Business Rates

Brandon Lewis Excerpts

Tuesday 30th October 2012 Westminster Hall

[The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)]

It is a pleasure to respond to the debate under your chairmanship, Mr Caton. I join other hon. Members in congratulating the hon. Member for Rochdale (Simon Danczuk) on securing the debate, which is indeed on an important subject. I thank him for drawing it to the attention of the Chamber, and I thank all hon. Members who have spoken so passionately on the issue. It is useful for me to be able to set out the Government’s position on business rates, and on revaluation in particular.

First, let me correct the fundamental misunderstanding that some people have about revaluations. They do not change the amount of revenue raised through business rates. Revaluations simply redistribute the rates burden among ratepayers. Therefore, what revaluations ensure is that the share of the national rates bill paid by any one business reflects changes over time in the value of its property relative to others. That means—this is the important point—it is likely that very many businesses whose rents have fallen, but by less than the average, would have seen a tax increase from 2015. The detailed work of reassessing all 1.7 million properties has not yet started, but the estimates prepared by the Valuation Office Agency suggest that 800,000 premises would have seen a real-terms increase in their rates in a 2015 revaluation. Sectors facing big hikes would have included retail as well as petrol stations, hotels and pubs. My hon. Friend the Member for Nuneaton (Mr Jones) mentioned pubs; as the Minister responsible for community pubs, I fully appreciate that point.

Let me set out the action that we have taken. To provide certainty and stability to all businesses, the Government intend to postpone the next revaluation from 2015 to 2017. To answer one of the points raised, the date of 2017 is in the Growth and Infrastructure Bill. Thereafter, revaluations will continue to take place every five years. The required legislative changes are in the Growth and Infrastructure Bill.

[Simon Danczuk]

If the revaluation took place in 2015, and was not moved to 2017, how many businesses would pay less in business rates?

[Brandon Lewis]

I am not sure that I followed the hon. Gentleman’s point. Could he clarify it?

[Simon Danczuk]

If the revaluation took place in 2015, as it should, how many businesses would see their business rates reduced?

[Brandon Lewis]

As I published yesterday, the Valuation Office Agency’s view is that about 800,000 premises would have seen an increase and about 300,000 a decrease. We are talking about the retail sector, petrol stations, hotels and pubs. Those kinds of business would have been most affected by hikes. Postponing the revaluation—

[Simon Danczuk]

Where do the 300,000 businesses in the Government’s figures tend to be based—which regions?

[Brandon Lewis]

At the moment, the estimate is done across the country. We are looking at publishing these estimates, but what the Valuation Office Agency can and will publish is a matter for the VOA. We are looking to ensure that that is resolved before the Bill’s Second Reading on Monday.

Postponing the 2015 revaluation in England will avoid local firms and local shops having to face unexpected hikes in their business rate bills during the next five years. As business rates are linked to inflation, there will be no real-terms increase in rates over the period. The reform therefore provides certainty for businesses to plan and invest, supporting local economic growth.

Since the last revaluation, which was based on 2008 valuations, the economy and property market have faced exceptional changes. A revaluation at this point would therefore be likely to result in sharp changes to business rate bills in many parts of the country and in many sectors. Tax stability is vital to businesses that are looking to grow and to help improve the economy. The Government are committed to maintaining up-to-date rate bills through regular five-yearly revaluations, which will resume, as I said, after 2017.

We can look only at estimates for the revaluation in 2015, because the detailed work has not yet started. The estimates have been prepared by the Valuation Office Agency and are based on professional judgments informed by limited rental market evidence up to January 2012. They suggest that many smaller and medium-sized firms would have seen rate increases in 2015. Overall, the estimates suggest, as I have said, that 800,000 premises would have had a real-terms increase in their rates from a 2015 revaluation. The retail sector, some parts of which have criticised our decision to postpone the revaluation, would have faced big hikes in bills in 2015.

[Helen Jones]

If I understood the Minister correctly, he said that the detailed work had not been done by the VOA. If that is the case, how can he be confident of the numbers that he has given on winners and losers?

[Brandon Lewis]

As I have said, the publication of the figures is a matter for the VOA, and one that we are looking to resolve before the Bill’s Second Reading on Monday, but those are the figures from the VOA that we have at the moment. To do the full, detailed calculation, we would need to go through the full revaluation procedure, and the figure for that is just under £50 million. I will come back to that in a moment. We have taken steps to change the legislation, but both Houses—I think that my hon. Friend the Member for Waveney (Peter Aldous) raised the point about reviewing and looking at what is happening—will of course have the chance to examine the policy fully during the passage of the Growth and Infrastructure Bill.

Variation in business rates can have a significant impact on businesses. As has been noted, business rates can add 50% to property costs and can equate to 7% or more of turnover. Large-scale changes in these costs can be very disruptive to businesses at a time when they want to concentrate on delivering growth. That is why we felt that postponing the revaluation was the right thing to do. It provides certainty and stability, allowing businesses to have confidence in what they are doing.

I am aware of concerns that have been heard recently from organisations such as the British Retail Consortium that business rates are generally too high and should not be increased in line with inflation. In fact, the system of increasing the rating multiplier only in line with inflation, which was introduced in 1990, has provided valuable certainty for businesses over the years. It has meant that they have been able to forecast their business rates bill between revaluations and plan accordingly. That was touched on by the hon. Member for Warrington North (Helen Jones), I believe.

