Commercial Property

Alun Cairns Excerpts

Wednesday 17th November 2010 Westminster Hall

[Robert Neill]

That is an interesting suggestion that I will take away. As I will say later in my speech, we intend to give a great deal of thought to finding ways forward.

We have also increased the enterprise finance guarantee, created a new growth capital fund and set up a regional growth fund. All those measures taken in the Budget set out the broader picture. We have also taken important action on business rates. In the Budget, we announced our intention to waive £175 million of backdated business rates demanded of businesses, including some, although not exclusively, in ports. Thanks to that action, many companies across the country, particularly small and medium-sized enterprises, can now move forward confidently, unburdened by those unexpected debts. We will introduce the necessary legislation to achieve that in the localism Bill.

We also took action in the Budget to help small businesses through the business rates system. We are well aware that small businesses provide nearly 60% of our jobs and half of our GDP. We recognised the need to inject new life into that part of the private sector, so that enterprise can drive recovery. We therefore doubled the level of small business rate relief for one year—a measure that is currently saving approximately 500,000 businesses £390 million in taxes. More than a third of a million ratepayers will pay no rates at all for that year.

[Alun Cairns (Vale of Glamorgan) (Con)]

I congratulate my hon. Friend the Member for Rugby (Mark Pawsey) on securing the debate. Does the Minister accept that business rates have a disproportionate effect on smaller business, which is demonstrated by the rate relief scheme? I accept the generosity of the rate relief scheme that has been offered, but does he not acknowledge its short-term nature? Businesses need to be able to plan over the longer term.

[Robert Neill]

I accept that the measures we have taken are for a targeted and limited period, but they are within the resources available to us, given the economic circumstances we inherited. There are longer-term plans, which I will discuss in a moment. My hon. Friend is right that we need to plan more comprehensively for the longer term in this regard, but it is worth noting that those two measures alone amount to more than £500 million of targeted support for more than 500,000 ratepayers to assist businesses in the current climate.

I would like to mention three other proposals on business rates that are aimed at supporting business and local authorities. First, we will ensure that all future business rates supplement projects, when they fund both more or less than one third of an overall project, will be put to the ballot, so that liable businesses can decide whether to impose the business rate supplement upon themselves. Liable businesses will therefore be able to vote for, and in effect approve, the planned economic development project that they will be funding. That was not available when the business rate supplement scheme was introduced by the previous Government. We think that it is right to ensure that there is only taxation with representation for small businesses in those circumstances.

Secondly, as announced in the coalition agreement, we are committed to finding a practical way to make small business rate relief automatic. We are determined to end that needless red tape that business faces and ensure that ratepayers get all the relief to which they are entitled, and I hope to be able to give hon. Members more details of that before too long. Finally, the Conservative party manifesto proposed that local authorities should be given new powers to introduce further discounts on business rates so that local authorities can respond to local circumstances by reducing business rates bills. The coalition Government are currently considering the scope of such powers. Again, I hope to be able to say something on that before too long.

I would also like to take the opportunity to set out our plans for the local government resource review, which will enable us to look at those longer-term, across-the-piece plans for business rates. We are committed to providing incentives for local authorities to promote economic growth through the business rates system. We outlined our proposals to enable councils to retain locally-raised business rates in the local growth White Paper. The philosophy of that White Paper recognises the point that my hon. Friend the Member for Carlisle (John Stevenson) made in his intervention on the advantage of giving greater local power in the setting of those rates. The proposals are designed to devolve exactly those sorts of freedoms and responsibilities to the local level as part of our decentralisation agenda.

We propose to take the work forward through the local government resource review starting in January, but I would like to reassure Members that that review will ensure that appropriate protections are put in place for businesses. We are clear that businesses should not be subject to locally imposed increases in the burden of taxation. We have made it clear that businesses would have the right to hold a binding vote on any supplementary business rates, as I have already said. A much more significant piece of work on business rates will come along in the new year.

Turning to empty property rates, we recognise that property taxes, in the form of business rates, are among the highest in Europe, and businesses would like us to do more to reduce that burden, which impacts on their growth and investment decisions. Nowhere is that more true than in relation to empty property rates. My hon. Friend the Member for Rugby set out extremely clearly the problems caused by the previous Government’s reforms of empty property rates—problems that we fully recognise. I assure him that the present Government have tremendous sympathy with the position that his constituent, Mr Summers, finds himself in.

As my hon. Friend pointed out, from 2008-09 the exemption periods were restricted to three months for non-industrial property and six months for industrial property, with ratepayers being liable for full rates once the exemption period has lapsed. As he also pointed out, it is true that the previous Government claimed that the purpose of the reforms was to increase the costs of holding empty property, as a way of encouraging owners of commercial property to re-let, redevelop or sell empty properties—or so it was postulated. That argument was based on an economic theory that was not, and is not, fully accepted by the business community or by many Members of this House. The previous Government also estimated that the change would increase net tax yield by £950m.

Faced almost immediately after the introduction of the reforms with deteriorating economic conditions, the previous Government recognised, perhaps surprisingly, that the reforms made things more difficult for owners of commercial property. That is why they introduced the temporary £18,000 rateable value threshold, below which empty property was exempt from business rates. As Members will be well aware, that threshold is due to revert automatically to £2,600 on 1 April 2011.

The economy is coming out of recession and growing again, thanks to this Government’s policies. That should improve prospects for landlords seeking tenants for empty properties, but we recognise that ratepayers would like us to undo the previous Government’s changes or to continue with the temporary measure. We fully understand and appreciate that view; the difficulty is that our ability to take action on the reforms must be balanced against the high costs involved, the targeted support on business rates that we have already provided, and the overriding need, as my hon. Friend recognised, to reduce public expenditure and support the economy by reducing the deficit.

I assure my hon. Friend that we most definitely recognise the problems caused by the previous Government’s unfair changes. We will certainly keep the matter under review in the light of the work that we propose to undertake, and we will keep in mind the position of Mr Summers and others like him. We want to work constructively with the property industry on this inherited problem that we are trying to sort out, and to take appropriate action as and when our national finances allow. I hope that the major actions that we have already taken on business rates and those that we will be taking through the localism Bill demonstrate our commitment to providing targeted support to businesses through the business rates system. I thank my hon. Friend again for raising the matter.