Non-Domestic Rating (Preparation for Digital Services) Bill

(Limited Text - Ministerial Extracts only)

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons
Monday 13th May 2019 Commons Chamber

[The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Rishi Sunak)]

I beg to move, That the Bill be now read a Second time.

This Government are committed to ensuring that the tax system is fit for the 21st century, that it is designed around the needs of the taxpayer and that we minimise as far as possible the administrative burden for businesses paying their taxes. The Government are also clear that this system should reflect and take full advantage of modern technology, and use that to make the process as simple and efficient as possible for taxpayers.

This very narrow Bill will support those aims in the context of the administration of business rates. This extremely short and simple measure will simply allow us to start exploring future digital reform of the business rates system. The same clauses appeared in the 2017 Local Government Finance Bill and passed through Committee without Division. The hon. Member for Oldham West and Royton (Jim McMahon) was present during those debates, and I hope the clauses will receive the House’s support again today.

[John Redwood (Wokingham) (Con)]

Can the Minister give an idea of the cost involved and what sort of efficient and better system might emerge?

[Rishi Sunak]

The measure is even narrower than that; it is simply a paving measure, which I will come on to, that enables that exploratory work to start so that future Ministers will be able to come to this House with firmer proposals, with costs attached, depending on the eventual design of the system that is ultimately decided to be appropriate after extensive consultation with the sector. If my right hon. Friend bears with me, I hope his question will be answered later. If not, I will be happy to have him intervene again.

In the lead-up to the 2016 Budget, the Government undertook a wide-ranging review of the business rates system, in response to public calls to reform. As well as seeking views on the business rates tax itself, the review invited specific feedback on the administration of the rates system, including how business rates are collected.

Responding to the review, business groups called for a number of changes to the way the system is run, including switching the annual indexation of the business rates multiplier to the consumer prices index, rather than the retail prices index; implementing more frequent valuations; and modernising the billing and collection of business rates. I am pleased to say that the Government have already begun reforming the system to implement those changes.

Ratepayers are already benefiting from the change to the annual indexation of business rates from RPI to CPI, which was brought forward by two years, to April 2018. That measure alone is worth almost £6 billion to businesses over the next five years. The Government have also committed to increase the frequency of business rate revaluations from every five years to every three. To ensure that businesses benefit from that change at the earliest point, the Government have further announced that the next revaluation will be brought forward from 2022 to 2021. That will ensure that, as requested, business rates bills more accurately reflect properties’ up-to-date rental value and any relative changes in rents.

The Bill will enable us to begin exploring how to modernise the billing and collection of rates. Businesses in this country are of course already banking, paying bills and making sales online. Our tax system needs to keep pace.

[Mr Jim Cunningham (Coventry South) (Lab)]

Has the Minister seen press reports today that some major companies are calling for a 20% reduction in business rates? Does he have any comments to make about that?

[Rishi Sunak]

It is important to remember that the Bill is much narrower in scope than the design of the business rates system and how individual businesses pay the bills they are given. My hon. Friend the Member for Rossendale and Darwen (Jake Berry), the high streets Minister, is looking forward to winding up the debate, and he will be able to give the House chapter and verse on every single initiative the Government have undertaken to support businesses on the high street. In sum, there has been £13 billion of relief since the 2016 Budget, and a third of all businesses no longer pay any rates at all.

[Tim Farron (Westmorland and Lonsdale) (LD)]

I thank the Minister for giving way—he is being very generous. On that point, however valuable and commendable many of the proposals he mentions may be, does he not feel that this is somewhat like fiddling while Rome burns, or indeed many of our town centres burn? There have been calls for a reduction of around 25% in high street business rates, and that could be funded by making sure that the tech giants pay their fair share of corporation tax.

[Rishi Sunak]

Madam Deputy Speaker, I am loth to get drawn on to topics that are much broader than the very narrow scope of this Bill. However, I am happy to reiterate that I do not think the £675 million high street fund my right hon. Friend the Secretary of State and my hon. Friend the high streets Minister introduced earlier this year is a case of fiddling while Rome burns. The Government are committed to the vibrancy of our high streets through various initiatives that will be outlined in my hon. Friend’s winding-up speech.

