Non-Domestic Rating (Lists) (No. 2) Bill
Wednesday 30th September 2020
(4 years, 1 month ago)
Commons ChamberNon-Domestic Rating (Lists) Act 2021 View all Non-Domestic Rating (Lists) Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts
The Minister of State, Ministry of Housing, Communities and Local Government (Luke Hall)
I beg to move, That the Bill be now read a Second time.
This Bill delivers on an important Government commitment and addresses ratepayers’ concerns by setting in law the date of the next business rates revaluation at 1 April 2023. By doing so, we can ensure that future business rates bills will better reflect the exceptional impact of the coronavirus outbreak on the commercial property market.
Business rates bills are based on the rateable value of a property, which, broadly speaking, represents its annual rental value. Rateable values, in combination with the business rates multiplier and reliefs, determine rates liabilities and are assessed by the Valuation Office Agency independently of Ministers. Since the current system of business rates was introduced in 1990, the Government have had frequent revaluations of rateable values to ensure that they remain up to date. Those revaluations ensure that the amount paid in business rates is fairly distributed among all ratepayers, having regard to the value of the property they occupy.
At the revaluation, all rateable values are based on the rental property market at a set date called the valuation date. The valuation date is set prior to the revaluation taking effect, so that the Valuation Office Agency has time to prepare the valuations. For example, at the last revaluation in 2017, the valuation date was 1 April 2015, which means that current rateable values are based on the market at 1 April 2015.
The next revaluation was scheduled to take effect from 1 April 2021 and would have been based on rental values at 1 April 2019. That was decided in spring 2018 and was the right thing to do at the time, but given what we now know about the coronavirus outbreak and its potential to affect the rental property market, it would not be right to continue with the 2021 revaluation. Continuing to implement the next revaluation on this schedule would have created additional uncertainty for ratepayers at an already uncertain time. It would also have meant that the underlying basis for bills would not have reflected the impact of the outbreak on the commercial rental market.
The Government therefore took the exceptional step of postponing the implementation of the next revaluation in order to give certainty to ratepayers and ensure that the next revaluation reflects the changes to market conditions as a result of the pandemic. The Bill will therefore set the date for implementation of the next revaluation in England and Wales at 1 April 2023. The revaluation will be based on rents at 1 April 2021, a date that we have already set using existing powers in secondary legislation.
The Bill will also change the latest date by which the Valuation Office Agency must publish draft rateable values in the lead-up to the revaluation. That date will be changed from 30 September to 31 December in the preceding year, which will allow us to align the publication of the draft rateable values with decisions normally made at any autumn fiscal event on the multipliers and transitional arrangements for the revaluation.
Kevin Hollinrake (Thirsk and Malton) (Con)
I understand the reasons why we have postponed revaluations on a number of occasions since 2010. Does that not illustrate the changing nature of the commercial world and the need to move to a different system that is more responsive to the realities of trading on our high streets?
Luke Hall
I thank my hon. Friend for his point. We are currently undertaking a fundamental review of business rates, and as part of that exercise we are considering the frequency of future revaluations. When deciding whether to have more frequent revaluations, we need to strike the right balance between more up-to-date assessments, which would flow from such a reform, and the uncertainty it could create, with more regular changes to bills, while also taking into account the time it currently takes to process changes and the impact that any changes that might be required would have on the current system. I certainly understand, however, the point that he has continually made about annual revaluations and how that could further improve the system. I am sure that will be considered.
Sarah Olney (Richmond Park) (LD)
I have listened carefully to what the Minister has said about the revaluation moving from April 2021 to April 2023, but I wonder whether there is a danger that those properties that might have a substantial revaluation downwards will be paying over the odds on their rates for two further years, at what we all know is going to be an incredibly tough time. I am thinking in particular of retail businesses and a very challenging trading environment. Will he consider changing the date from April 2023 to later in 2021, particularly given the comments he has just made about the need for more regular revaluation?
Luke Hall
I thank the hon. Lady for her point. I know it is a matter in which she takes a personal interest and that she has raised it with Ministers. The point stands that we have to have a system that takes into account the impact of the pandemic and, as is the case with the current system, the time it takes the VOA to go through the process. We think that this is the measure required at this time.
We took the step to postpone the implementation of the next revaluation so as to give certainty to ratepayers and to ensure that the next revaluation reflects the changes in the market conditions as a result of the pandemic. The Bill will therefore set the implementation of the next revaluation date in England and Wales as 1 April 2023. On revaluation based on the rents of 1 April 2021, we have, of course, already set that out in secondary legislation.
Business rates is a devolved policy area, but with agreement from the Welsh Government the Bill does also apply to Wales. As in England, the next revaluation in Wales will be implemented on 1 April 2023, and the date of publication of Welsh draft rateable values will also be changed to 31 December. Entirely different legislation applies in Northern Ireland, which has only recently implemented a revaluation from 1 April 2020, and Scotland, where I understand the Scottish Government have also committed to implementing their next revaluation on 1 April 2023. There is, therefore, a good degree of agreement across the UK that the next business rates revaluation is moved, to better reflect the impact of the coronavirus. Notwithstanding some of the points raised, I hope that is accepted across this House.
As I have said, this is an exceptional step and the Government remain committed to frequent revaluations of business rates. The fundamental review of business rates will look at not just the frequency of revaluations but how they are done, and will report on those aspects of the business rates system in spring. However, this is a step that we can take now to improve business rates bills, and that is why we have brought this Bill forward so quickly.
