Non-Domestic Rating (Multipliers and Private Schools) Bill

Andrew George Excerpts

Monday 25th November 2024 Commons Chamber

[James Murray]

Let me remind the hon. Gentleman that, around the difficult decision that we had to take on employer national insurance contributions, we provided explicit protection for small businesses by more than doubling the employment allowance from £5,000 to £10,500, which will benefit hundreds of thousands of small businesses across the country. I suggest that he talks to businesses in his constituency about that.

We are not shying away from the fact that difficult decisions were taken in the Budget, but he might also consult the plans that were left in operation by the previous Government in July. If we had pursued those plans, and if we had not taken any action on business rates, the retail, hospitality and leisure relief would have ended entirely next April. The cliff edge looming next April would have seen it go down to zero. We have extended it, despite the tough fiscal circumstances, for another year at 40%. That is a reasonable way forward while we put in place these permanent reforms.

As I mentioned, the measures in the Bill to level the playing field for high streets are the beginning of our efforts to transform the system of business rates. Our ambition to go further is set out in the paper published alongside the Budget, “Transforming business rates”. That paper sets out the Government’s priority areas for further reform to support investment and make the system fairer. It invites businesses and industry representatives to work with us on designing the best possible system for the future.

I am grateful to all those businesses and representative bodies that I have spoken with in the last few weeks for their engagement already. We will consider what more the Government should do to incentivise investment and growth, including by looking at the efficacy of improvement relief and empty property relief, the impact of losing small business rate relief on expanding businesses, and the cliff edges within the current system.

[Andrew George (St Ives) (LD)]

If the Minister is looking for other methods by which public finances could be effectively deployed, will he look carefully at the last decade, during which small business rate relief has been used by second home owners to flip their properties to business rating and pay nothing at all? In Cornwall alone, that has resulted in over £500 million of taxpayers’ money being paid out to wealthy second home owners through covid aid and the small business rate relief. Will he look at how wealthy people have been incentivised to use that method to their advantage? Will he ensure that we have a much fairer system that puts first homes before second homes?

[James Murray]

The hon. Gentleman raises a crucial point about ensuring that the tax system is fair and that it supports the behaviour that we seek to incentivise.

That leads me neatly to my next point. As part of the discussion paper on transforming business rates, we have committed to consulting on adopting a general anti-avoidance rule for business rates in England. Although that might not necessarily address the exact problem the hon. Gentleman highlights, it speaks to the general issue of avoidance in relation to business rates.

We will also look at how the burden adjusts with the economic cycle, and we will assess the merit of a further increase in the frequency of re-evaluations. I look forward to working closely with businesses and representative organisations to deliver a business rates system that is fit for the 21st century, and that work begins today with the powers in this Bill to deliver our permanent tax cut for high streets.

As I said earlier, the tough decisions that the Chancellor set out in the Budget to deliver economic stability and fix the public finances enable us to give businesses the confidence they need to invest, and to get public services back on their feet. One public service that is crucial to breaking down barriers to opportunity is the education system, which is why the Government have prioritised ensuring that every child has access to the high-quality education that they deserve.

--- Later in debate ---

[Daisy Cooper (St Albans) (LD)]

The Great British high street is on life support. Many bricks-and-mortar businesses are barely surviving and, where they are, it is often against the odds. Changes in our trading relationship with Europe, the covid-19 pandemic, energy prices, the cost of living and the Conservatives’ disastrous mini-Budget have all taken their toll, but for years one measure has stifled high street businesses more than any other: the broken business rates system.

The business rates system is unfair on companies, bad for our local communities and damaging to our national economy. It penalises manufacturers when they invest to become more productive and energy-efficient. It leaves pubs and restaurants with disproportionately high tax bills and it puts bricks-and-mortar shops at an unfair disadvantage compared with online retail giants. In too many places pubs, restaurants and shops are being forced to close, taking with them jobs, opportunities and treasured community spaces, and consumers are seeing the cost of this unfair tax passed on to them.

