at how we can shrink the retail space. We have to accept that we will not turn the clock back on how people shop. Very often the retail side of a town is too big for the town’s needs. We need to look at how we can shrink the retail part of a conurbation, which has been done successfully in some places.

On the back of that, we need to look at planning and how we can make it easier to convert former retail premises to residential premises. It is my contention that if we made some shops residential again, we could have starter homes and bring young families into the town. That would mean that there was a night-time community, which would in turn give birth to other things, such as 24-hour retailers, wholesalers or cafés. That would bring people back into the heart of town centres. That seems to me to be a way forward.

We also need to look at the thorny issue of parking. Very often, towns were not designed for cars, but for the old horse and cart. We need to be smarter about how we get people in and out of towns and how they can park. There needs to be much greater flexibility—perhaps two hours’ free parking. Again, that is a problem for district councils, because that is one of the ways they raise money. We need to look at that as well.

We need to get much tougher with our planning regarding huge, out-of-town, American-style shopping conurbations, which I personally think just spoil the countryside in an American-style way. We need to try to find a way to make it more attractive for huge retailers to come into our towns. That can be done without having a huge, hideous store. It can be done very cleverly, and has been up and down the country. We should be aware that big high street retailers such as Marks & Spencer are not changing their entire shopping policy through choice, but for survival. They are closing their stores down and doing more online because that is the prevailing mood. If that does not underline the issues and challenges, nothing else will.

This combination of things is hugely important: shrinking the size of the town; making it easier for premises to become residential; helping councils to allow people to come into the town and to park; looking at taxing the online retailers; and looking again at the whole rating system. Changes in the 2017 spring Budget meant that businesses with a rateable value of less than £15,000 will not pay the levy, but based on the way it is calculated, bigger stores have to pay.

I will say one final thing to the Minister. We cannot turn the clock back. The Portas review went so far. We now have to act very quickly to ensure that we preserve and enhance our high streets in the way that I have set out. Another issue, which we get the whole time, is that people hate having services taken away from them. What used to be our bags, and is now our inboxes, are highly active if something is being taken away from the local community—if the local shop, library or bank is going to close.

It is perfectly clear to me that more banks will close up and down the country as we move towards cryptocurrency, blockchain and so forth. The whole way of doing banking is going to change. We cannot stand in the way of that and say, “We must have the same services we’ve always had.” That will be a commercial choice made, quite properly, by commercial banks. More and more banks will vacate the high street. In turn, that will give birth to other things so that people can do their financial transactions. I do not know what that will look like, but something will replace them.

Given that we know that that is coming down the line, we have to act now to pre-empt it. I very much hope that the Minister will, with his Treasury colleagues, fulfil what we said in the manifesto we would do, and speak to other Ministers about having a wholesale review based on the Portas review, looking at how we can preserve our high street and help struggling businesses.

If it goes on like this, frankly there will not be any retailers at all; they will just close one after the other. I do not wish to be alarmist. As I say, the figures are not as bad as people think, but certainly in Sidmouth we have lost two or three in the last few weeks, and are set to lose more. The fact is that no one is replacing them. We need to be cleverer, and think in a lateral way to ensure that, yes, we tax people properly, but that businesses grow and remain accessible to our residents.

Photo of Clive Betts Clive Betts Chair, Housing, Communities and Local Government Committee 10:05 am, 13th June 2018

It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate my hon. Friend Rachael Maskell on securing this important debate about the relevance of business rates to our local communities, and the impact that they may be having on them.

I may approach the debate slightly differently, from a local government perspective, because I have the privilege of chairing the Housing, Communities and Local Government Committee, which has looked recently at business rate retention. The Committee will also look at the future of the high street as well in an inquiry for which we are taking evidence.

First, I am pleased that the motion moved by my hon. Friend is about a “review” of the business rates system. I think that is important. I wish to begin by saying that I hope we end up with a review rather than a complete abolition of the system. I am sure that the Treasury will be the first to say that abolishing taxes and starting again has slight dangers attached to it, in terms of a complete dislocation. Reorganisations on that sort of scale rarely go well.

I would also argue that tax is quite important. We tax many things in this country. Nobody particularly likes taxes, but taxing property in some way is quite an important element of our overall taxation system. Of course, households pay a property tax—through council tax at one time. Some of us have been around in various forms of representative government long enough to remember when we had a rating system that covered both domestic and non-domestic properties. The change was made when the poll tax was brought in, and business rates were effectively nationalised and council tax came in instead.

