Business Rates

Mark Spencer Excerpts

Tuesday 30th October 2012 Westminster Hall

[Simon Danczuk]

That is absolutely right. The failure to run the appeals process successfully is damaging businesses, particularly small and medium-sized enterprises.

As if that were not bad enough, out of the blue, with no notice given, the Government then told us that they had decided to stop the 2015 business rates revaluation and carry it out two years later. There was no consultation with business, no detailed discussion of how the policy might affect economic growth, no consideration of how the policy might prevent the economy from being rebalanced along geographical lines. The British Property Federation’s chief executive says that the move

“embeds injustices in the current system”,

and the British Council of Shopping Centres says that it will have a “very negative impact” on the high street. Those organisations are big figures on the distressed retail property taskforce, which the Government are backing, yet Ministers will not listen to them.

[Mr Mark Spencer (Sherwood) (Con)]

I congratulate the hon. Gentleman on securing this important debate. One issue on high streets in my constituency is that landlords are having to pay business rates on empty properties and therefore do not have the cash to invest in those properties in order to attract new tenants. The previous Government introduced that system. Does he acknowledge that it might have been a mistake?

[Simon Danczuk]

That is an interesting point about empty property taxes. I will not address it in my speech, but it undoubtedly deserves examination and should be investigated further to see what impact it has on businesses.

Let me make it clear: I have yet to hear a single retail voice supporting the Government’s proposal to cancel next year’s revaluation. The Minister seems to think that he is right and everyone else is wrong. If he can identify somebody who supports the revaluation, I would be interested to hear who it is.

To put it bluntly, the business rates revaluation postponement is no way to do government. The decision to postpone next year’s revaluation of business rates has compounded the sense of injustice already felt by retailers and other businesses. To add insult to injury, the Minister has defended the policy by saying on radio that it is simply like being locked into a fixed-rate mortgage. What he did not tell radio listeners is that it is like a fixed-rate mortgage with an interest rate set at more than 40% for many customers. The Government must think that businesses are daft. Current business rates are based on rents that were set close to the property boom peak in 2008. Since then, property prices have fallen by up to 40% in many parts of the north and elsewhere in the country.

--- Later in debate ---

[Peter Aldous (Waveney) (Con)]

It is a pleasure to serve under your chairmanship, Mr Caton. I am grateful to my hon. Friend the Member for Rochdale (Simon Danczuk) for securing this debate, and I welcome to the Front Bench my neighbour, the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Great Yarmouth (Brandon Lewis).

I welcome the debate, as this is an opportune time to review the future of business rates. Business rates are attractive to the Treasury and always have been, no matter which party has been in Government. They are easy to collect, difficult to avoid and highly productive, representing 5% of the UK’s tax bill. However, there is concern that the Treasury’s over-reliance on business rates is having unintended consequences. First, it is hitting high streets particularly hard, contributing to the large number of vacant units. Secondly, it is holding back economic growth, as the retail sector in particular is an important engine of the economy. Thirdly, it hits hard businesses that are property-reliant and must be in a specific high-value location. Many profitable internet-based businesses that are less property-intensive are not penalised to the same extent.

I am not an expert on the subject of business rates, but I do have an interest in the subject: before I came here, I was a chartered surveyor for 27 years. I dabbled occasionally in business rates, but it is a very specialist subject. I am interested in playing a small role in encouraging the renaissance in the high street, and I commend the Government for the work they have done in that respect. Lowestoft, in my constituency, is a Portas pilot, and the town team is setting about its work with relish. It is important that we in this place provide the framework through which its work can come to fruition.

I shall concentrate on the retail sector, which pays a significant portion of all business rates—more than a quarter, at 28%. On average, 14.6% of retail units in our high streets are vacant. That is due to a variety of factors: the growth in out-of-town retail parks, the rise of online shopping, falling consumer demand and high business rates. In some cases, the business rates are higher than the rent. Often, a retailer is interested in a particular unit; the rent looks okay, and he is working things out, and then suddenly he is hit with how much the rates will be. Mary Portas has said that high rates are a deterrent to investment in town centres and to retailers occupying shops.

To be fair to the Government, they recognise the vulnerability of small businesses to high rates. There is a small business rate relief scheme, a business rate deferral scheme and discretionary rate relief. The problem is that those schemes have had a limited impact and are of limited benefit to many small retailers. As was mentioned, the retail sector is the UK’s biggest private sector employer. It provides crucial first jobs to approximately 1 million 16 to 24-year-olds. There is real concern that another hike in rates will lead to fewer chances of work, less investment in the fabric of our town centres, which are so important to the country as a whole, and a more troubled high street.

Any decision to postpone the five-yearly revaluation review needs more consideration, scrutiny and consultation. I note that the British Chambers of Commerce was taken by surprise by that postponement. I hope that as the Growth and Infrastructure Bill progresses through Parliament, we have the opportunity to consider the matter in more detail. Any property tax requires frequent revaluations to ensure acceptability and fairness. The five-yearly reviews that have been in place for more than 20 years are well understood and provide a level of certainty. A break in that precedent creates an air of uncertainty—people will not know whether a review will take place.

It is also important to take into account that relative property values change over time. Relatively, rents in some sectors and locations will rise, while those in others will fall. It is important that the rating system has an in-built review system that reflects the dynamic nature of the property marketplace. We can then be sure that the tax burden is spread fairly—that those with the broadest shoulders pay the most, and those whose business may not be as profitable at a particular time pay less. Liz Peace, the chief executive of the British Property Federation, sums it up well:

“A revaluation should shift the burden from those who are suffering to those who are prospering.”

With the proposed freeze, there is concern that those in lucrative locations will benefit and those in hard-hit areas will suffer.

[Mr Spencer]

Will my hon. Friend mention the tax on empty properties? That causes me great concern. People who want to start a business need access to a small property. Landlords who find themselves having to pay enormous rates on empty properties are literally flattening them, so that they no longer have to pay. That removes the amount of start-up properties for those businesses.

[Peter Aldous]

I am grateful to my hon. Friend for raising that important issue. I was not going to raise it myself, but I take account of what he says. The tax on empty properties was introduced under the previous Government. I was still practising then, and there were concerns at that time. I have seen a number of units—they may not have been in the best condition, but they were available, often with a low rental value—demolished by landowners and landlords. Reducing the supply of accommodation can lead to an increase in rents for small businesses that are just getting started.