Indeed, the Bill is also an important measure; it is a measure that businesses have called for. Given the statutory nature of HMRC, it is impossible to move forward without this short piece of legislation. The reason for that is that businesses today receive separate business rates bills for each non-domestic property they occupy. Large businesses with property in different areas may receive bills from a number of local authorities responsible for issuing bills and collecting payment. It is worth bearing in mind that there are over 300 different billing authorities today, each with its own system of billing for business rates. While I pay tribute to the good work carried out by local authorities in administering business rates locally, the Government’s clear view is that reforming the system to more closely link with the wider management of business taxes led by HMRC could unlock long-term improvements to the current system.

Members will appreciate that implementing any reform of this scale takes significant time and that it is critical that the Government engage with businesses and local government in developing and designing any new digital system; indeed, the hon. Member for Oldham West and Royton brought that up in Committee during consideration of the previous Bill. I am pleased to tell him that the measure before us today will take many years to come to full fruition. The current intention announced by the Treasury is that any new design of the system will not come into force until after the next revaluation, in 2024. What we are doing today is therefore just a very small first step on a journey that requires an enormous amount of engagement and consultation.

The main measure in the Bill allows HMRC to expend resources on beginning to explore designs for a new digital service for business rates. That is necessary because HMRC’s current statutory functions do not include activity in connection with the administration of business rates. To be clear, the legislation we are considering simply permits HMRC to begin the necessary design and engagement work for a potential new digital service. It does not implement any reforms to the current system of business rates administration.

That is important because, as I have noted, the Government are clear on the need to engage with businesses and local government to seek views on any specific options for reform. For example, the local government sector will want to ensure that any changes are fully compatible with the local retention of business rates and with plans to increase rates retention in the future. Equally, business organisations such as the Federation of Small Businesses, the British Independent Retailers Association and the CBI will be keen to engage in future design work to ensure any reforms deliver benefits to businesses and minimise any burdens. Members should also be aware that any practical reforms to the system are likely to require further changes to legislation and, as such, there will be opportunity for full scrutiny of any proposals once the design work has concluded.

The Government’s efforts to improve digital tax services are already helping businesses seize the opportunities that digital technology offers. They are giving businesses more control over their finances, allowing them to spend their time focusing on innovation, growth and the creation of jobs. The Bill will support this by enabling HMRC simply to begin exploring potential options to link business rates with the administration of the wider tax system. It will also enable HMRC to undertake the necessary engagement with stakeholders to ensure any reforms work for business and for local government. While the Bill is just a small paving measure, it supports some potentially significant long-term improvements to the current system. I commend it to the House.

[Madam Deputy Speaker (Dame Eleanor Laing)]

Before I call the Opposition spokesman, with the leave of the House, and most unusually, I am sure the House would like to join me in wishing the Associate Serjeant at Arms, who occupies the Serjeant at Arms’ Chair, a very happy birthday.

--- Later in debate ---

[Dr Roberta Blackman-Woods (City of Durham) (Lab)]

This is probably the easiest summing-up that I have experienced so far in the Chamber. I thank the right hon. Member for Wokingham (John Redwood), my hon. Friend the Member for Coventry South (Mr Cunningham) and the hon. Member for Westmorland and Lonsdale (Tim Farron)—first, for turning up and, secondly, for making incisive comments about this short Bill.

As we know, this is paving legislation to enable the Government to deliver on their commitment to link the local authority business rate system to HMRC digital tax accounts so that businesses can manage their rates bill in one place alongside other taxes. As I think should be clear from what was said by my hon. Friend the Member for Oldham West and Royton (Jim McMahon), we fully understand the Government’s wish to modernise the administration of business rates for the 21st century, and we fully understand that linking the local authority business rates system to HMRC digital accounts will make it easier, simpler and less burdensome for businesses to understand and pay their business rates. Nevertheless, as I am sure the Minister would acknowledge, there is some way to go before that aspiration can be achieved, and little of the detail of the new system is yet known.

The Bill provides HMRC with the ability to undertake the planning, consultation and testing that is needed to truly inform the design of the new service, and in their factsheet the Government say they will engage locally with local government and the business sector in developing detailed proposals and seeking views. It would therefore have been really useful today for the Government to have provided more detail on how they intend to go about this; we have simply no idea about the detail of how they will take this forward. There is a money resolution but absolutely no idea of the costs of digitising, and it would be helpful to hear something from the Minister about the costs that will be incurred.

