Business Rates

Helen Jones Excerpts

Tuesday 30th October 2012 Westminster Hall

[Mr Marcus Jones (Nuneaton) (Con)]

Thank you for allowing me to speak in this important debate, Mr Caton. It is a pleasure to follow the hon. Member for Stockport (Ann Coffey), who set out a great advert for Stockport and what it has to offer. I congratulate the hon. Member for Rochdale (Simon Danczuk) on securing the debate; I have great respect for his work on issues relating to town centres and our high streets.

I have been slightly disappointed by the debate’s lack of acknowledgment of the general economic picture. Nor has much mention been made of the state of the public finances, which is another extremely important part of the context for the debate. It is worth restating, in support of the coalition Government, that when they came to power in May 2010 there was a car crash of a situation in the public finances and we had the largest deficit in the G20. To put things into perspective, the Government have had to make difficult decisions over the past two and a half years, but positive progress has been made. The deficit has been reduced by 25% in those two years and, throughout the world and in the markets, our country’s economic position is seen as stable. That is reflected in the low interest rates that we still have and which we would not have had were the Opposition in government; those low rates are allowing people to go out and use our shops to support our retailers.

[Helen Jones (Warrington North) (Lab)]

Perhaps the hon. Gentleman also wants to put on the record that when the previous Labour Government left office the economy was growing and unemployment was falling. This Government have presided over the longest double-dip recession that we have ever seen, and that is why people do not have money to spend in shops.

[Mr Jones]

The coalition Government should not take any lessons from the Labour party on economic management. We all know that we had the biggest bust in living memory under the previous Government, that under them the country was running a structural deficit long before the banks went bust and that since this Government came to power 1 million jobs have been created in the private sector. Growth might have only just come back into the economy and things might be slow, but we are building on a sustainable basis and not on the basis of borrowing and more spending, as we saw under the Labour party.

That brings me on to the points that I would like to make with my other hat on, as chair of the all-party group on town centres. I am passionately interested in issues relating to town centres, so I am concerned about the effect of delaying the revaluation. Town centres have been under the cosh for a number of years, internet retail is booming, out-of-town shopping centres are still buoyant and having an extremely good time in the main, and the net effect is that our town centres are currently in decline. Many of the national multiple retailers, which, only a few years before 2008, many of us were probably criticising for creating clone town centres, are now retrenching and consolidating their estates; when leases or break clauses come up, they are deciding to close town centre stores in favour of stores in large retail parks and of investment that they can make in internet retailing, because they can see that the writing is on the wall.

If we decide not to proceed with the revaluation at this point, we risk causing further damage to our town centres. Since 2008, town centre property values in my constituency have fallen like a stone, and rental income has reduced in the prime rental areas by 38%. Business rates are predicated on property value, and not revaluing the businesses in town centres seriously undermines the progress the Government have made on these issues. I welcome the Mary Portas review and am glad that the Government have taken on most of her recommendations, although such work could be undermined by the current proposals and, as my hon. Friend the Member for Waveney (Peter Aldous) mentioned, by local authorities that consider their car parks to be cash cows and think nothing of putting up car-parking charges year on year. We need to be careful that we do not price our town centres out of existence in a number of ways.

It is incumbent on the Government to be more creative. I would not personally advocate putting up business rates throughout the country, but the situation needs to be re-examined. My hon. Friend the Member for Waveney was critical of the valuation office figures for the proposed review, because they were now probably well out of date given the difference in economic circumstances between 2008 and now. The issue, therefore, needs to be looked at more carefully; we need to look at what we can do to support our town centres.

I hope that the Minister can give me, as chair of the all-party group, more confidence that the Government are listening to the concerns of those running businesses in our town centres—small, independent retailers and the large, multiple retailers which are seriously considering withdrawing their stores from many of our town centres. I hope that he takes the message back to the Government and that they reconsider what we can do to support such a vulnerable group of businesses in our community hubs. Most of our constituencies rely on town centres as the community centre for a local area, and we ignore that fact and the community values of our town centres and what they provide at our peril.

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[Helen Jones (Warrington North) (Lab)]

It is a pleasure, Mr Caton, to speak under your chairmanship. I congratulate my hon. Friend the Member for Rochdale (Simon Danczuk) on securing this debate. Since he came to the House, he has been a powerful advocate for his constituency, and has done an enormous amount of work with businesses to try to promote growth in Rochdale. We congratulate him on that. He made the point that the Government are failing to manage that change and to consider important issues, such as rebalancing the economy, the gap between what is happening in some of our more deprived areas and in other areas, and the gap between the Government’s windfall from increasing business rates and the money being spent on the Portas pilots to help our high streets.

Other hon. Members have also made powerful points. The hon. Member for Waveney (Peter Aldous), who gave a thoughtful and considered speech, mentioned the reasons why the high street is being hit hard—the changes in our buying habits, the growth of internet sales, and so on—and he made the point powerfully about the differences between out-of-town shopping centres and high streets. That issue must also be considered. My hon. Friend the Member for Stockport (Ann Coffey) has consistently put the case for retail, and especially for smaller shops, and she showed how rental values in Stockport have fallen enormously, by 29%, so that they are now totally out of line with the business rates paid. My hon. Friend the Member for Hartlepool (Mr Wright), who was not only an accountant but a very effective Local Government Minister, pointed out the real problems of low tax bases in places such as Hartlepool, as well as the need for a redistribution of business rates, and the high risk that authorities in those places have when they are dependent on a few large businesses for a high proportion of their rates. We raised those issues during the passage of the Local Government Finance Bill, and I will return to them shortly.