More broadly, this outdated system inhibits business investment, job creation and economic growth, holding back our national economy, yet for too long it has been allowed to continue. In their 2019 manifesto, the previous Conservative Government promised a fundamental review of business rates to ease the tax burden on smaller businesses. Yet in 2022, when I challenged the then Chancellor, the right hon. Member for Godalming and Ash (Jeremy Hunt), on his personal commitment to making that happen, he admitted in this place that it was

“Another of the promises I now vainly wish I had not made”.—[Official Report, 17 October 2022; Vol. 720, c. 430.]

Businesses are tired of being treated with such cynicism and of relying on a patchwork of last-minute temporary reliefs. They cannot plan, they cannot invest and they cannot grow. They are crying out for fundamental reform and a new, fairer system. Before this autumn Budget, Liberal Democrats called on the Chancellor to reform business rates completely, with a new system, and to do so no later than April 2026. We believe the new system should be based on our Liberal Democrat calls for a commercial landowner levy—a bold move that would deliver a real shot in the arm for our high streets.

Instead of pursuing fundamental reform, instead of fair reform, this Bill is just more tinkering. Rates relief has been a sticking plaster—but, boy, is that plaster being ripped off in April, with a big reduction in relief. Many small businesses now say that the increase in business rates, combined with the increase in national insurance contributions, will be too much for them to absorb.

[Andrew George]

My hon. Friend is making an excellent case. Along with the point I made in my previous intervention about the opportunity for abuse under the rates relief system, particularly by holiday homes, does she accept that the methodology used by the current rating system for parking spaces in out-of-town retail outlets such as supermarkets hands a massive advantage to those supermarkets in comparison with town centre shops, and that we need a rating system that actually levies a rate on that benefit at a level that ensures an even playing field?

[Daisy Cooper]

My hon. Friend is absolutely right that this broken business rates system is unfair in many ways and it is the big giants, online or otherwise, that are getting an easier ride.

The Bill fails to address many other problems with business rates. For example, it does nothing to support businesses outside the three sectors of retail, hospitality and leisure, meaning it excludes key sectors such as manufacturing that are particularly negatively affected by the current system. It does not address the £51,000 cliff edge. Properties with a value over that threshold are not eligible for the small business multiplier, even though they are small businesses, and with rates relief going down, business rates bills for small businesses will go up. From next April, business rates relief for retail, hospitality and leisure will be cut from 75% to 40% and this Bill does nothing to avert that blow.

The Minister said he wants to rebalance business rates. I welcome that direction of travel, if it turns out to be true, but in the absence of an impact assessment, I am particularly worried about unintended consequences. I say this in the spirit of constructive opposition: it appears as though the Government are moving from a system of temporary relief to a lower multiplier. At the moment, a small business enjoys 75% business rates relief, but a very large chain has its relief capped at £100,000. If I have understood it correctly, independent shops will see their relief drop from 75% to 40%, while big chains such as pubcos and supermarkets may see their relief uncapped, which could give them a tax reduction of tens of millions of pounds. I would be grateful if the Minister wrote to me to share some modelling to reassure me that that is not going to happen and that we will not see independent businesses inadvertently subsidising big chain stores and multinationals.

The impact of the Government’s changes to business rates will have a massive effect on small businesses in my constituency. The oldest pub in Britain—or so they claim—Ye Olde Fighting Cocks, will see a whopping increase of £30,000 per year in its business rates alone. The Save St Albans Pubs campaign says that even an average pub in St Albans, with a rateable value of £100,000, will face an additional £19,000 in its business rates bill from April. If we assume that an average pub makes 30p profit per pint, each of those pubs would need to sell an extra 60,000 pints a year, or almost 1,200 pints extra a week—and that is before factoring in the increase in national insurance contributions.

Other low-margin, large-premises businesses, such as children’s soft play activity centres, will also lose out under these changes. DJ’s Play runs much-loved indoor play centres across Hertfordshire, which exist in large warehouse-style premises. The buildings are large, but the profit margins are not. DJ’s Play and many others like it provide a valuable and enriching educational experience for children, but they too will struggle to keep their heads above water.

The Liberal Democrats are also opposed to the Bill because it would levy a tax on education by removing the business rates exemption for private schools that are charities. We are opposed in principle to the taxation of education, because it is a public good. We believe that parents must be given choice when it comes to their children’s education. Many families feel that, whether due to bullying, SEND provision, mental health issues or other factors, the state system cannot meet their child’s needs.