Business Rates

Clive Betts Excerpts

Wednesday 13th June 2018 Westminster Hall

[Mr Clive Betts (Sheffield South East) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate my hon. Friend the Member for York Central (Rachael Maskell) on securing this important debate about the relevance of business rates to our local communities, and the impact that they may be having on them.

I may approach the debate slightly differently, from a local government perspective, because I have the privilege of chairing the Housing, Communities and Local Government Committee, which has looked recently at business rate retention. The Committee will also look at the future of the high street in an inquiry for which we are taking evidence.

First, I am pleased that the motion moved by my hon. Friend is about a “review” of the business rates system. I think that is important. I wish to begin by saying that I hope we end up with a review rather than a complete abolition of the system. I am sure that the Treasury will be the first to say that abolishing taxes and starting again has slight dangers attached to it, in terms of a complete dislocation. Reorganisations on that sort of scale rarely go well.

I would also argue that property tax is quite important. We tax many things in this country. Nobody particularly likes taxes, but taxing property in some way is quite an important element of our overall taxation system. Of course, households pay a property tax—through council tax at one time. Some of us have been around in various forms of representative government long enough to remember when we had a rating system that covered both domestic and non-domestic properties. The change was made when the poll tax was brought in, and business rates were effectively nationalised and council tax came in instead.

Secondly, we have to make it clear that business rates are an important source of local income for councils. Councils have a Government grant, council tax and business rates—that is basically it. They can raise certain charges, but those are their meaningful sources of money. I would strongly argue, and the Committee has, that over time we should find more ways for councils to raise money at a local level, so that local people can see accountability and the direction between the money they pay and the services that they get. However, that wider discussion is for another day.

The issue is becoming more important because in 2020 the Government intend to move to 75% business rate retention from the current 50%. Some pilots are doing 100% around the country. Increasingly, it is not about merely the totality of business rates, and what is raised in a local area is extremely important for that council. The Finance Bill before the election was going to move to 100% business rate retention. I am disappointed that we have stopped at 75%. The Government say that they will look in the future to moving to 100%, but that makes it even more important that we do not just tear it up and start again.

[Matt Rodda (Reading East) (Lab)]

I urge my hon. Friend and colleagues to consider the importance of continuing the pilots for retaining 100% of business rates, which many local authorities in the pilots find very effective. The Berkshire unitaries all have a one-year 100% retention, and they very much wish to continue that. If the Minister considered that, I am sure it would be greatly appreciated in our county.

[Mr Betts]

That was a very helpful intervention. It shows that some very interesting things are going on at a local level. Very often, ideas begin in local government, are tried and tested at a local level, and then are moved on to the whole country. It is very important that we do not simply say that now we want to move away from the whole system, and leave those valuable lessons unlearned and unapplied.

The other point is that there is the capability for even more local control of business rates. In the days when we had domestic and non-domestic rates, councillors set the rates. They were nationalised when the poll tax came in and the control for setting the rate in the pound was moved to national level. That is an argument that we have had on the Select Committee. I would like to move towards more local control eventually and the system is at least capable of doing that. Business rates are also easy to collect and difficult to avoid, and we should see that as quite a strong benefit of the system.

The right hon. Member for East Devon (Sir Hugo Swire) raised some very pertinent concerns about the impact on high streets, which we see whether it is a village, a small town or a major city. We see derelict shops and the change that is happening. The Select Committee is therefore taking evidence in an inquiry on what high streets are going to look like in 2030. We are trying to look ahead to see what change is happening and whether people are planning for it.

A good point was made about the planning system. We ran an inquiry a few years ago on the high street, and it was stark then that very few councils seemed to be adapting their local plans in recognition of the change in shopping habits. Everyone can see it happening, but nobody seemed to be recognising it when they were looking at what town and city centres would be used for in the future. That will be an issue to address.

I know business rates are an issue for some small retailers, and I will come on to a couple of points we ought to address, but I suspect that that is sometimes an excuse when the real issue is the change in shopping habits. People are just changing what they do. Whatever shopping centre it is, people are simply choosing not to go there, or, as has already quite rightly been said, they go to have a look and then buy online. About 30% of retail shopping is now done online. There cannot be that degree of change without an impact on the retail floor space needed. All the signs are that that is going to continue, and I am sure it is one of the issues we will address in our inquiry.

We are also going to look at some of the things being done by retailers and the property owners, such as the company voluntary agreements that are coming out now as retailers try to negotiate their leases effectively, with a bit of pressure. The retailers did sign up to those leases and there are reasons why they did, sometimes on a long-term basis. We are going to have a look at the issues there as well.

We will also look at revaluations, but we have to remember that revaluation is a zero-sum game: it simply changes who pays what and does not actually raise more money. I am not saying that some centres and high streets are not disadvantaged, but somebody somewhere is probably gaining in the system, which is something that we have to think about.

Two points that we have to look at were powerfully raised by my hon. Friend the Member for York Central. In terms of retailing, the change in shopping habits is to businesses that by and large pay very little in business rates. That is absolutely fundamental if we are going to review the system. How do we get from a system that is a bit archaic and a bit stuck in a particular rut, to a situation where we can charge more for those big online retailers, and indeed the out-of-town shopping centres that were mentioned? Why do they pay relatively so little in rates, compared with the often smaller shops on the high street?

[Ruth George]

My hon. Friend is making some excellent points. Does he agree that we need to make sure that we incentivise British businesses that trade in this country and make sure that they cannot be undercut, whether on the high street or online, by companies that are directly importing and often avoiding customs and other charges by doing so?

[Mr Betts]

It is important that we look at those issues in wider taxation. I am not sure we can quite go there this morning, but we certainly need to look at whether we can tax some of those major companies—we know the international conglomerates of online shopping without necessarily having to name them—on the turnover that they have in this country rather than on the profits that they declare, as they move those profits into the lowest- tax countries. Of course that is what happens.

There is a wider tax issue about how we deal with some of those online companies, but in terms of business rates, the unfairness between them and retailers on the high street is very stark, as with out-of-town shopping centres. It always seems unfair. I have a major out-of-town shopping centre in my constituency, Meadow Hall, which provides a great service to people, is incredibly well used and provides a lot of jobs, but nevertheless the rates paid there are not comparable with those paid by many shops in the high street.

We also have to bear it in mind that business rates are not just about retail. Commercial, manufacturing and other businesses pay rates and there are some disparities. One point we picked up was that where manufacturing industry innovates and improves, it gets an increase in business rates on that improvement. There is something odd about taxing improvement in that way. We should also look at that. There are some other strange things, such as hospital trusts trying to claim exemption from business rates, or lower rates, under charitable status. I mean, come on—that is about moving money from one bit of government to another! The hospitals are saying they are not going to pay, but then local authorities do not get the money. The Government have to sort out those issues. There are some nonsenses around.

If there is a review and there are changes, we have to be very clear that, if the Government legislate for those changes nationally, there is a mechanism to compensate local government for any money that it loses collectively. After 2020, that is going to be quite a challenge. My understanding is that when the 75% retention of business rates comes in in 2020, local authorities will receive only council tax and business rates, which will then be redistributed in some form. There will not be a central Government grant, so if central Government are going to compensate local authorities for any change to the business rate system that reduces the amount of money in total going into local authorities, how will they be compensated? That is a challenge we all need to think about.