Secondly, we have to make it clear that business rates are an important source of local income for councils. Councils have a Government grant, council tax and business rates—that is basically it. They can raise certain charges, but those are their meaningful sources of money. I would strongly argue, and the Committee has, that over time we should find more ways for councils to raise money at a local level, so that local people can see accountability and the direction between the money they pay and the services that they get. However, that wider discussion is for another day.

The issue is becoming more important because in 2020 the Government intend to move to 75% business rate retention from the current 50%. Some pilots are doing 100% around the country. Increasingly, it is not about merely the totality of business rates; what is raised in a local area is extremely important for that council. The Finance Bill before the election was going to move to 100% business rate retention. I am disappointed that we have stopped at 75%. The Government say that they will look in the future to moving to 100%, but that makes it even more important that we do not just tear it up and start again.

Photo of Matt Rodda Matt Rodda Shadow Minister (Transport) (Buses)

I urge my hon. Friend and colleagues to consider the importance of continuing the pilots for retaining 100% of business rates, which many local authorities in the pilots find very effective. Currently the Berkshire unitaries all have a one-year 100% retention, and they very much wish to continue that. If the Minister could consider that, I am sure that would be greatly appreciated in our county.

Photo of Clive Betts Clive Betts Chair, Housing, Communities and Local Government Committee

That was a very helpful intervention. It shows that some very interesting things are going on at a local level. Very often, ideas begin in local government, are tried and tested at a local level, and then are moved on to the whole country. It is very important that we do not simply say that now we want to move away from the whole system, and leave those valuable lessons unlearned and unapplied.

The other point is that there is the capability for even more local control of business rates. In the days when we had domestic and non-domestic rates, councillors set the level of rates. They were nationalised when the poll tax came in and the control for setting the rate in the pound was moved to national level. That is an argument that we have had on the Select Committee. I would like to move towards more local control eventually and the system is at least capable of doing that. Business rates are also easy to collect and difficult to avoid, and we should see that as quite a strong benefit of the system.

Sir Hugo Swire raised some very pertinent concerns about the impact on high streets, which we see whether it is a village, a small town or a major city. We see derelict shops and the change that is happening. The Select Committee is therefore taking evidence in an inquiry on what high streets are going to look like in 2030. We are trying to look ahead to see what change is happening and whether people are planning for it.

A good point was made about the planning system. We ran an inquiry a few years ago on the high street, and it was stark then that very few councils seemed to be adapting their local plans in recognition of the change in shopping habits. Everyone can see it happening, but nobody seemed to be recognising it when they were looking at what town and city centres would be used for in the future. That will be an issue to address.

I know business rates are an issue for some small retailers, and I will come on to a couple of points we ought to address, but I suspect that it is sometimes an excuse when the real issue is the change in shopping habits. People are just changing what they do. Whatever shopping centre it is, people are simply choosing not to go there, or, as was already quite rightly said, they go to have a look and then buy online. About 30% of retail shopping is now done online. There cannot be that degree of change without an impact on the retail floor space needed. All the signs are that that is going to continue, and I am sure that is one of the issues we will address in our inquiry.

We are also going to look at some of the things being done by retailers and the property owners, such as the company voluntary agreements that are coming out now as retailers try to negotiate effectively their leases, with a bit of pressure. The retailers did sign up to those leases and there are reasons why they did, sometimes on a long-term basis. We are going to have a look at the issues there as well.

We will also look at revaluations, but we have to remember that revaluation is a zero-sum game: it simply changes who pays what and does not actually raise more money. I am not saying that some centres and high streets are not disadvantaged, but somebody somewhere is probably gaining in the system, which is something that we have to think about.

Two points that we have to look at were powerfully raised by my hon. Friend the Member for York Central. In terms of retailing, the change in shopping habits is to businesses that by and large pay very little in business rates. That is absolutely fundamental if we are going to review the system. How do we get from a system that is a bit archaic and a bit stuck in a particular rut, to a situation where we can charge more for those big online retailers, and indeed the out-of-town shopping centres that were mentioned? Why do they pay relatively so little in rates, compared with the often smaller shops on the high street?

Photo of Ruth George Ruth George Labour, High Peak

My hon. Friend is making some excellent points. Does he agree that we need to make sure that we incentivise British businesses that trade in this country and make sure that they cannot be undercut, whether on the high street or online, by companies that are directly importing and often avoiding customs and other charges by doing so?

