Draft Non-Domestic Rating (Chargeable Amounts) (England) Regulations 2022
(2 years ago)
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The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Lee Rowley)
I beg to move,
That the Committee has considered the draft Non-domestic Rating (Chargeable Amounts) (England) Regulations 2022.
This statutory instrument delivers a transitional relief scheme to protect properties from large increases in their business rates bill when new property valuations come into effect on 1 April next year. That will help about 700,000 businesses with about £1.6 billion of relief over the coming three years. The scheme, which is a significant part of the measures on business rates announced by my right hon. Friend the Chancellor of the Exchequer in the autumn statement, will cap bill increases after the revaluation by a set percentage every year. That will give more certainty; and for the first time—and particularly importantly—it will ensure that 300,000 business rate payers with falls in rateable value will see a full and immediate fall in their bills on 1 April.
As the Chancellor set out in the autumn statement, a revaluation will take place. Such revaluations are a necessary part of the proper administration of the business rates system. By updating valuations, we ensure that they reflect market conditions. The new set of rateable values, which were published in draft last month, will be applied from 1 April. That revaluation will build on measures already in the system to help ratepayers. Hon. Members will likely be aware that there is already substantial support through, for example, small business rate relief, which ensures that about 700,000 of England’s 2 million properties pay nothing at all.
However, we recognise just how challenging conditions are, including on high streets. Without intervention at this revaluation, business rate bills in England would have increased by, on average, 20% in 2023-24. To avoid that, we are providing a further package of support, worth £13.6 billion of taxpayer subsidy over five years. That will include a freeze on the business rates multiplier, to protect ratepayers from the full effects of inflation. That is worth £9.3 billion of taxpayer subsidy.
Many ratepayers will see their property values either fall or increase moderately at a revaluation, but we recognise that inevitably some properties have much greater swings in rateable value, which can result in a significant change to the final bill. That is why, in addition to freezing the multiplier, and the additional support for high streets, we are putting in place a more generous transitional relief scheme. These regulations will implement that transitional relief scheme.
As I say, the scheme, at £1.6 billion of the total £13.6 billion package, will help about 700,000 ratepayers to transition to their new bills. Unlike previous schemes, it will not require ratepayers to wait years to see the benefits of falling valuations. The results of the Government’s recent transitional relief consultation were published alongside the autumn statement and clearly showed businesses’ preference for the type of scheme that we are putting in place. We have listened, and are delivering significant reform to transitional relief by removing the system of downward transition, under which caps on increases were funded by restricting falls in bills. We are scrapping that cap, and there will be a full and immediate fall from 1 April 2023.
Nevertheless, under current law—specifically, section 57A(10) of the Local Government Finance Act 1988—we are required, when making these regulations, to have regard to the object of ensuring that they are self-financing. In other words, until and unless section 57A(10) has been changed, the regulations must include provisions to fund the relief. To meet that legal requirement and to adhere to the spirit of what we intend to do here, we have included in the regulations a supplement of 3.3p on every £1 of rateable value to be paid by ratepayers in 2027-28. If, as we are currently required to do, we must include funding in the regulations, we consider that to be the fairest and most reasonable option, as it allows businesses five years to recover from current economic circumstances before having to meet the cost of transitional relief. It also allows those for whom there will be reductions the full benefit of the new valuations immediately.
However, the Government’s intention—subject to the will and approval of Parliament—is that no business will ever have to pay the supplement in 2027-28. We intend to bring forward primary legislation to reform transitional relief so that the Exchequer shoulders the cost of capping bill increases after a revaluation. As soon as parliamentary time allows, we propose removing section 57A(10) from the statute book forever and then cutting the supplement out of the regulations. This is a fundamental reform of the system that supports business. What we propose today will allow us to obtain immediate and important benefits for businesses from next year, while still being able to resolve the broader matter in the future, when parliamentary time allows.
The upward caps provided for by the scheme will support those ratepayers facing larger increases in their bill. For example, in the first year of the revaluation, the transitional relief scheme has caps on increases of 5% for small properties, 15% for medium properties and 30% for large properties. It is important to note, however, that the caps included in the draft regulations are before any changes in the bill from other reliefs and supplements, such as the 1.3p paid by larger properties on the higher multiplier and the 2p supplement to fund Crossrail in London. The caps will also rise with inflation in 2024-25 and 2025-26, and of course bills can change for other reasons unrelated to the revaluation—for example, because of property improvements.
The precise increase in bills next year and in future years will vary depending on the circumstances of each ratepayer and, in later years, inflation. The caps will ensure, however, that large increases are staggered, and that ratepayers have time to adjust to their new bill. Transitional relief will be calculated automatically by local government and applied to bills without ratepayers having to apply. Nevertheless, we have also included transitional relief in the gov.uk rates estimator, so that ratepayers can go online to check whether they will receive transitional relief ahead of receiving their bill next year.
As we might expect, properties of different sizes will get different caps to better protect those businesses that are less able to adapt. Overall, we estimate that the transitional relief scheme will support about 700,000 ratepayers as they transition from 1 April. That includes the more than half a million small properties that will benefit from transitional relief in the first year of the scheme.