The Government have said that they will review the case for uprating in line with CPI instead of RPI, or using a 12-month average instead of the September inflation figure. That commitment still stands. I do understand that in the current economic climate, there are retailers and other businesses that would like lower business rate bills, and there are businesses that would like the Government to raise less money from business rates at the next revaluation. When we consider calls, such as those made today, for lower business rate bills, we have to balance that not just against a system that has capped business rate yields for 22 years, but against the Government’s deficit reduction priority and the tough decisions needed to reduce the deficit. To back up the comments made by my hon. Friend the Member for Nuneaton, it is important, if there is to be that deficit reduction, that we do not make further spending pledges, which is, to an extent, what hon. Members have invited me to do today.

To date, the approach to granting business rates relief has been to target it where support is most needed—on, for example, small businesses, charities, and businesses in hardship. However, we find discussions with groups such as the British Retail Consortium helpful—I will meet it in the next couple of weeks—and will of course continue to keep the rating system under review.

Let me touch on a couple of specific points that were raised. I am aware that there have been delays in relation to rating appeals at the VOA. It has devoted extra resources this year to help to clear the backlog. My officials have regular meetings with the VOA to discuss the appeal numbers. Postponing the revaluation will allow it to deploy more resources to clear the appeals, but we will also be looking to work with the VOA to see what more can be done to clear appeals.

[Kate Green]

I am grateful for that assurance. We look forward to seeing the impact of the additional resources. Will the Minister also commit to ensuring that up-to-date data about the VOA’s performance continue to be published? There have been delays in publishing the statistics, which might mean that worse performance is deliberately being suppressed.

[Brandon Lewis]

I will certainly take that point back to the Department. May I highlight that any ratepayers with an outstanding appeal who are in financial hardship or facing enforcement action from a local authority should contact the VOA directly, because it will look at bringing appeals forward in such cases?

[Simon Danczuk]

I do not know whether the Minister has ever tried to contact the VOA, but my office certainly has. I speak on behalf of many businesses that find it exceptionally difficult to deal with the VOA. Does he agree that its performance on appeals is completely unacceptable?

[Brandon Lewis]

The hon. Gentleman invites me to stray well outside the scope of the debate, but I take his point on board and will take it back to the Department. My offices speak and meet with the VOA regularly, and I will ensure that that matter is considered.

A specific point on out-of-town car parks was raised. The VOA independently assesses all properties, including out-of-town retail premises, for business rates on the same basis—annual rental value. I assure hon. Members that the rateable values reflect the value of car parking in an out-of-town location, to the extent that it is reflected in rents. I know that there is an issue with some councils seeing car parking in town centres as a cash cow; we have made changes to the rules around the transparency of car parking charges, so that residents can understand fully what councils are doing.

Of course, the Government have already taken action on business rates. We have doubled the level of small business rate relief in England for two and a half years, so the higher level of relief will apply throughout the 2012-13 billing year. We estimate that more than 500,000 businesses in England are benefiting, with approximately a third of a million businesses paying no rates. The measure therefore reduces fixed costs for existing and new small businesses, helping them to make the most of opportunities as the economy returns to growth. It is a useful measure. My hon. Friend the Member for Sherwood (Mr Spencer), who is no longer in his place, mentioned empty shops and start-up ventures. It is an interesting point, which I will take back to the Department to look at.

Through the Localism Act 2011, we simplified the process for claiming small business rate relief; waived £175 million of backdated business rates demands levied on businesses, including some in ports; and gave local authorities wide-ranging discretionary powers to grant business rates discounts. We listened to concerns about the RPI increase for 2012-13, and gave businesses the option of spreading the increase over three years.

As has been mentioned, we are also introducing the new business rates retention scheme. We want to give councils every encouragement to drive growth, so that they fully play their part in growing our economy through the planning system and their other levers. The business rates retention proposals represent a fundamental shift in the way that local authorities are funded. They give councils a strong financial incentive to drive local economic growth and to engage with local businesses to develop a positive approach to growth. Subject to the Local Government Finance Bill receiving Royal Assent, we will introduce the business rates retention scheme in April 2013.

We have taken other steps to boost the high street and growth. We have doubled the number of Portas pilots. Following applications by local MPs, over 300 town teams have signed up to become town team partners, and will benefit from a package of support. In March this year, we announced a £10 million high street innovation fund for the top 100 places most affected by the riots, or with the highest empty shop rates. In August, we announced the £1 million future high street X-fund. For those who have not yet applied, its closing date is 6 December.

We will shortly announce the details of a £500,000 fund to help set up business improvement districts. We will continue to support the high street by working with areas to remove barriers that prevent local high streets from prospering. We will publish a further response to Mary Portas’s review in spring 2013, building on the knowledge from the pilots, experiences across the country, and the progress that we have made on many of the other recommendations in the review since last December.

As was mentioned, next week is the Second Reading of the Growth and Infrastructure Bill, which will help the country to compete on the global stage by setting out a comprehensive series of practical reforms to reduce confusing and overlapping red tape that delays and discourages investment, new infrastructure and job creation. Postponing the revaluation until 2015 in England is the right thing to do.

[Simon Danczuk]

The Minister’s figures confirm that at least 300,000 businesses will pay more than they should in business rates for two years, from 2015 to 2017. Many businesses will have many more than one premises, so we cannot assume that that is 300,000 shops. Is that the right way to run a tax system?

[Brandon Lewis]

The hon. Gentleman omits to point out that 800,000 businesses would have had to pay more, and does not mention the uncertainty that would have been created over the next couple of years while businesses worked through the situation. That is not sensible in the current exceptional economic climate.

We want to provide local firms and local shops, including many of the most disadvantaged, with the certainty that they need to plan, invest and grow. VOA estimates suggest that the change will save 800,000 premises from a tax hike and protect key sectors such as retail. We recognise that regular revaluations are important to maintain up-to-date rates bills, but such immense volatility is not, at this time, in the public interest. Postponing revaluation will provide businesses with a stable economic environment in which to deliver growth.