Photo of Clive Betts Clive Betts Chair, Housing, Communities and Local Government Committee

It is important that we look at those issues in wider taxation. I am not sure we can quite go there this morning, but we certainly need to look at whether we can tax some of those major companies—we know the international conglomerates of online shopping without necessarily having to name them—on the turnover that they have in this country rather than on the profits that they declare, as they move those profits into the lowest tax countries. Of course that is what happens.

There is a wider tax issue about how we deal with some of those online companies, but in terms of business rates, the unfairness between them and retailers on the high street is very stark, as with out-of-town shopping centres. It always seems unfair. I have a major out-of-town shopping centre in my constituency, Meadow Hall, which provides a great service to people, is incredibly well used and provides a lot of jobs, but nevertheless the rates paid there are not comparable with those paid by many shops in the high street.

We also have to bear in mind that business rates are not just about retail. Commercial, manufacturing and other businesses pay rates and there are some disparities. One point we picked up was that where manufacturing industry innovates and improves, it gets an increase in business rates on that improvement. There is something odd about taxing improvement in that way. We should also look at that. There are some other strange things, such as hospital trusts trying to claim exemption from business rates, or lower rates, under charitable status. I mean, come on—that is about moving money from one bit of government to another! The hospitals are saying they are not going to pay, but then local authorities do not get the money. The Government have to sort out those issues. There are some nonsenses around.

If there is a review and there are changes, we have to be very clear that, if the Government legislate for those changes nationally, there is a mechanism to compensate local government for any money that it loses collectively. After 2020, that is going to be quite a challenge. My understanding is that when the 75% retention of business rates comes in in 2020, local authorities will only receive council tax and business rates, which will then be redistributed in some form. There will not be a central Government grant, so if central Government are going to compensate local authorities for any change to the business rate system that reduces the amount of money in total going into local authorities, how will they be compensated? That is a challenge we all need to think about.

Photo of Derek Thomas Derek Thomas Conservative, St Ives 10:16 am, 13th June 2018

I thank Rachael Maskell for securing this debate. It is one that I wanted to secure, but I was not successful, so I am glad to have the opportunity to contribute again on the subject. The Minister might just groan when he hears me speaking again—he has heard the issues several times before, and I was glad to raise them in last week’s Opposition day debate.

I agree with my right hon. Friend Sir Hugo Swire that the Minister is engaged and keen to resolve this issue, and I understand how complex and difficult it is, so I will not be unfriendly in my remarks, but I want to reiterate some points I have made before, as well as bring up an issue that Cornish colleagues have been concerned about, but which has not gained any traction here in Westminster.

Issues with business rates lead me to believe that the system must be scrapped. One reason for that is the significant housing issue in Cornwall. It is a real challenge to provide and retain houses for local families and for people who live and work locally and who want to work at the hospital or in public services perhaps, but who just cannot secure the housing they need.

Everyone who lives in a house, unless they are on some sort of benefit, pays council tax, but if someone has a property that they own and which they choose to use as a holiday let, it can be registered as a business and they can avoid paying council tax altogether and then claim small business rate relief. I live in a three-bedroom house and I pay £1,600 a year to live in that property; I contribute, as lots of families do. A property next door is paying no council tax whatever, so it is not contributing.

We have a cross-party campaign in Cornwall on this issue. The real tragedy is that it is possible for a second-home owner to advertise his property as available for rent and also claim small business rate relief. Other Cornish colleagues and I have been raising that issue since we were first elected in 2015. I do not think the Government are fully engaged and fully understand the challenge that that poses for a community such as Cornwall, which needs every penny it can get. There is an opportunity for the Government to close the loophole and collect more tax, completely fairly. I urge the Minister to look at that again and to give his Cornish colleagues some cheer when it comes to trying to address our housing problems.

On the high street, my constituency also has shops that have closed since Christmas. There are lots of reasons, which include ridiculous parking increases and an obvious change in customer behaviour, but there are also business rates. In the 2016 review, St Ives saw quite dramatic increases, along with London and the south-east and other areas. It was a significant shock to many businesses.

I have examples that show that the way business rates are calculated does not make any sense. It is not clear why one shop should pay one amount while the shop next door pays something completely different. If we could understand the business rates arrangement, and if it were equitable, perhaps it would not be such a problem, but some shops have no idea why they are being charged such sums, and the check and challenge process does not help them.

Behind the headlines about the big retailers and multiples, a number of small businesses are closing or threatening to close. I have said previously in this place that about 11 businesses have told me that they do not believe they will see it out to the end of this year. Their problem is that they own their building or have a stake in it, so they have to carry on paying business rates even if they can no longer function as a business. That is a depressing message to send to what we used to describe as hard-working families.