Jim Shannon (Strangford) (DUP)
I thank the Minister for bringing forward the Bill. He has set out why it is essential—I and others in this House believe it is, too—in the current economic situation. We need to do all we can to support our businesses and see them through this so that we can reap the rewards in the years to come. When businesses are better off, they are able to help the local economy and pay their taxes to Her Majesty’s Revenue and Customs, national insurance and council pockets. Rather than seeing this as a bail-out, as some do, I see it as a very sensible investment for the future.
Luke Hall
I thank the hon. Gentleman for his point. He is right that the Bill’s provisions form only part of the support that we have provided to ratepayers as a result of the pandemic. We have already ensured that eligible businesses in the retail, hospitality and leisure sectors will pay no business rates at all in 2020-21. This is a relief worth £10 billion, which, when combined with the businesses receiving small business rate relief, means that more than half the ratepayers in England will pay no rates this year. This forms part of the business rates measures introduced in England since 2016, which, when taken together, will be worth more than £23 billion over the next five years. These include the doubling of small business rates relief, changes to the threshold, which mean that 700,000 small businesses—occupiers of a third of all properties—now pay no business rates at all, and switching the indexation of business rates from the retail price index to the consumer prices index. That switch alone will save businesses £6 billion over the next five years.
This Bill forms a critical part of the package of reforms and support that we are introducing to business rates, which will result in a property tax that better reflects coronavirus-related challenges in the commercial rental market and provide support to those who need it most, and which is simple and easy for businesses to administer. I commend it to the House.
Kate Hollern (Blackburn) (Lab)
I thank the Minister for bringing back to Parliament a Bill that will hopefully give greater certainty to businesses and local authorities during this pandemic. Given the existential crises they face, Labour thinks this Bill is a common-sense response to the virus that does not, fortunately, break any laws in specific or limited ways. For those reasons, we will be supporting the Bill.
This is the Government’s third attempt at such a Bill. Unlike the first and second attempts, this Bill makes no changes to the length of time between business rates revaluations. The previous Bill would have replaced the existing five-year cycle with a three-year cycle, which would have implemented commitments made by the Government in their 2017 and 2018 spring statements. The Chancellor, then the Parliamentary Under-Secretary of State for Housing, Communities and Local Government, saw the Government’s first attempt through the House, and in doing so made it clear that a five-year cycle had not been responsive enough to changes in the rental market. The Bill contains no such provision, and while I recognise that the Government are considering more frequent revaluations as part of the business rate review, which I will come to in a moment, I would like to place it on record that, outside of these extraordinary times, Labour in principle supports regular revaluations.
I would be grateful if the Minister shared the Government’s plans to deal with the Valuation Office Agency’s backlog of appeals. According to the latest valuation tribunal statistics, there are still 50,000 unsolved appeals from 2010, and councils have had to divert more than £3 billion from services to deal with those appeals—money that could have been spent elsewhere, on schools, social care and keeping our streets clean. None the less, these are not normal times, and we recognise that, in circumstances where the rental value of properties has fallen, businesses may actually benefit come 2023, if they survive.
Historically, postponing revaluations has created serious issues for businesses. Some have faced huge, sudden increases in business rates, rather than more regular, smaller increments. It is far easier for businesses to assume the cost of smaller increases as a result of more frequent revaluations. Also, the Valuation Office Agency will base the valuation on rental values at 1 April 2021, which is curious, because the chief medical officer has been crystal clear that the virus will be with us for at least six months, and April 2021 is less than six months away. Organisations such as Revo, which supports the whole of the retail property market—owners, occupiers and local authorities—are seriously concerned. Given that the economy is likely still to be significantly affected next year, will the Minister please share with the House the rationale behind his decision to base the valuation on rental values in April 2021?
Beyond those points, there is a much wider issue at play here, as I have said. The business rate system is not fit for purpose. It is broken, and Labour has long called for a root-and-branch review of business rates to make the system fair, to help bricks-and-mortar retailers to compete with online tech giants, and to help to protect our high streets. Can the Minister assure the House that the fundamental review of the business rate system will be delayed no longer than necessary once it is concluded next spring, with the interim report expected as early as this autumn?
Many people working in shops, restaurants, pubs and beyond feel that their jobs are hanging by a thread. The job of the Government is to support businesses to survive and to help them to thrive. This Government are already bringing in big changes under permitted development rules for retail premises, and I am sure we will hear much more about that later. That will also have a negative impact on high streets. Getting the business rate system right is essential, and more so now than ever. The Government have been intransigent and too slow to support businesses in the recovery efforts. They must not make the same mistake by being too slow to reform business rates. The system for assessing rates is complex, costly and time-consuming, and businesses have made it clear that reform is overdue.
Before I finish, I would like to turn to local government. Local government finance has been hit hard throughout this pandemic, and Blackburn has been hit harder than most with the extended restrictions. Alongside council tax, business rates represent the largest source of income for councils. Retained business rates contribute around a quarter of their core spending power, and it cannot be right that the Treasury considers support for businesses and local authorities a closed book. Local authorities have been heroic in their efforts throughout the pandemic, despite the black hole in funding that the Government have so far failed to fill. Councils have lost £953 million from business rates income between March in July this year alone, which accounts for more than a quarter of income losses for councils over the same period.
At the Government’s daily press conference at the beginning of May, when asked what his message to council leaders was, the Secretary of State for Housing, Communities and Local Government said that
“we will stand behind them and ensure they have the resources that they need”.
So far, the Government have failed to live up to that promise. The comprehensive spending review is an opportunity for them to keep that promise. If they do not get local funding right, older people will not get the care they need, young people will be put at risk and, critically for democracy, people will question why they are paying more tax for fewer services. We will support the Bill, but the Government need to stop tinkering around the edges and fix the broken business rate system. They need to support businesses and the millions of workers that are in desperate need, and they need to resource councils that are on a financial cliff edge.
