Business Rates

Mel Stride Excerpts

Wednesday 13th June 2018 Westminster Hall

[Derek Thomas (St Ives) (Con)]

I thank the hon. Member for York Central (Rachael Maskell) for securing this debate. It is one that I wanted to secure, but I was not successful, so I am glad to have the opportunity to contribute again on the subject. The Minister might just groan when he hears me speaking again—he has heard the issues several times before, and I was glad to raise them in last week’s Opposition day debate.

I agree with my right hon. Friend the Member for East Devon (Sir Hugo Swire) that the Minister is engaged and keen to resolve this issue, and I understand how complex and difficult it is, so I will not be unfriendly in my remarks, but I want to reiterate some points I have made before, as well as bring up an issue that Cornish colleagues have been concerned about, but which has not gained any traction here in Westminster.

Issues with business rates lead me to believe that the system must be scrapped. One reason for that is the significant housing issue in Cornwall. It is a real challenge to provide and retain houses for local families and for people who live and work locally and who want to work at the hospital or in public services perhaps, but who just cannot secure the housing they need.

Everyone who lives in a house, unless they are on some sort of benefit, pays council tax, but if someone has a property that they own and which they choose to use as a holiday let, it can be registered as a business and they can avoid paying council tax altogether and then claim small business rate relief. I live in a three-bedroom house and I pay £1,600 a year to live in that property; I contribute, as lots of families do. A property next door is paying no council tax whatever, so it is not contributing.

We have a cross-party campaign in Cornwall on this issue. The real tragedy is that it is possible for a second-home owner to advertise his property as available for rent and also claim small business rate relief. Other Cornish colleagues and I have been raising that issue since we were first elected in 2015. I do not think the Government are fully engaged and fully understand the challenge that that poses for a community such as Cornwall, which needs every penny it can get. There is an opportunity for the Government to close the loophole and collect more tax, completely fairly. I urge the Minister to look at that again and to give his Cornish colleagues some cheer when it comes to trying to address our housing problems.

On the high street, my constituency also has shops that have closed since Christmas. There are lots of reasons, which include ridiculous parking increases and an obvious change in customer behaviour, but there are also business rates. In the 2016 review, St Ives saw quite dramatic increases, along with London and the south-east and other areas. It was a significant shock to many businesses.

I have examples that show that the way business rates are calculated does not make any sense. It is not clear why one shop should pay one amount while the shop next door pays something completely different. If we could understand the business rates arrangement, and if it were equitable, perhaps it would not be such a problem, but some shops have no idea why they are being charged such sums, and the check and challenge process does not help them.

Behind the headlines about the big retailers and multiples, a number of small businesses are closing or threatening to close. I have said previously in this place that about 11 businesses have told me that they do not believe they will see it out to the end of this year. Their problem is that they own their building or have a stake in it, so they have to carry on paying business rates even if they can no longer function as a business. That is a depressing message to send to what we used to describe as hard-working families.

The issue of business rates is complex; it is not just about consumer behaviour and people choosing to shop online. I disagree with my right hon. Friend the Member for East Devon. I can barely work out how to enter my card details online, so I tend to go to a shop when I have a spare moment.

Let me give examples of what is happening in my constituency. In Penzance, No. 8 has 90 square metres and is paying £14,750 a year. No. 8A, a similar property right next door—I cannot tell the difference between them—has 88 square metres, so 2 square metres less, and is paying £18,250. The Valuation Office Agency has not been able to explain the difference between them. The Minister has been engaging and helpful, and has asked about that. My office is working up a few examples of that nature so they can be investigated and studied. In one sense, I am being fairly unhelpful, in that I am raising an issue about which the Minister has already invited me to give him details. We are doing that and will get them to him soon.

In Helston, Betfred has 132 square metres and pays £13,500 a year. Next door, an independent deli in a much smaller building of 123 square metres—I would love to show hon. Members the photos—is paying £16,250. We have done everything we can to support that shop with the Valuation Office Agency, check and challenge, and the local authority, and to try to get it some help. It has had a small reduction, but the bottom line is that the owners get out of bed in the morning and have to find that money before they do anything else. They cannot understand why Betfred—a multiple next door, with a much bigger shop front and, sadly, a busier shop—is paying £3,000 a year less.

In St Ives town itself, there is a fudge shop of just 20 square metres that pays £13,750. St Ives fudge is world renowned, so it is understandable that people want to shop there, but that does not justify the fact that the Government or the Valuation Office Agency have decided that for just 20 square metres it needs to pay nearly £14,000 a year. There are lots of examples in St Ives town of what seem to be arbitrary increases.