The issue of business rates is complex; it is not just about consumer behaviour and people choosing to shop online. I disagree with my right hon. Friend the Member for East Devon. I can barely work out how to enter my card details online, so I tend to go to a shop when I have a spare moment.

Let me give examples of what is happening in my constituency. In Penzance, No. 8 has 90 square metres and is paying £14,750 a year. No. 8A, a similar property right next door—I cannot tell the difference between them—has 88 square metres, so two square metres less, and is paying £18,250. The Valuation Office Agency has not been able to explain the difference between them. The Minister has been engaging and helpful, and has asked about that. My office is working up a few examples of that nature so they can be investigated and studied. In one sense, I am being fairly unhelpful, in that I am raising an issue about which the Minister has already invited me to give him details. We are doing that and will get them to him soon.

In Helston, Betfred has 132 square metres and pays £13,500 a year. Next door, an independent deli in a much smaller building of 123 square metres—I would love to show hon. Members the photos—is paying £16,250. We have done everything we can to support that shop with the Valuation Office Agency, check and challenge, and the local authority, and to try to get it some help. It has had a small reduction, but the bottom line is that the owners get out of bed in the morning and have to find that money before they do anything else. They cannot understand why Betfred—a multiple next door, with a much bigger shop front and, sadly, a busier shop—is paying £3,000 a year less.

In St Ives town itself, there is a fudge shop of just 20 square metres that pays £13,750. St Ives fudge is world renowned, so it is understandable that people want to shop there, but that does not justify the fact that the Government or the Valuation Office Agency have decided that for just 20 square metres it needs to pay nearly £14,000 a year. There are lots of examples in St Ives town of what seem to be arbitrary increases.

I recognise that the Government have introduced lots of measures to try to support such shops and have enabled local authorities to offer help, but we have not seen the benefit. One pub in St Ives has had real help from Cornwall Council, but those other shops have been left to find the money month in, month out. The problem with St Ives—this is the nature of the high street in a popular town—is that an entrepreneur who wants to make a go of running a shop in the town centre will have to pay whatever rent is required, because that is what the absent landlord asks for, and there are few other options. They last perhaps nine or 12 months. When they leave, the rent goes up, and a new aspirational person comes in and tries to set up a business there. Their short lifespan has an impact on the business rate valuation, and on all the other shops, which might have been there for 100 years. Since Christmas, we have lost the local fruit and veg shop and all sorts of other businesses that have served the community for 100 years or more.

The real tragedy is that, previously, holiday makers would flood to St Ives and buy what they needed for the week. Now they arrive and the truck from the local supermarket, which might be travelling from Truro, will turn up and deliver all they need for the week, above the very grocery shop that would previously have sold to them.

That is about consumer behaviour, but the real challenge is that business rate charges are not equitable. More than a year ago, I got the Valuation Office Agency to come to St Ives to meet a room full of concerned business owners, and it refused to comment on any individual business. All it did was explain how we could do the check and challenge. Those businesses are in a busy part of town, so they might be expected to be financially successful. The owners work extremely hard day in, day out to make their businesses work—often, they do not have time to jump through the hoops, although many of them did—only to be told they are paying the right amount of money.

I want to ask for three things. First, we should review the review. I know we have another review, but we need to look at what happened 18 months to two years ago, and at why some shops and retailers saw ridiculous increases. We need to do something quickly to address that now, because those businesses are going out of business.

Secondly, the point about local authorities keeping the money from business rates is important, but town and parish councils also need support, because there is often a double devolution situation, with powers shunted down without money. In Helston, the town council—it would be great to have a pilot, along with York Central—would love to grapple with its town, make it vibrant and support the high street, but it has no money to do that.

If we are not going to get rid of business rates, it would be great to allow town councils to retain 1% or 2% of the business rates collected. For Helston, that would be about £200,000 a year, which would give the council the power to transform the shopping experience on the high street and support the very people who are spending that money. I know that 1% or 2% is a lot of money, but it is quite a small chunk of what is collected and would give the towns a fighting chance.

Finally, I recognise that the Government need to collect the 2.4%—

Photo of Derek Thomas Derek Thomas Conservative, St Ives

Is it 24%? Golly! I know the Government need to continue to collect that money, and I am absolutely in favour of the transaction tax. A high street business should pay the same rate on an individual item as an out-of-town store or an online store pays. There must be a way to make taxes fair. There must be a simple way to make tax digital that enables the Government to continue to collect the money they need while ensuring the system is fair for all those who seek to sell items to customers.