Duncan Baker (North Norfolk) (Con)
This is a sensible Bill, given the pandemic, and one that I fully support. Basing revaluations on property values at 1 April 2021 rather than 1 April 2019 reflects far better the impact of covid-19 on property values and those businesses that pay business rates. I am pleased that the Government have listened, in order to end the uncertainty, and that the revaluation date for non-domestic rates will now not be until 1 April 2023. It is also right to say on record that the package of measures to help those businesses that pay business rates has probably been one of the best in the world, with almost £10 billion in rates relief throughout the pandemic. I know that many in my constituency, which has a particularly high number of leisure, hospitality and retail businesses, are extremely appreciative.
However, while the Bill might not attract the same level of interest as what is coming later today, I want to draw attention to what the Royal Institution of Chartered Surveyors has had to say about it. Since the last revaluation to date, RICS has called constantly for measures that offer improved certainty, consistency and stability. As has been echoed today, rather than tinkering around the edges, we should commit to a full reform of business rates.
That cuts to the crux of what I wish to talk about briefly—business rates and retailing in particular. Approximately £8 billion in business rates is collected by the Treasury from the high street, but in just months this pandemic has changed many of those businesses forever. Coupled with declining footfall in city centres especially, and the acceleration of shoppers buying online, we now have to think about the bigger picture—rather than just delaying a rates revaluation, reform is very much needed.
I welcome entirely the Chancellor’s efforts to increase the business rates retail discount to 100%, which we have seen. It has been a lifeline for so many, as I mentioned. What happens next, however, is really critical. Traditional business rates are an enormous burden to many who are already seeing footfall decline and much tougher trading conditions. For those on the high street in particular, the rates and rent burdens are often the largest fixed cost base for them to contend with, so we now need to think about new, innovative ways to help the high street. In my view, a fundamental overhaul of business rates is altogether part and parcel of what we need to see.
Business rates must be not just responsive to economic conditions, but fit for purpose in a retailing landscape that is structurally changing in an extremely fast manner. Simply, if our high streets continue to deteriorate at the current rate, businesses will cease to trade, with far-reaching adverse implications for, literally, millions of employers, employees and suppliers connected to and dependent on this sector.
High streets provide many more benefits than purely economic ones. They provide a community, and I think we all agree that in this pandemic community is one of the most robust things to come together. Many towns and cities are shaped by an identity stemming from the vibrancy of their high streets. That is why, as the high street changes, business rates as a blunt cost for occupying a unit need to adapt as well. If we get that right and we reduce the cost base of paying rates—at the moment, we take it for granted that rates are part and parcel of operating from a traditional bricks-and-mortar store—we will be able to put the high street on a more equal footing and to encourage high streets to adapt and flourish as technological shifts change.
Flexible rent schemes—why not even flexible rate schemes? —encouragement of pop-up shops to help vacant space before signing leases, and support for smaller retailers who perhaps started online but want a physical presence must all be ideas that we nurture, support and back. We must look at business rates reform and the success of the high street in tandem, bearing in mind a couple of facts before I end.
Last July, the proportion of shops that were empty reached over 10%, the highest level since January 2015. All the indications that we read show that high street footfall is declining at an accelerating rate from 2% year after year. More worryingly, post covid, many consumers have got used to shopping online. That is being exacerbated as people desert our high streets and in particular our city centres. Recent news showed that, pre-pandemic, £1 in every £5 was spent online; during the pandemic, that rose to £1 in every £3. I implore that we use this opportunity to look at business rates in conjunction with how we support our high streets into the future. Never before has reform needed to come far sooner than perhaps we all expected.
Sarah Olney (Richmond Park) (LD)
I value this opportunity to raise the issue of business rates and their impact on the retail sector. The hon. Member for North Norfolk (Duncan Baker) raised many similar points, but I wish to talk in particular about the value of retail during this incredibly difficult time.
Our retail sector has been essential in helping many members of my community through this difficult period, which has shown the value of a strong retail sector in every town centre to the building of communities. Many of us who have been holed up at home for an extended period have valued the opportunity to get out and about and have face-to-face contact again. I think more of us value that than ever before. For that reason, although this is a very difficult time for the retail sector, I believe it has a strong future, because we cannot replace the value of that face-to-face contact with an online purchase; it is a tremendous boost to one’s wellbeing. We have all become much more aware of the issues of isolation, people living alone, and how the town centre helps to build a strong local community.
Another point that I wish to make about the retail sector is that it has always been a strong source of employment for many people—local employment is so important for many people who find it difficult to access city centres. I draw the Minister’s attention to the fact that the retail sector is a major employer of female workers; that is so important. Research shows clearly that having more women in employment has a strong impact on reducing the number of children in poverty. That is why it is so important to support the sectors that support female employment.
The rates holiday has been essential to helping retailers survive during the pandemic. Like all Members, the Liberal Democrats have welcomed those measures from the Treasury, but I urge the Government to take the opportunity presented by the Bill to reform the existing structure of rates to better reflect the underlying trading environment that many in the retail sector are having to face. Yes, we should to push the revaluation back for the relevant businesses, but perhaps to later in 2021 rather than 2023. We might assume that more businesses to be found in, for example, the north and the midlands will face a reduction in the value of their properties. It would be better for them to take advantage of the reduction in rates sooner rather than later, especially given the challenging trading conditions everybody is going to be facing. I echo what the hon. Member for Blackburn (Kate Hollern) said about more regular revaluations and how that would support our retail industries in a fast-moving property market.
As the hon. Member for North Norfolk said, this is a critical point for the retail industry, and it would be great to see whether we could take the opportunity to rebalance the burden of business rates away from high streets, in recognition of the fact that the retail market is changing in favour of digital outlets, which militates against those retailers that are still based on our high streets. I mentioned the value of high-street shops and maintaining our high streets; we need to see the Government reflect and support that in their rates policy.