The Minister made it clear that the measures in this Bill are to be compatible with the 100% business rate retention system the Government are aiming for, but we need to stop for a moment and explore this further, because there is a real risk under the 100% business rate system of dividing the country further between the haves and have-nots, the wealthiest areas and deprived areas, the south and the north. So can the Minister confirm that councils, particularly those affected by austerity, will not lose out under this system?

As my hon. Friend the Member for Oldham West and Royton said, since 2010 there has been a massive £16 billion-worth of cuts—a reduction of 60p in every pound for some councils—and the Centre for Cities found in January that the poorest areas have borne the brunt of council spending cuts. As a result of these cuts, councils have had to make £7 billion pounds of savings to adult social care, with less being spent on early intervention, libraries, youth services and so forth. In fact, these services have almost disappeared in some local authorities. So it might have been helpful for the Government to set out at the same time as this Bill how they see the whole of the local government finance system progressing in the future—for example, by having more information about the fair funding review and whether the Government will agree to independent scrutiny of the system and its implementation to test whether it actually is fair.

We know, too, that the current business rate system is broken, and we need firm proposals from the Government to ensure business rates are not an impediment to tackling regional inequalities in the way they are at the moment.

[The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Jake Berry)]

The hon. Lady says we should talk about that to enable us to have a full discussion here today. This might be slightly beyond the scope of today’s debate, but perhaps she will set out from the Dispatch Box Labour’s position for business rate reform in some detail because we have time to do that, and then I will comment on that in the context of today’s debate.

[Dr Blackman-Woods]

I thank the Minister for that intervention, because perhaps I was not clear: I was not suggesting that those measures necessarily needed to be in this Bill, but they do need to be set out so that we can place the Bill within the context of the Government’s wider proposals, because the Government—

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Jake Berry)]

What a privilege it is to have this opportunity to close the debate today. I wish that it had been better attended, but it is great to have had a contribution from my right hon. Friend the Member for Wokingham (John Redwood) and some contributions from Labour Members. There was no one here from Change UK or TIG or whatever it is called; it obviously does not care about business rates.

In our debate today, it is important for us to stick rigidly to the scope of the Bill, which sets out how we will empower HMRC to look at digitisation and at how it can modernise and simplify the business rates system. Before the 2016 Budget, the Government held an extensive consultation and set out a commitment to enter on this process. It is a commitment that, following the passage of this Bill, HMRC will then, and only then, be able to progress the necessary design work.

Today’s Bill is an important step towards those reforms, and it will allow HMRC to start to explore some of the digital infrastructure that will link local authority business rates to digital tax accounts. This has been called for by businesses, and it is also being welcomed by them. Today’s Bill is simply the first important step, and it rightly paves the way for further discussions on how the process will proceed. All those discussions will require legislation, which will pass through the House and be subject to the usual scrutiny of the Opposition parties.

Turning to the impact of business rates on businesses, we have heard clarion calls in the press this morning and from the Opposition during this debate for looking into a more wholesale reform of business rates rather than simply digitising them, and it is impossible to have a debate about digitisation without giving cognisance to that point. Let us not forget, however, that we have committed to £13 billion-worth of savings to business over the next five years through the reforms that we have already made to business rates. We have switched the annual indexation from RPI to CPI, which will, over the lifetime of that commitment, save ratepayers and businesses up and down the country some £6 billion. That is £6 billion that will remain in all our local communities and economies for the constituents that we represent. We have also reformed small business rate relief, doubling it to £12,000 and making it automatic, meaning that 650,000 businesses now pay no business rates at all. We have responded to calls from businesses for more frequent revaluations, which will now happen every three years from 2020-21.

Turning to the points raised by my right hon. Friend the Member for Wokingham about business rates and revaluation, it is of course the case, thinking about cash flow and the impact that business rates may have on a business, that it is possible for business rates to go down if rent has gone down and other factors have reduced during the period since the previous revaluation. The last revaluation actually led to a majority of businesses seeing no change or a reduction in their business rates. Over time, that should happen more often with more frequent revaluations from 2021.

[Bill Wiggin (North Herefordshire) (Con)]

I am curious, based on the Minister’s research, about how often businesses ask for a revaluation.