I am grateful for the opportunity to speak in the debate, and I appreciate that the Minister is listening and wants to resolve the difficulties that high streets face.

Photo of Ruth George Ruth George Labour, High Peak 10:28 am, 13th June 2018

It is a great pleasure to speak in this debate. I thank my hon. Friend Rachael Maskell for securing it and allowing the very thoughtful discussion from all parts of the House to take place.

I am chair of the all-party small shops group, and I worked for the Union of Shop, Distributive and Allied Workers for longer than I care to remember before coming to this place, so retail holds a very special place in my heart, especially the small businesses that generate the employment that we need, but businesses and employment are under pressure.

We have heard from colleagues from across the House about how the 2015 valuation hit small businesses particularly hard. One convenience retailer in three saw an increase in their rateable value, as I mentioned earlier, and small shops have seen an average increase of £3,600 over five years—an average of more than £700 a year. That really hits their profit margins, which in most cases are already under threat due to changing shopping habits.

We have all heard about the need to support high streets up and down the country, from the city of York to high streets in rural areas such as in Devon, Cornwall and my own area of High Peak. I echo the sentiments of Derek Thomas about businesses as holiday lets, which is an issue in the Peak district and elsewhere in the country.

Retail is not the only issue. In my area, pubs in particular have seen a huge increase in their business rates due to the change in how they are valued and the turnover basis. For example, the Anglers Rest, a community pub in the small Peak district village of Bamford, was on the verge of closing down but the community came in, took it over and brought that beautiful building back to life. It is one of the only services in the village, but it provides a post office and a village shop, as well as a pub and a café. It keeps that community thriving.

The Anglers Rest is run on a not-for-profit basis and its annual surplus income last year was about £3,000, which was needed for capital expenditure on replacements and doing up the pub. The business rates, however, increased from £11,500 before the revaluation—in effect, the pub had nothing to pay, because it had both rural rate relief from being in the very rural Peak district and small business rate relief—to £21,750, which is a bill for a further £10,000. It does not take someone of the financial stature of the Minister to realise that a surplus income of only £3,000 and a rates bill of more than £10,000 puts that community venture at risk. That is detrimental to the entire community, to which that venture is so important.

Another concern expressed by pubs in my constituency about the turnover basis of the rates is that the valuation goes online, listed among other pubs in their area, and that is seen as a shopping list by criminals looking for cash-heavy businesses. As businesses with high turnovers are being targeted, local pubs are concerned that that could be due to the release of information so readily available online. Criminals are not that stupid; they are quite capable of researching which places take significant amounts of cash.

Will the Minister have a look at that issue, which concerns pubs in my area? We have seen an increase in crime—in till snatches—which is worrying for small businesses and their staff in particular.

That is also why, earlier, I mentioned investment in CCTV. Many businesses feel that they have to make that investment now, either because crime is so high that they need a deterrent or because insurance companies often insist on installation of CCTV and other security measures to make premises viable to insure. Businesses, however, are hit with not just the insurance costs of being a victim of crime, but additional business rates.

I hope to see a system, however it is calculated, that does not penalise businesses for investment. A deterrent could be provided with time-limited exemptions for new developments, and we would see greater investment. The convenience store sector invested £856 million in premises over the past year, and any increase in that investment would benefit not only high streets, but the Exchequer.

Communities would all see the benefit too. The Scottish Government’s growth accelerator scheme, for example, delays increases in business rate bills for 12 months, allowing businesses to recoup their investment at least in the initial year.

I am not sure that turnover-based methodologies will be helpful in the retail sector, in particular for convenience stores and the like, which might have a high turnover but a very low profit margin. Petrol forecourt sites are rated on a turnover basis, which causes discrepancies when retailers invest in a convenience store on the same site. They find that it is rated under the same system, causing huge rating bills, which prevents the forecourt retailers from expanding their businesses to offer services to the whole community, often in areas where there is little retail opportunity.

Another issue is to do with cash machines, as has been said. Access to cash is key, in particular on high streets and in rural areas. Retailers are billed an average of £4,000 for hosting an ATM, which is in addition to the rates payable on their shop. I hope that the Minister will look at free-to-use cash machines because they are extremely important for retailers and do not often lead to an increase in turnover of a level commensurate with their business rates increase. The increased risk of crime that unfortunately arises from hosting ATMs means that businesses in my constituency are reluctant to take one on in areas that are in desperate need of them.