I welcome the business rates review, to which we plan to contribute, but I hope it can be done speedily so that we see rates reform take place sooner rather than later, to better support all those businesses that are relying on rates reform to help them through. Will the Minister consider a reduction in the uniform business rate from 50p to 30p, to better reflect how much lower is the volume of retail going through our high streets as people move to digital and online?
Kevin Hollinrake
That kind of change to the multiplier would probably cost around £12 billion a year. Does the hon. Lady have any idea of where she would get the money to fill that gap?
Sarah Olney
That is an important point and I very much hope that the business rates review will look at it. There is no doubt that online retailers are not currently paying their fair share. Lots of solutions to that problem have been proposed, although I do not think this is the right forum to debate them. There are pros and cons in respect of proposed digital sales taxes, but nevertheless it is a policy area that seriously demands to be looked at. I am sure the hon. Gentleman would agree that high street retail businesses having to bear the brunt of property taxes when they no longer get the lion’s share of the retail market is a situation that cannot continue.
Finally, I just wanted to make the point that we are all expecting a major economic dislocation as a result of the unwind of the furlough scheme and the other measures that the Government have put in place. We are anticipating high levels of unemployment, but one way to mitigate that is through people starting up their own businesses. There are opportunities in the retail sector for those who are looking to start up their own businesses, particularly in constituencies such as mine. We have seen a rise in home working, which has meant that, for the high streets in Richmond Park, there has been a rise in footfall, as people are now at home during the day, instead of perhaps travelling into the city, which is what they would have done previously.
Certainly, speaking to local retailers, I have been quite surprised to find how many of them have thrived over the past few months. They have diversified and found new ways to get their goods to customers. Certainly, the trading conditions are quite strong on our local high streets and, as I say, I believe that that represents opportunities for those who may find themselves out of work in the near future, but I urge the Government to do what they can to lower the barriers to new entrants to the retail markets, so that we can really make the most of these opportunities for new retail businesses on our high streets. That is why I urge the Government to do what they can to address the current rate structure for new businesses.
Marco Longhi (Dudley North) (Con)
What businesses often say they need most is stability and certainty. The current system for revaluation of non-domestic rates has sometimes given rise to sudden changes in business rates payable to reflect how local economic conditions may have changed, so although it can happen that business rates go down, a growing economy will more likely result in an increase in rates. If the time period between valuations is high then this can result in sudden and sometimes destabilising increases in business rates.
The Treasury, as we know, has been heroic in its support of businesses across the United Kingdom. The downturn that we have seen would have been much worse without it. We also know of the Treasury’s call for evidence for the consultation on the fundamental review of business rates as well as the call by the Royal Institute of Chartered Surveyors for the Government to commit to full reform of the system.
There is, therefore, demand for change. However, it is clear that the best thing that we can do at this uncertain time is to provide additional stability. I have no doubt that companies such as Thomas Dudley, all the businesses in the Trident and Churchill shopping centres in Dudley and, of course, businesses across the country would welcome the postponing of the revaluation date to the 1 April 2023, as indeed would—probably—the mayor of the west midlands, Andy Street.
Tim Farron (Westmorland and Lonsdale) (LD)
Obviously, this proposal is an understandable one and one that we broadly support, although I share the concerns of my hon. Friend the Member for Richmond Park (Sarah Olney) that its late implementation only exacerbates a problem that is rife. If we are desirous of creating greater equity in this country—the party in power refers to levelling up—we would have dealt with this years ago and the imbalance in terms of property and land values. My party would go further and say that business rates are more than just not fit for purpose; they are ripe for abolition and replacement with a commercial landowners’ levy. We can operate that in a way that would not only be fairer, but would motivate the owners of land to use that land for the best and most appropriate purposes. Therefore, if we are levelling up, we would implement this sooner, though I understand that the assessment is delayed for all the correct and reasonable reasons that the Minister set out.
I have two quick points, which are strongly related to that. Members from all parts of the House have talked about the benefits to struggling businesses of the business rates deferral scheme. That exemption has been renewed by the Chancellor for a further six months, which is hugely welcome and will make a massive difference. Of the businesses surveyed, 42% of them said that it made the difference between them being able to continue or to collapse, so it is a welcome support.
I will not be the only Member present who has been lobbied regularly by people who are not helped by that. I am talking about a range of people who, under the banner of the excluded, have received no help from the Government whatsoever. That list is lengthy, and it includes people who have been self-employed, but for less than 18 months now. It includes people who are managing directors of small, limited companies—taxi drivers, personal trainers, hairdressers and many other small companies—and people who were just unlucky and did not get themselves onto the payroll cut-off just at the right moment in March this year. Many of those people are without any support whatsoever and have had to live off what few savings they might have or have overrun credit cards to pay their rent or mortgage and feed their kids. While the exemption from and extension of the business rate relief is massively welcome, will Ministers please give thought to the, we believe, 3 million people, including 4,500 people in my constituency, who have not been helped?
Finally, this is surely a moment for the Government to consider other amendments to business rates and alterations in their structure. This would be the moment for the Government to do something about an issue that they have sought to engage with for some time now: the loophole that allows people who own a second home—I am not talking about a holiday let, but a second home—to avoid paying any form of taxation. In my constituency, it is estimated that about 3,000 to 4,000 second home owners use the loophole so that the property technically qualifies as a holiday let. However, they are not letting out the property at all. They are not breaking the law; they are taking advantage of a loophole. That means that those people are not paying council tax and, as a small business, they are paying no business rates either. A quick back of the fag packet estimate for my constituency is that it costs the council tax payers of South Lakeland £6 million a year to subsidise very wealthy people who can afford to have a second home.