In the Growth and Infrastructure Bill—never has a Bill been more inaptly named—the Minister has decided to bring forward proposals to delay the revaluation of business rates. We want to support business in any way possible, but during the passage of that Bill, we will want to scrutinise the evidence that he is bringing forward—evidence that has been queried in today’s debate. We will also want to look at exactly where the winners and losers are, and what the effect would be on our regional economy. There is no doubt, as hon. Members have said, that the rise in business rates has had a huge impact on businesses, particularly small and medium-sized enterprises and the retail trade. We have all seen it in our constituencies, as many hon. Members have said: we have seen shops closing and young people unable to get jobs. I know many graduates who cannot get jobs aimed at their level of education, and who have sought jobs in retail to show that they are willing to work. Businesses, however, are simply not taking them on as they used to. They cannot afford to.

As my hon. Friend the Member for Rochdale pointed out, last year the RPI rise was 5.6%. The RPI figure in September was 2.6%, and even though that is lower, it will mean an extra cost of £175 million for businesses. Some of those businesses are in areas where rental values have fallen alarmingly, and they are struggling to survive. We all know that business rates are the third biggest outgoing for most firms, after rent and staff costs. As has been said, the current business rates use the rateable values from 2010, which were based on the rental values in April 2008, when property values were close to their peak. Many businesses therefore find themselves in a trap: in many areas, they are paying high rates while struggling to cope with the effects of a recession.

When the Minister made his announcement about revaluation, he said that the five-yearly review will resume

“once the economy has had a chance to recover fully from the financial and fiscal crisis”.—[Official Report, 18 October 2012; Vol. 551, c. 33WS.]

Perhaps when he responds he might tell us when that will be. He clearly does not think it will be by 2015, which is what the Chancellor told us originally. Is he confident that it will be by 2017, and that another review will be carried out then? If he cannot say that, he is simply introducing more uncertainty for businesses.

Whatever the answer, it is clear that the system is not working as well as it should; that is evidenced by the number of outstanding appeals, to which my hon. Friend the Member for Rochdale pointed. There are 241,700 of them, and the Valuation Office Agency is struggling to clear the backlog. One thing the Minister could do is ensure that the VOA has more resources to tackle that backlog, so that at least businesses could have their appeals dealt with and can pay the right level of business rates. I hope that he will commit to that.

As the Minister will be aware, although the Localism Act 2011 introduced more powers for local authorities to grant discretionary rate relief, that power has rarely been used, because the councils that would most need to use it are often precisely those that have had the biggest cuts in their budgets, and they cannot afford to. As with everything the Government have done, it is the poorest authorities that have seen the biggest reduction in their spending power. In this Alice in Wonderland—or should I say “Through the Looking-Glass”—world that the Government have created, those who most need to offer discretionary rate relief are the least likely to be able to afford to do so. How does the Minister plan to tackle that problem?

Need is particularly acute, at a time when the Treasury is getting increased revenue from business rates. Over the last four years for which we have the figures, the contribution to the national pool has gone up by £3.5 billion, not because there is a hugely growing economy, but because the rates were calculated at a time when property values were high. That has particularly hit the retail sector, because year-on-year growth for retail has averaged only 2.1% over the past two years, while consumer spending fell for three quarters in a row.

The Government, however, are facing another problem, which my hon. Friend the Member for Hartlepool touched on. The Local Government Finance Bill makes local authorities more dependent for their income on business rates. They will get back 50% of their business rates. I believe that the Government’s intention in the long term is to get out of paying grants altogether—grants are discretionary under that Bill—and put more reliance on business rates. Local authorities, however, do not set the rate. It would be out of the scope of the debate to go through the whole Bill, but I suspect that the Government have clocked a real problem. If they have a revaluation in 2015, some local authorities could see their income fall drastically because their rental values have fallen. I have great respect for the guile and cunning of the Secretary of State. I suspect he has seen that problem, and has seen that what he is setting up in the Local Government Finance Bill might well implode as a result, which is part of his reason for wanting to postpone the revaluation.

If the Government are going to use that postponement to consider how business rates should be set, which I hope they will—as hon. Members have said, there are issues about whether we should take a 12-month average based either on the consumer prices index or RPI; whether we should take the RPI based on one month; how often revaluation should be done; and so on—they need to involve those who receive business rates as well as the businesses that pay them. That means not simply the Treasury, but local authorities as well. It is even more important to do that, because as we have heard today, the postponement of the revaluation is being viewed very differently in different parts of the country. It is not simply a north-south divide, although I accept what my hon. Friends have said about it impacting hugely on the north. Businesses that were hoping for a better alignment between rental values and the business rates that they are paying have been hugely disappointed. There is a big difference between what has happened in, for example, Rotherham, where rental values have fallen by 35% between 2008 and 2012, and what has happened in Bond street, where they have gone up by an average of 50%.

In that context, I wonder what the Minister plans to do to assist businesses, particularly small and medium-sized enterprises, in areas where rental values have fallen and business rates are now totally out of line with the values that currently apply. I hope that he will be able to answer some of the fundamental questions that we have posed today, because he will simply be creating more uncertainty and more difficulties for business if he cannot resolve those problems. Hon. Members have made that clear in the debate, and I hope that we will now hear more from the Minister about how he intends to respond to those concerns.

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[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.