I ask the Minister—I am sure that this is a subject close to his heart—to look at the impact on employment of the turnover basis of rating. Pubs that want to open for a few additional hours to increase their turnover, taking on extra staff and growing their business, are disincentivised by the fact that turnover is the basis of their business rates, as they get no relief for the staff. They simply get taxed additionally on the turnover, whereas business taxation is based on profit.

Finally, the check, challenge, appeal scheme is an absolute disaster for businesses that wish to challenge their rateable value. Only one case has got to the appeal stage. By February, we had seen a 90% decline in appeal cases lodged. The check stage requires ratepayers to input details about their properties, which needs significant research on details such as the construction date of the building—quite a challenge for some of the properties in my area. The challenge stage requires ratepayers to provide an alternative valuation and to supply all the evidence needed within four months, which is often quite a hurdle. The appeal stage now requires businesses to pay a refundable £300 fee, or £150 for small businesses, which is another disincentive for businesses to go ahead.

There are plenty of issues for the Minister to look at and, I hope, respond to. I welcome the debate and the chance to speak.

Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury 10:38 am, 13th June 2018

It is a pleasure to serve under your stewardship, Mr Gray.

I thank my hon. Friend Rachael Maskell for securing this debate. It is important to put the issue of business rates into context with regard to the amount of money they raise in receipts. In 2018-19, the rates will raise £30.5 billion, the sixth highest tax receipt in the country. That is a substantial amount of money. We need to look at the business rates again, and in context.

I am pleased that my hon. Friend mentioned the turmoil on the high street, although that is not equal across the country—in some places, there is even more turmoil than in others. Nevertheless, the general tone is one of turmoil, with 10,000 stores to close, including the casework examples she alluded to. The prevarication needs to stop, and I am pleased that my hon. Friend gave us four ideas to consider.

Sir Hugo Swire made a point about the Valuation Office Agency. It is important that the VOA plays a part in this but, in reality, as an agency it can only play the hand it has been dealt. Yes, it may be able to sharpen up its footwork, but that does not go to the heart of the matter. However, I do see his point about the concoction of planning and parking—he raised several issues there. On parking, as local authorities have been denuded of support from central Government, they have tended to change how they get their money, given the reduction in grant. They’re damned if they do and damned if they don’t.

My hon. Friend Mr Betts talked about more local control. That is a potential way forward, because as we are giving less money to local authorities from the revenue support grant, there has to be some more flexibility. That should be considered as part of the review. As Derek Thomas said, it is a complex situation. Second homes is an issue that affects different areas of the country in different ways. He talked about the business rate calculation not being sensible, but that is a technicality. Trying to pin down how a valuation is arrived at does not deal with the heart of the issue: if £30 billion is being raised a year, how and where should it be raised and in what context? We need a review of business rates. My hon. Friend Ruth George said that there are strains on businesses. Her point about cash machines is a crucial issue in many areas. I am glad that it has been a thoughtful debate.

Business rates are causing a great deal of crisis in our retail sector, which is the UK’s largest private sector employer. In the first few months of this year, 21,000 jobs were lost due to closures. Thousands of working people face an uncertain future, and that has sent ripples through the retail sector. Only this week, Poundworld fell into administration, putting 5,000 jobs at risk. That follows administration or store closures at Maplin, Toys R Us, House of Fraser, Marks and Spencer, New Look, Carpetright and Mothercare.

The Government must recognise that there is barely a British brand left that is not affected by what many consider to be a hostile environment, given the business rates situation, whether by design or default. The high street is being denuded because the review has gone on and on. The Government have taken their eye off the ball. I do not want to introduce the “B” word, but Brexit must be a factor. Everything is dominated by Brexit, so the crucial day-to-day issues are not being picked up as they would and should be.

The independent retail analyst Richard Hyman predicts that 20% of retail space will close over the coming years. My hon. Friend the Member for Sheffield South East alluded to that and we must give thought to it—that is before we even get on to poor pay and faltering productivity, both of which are driving poor consumption across the economy, as well as leading to pretty miserable lives for so many in precarious work. Why is this happening? Last week, the chief executive of Tesco blamed the collapse of these retailers on the Government’s business rates policy, saying that it played a “large part” in sending some retailers to the wall.

The Government’s approach to business rates has been combined with, in effect, inaction, which has left a significant portion of the British economy exposed. There has been one review after another; there is nothing wrong with a review and we are quite happy to have them, but we would have to not let the review drift but take action, as I am sure you would, Mr Gray. Uncertainty does not help.