If we add that to the Government’s unintentional, but nevertheless given bung of £10,000 each through the stamp duty relief extension the other month, we have a picture where, in communities such as mine, where excessive second home ownership robs those communities of life, community and demand for local schools, local shops and bus services so that those services end up being under threat and sometimes closing, the Government are encouraging an excess of second home ownership. That is particularly the case in rural communities such as the lakes and the dales, where they should be doing the opposite. I urge the Government to do what the Welsh Assembly Government have done and close that loophole. The Government had a consultation on this, to give them credit. They closed that consultation in January 2019. Twenty months on, is it time, maybe, for us to find out what they are planning to do? Will they stop playing into the hands of those who have plenty, and therefore disadvantaging communities such as mine in the south lakes who do not have enough?
Kevin Hollinrake (Thirsk and Malton) (Con)
I draw the House’s attention to my entry in the Register of Members’ Financial Interests. I have quite significant interests in the business rates system, in terms of my own business, so hon. Members should take that into account.
To touch on the comments from the hon. Member for Westmorland and Lonsdale (Tim Farron), I absolutely agree with his point about the business rates loophole for holiday cottages, and I hope that the Treasury is listening to that. It is an obvious loophole to close, and it affects North Yorkshire like it affects the Lake District.
I very much support the Bill. I sat on the joint Treasury Committee and Housing, Communities and Local Government Committee inquiry into business rates. We looked very carefully at the frequency of revaluation. We took evidence from a number of different sources. Some nations do the revaluation annually, not three yearly, and that would be better from a business perspective. It would give a more current perspective on the trading environment, although we should bear in mind that all business rates revaluations are fiscally neutral. Some people would benefit from a reduction in their business rates valuation, but that would have to be made up elsewhere by the multiplier changing to come back to the £30 billion a year that business rates raise.
I do not know whether hon. Members have a solution to that problem— I have heard a couple of speeches from Opposition Members who say that the business rates system is not fit for purpose, yet only one solution, from the hon. Gentleman. He suggested, potentially, a land value tax, but that has other inherent difficulties because it is, again, a value-based tax. Business rates are a valued-based tax. It has a correlation with the rental value of a property, which is, of course, inherently tied to the capital value of the premises. As Ronald Reagan once said, “There are simple solutions, but there are no easy solutions.” We might all want reform, but finding reform that works and is fair is difficult—I will, however, suggest something before I sit down. The other issue with the current system is that reliefs and changes brought in as a transitional phase mean that those who should benefit from the revaluations do not do so for some time, in order to try to help with people who are “going up in value”. It is far from a perfect system at the moment.
My first hustings took place in the village I have lived near all my life. One question from the audience was about a local retailer where many of us had shopped—Craggs electrical, a good local white goods retailer selling TVs and the like. It had just closed down after many years in that community. Mrs Craggs was in the audience and the questioner said, “Mrs Craggs’ business has just had to close down because of the situation. She cannot pay her business rates. It is just unaffordable. What are the Government going to do about it?” The reality is that Mrs Craggs’ business was closing down not because of Government business rates, but because of the different shopping trends of all the people in that room; all those people were applauding and saying we should take some action, but the reality is that fewer and fewer of us are buying that kind of stuff from shops. So it is not about what the Government are or are not doing; it is about shopping trends.
As my hon. Friend the Member for North Norfolk (Duncan Baker) mentioned, before the crisis, 20% of shopping was done online but that figure has risen rapidly to 35%, which is making the whole system difficult. Most businesses look at the rent and the business rates when they first take on a premises, and then plug that into their cash flow and decide what they can afford to pay. That is what a good businessperson should do. It is not that the business rates system is anachronistic; the pace of change is the problem. At some point in future, when all this has settled down, businesses will say, “We can afford to pay this rent and these rates”, but the difficulty is being caused by the pace of change.
Sarah Olney
I am listening carefully, and I bow to the hon. Gentleman’s expertise on this subject, as I know he has studied it long and hard. We have talked a bit about the divide between digital and high street retail. Does he agree that there is a social good to be achieved in supporting high street retail and that the Government should perhaps express a preference for it over digital through the tax system?
Kevin Hollinrake
Yes, I absolutely agree with that. Community is very important to me and our shops are part of those communities. It is dangerous when the Government start picking winners—I do not think that should happen. The forces of free markets and a market economy are the best things to ensure that prices are kept low and levels of services are high for consumers. That is what is most effective. So what we have to try to do, of course, is create a fair and level playing field, and let businesses come in to fill that gap and provide services that people want. That is what we should be looking to do.
In its review of business rates, the Treasury talks about different options, including an increase in VAT, changes to corporation tax and an online sales tax. It seems to land on the online sales tax as the solution, so let me talk about a couple of things that it sets out in that consultation. It sets out not that an online sales tax will replace business rates, but that it will exist alongside them—that is a key thing to understand—and that it will potentially lead to a reduction for retail. So there will be two systems coming together.
I have heard a few Members talk about retail in this debate, but the changes in consumer behaviour are not just about retail. Uber Eats and Deliveroo, for example, deliver to people’s houses often not from takeaway premises on the high street but from mini-establishments off the high street. Travel agents, insurance brokers, banking—all those things are changing because of consumer habits; people do not visit shops anything like as much as they used to. Looking at the problem purely from a retail perspective is wrong; doing so does not understand the problem.