Few people welcome revaluations, but they are a necessity. They rebalance the burden of business rates across the tax base, ensuring a fair distribution. Clearly, however, in this economic climate, some ratepayers need support to transition to their new bills. This statutory instrument, along with the wider support package announced by the Chancellor, provides the support that businesses need to manage the revaluation with greater certainty. I commend the draft regulations to the Committee.
Sarah Owen (Luton North) (Lab)
It is a pleasure to see you in the Chair, Mrs Murray. I welcome the opportunity to speak on this legislation, which will touch businesses in all our constituencies. Unfortunately, however, the Opposition would not vote with the Government in a Division, because we do not believe that the regulations go far enough. I will put on the record some points about the difficulties facing businesses and the local authorities attempting to support them.
On Saturday 3 December, we all celebrated Small Business Saturday, which is an opportunity to focus on independent traders who are making a big impact with little resource. All year round, however, my colleagues and I hear about the struggles of small businesses in our communities. Our high streets are already struggling as a result of the pandemic, and from the decade of under-investment before that.
As a result of climbing energy bills, the cost of goods rising with inflation, and stagnant wages driving consumer caution, businesses are desperate for a dramatic package of support. Tinkering with business rates, which is what this legislation does, is not what they want or need. Labour has a plan to back business by bringing business rates in line with the needs of the modern economy.
We are committed to cutting rates immediately for small firms, and they should be given any discount they are owed as a result of the revaluation at the nearest opportunity. To give the sector the stability and reassurance that it needs, and that I am sure we all want to see, we will bring in an annual revaluation of business rates, rather than holding ad hoc revaluations as the Government do, and as is outlined in the regulations. Under our model, the heavy burden of taxes will move from small and medium-sized enterprises and high-street businesses to online giants, which have, for far too long, got away with contributing far too little to our economy.
When Labour gets into government, it will deliver the transformation that businesses deserve, but we need an urgent increase now in the threshold for small business rates relief from £15,000 to at least £25,000. That discount for small and medium-sized enterprises would be a vital boost at this vulnerable moment. It would be funded by increasing the digital services tax for online business grants. That is just a taster of what could have been. I would be grateful for the Minister’s assessment of the financial health of SMEs compared with, for example, global tech companies, and would like to know why increases in the digital services tax have not made his priority list. The burden of business rates is disproportion-ately heavy on small businesses. Our hard-working high-street entrepreneurs are being driven into the ground, while the profits of major corporations soar.
This legislation, being at an early stage, will not arrive soon enough to allow businesses and local authorities to plan sufficiently for the year ahead. In July, the Local Government Association responded to a Government consultation by saying that
“any transitional arrangements for 2023, whether part of the formal scheme or supplementary, should be announced no later than autumn 2022 when the draft list and provisional multiplier are announced.”
It is not contentious to say that 12 December is beyond what we conventionally consider to be autumn. Councils will not have adequate time to consider and communicate the changes before they become law. Were the time and effort required for local authority staff to adopt the new process factored into the timetable for the legislation?
It is not just the billing authorities that need to prepare for the new non-domestic rates. Such financial and administrative overhauls can be costly for many of the individuals and groups paying the new rates. The LGA has highlighted the need for councils to be compensated for the cost of staff time, and for potential new technologies, involved in the revaluation of rates and in bringing in the transitional scheme. It is welcome that the Government have already announced that administrative costs for local authorities will be covered, as with previous schemes, under the new burdens doctrine. However, the insufficient time to input these changes will still cause problems that council staff do not need. For their peace of mind, will the Minister confirm that no further reliefs will be announced ahead of the new financial year starting on 1 April 2023?
We will not vote against the legislation. However, the Government clearly have work to do to catch up with the needs of small and medium-sized businesses, and to match what Labour’s fair taxation strategy offers those businesses, so that we can regenerate our high streets.
Peter Aldous (Waveney) (Con)
It is a pleasure to serve with you in the Chair, Mrs Murray. I was not planning to speak today; I am actually a late substitute for a colleague. However, given that I am leading a Backbench Business debate in Westminster Hall tomorrow on business rates and levelling up, it is appropriate to say a few words.
First, I support the Government’s measures. It is right that a revaluation should take place next year. As the hon. Member for Luton North said, there is a need to carry out valuations more regularly. They should take place annually. My warning is that the last valuation date was April ’21, when we were in the middle of covid. We could argue that certain premises were virtually unlettable on that date, and I sense that there will be quite a lot of angst and appeals submitted by businesses. To overcome that concern, it is important that the Valuation Office Agency works with them, and is as transparent as possible. Secondly, we now have a business rate system with 12 forms of relief and support. Although they are all welcome, the system is becoming incredibly complicated. It needs root-and-branch reform.
The end of transitional relief is good news, because previously if a business was on a declining high street—there are lots of those around the country—although its rateable value would go down, it would not get the immediate benefit, because that would be transitioned in over a period of years. It is quite right that the Government should scrap transitional relief.
