Business Rates

Lord Swire Excerpts

Wednesday 13th June 2018 Westminster Hall

[Sir Hugo Swire (East Devon) (Con)]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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[The Financial Secretary to the Treasury (Mel Stride)]

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

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

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

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

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

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

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

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

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

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

[Sir Hugo Swire]

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

[Mel Stride]

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

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