The problem has been exacerbated by structural changes in the retail sector. For example, 791 villages and towns in England and Wales will face higher tax bills. Rates are rising by up to 500% for half a million businesses. That cannot be right. The rise will cause the average small shop to be hit by an extra £3,600 in rates over the next five years. Nearly three quarters of small companies say business rates are the most important issue they face. What is worse, at the same time, some large supermarkets’ rateable value has reduced by nearly 6%.

Online retailers, which have been referred to many times, have benefited from the structural shifts in retail and are the also winners of the Government’s business rate changes. The bill of online retailer ASOS fell from £1.17 million to £1.14 million, despite UK sales growth. The Government are in a business rates mess—it is no good pretending that they are not. The mess is hitting those who cannot bear the brunt of the tax changes, while letting others off the hook.

The Government will claim that they are introducing a package of support to mitigate the steep increases that have resulted from the seven-year wait for a revaluation, yet the Federation of Small Businesses does not take the same rosy view. They have called on the Government to

“speed up help for small firms facing unacceptable increases in their Business Rates”, while arguing that the £300 million relief promised in the Budget has not made its way to businesses. Perhaps the Minister could let us know what the hold-up is. It is the same old story: we cannot rely just on rhetoric to cover things up. The Government have to recognise that the cracks are getting bigger. In some areas, panic has set in, with major newspapers now reporting on a “high street crisis”. We do not want that panic to spread—I accept that it is overblown—and we do not want the Government not to deal with the matter and to put their head in the sand.

If we want to continue to have a high street, we must follow steps for business rates such as introducing a statutory annual revaluation, to stop business facing periodic and unmanageable hikes and to guarantee a fair and transparent appeals process—that has been touched on in the debate. The Government’s seven-year wait for a revaluation was one of the major reasons why the process descended into chaos. Had the Government got their act together, businesses would not face such steep rises in valuations and could plan accordingly. It is quite shocking in certain situations how companies and businesses are being treated.

We would exclude new investment in plant and machinery from future business rates revaluations, to encourage investment. After eight years of the Government’s economic policies, we have the lowest productivity in the OECD; businesses must be incentivised because they are relying on pools of precarious, cheap labour rather than investing in fixed capital. That is especially the case in the retail sector. Government business rates policy should reward shifts to more productive models. I hope that we will be able to deliver on that.

Overall, we want fundamentally to reform the business rates system in the age of online shopping, to ease the burden on traditional high streets and town centres and to create a fairer system of business taxation for the £30 billion that comes in. We must recognise the gigantic shifts happening in the sector, and ensure that our fiscal framework properly adapts to that. It is not about hoping another review will make it all go away; our reform of business rates must be considered in the context of our wider support for small and medium-sized enterprises.

We want to build an economy for the many businesses, not the few. That means supporting small businesses so they can compete on a level playing field, rather than playing to the interests of big companies and monopolies, which seems to be happening all too often. To do so, we have committed to increasing lending to small and medium-sized enterprises, through our network of regional development banks. We have also committed to introducing a lower small business corporate tax, which would ease the burden on smaller retailers. We would scrap quarterly reporting, to end the scourge of late payments and reform.

Labour is offering a number of proposals, but the Government must act as soon as they can, to stop the prevarication.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General 10:49 am, 13th June 2018

It is a pleasure to serve under your chairmanship again, Mr Gray.

I congratulate Rachael Maskell both on securing the debate and on the tenacious approach she has rightly taken to the extremely important matter of business rates. I thank her for her comprehensive contribution, and in particular for the examples she gave of high street businesses—I think we all recognise that many face considerable challenges. I also thank the various other speakers, who raised numerous points. I intend to pick up on as many as I can, but I would of course be happy to engage with Members outside the Chamber on any that I omit.

I thank my right hon. and gallant Friend Sir Hugo Swire for his kind remarks about the amount that I care about this issue and for referencing my business background. I fully appreciate what a struggle it is in the business world, even when times are extremely good. It is never easy to go out and employ people, to generate wealth and to have a successful business. I also appreciate that business rates are one of those taxes that businesses simply cannot avoid—they are paid irrespective of profitability, which of course has particular consequences in some cases.

We need to put this debate in context. A number of Members said that business rates are an issue but are not the totality of all the pressures that our high streets face. We heard much about the challenges of online marketplaces and of the planning system—when there is a change of use of businesses that reside on our high streets, for instance—and my right hon. and gallant Friend raised the issue of parking. Myriad issues impinge on this space, and I think we are all seeking to ensure that taxes right across the system are competitive, that there is fairness among those who are expected to pay them, and that they are collected, so that we minimise tax avoidance at every stage.