[Jake Berry]

I thank my hon. Friend for that helpful intervention. From speaking to business groups—I regularly consult with the Government’s Future High Streets Forum, and the Department for Business, Energy and Industrial Strategy has the Retail Sector Council—it is clear that they seek more frequent revaluations because that stops bill shocks. I am sure that my hon. Friend knows about bill shocks from people who have visited his advice surgery, and he also runs his own business—[Interruption.] Although I do not think that farms have a big business rates bill, because they do not pay any business rates.

[Bill Wiggin]

However, I get continual complaints about business rates from the landlord at the Moody Cow pub, which is very near my home.

[Jake Berry]

I am sure that those at the Moody Cow will be delighted not just with more frequent revaluations, but with when they can move on to the digitalisation of business rates, which we are discussing today.

People who make the clarion calls for the abolition of, reduction in or some other change to business rates will accept that they are already a key source of funding for local authorities, funding essential services, such as adult social care and children’s services. I note that the hon. Member for City of Durham (Dr Blackman-Woods) did not take the opportunity in the wider context of this debate on business rates to elucidate the Labour party’s policies, but those who seek to reform business rates have an obligation to say how the revenue would be made up.

Many people who talk about business rates reform have at heart concerns about the health of our high streets, which was mentioned by the Opposition Front-Bench spokespeople and which should worry us all. The Government need to find a way of ensuring that high streets continue to thrive as shopping patterns and behaviours change. I cannot remember a period of more rapid change in how we choose to shop. High streets must clearly transition from bricks-led retail to a bricks-and-clicks online and offline model, with experiential leisure at its heart. High street retailers will be delighted that business rates were slashed by a third in the most recent Budget for retailers with a rateable value of under £51,000, and that formed part of our wider high street package.

Madam Deputy Speaker, I do not know whether you are a fan of “Sex and the City”, but Sarah Jessica Parker recently bemused her Instagram followers on a recent visit to London, when she praised Timpson not just for its key-cutting service, but for its extensive selection of umbrellas, labelling the branch in High Street Kensington tube station as her new favourite shop. Timpson is of course a fine retailer, which is why I was delighted that Sir John Timpson worked so closely with the Government on his report on the future of the high street, business rates and retail. Leading directly from his report, the Government created the £675 million future high streets fund to support high streets and enable them to pay their business rates. Although all those reforms have been welcomed, people will continue to call for a more fundamental review of business rates, and the Government will, of course, continue to keep that under review.

The hon. Member for Oldham West and Royton (Jim McMahon) raised a lot of specific questions about how the digitisation of business rates will work. I am sorry to disappoint him, but I am unable to answer any of those questions today because the purpose of the Bill is to give HMRC the statutory power, which it currently does not have, to go away and work up that system. How the system will work cannot become clear until we have empowered HMRC, both on Second Reading and in Committee, to start work on it. That is why it is so important that we agree Second Reading this evening, and it is why it is so welcome that the Opposition Front-Bench team support the Bill.

This important Bill is just the start of our cross-party work to ensure that we create a business rates system fit for the future. Many people who run businesses will now be used to making the majority of their transactions online, whether it be paying their VAT bill, paying their utility bills or making sales and buying stock. If we truly want to create a modern tax system that is supportive and friendly to business, we must all work to create an online taxation system, including for business rates, that small businesses and large businesses alike will find workable and useful in driving productivity and efficiency in their business. That is why I have the pleasure of commending the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Non-domestic Rating (Preparation for Digital Services) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7),

That the following provisions shall apply to the Non-Domestic Rating (Preparation for Digital Services) Bill:

Committal

(1) The Bill shall be committed to a Committee of the whole House.

Proceedings in Committee of the whole House, on Consideration and up to and including Third Reading

(2) Proceedings in Committee of the whole House, any proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion two hours after the commencement of proceedings in Committee of the whole House.

(3) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion three hours after the commencement of proceedings in Committee of the whole House.

(4) Standing Order No. 83B (Programming committees) shall not apply to proceedings in Committee of the whole House, to any proceedings on Consideration or to other proceedings up to and including Third Reading.

Other proceedings

(5) Any other proceedings on the Bill may be programmed.—(Rebecca Harris.)

Question agreed to.

Non-domestic Rating (Preparation for Digital Services) Bill (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Non-Domestic Rating (Preparation for Digital Services) Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Rebecca Harris.)

Question agreed to.