Another issue is what is online? One of my fantastic local butchers in Thirsk is Johnson’s, an order-in butcher’s, which has wonderful meats, but does not seem particularly the type of business that would go online. I visited them during the crisis, because they had set up a delivery service and offer click and collect, as well as traditional shopping. They have even set up a little bot from which you can order, which talks to you using artificial intelligence—very clever stuff and really innovative, which was great; but how would you assign an online sales tax to those different categories? It would be hugely complex for a business to work out what was bought purely online, what was bought on click and collect and what was bought by customers walking into the store. It would make the system more complicated. The more we try to simplify the tax system, of course, the more complicated we make it. There are some inherent flaws in an online sales tax; it is so very difficult. The problem of distinguishing between online, click and collect and physical shopping is inherent in lots of different businesses, John Lewis being an obvious example. It is not clear how such a tax would operate without making the system more complex.
Simple and easy are two different things. The simple solution, which will not be universally popular, is to look at sales tax. We already have a sales tax; it is called VAT. The simplest thing to do would be to raise VAT. We could not just put a hole in the business rates system—some 30 billion quid—without replacing it with something, certainly not given where the public finances are today. Putting 2p on VAT, would raise £12 billion a year; 4p on VAT would raise £24 billion a year. We could also look at the threshold system of VAT, which is a real deterrent for businesses to grow. If we want a simple solution that is effective and crosses all the different sectors, it is there. It is fair and would keep the tax system as simple as possible.
I urge my very good friend the Minister on duty, the Under-Secretary of State for Housing, Communities and Local Government, my hon. Friend the Member for Rochester and Strood (Kelly Tolhurst), and the Treasury to think about the full extent of the problems, as well as the potential quick wins. When compared with an online sales tax, VAT is a much better system to operate.
Robbie Moore (Keighley) (Con)
I too refer the House to my entry in the Register of Members’ Financial Interests.
Business rates have been discussed very many times in this Chamber, and I am sure that many of us have had multiple conversations with many businesses across our constituencies. The debate around business rates—how they should be implemented, whether we should have a complete revamp and overhaul of them, or even whether they should be adopted at all—has been going on for a significant period. Business rates impact many, many businesses, both large and small, across my constituency of Keighley and Ilkley and throughout the country. I mentioned the impact on small businesses because, as we all know, business rates relate to the size of the property that the business occupies rather than its turnover, or any other fiscal measurable that relates to the financial performance of that business.
Under the current system, the valuation office should regularly review rateable values to ensure that they are broadly in line with prices paid in the rental market by the businesses that pay business rates, to provide more certainty over bills, but I must say, having had some knowledge as a chartered surveyor over the past 12 years, that the review process can be slow, bulky and inefficient in its delivery. I very much welcome the fact that, since the last revaluation delay, the Royal Institute of Chartered Surveyors has consistently called for measures that offer improved certainty, consistency and stability to the UK property market. Instead of continuing to tweak the rating system and introducing impromptu delays, we need to start thinking about much more of a full reform and a complete overhaul of the system, to provide consistency through a fairer property taxation system, which works better for businesses and is targeted at offering, and able to facilitate, extended business planning. Of course, it must work for our friends over at the Treasury.
I am pleased that this Conservative Government moved incredibly swiftly and presented the Non-Domestic Rating (Lists) (No. 2) Bill to Parliament earlier this year, and I welcome the immediate support to business owners provided through that relief. Across Bradford district, about 5,000 premises will benefit from that rate relief, and of course many of them are based in Keighley and Ilkley. That is a pure demonstration that our Government are on the side of hard-working businesses right across the country. I thank my hon. Friend the Minister and other colleagues in Government for moving swiftly.
Although I support this Bill and the relief that it provides for many businesses, I would like to see a revolutionary approach to the business rates structure that revamps and overhauls business rates so that we have a nimbler and fairer system. I do not want the business rates structure to be removed altogether, but it must adapt much more to the property and business market, which continues to change drastically.
Felicity Buchan (Kensington) (Con)
I welcome this short Bill and the change that it makes to the revaluation date. It means that business rates payable from 2023 to 2026 will be based on post-pandemic property prices, as of April 2021. Clearly, it makes sense. I also welcome the Treasury’s fundamental review of business rates, which I believe is essential. High streets in my constituency are suffering very hard. They were suffering pre-coronavirus as a result of the very high burden of business rates and, as has been mentioned, the move towards online shopping.
Kensington pays a very heavy burden of business rates. Two small boroughs in central London—Kensington and Chelsea, and Westminster—account for a whopping 10% of all national business rates. Greater London accounts for a third of national business rates, but has only one sixth of the total properties. In the last reappraisal, rateable values in England as a whole went up by 9.6%, but in London they went up by 23.7%. My high streets simply cannot tolerate that burden. Clearly, it has got worse as a result of coronavirus. In central London, we feel that particularly acutely because footfall has yet to return. The survey of footfall that was carried out a few weeks ago showed that London was bottom of the list for the uptick in footfall.
Many central London businesses did not benefit from the £25,000 Government grant for retail, leisure and hospitality because it was based on rateable value, not on profitability or cash flow. The rateable values in my constituency are three times the average, so many businesses in Kensington did not get the grant, whereas equivalent businesses elsewhere in the country, even some of a greater size, did. Clearly, my businesses did benefit from the business rate holiday, and for that I am grateful.
As my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) alluded to, we cannot be naive here. Business rates are important to the Exchequer—they provide more than £25 billion to it annually—but I believe that the high street is bearing an unacceptable burden of business rates. While I welcome the Bill, I look forward to the Treasury’s review of business rates, and I believe that we need a fundamental review.