That brings me to the comments by the hon. Member for York Central about possible alternatives to the current rating system. She mentioned a tax on revenue or on profitability. As soon we started to tax revenue, we would run into the problem that businesses that are not profitable still have a turnover. For example, a new entrant on the high street that we all wanted to thrive may get throttled by the kind of approach that she suggests. If we went for a tax on profits, there would be the potential for profit shifting. If there were a particular regime in one area, businesses may move profits around between multiple enterprises to reduce their overall level of tax.

Mr Betts recognised that. He made the important point that business rates have a distinct advantage when it comes to avoidance, because buildings cannot be shifted around in the way that it might be possible to shift other metrics. He also raised the 100% business rates retention pilots and expressed hope that we would pursue that measure. We will pursue it with vigour. I am watching it very closely in Devon, where the pilot scheme is also operating. I very much look forward to catching up with the report of the Housing, Communities and Local Government Committee, which he chairs.

My hon. Friend Derek Thomas raised the issue of second homes being designated as businesses because they are holiday lets. We are engaged with the VOA to ensure that no abuse occurs in those circumstances. He will be aware that certain criteria have to be met in order for individuals or companies to treat properties in that way. I am happy to engage with him outside the Chamber on that issue, because he raised one or two interesting points. He also raised the issue of different businesses paying different rates and gave an example of two businesses right next door to each other. He and I have discussed that, and I look forward to looking in greater detail with him at the examples that I know he will come forward with.

Ruth George raised a point about pubs, and suggested that information being made available to the public might drive crime. I am certainly prepared to look at that. I imagine that those who are out to raid the premises of pubs have other measures by which they might be able to discern whether a lot of cash is being taken—how many people are in there drinking on a Friday night, for example—but I am certainly happy to speak to her about that. She also raised the way in which pub rates are calculated. They are valued by the VOA using the fair maintainable trade method, which has been agreed with the British Beer and Pub Association.

Let me point out the numerous things that the Government have done on business rates to support businesses. In 2016, we announced around £9 billion of relief on business rates. We made the 100% small business relief permanent, which took 600,000 businesses out of rates altogether. We increased the threshold for the standard multiplier, removing 250,000 businesses from the higher rate of business rates. Of course, we were able to do that only because of our prudent stewardship of the economy, which has allowed us the space to provide that relief to the business community.

I have limited time, but I will dwell for a moment on the online business threat, which a number of hon. Members rightly raised. There is a growing number of online businesses in this space, and an increasing number of purchases are happening through online companies. It is important to make the point up front that when we refer to some of those companies paying relatively small amounts of tax compared with high street operations, we are talking not about tax avoidance but about whether the way the international tax regime operates is appropriate or functional for the 21st century. It is not. We need to find different ways of taxing online platforms, whether they are search engines, social media platforms that generate revenue, or online marketplaces, where significant value generation occurs through the relationship between users based in the UK and the platform itself.

Photo of Hugo Swire Hugo Swire Conservative, East Devon

It is reassuring to hear the Minister say that we need to look at ways of taxing those rather more mobile forms of purchasing online. Will he say whether there is a team in the Treasury doing that, and when it is likely to report?

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

There is indeed. I am personally engaged in that matter, which has been taken up at the OECD and the European Union. They have both produced interim reports on the issue and suggested that we might look multilaterally at some kind of revenue-based taxation, albeit—to get back to the problem of revenue-based tax—we do not want to choke off new entrants to the marketplace, which may be loss-making, so there may have to be some de minimis thresholds associated with that formula. We are actively pursuing that on a multilateral basis with countries in those two institutions. I discussed exactly this issue with Finance Ministers from OECD countries at the ministerial meeting of the OECD in Paris last week. We have made it clear that, although it would be most beneficial to move multilaterally with other countries, we will make a unilateral move if we need to.

I am conscious that we are down to the last minute and I would like to give the hon. Member for York Central an opportunity to respond, so I will draw my remarks to a conclusion.

Photo of Rachael Maskell Rachael Maskell Shadow Minister (Transport) 10:59 am, 13th June 2018

My constituents will be very disappointed by the Minister’s response, because he did not respond to the specific questions I raised. We have a broken business rates system. The fact that the system takes only £30 billion but requires £9 billion of relief is in itself evidence that it is broken and in need of urgent repair. In the light of the many cases that hon. Members have raised, the Treasury needs to pay greater attention to this issue.

Motion lapsed (Standing Order No. 10(6)).