As I said, there is a need for root-and-branch reform. We look around for the holy grail of an alternative to business rates. I do not think that it exists, because from any Government’s point of view, it is a tax that yields a lot of money to the Treasury—probably £25 billion to £30 billion. It is much easier to collect than other forms of taxation, because ultimately people pay the local authorities, and it is difficult to avoid, because people cannot magic away their building. That said, the danger is that business rates do not reflect the profitability of a business.
The appeal of a digital tax, which the hon. Member for Luton North mentioned, is obvious, but the people we want to pay it would find ways of not doing so; we therefore would not get the full £25 billion to £30 billion. In the longer term, we need to build on the measures that the Chancellor introduced in his autumn statement; that includes getting the uniform business rate for everyone back down below the 50p-in-the-pound mark, probably towards the 30p-in-the-pound mark, which is where it was when the uniform business rate, in its current guise, came in during the early 1990s.
We then need to move towards annual reviews. That means digitising the Valuation Office Agency and making it far more transparent. Then the system will be more dynamic, and able to respond to the different, changing circumstances in the volatile economy that we have at the moment. I support the measures. The Chancellor grasped the nettle by the stem, but this should be only the start of significant root-and-branch reform, which we can bring in relatively quickly—by, I suggest, the spring Budget.
Karl Turner (Kingston upon Hull East) (Lab)
I do not intend to detain the Committee long, but I felt that I should speak briefly. Businesses in my constituency recognise that it is the Labour party that is on the side of business, especially small businesses and high-street businesses. They recognise that the shadow Chancellor, my right hon. Friend the Member for Leeds West (Rachel Reeves), and indeed the shadow Minister, my hon. Friend the Member for Luton North, recognise the injustice in business rates and want to right that wrong. There is no doubt that entrepreneurs are being punished, especially high-street businesses. It is time for the Government to recognise that we need a fairer system of business taxation that would address those wrongs. Sadly, it is clear from the Minister’s comments that that will not happen until a Labour Government come to power.
Lee Rowley
I am grateful for all the contributions. I will take each in turn, starting with the questions and comments of the hon. Member for Luton North, who spoke on behalf of the Opposition. It is perfectly clear that there is a difference of view on how to approach the issue, which we will debate both in this place and elsewhere. The Government are trying to make progress by moving from a five-year cycle to a three-year cycle, which is a step forward; by putting in significant support and taxpayer subsidy in acknowledgement of the fact that there have recently been real difficulties, given the economic circumstances; and by giving businesses certainty, based on the existing processes, models and business rate scheme that they are familiar with.
The hon. Lady said that the measure does not go far enough, but if nothing else, £13.6 billion of taxpayer support is being provided to ensure relief for the businesses and properties that need it most. She pointed out that there are significant challenges for small businesses. We have accepted that all the way through covid and beyond; it is one of the reasons why many small businesses do not pay rates today, and why this additional relief is being provided at the same time. I cannot concur that the measures are tinkering; there is substantial support and relief, and a substantial change with regard to downward relief, in the regulations, on which we must either agree or vote. There will be an immediate benefit to businesses and properties that will see business rate reductions from 1 April next year.
The hon. Lady talked about the structure of tax policy—a subject that was similarly highlighted by my hon. Friend the Member for Waveney. Although I am not speaking for the Government on tax policy—I will allow the Treasury to do that—my hon. Friend made a number of salient and important points about online businesses and the potential for tax policy to move in that direction. It is important to put on the record that as a result of the revaluation, the properties that most online businesses use—big warehouses—will attract a substantial increase in business rates; the average increase will be 27%. If that is the prospectus on which an evaluation is being made, it should go at least some way to alleviating concerns.
The hon. Member for Luton North asked about small and medium-sized enterprises. We obviously take into account all the impacts on all businesses, including SMEs, as best we can. We are particularly cognisant of the importance of SMEs not just on our high streets, but across the economy, and we have brought forward packages that try to reflect and recognise that. She also asked about councils’ staff time. As she will know, local councils are used to making changes such as this; they have great expertise in doing so. We are grateful for the work that they do, but there will also be a new burdens assessment, and additional staff, support and funding will be provided, should it be proportionate to do so.
My hon. Friend the Member for Waveney made a number of broad points. I look forward to the debate that he is leading tomorrow, in which he will give these matters greater scope. I accept the challenge that my hon. Friend issued on the date of revaluation; his point is understood, and it is one of the reasons why substantial relief is being brought forward. I am grateful for his welcome of the downward relief and its immediacy from April next year.
I am grateful for the comments of the hon. Member for Kingston upon Hull East. I will allow the party political broadcast to stand; all I say is that we do not agree. We in the Conservative party are bringing forward a substantial amount of relief and a substantial change; our party has always been on the side of businesses, and will continue to be, whenever it has the privilege to serve in government. I am grateful for your time, Mrs Murray, and for the opportunity to make the case for the Government. I commend the statutory instrument to the House.
Question put and agreed to.