David Simmonds (Ruislip, Northwood and Pinner) (Con)
The reform of business rates and revaluation has been in a holding pattern for many years, and those of us who have spent time in local government will be conscious that the expected impact of that reform on local authority finance has been hotly debated. I think that we are still of the view that business rates in their current form are the worst possible solution to financing local government, with the exception of all other available choices. My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) made that point strongly in describing the hard choices we need to make in identifying alternative sources of finance. It seems clear that, in the Treasury, the business rates billions remain a key building block of our national budget. As a consequence, there has been a long-held reluctance to tinker with them, for fear of the wider impact on the bigger fiscal picture.
Business rates have been in existence for a long time. For many of our citizens, they used to walk in lockstep with residential rates, long abolished. Even today, the variation in business rates income at local authority level is reflected in the grant funding—the traditional revenue support grant that was the basis of most local authority funding—and in things such as school funding. When schools were first set up as a local authority responsibility, local authorities funded them according to their incomes from business rates and domestic rates, and that differential has been carried forward into the funding rates of our schools today. That long-standing impact and the fiscal picture across government of linking day-to-day expenditure on these services to the income we can rely upon coming through business rates remain in place. That goes to the heart of the point that a number of colleagues have made about the need for reform, but we need to address it as part of that complex formula.
I would like to add my voice to the request from many colleagues for greater flexibility in the way that business rates are deployed. I am fortunate to represent a constituency that has a great diversity of local businesses and very vibrant high streets. Many of those new businesses have grown up to take the place of more traditional activities, some of which have seen their departure mourned by local residents, and others perhaps less so. For example, a sports club has closed and been replaced by a children’s soft play area, because the baby boom means that there is now a much greater market for that kind of activity. The bank that I used to be responsible for is now a bookshop and coffee shop on Pinner High Street, reflecting the fact that our high streets can remain vibrant.
This is not about saying that the Government or the local authority need to pick the businesses that they think should be winners on the high street. It is about reflecting the fact that the challenge of online versus bricks and mortar retailing, the changing nature of the high street and our ability to keep it vibrant on behalf of our communities means that we need flexibility.
Kevin Hollinrake
My hon. Friend makes a good point. He alluded to the point I made earlier. If we had a business rates system that purely provided discounts for retail premises, what would we do with premises that were not retail and became retail or were retail and became another business category?
David Simmonds
My hon. Friend reinforces the point robustly. I declare an interest, as a father of young children. The development on our high streets of more community-focused business opportunities, due to there now being many more young children in my part of the world looking to access soft play, clothing retail and other things, is a reflection of the fact that our communities change—they are vibrant. That is what their nature should be, and those market forces are a welcome part of responding to the changes in our communities.
When we see challenges that come along, whether they reflect the national economic position or indeed wider issues on a local level, we need to be able to respond effectively. A really good illustration of that is the impact on the local authority that serves most of my residents and Heathrow airport—the London Borough of Hillingdon. Heathrow is the largest single payer of business rates within the Greater London area, but the challenge for the local authority that collects those business rates is that the revenue it collects and the proportion retained locally is far less than the cost to the local authority of dealing with the consequences of having the airport in its local area.
That brings me on to my final plea to Ministers as we begin to look to what the future of business rates may be beyond this revaluation. Too often, there is little or no upside for local authorities in supporting the development and growth of businesses, because so much of the money goes into the central pool and the community sees the disbenefits such as congestion and pollution—sometimes, in the case of airports, in the form of air pollution—and needing to provide services to people such as refugees and those who find themselves stranded at the airport. All those are direct costs to local taxpayers as part of the statutory frameworks; they simply are not met by the share of the income that lands locally.
We need to have a much broader discussion about how we ensure that local authorities that see these opportunities to develop local businesses, jobs and a vibrant local economic strategy can see the benefit of doing that coming directly into their local community. In the United States, for example, it is a very common part of considerations of any infrastructure development that local politicians can say to the local community, “Yes, you will have to put up with a downside, but you will see this enormous benefit as a consequence of this development or this project going ahead.”
We need to see this as part of a much broader and more strategic review of the way in which we fund public services in this country. The hon. Member for Blackburn (Kate Hollern) pointed to the impact on local authorities of a reduction in revenue support grant. That is part of this complex picture, but over the same period, we have seen significant growth in levels of business rate income that have been retained by local authorities. When the Ministry makes its calculation of spending power, the reduction in spending power does not simply reflect a reduction in the revenue support grant: it then needs adding back into it the additional revenue that is coming from other sources.
As my hon. Friend the Member for Thirsk and Malton explained so clearly, this is not simply a matter of being able to offer everyone out there who would like to see a reduction in their business rates such a reduction, because if we do that, we need to decide which other taxes will go up to pay for it. We must make sure that we consider that decision fully in this House before it is made, because we have a responsibility to local authorities and residents to make sure that the services we commit to provide for them are financially sustainable.
Kate Hollern (Blackburn) (Lab)
It is wonderful to hear so many Members recognise the need for reform of business rates—and of course, in fairness, right across the patch. I want to return to two points very briefly.
There are many ways that the Government can support businesses, and making the next business rates valuation a smoother transition for them, as this Bill does, is one way to do it. However, as the Government know all too well—the shadow Chancellor, my hon. Friend the Member for Oxford East (Anneliese Dodds), has spoken about it at length from this Dispatch Box—they have consigned businesses and jobs to the scrapheap. The Government are failing to give businesses that could be viable, although they have been closed for a few months, the support they need. If we are to rescue businesses, there is an urgent need for the Government to support them through this difficult time. Tens of thousands of jobs are at risk. We are talking about rates and how people pay into the system. If people are unemployed, of course there is a cost to that as well, not only financially but emotionally and socially.
Kevin Hollinrake
The hon. Member makes a very good point. On the jobs at risk and the Government support she is criticising, if this is such a big issue for her party, why are no Labour Back Benchers willing to speak on this very important issue that affects millions of businesses around the UK?
