Draft Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2021

Jesse Norman Excerpts

Thursday 4th February 2021 General Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

I beg to move,

That the Committee has consider the draft Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2021.

It is a pleasure to see you in the Chair, Dr Huq. The order freezes the business rates multiplier at its current rate for the coming year. This is instead of an annual increase in the business rates multiplier in line with the retail price index.

If I may, I will start by explaining the context of the order. The multiplier is effectively a tax rate used to calculate business rates. There are two kinds of multiplier: the standard multiplier, which applies to businesses with a rateable value of over £51,000, and the small business multiplier, which applies to businesses with a rateable value of up to £51,000. Historically, these multipliers would rise in line with the preceding year’s retail price index inflation figure. On this basis, they were due to increase to reflect the September 2021 RPI figure, which was 1.1%.

At the 2016 Budget, the Government announced they would switch to uprating the multiplier in line with the consumer prices index measure of inflation instead of RPI. As Members will recall, the following year the Government brought forward this implementation date from April 2020 to April 2018. The switch from RPI to CPI is worth about £6.5 billion to businesses over the next five years, and the benefit only grows with time.

This year, in recognition of the impact of the covid-19 pandemic on businesses, the Government have gone a step further. This order provides the statutory legislation that will allow the Government to freeze the inflationary increase for business rates for the financial year 2021-22 at the same rate as that for the financial year 2020-21. This means that the small business multiplier next year will be 49.9p rather than 50.1p, and the standard multiplier in 2021-22 will be 51.2p rather than 51.4p. This measure provides relief to millions of small businesses at this most difficult time and beyond, by saving firms an estimated £575 million over the next five years.

The measure contained in this order applies to England. However, the Government will provide the devolved Administrations with equitable funding. In addition, they will fully compensate local authorities for the income that they will lose as a result of this measure.

It is important to say that this is only one part of the Government’s efforts to support businesses during the present crisis. In 2020, they provided a business rates holiday worth around £10 billion for eligible retail, hospitality and leisure businesses. Businesses have been recipients of a large proportion of the £280 billion of economic support that the Government have provided in response to the crisis. That includes the coronavirus job retention scheme, which has paid millions of workers’ wages, VAT deferrals, loans and grants. In addition, the Government are considering options for further support in response to the crisis, through business-related reliefs.

Of course, efforts to support small firms with business rates did not begin with the crisis. Before the pandemic struck, the Government were in the process of rolling out a series of major reforms to business rates, worth over £14 billion over the next five years. They included doubling small business rate relief from 50% to 100% for the smallest businesses in England and changing the standard multiplier threshold—steps that mean that nearly 700,000 small businesses pay no business rates at all. Combined with the business rates holiday for retail, hospitality and leisure, this means that half of all ratepayers will have paid no business rates in 2020-21.

In addition, we continue to listen closely to business owners who have voiced concerns about the fairness of the business rates system. As a result, the Government are conducting a fundamental review of business rates and greatly welcome the wide variety of responses generated by the call for evidence to the review launched last year, to which the Government will respond in due course.

British businesses are the beating heart of our economy. It is only right that we do what we can to support them through this difficult time. As I outlined earlier, this statutory instrument is one part of a much wider package of support. The order will give more certainty at a difficult time and underlines the Government’s commitment to firms large and small. That is why I commend the order to the Committee.

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[Jesse Norman]

I thank the hon. Member for Houghton and Sunderland South for her questions and her speech, and I thank the Opposition for their support for this measure.

The hon. Lady will be aware that the Government have tried to build longevity into their policy making where they have been able to do so. That was one of the reasons why the furlough scheme was extended to the end of April. In relation to a long-term plan, she will also be aware that the Government will come forward with further plans at Budget.

In relation to business rates, I think the hon. Lady will be aware that we have done a fundamental review of the regime. We will come forward with further announcements on that in due course. It has been looking not just at the surface; it has been looking deep. She complained that the measures are one size fits all, but the fact that we have a separate rate for small businesses precisely reflects the fact that we treat those businesses differently from larger businesses. The fact that we have segregated retail, leisure and hospitality shows that we are targeting those areas, but I take her comments in good heart.

The hon. Lady asked whether we will redeploy the £2 billion that is being repaid. Of course, as she will be aware, this money goes into the consolidated fund at the Treasury, from which we are able to draw the £280 billion of support—more than 130 to 140 times the amount she discussed—for the economy as a whole. We will continue to redeploy that money to support the economy as a whole. Of course, that comes alongside all of the longer-term measures that I have already outlined in support of businesses facing business rates.

Question put and agreed to.