Kate Hollern
I am sorry that the hon. Member does not understand that this debate is for today. There have been a number of debates on the lack of support for businesses from this Government, and quite a few Conservative Members have recognised that some businesses have had absolutely no support at all, so perhaps we do need another debate on that subject.
On local government funding, councils face a multimillion- pound funding gap. Of course, local government works hand in hand with local businesses to create a sense of place to create vibrant town centres, as well as to encourage community sites and economic growth. I do recognise that the Government are covering 75% of the income loss incurred by councils, but that still leaves them hugely out of pocket and less able to support businesses.
The Bill is a first step to supporting businesses and local authorities, but everyone who has spoken agrees that business rate reforms need to be an urgent priority for the Government. If we are to protect jobs in high streets, this must be dealt with fairly and quickly. I hope that Ministers and their Department will keep these comments in mind as we look ahead to the comprehensive spending review.
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Kelly Tolhurst)
I thank all hon. Members for their contributions to this debate, but also for the ideas and the clear passion that Members across the House have on this issue.
I want to pick up on just a few points, because I know time is short. While I have great respect for the hon. Member for Blackburn (Kate Hollern) from our previous dealings, this country has been facing one of the most significant pandemics, and the response from this Government in support of business has been significant. Over the next five years alone, there will be over £23 billion in support for businesses. We have taken steps quickly and in an agile way, and we have been able to protect those jobs, as our constituents quite rightly look to us to do.
I would like to touch on retail, which has been mentioned a lot today. Quite rightly, when people think of rates and when people think of our communities, they look at our town centres and our high streets. Of course, in my previous role, where retail was very much a focus, this issue was not lost on me. One of the things we need to recognise is that, during the pandemic, we were able to double the amount of retail relief. The Chancellor expanded this to 100%, enabling more retail, hospitality and leisure businesses to make use of those discounts.
We also need to recognise, as hon. Members have highlighted, the changing nature of our high streets. Of course, my Department has launched the £1 billion future high streets fund, particularly to work with local authorities to make sure we can take our high streets to the next phase. We are working with local authorities and communities to develop the thriving high streets that we sorely need.
The Bill may be narrow and technical in scope, but in practice it does deliver on an important Government tax commitment by setting in law the date of the next business rate revaluation on 1 April 2023. Business rates are a local tax, rather than a national tax, which is why this small Bill is necessary. However, for many businesses, this Bill is as important as a national tax measure. We hear from rate payers that the accuracy of rateable values is important to the fairness of the business rate system. Frequent valuations ensure that business rates bills are up to date, and accurately reflect rental values and relative changes in rents. That is why we remain committed to frequent revaluations and why we had previously decided to have the next revaluation in 2021. That revaluation would have been based on the rental market at 1 April 2019, before coronavirus. I trust hon. Members understand the exceptional circumstances in which we decided to no longer proceed with the 2021 revaluation, and I very much welcome the support that has been expressed from across the House.
I would like to pick up on a point made by the hon. Member for Westmorland and Lonsdale (Tim Farron). We recognise the issue he raises relating to holiday lets. We have consulted on possible changes to the criteria which could enable more holiday lets to be registered for business rates. We will set out a Government response once we have considered that in more detail.
I also want to pick up on a point expressed by many hon. Members today about the fundamental review of rates. The Treasury has set out the scope and launched a call for evidence. It has been great to hear from hon. Members in this debate, including my hon. Friends the Members for Thirsk and Malton (Kevin Hollinrake), for Keighley (Robbie Moore) and for Ruislip, Northwood and Pinner (David Simmonds), the hon. Member for Richmond Park (Sarah Olney) and my hon. Friend the Member for Dudley North (Marco Longhi). I very much hope they participate fully in the call for evidence and feed in their ideas, so that the Treasury can evaluate them. The scope of the fundamental review includes reducing the overall burden, improving the current system, and considering more fundamental changes in the medium and long term. Hon. Members have rightly called for that. We do hear in our constituencies that the burden of that single bill is large for so many of our businesses.
These measures are particularly important for local authorities. My Department has held discussions with representatives from local government, including the Local Government Association. For local authorities, we intend to make any adjustments to the rates retention scheme that are necessary to ensure that locally retained income is, as far as practicable, unaffected by the revaluation. That will give local authorities the assurance they need regarding locally retained income and revaluations. We will also ensure that local authorities have what they need to issue the new bills in a timely manner.
The Bill sets the next revaluation in 2023, but ratepayers do not have to wait until then to benefit from the reforms we have made to the rating systems. They are benefiting now from the small business rates scheme, which has removed 700,000 small businesses from the rating, and from a £10 billion package targeted on the businesses most affected by the pandemic, which means that more than half of all ratepayers in England will pay no rates at all this year.
I thank colleagues for their contributions to the debate and look forward to the House supporting the Bill.
Question put and agreed to.
Bill accordingly read a Second time.
Non-Domestic Rating (Lists) (No. 2) Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Non-Domestic Rating (Lists) (No. 2) Bill:
Committal
(1) The Bill shall be committed to a Committee of the whole House.
Proceedings in Committee, on Consideration and up to and including Third Reading
(2) Proceedings in Committee, 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.—(Eddie Hughes.)
Question agreed to.
Non-Domestic Rating (Lists) (No. 2) Bill (Ways and Means)
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 (Lists) (No. 2) Bill, it is expedient to authorise provision for, or in connection with, changing the dates on which non-domestic rating lists must be compiled.—(Eddie Hughes.)
Question agreed to.
Madam Deputy Speaker (Dame Eleanor Laing)
In order to allow the safe exit of hon. Members participating in this item of business and the safe arrival of those participating in the next, I shall now suspend the House for three minutes.