I recognise that the Government have introduced lots of measures to try to support such shops and have enabled local authorities to offer help, but we have not seen the benefit. One pub in St Ives has had real help from Cornwall Council, but those other shops have been left to find the money month in, month out. The problem with St Ives—this is the nature of the high street in a popular town—is that an entrepreneur who wants to make a go of running a shop in the town centre will have to pay whatever rent is required, because that is what the absent landlord asks for, and there are few other options. They last perhaps nine or 12 months. When they leave, the rent goes up, and a new aspirational person comes in and tries to set up a business there. Their short lifespan has an impact on the business rate valuation, and on all the other shops, which might have been there for 100 years. Since Christmas, we have lost the local fruit and veg shop and all sorts of other businesses that served the community for 100 years or more.

The real tragedy is that, previously, holiday makers would flood to St Ives and buy what they needed for the week. Now they arrive and the truck from the local supermarket, which might be travelling from Truro, will turn up and deliver all they need for the week, above the very grocery shop that would previously have sold to them.

That is about consumer behaviour, but the real challenge is that business rate charges are not equitable. More than a year ago, I got the Valuation Office Agency to come to St Ives to meet a room full of concerned business owners, and it refused to comment on any individual business. All it did was explain how we could do the check and challenge. Those businesses are in a busy part of town, so they might be expected to be financially successful. The owners work extremely hard day in, day out to make their businesses work—often, they do not have time to jump through the hoops, although many of them did—only to be told they are paying the right amount of money.

I want to ask for three things. First, we should review the review. I know we have another review, but we need to look at what happened 18 months to two years ago, and at why some shops and retailers saw ridiculous increases. We need to do something quickly to address that now, because those businesses are going out of business.

Secondly, the point about local authorities keeping the money from business rates is important, but town and parish councils also need support, because there is often a double devolution situation, with powers shunted down without money. In Helston, the town council—it would be great to have a pilot, along with York Central—would love to grapple with its town, make it vibrant and support the high street, but it has no money to do that.

If we are not going to get rid of business rates, it would be great to allow town councils to retain 1% or 2% of the business rates collected. For Helston, that would be about £200,000 a year, which would give the council the power to transform the shopping experience on the high street and support the very people who are spending that money. I know that 1% or 2% is a lot of money, but it is quite a small chunk of what is collected and would give the towns a fighting chance.

Finally, I recognise that the Government need to collect the 2.4%—

[The Financial Secretary to the Treasury (Mel Stride)]

It is 24%.

[Derek Thomas]

Is it 24%? Golly! I know the Government need to continue to collect that money, and I am absolutely in favour of the transaction tax. A high street business should pay the same rate on an individual item as an out-of-town store or an online store pays. There must be a way to make taxes fair. There must be a simple way to make tax digital that enables the Government to continue to collect the money they need while ensuring the system is fair for all those who seek to sell items to customers.

I am grateful for the opportunity to speak in the debate, and I appreciate that the Minister is listening and wants to resolve the difficulties that high streets face.

--- Later in debate ---

[The Financial Secretary to the Treasury (Mel Stride)]

It is a pleasure to serve under your chairmanship again, Mr Gray.

I congratulate the hon. Member for York Central (Rachael Maskell) both on securing the debate and on the tenacious approach she has rightly taken to the extremely important matter of business rates. I thank her for her comprehensive contribution, and in particular for the examples she gave of high street businesses—I think we all recognise that many face considerable challenges. I also thank the various other speakers, who raised numerous points. I intend to pick up on as many as I can, but I would of course be happy to engage with Members outside the Chamber on any that I omit.

I thank my right hon. and gallant Friend the Member for East Devon (Sir Hugo Swire) for his kind remarks about the amount that I care about this issue and for referencing my business background. I fully appreciate what a struggle it is in the business world, even when times are extremely good. It is never easy to go out and employ people, to generate wealth and to have a successful business. I also appreciate that business rates are one of those taxes that businesses simply cannot avoid—they are paid irrespective of profitability, which of course has particular consequences in some cases.

We need to put this debate in context. A number of Members said that business rates are an issue but are not the totality of the pressures that our high streets face. We heard much about the challenges of online marketplaces and of the planning system—when there is a change of use of businesses that reside on our high streets, for instance—and my right hon. and gallant Friend raised the issue of parking. Myriad issues impinge on this space, and I think we are all seeking to ensure that taxes right across the system are competitive, that there is fairness among those who are expected to pay them, and that they are collected, so that we minimise tax avoidance at every stage.

That brings me to the comments by the hon. Member for York Central about possible alternatives to the current rating system. She mentioned a tax on revenue or on profitability. As soon we started to tax revenue, we would run into the problem that businesses that were not profitable still had a turnover. For example, a new entrant on the high street that we all wanted to thrive may get throttled by the kind of approach that she suggests. If we went for a tax on profits, there would be the potential for profit shifting. If there were a particular regime in one area, businesses may move profits around between multiple enterprises to reduce their overall tax.

The hon. Member for Sheffield South East (Mr Betts) recognised that. He made the important point that business rates have a distinct advantage when it comes to avoidance, because buildings cannot be shifted around in the way that it might be possible to shift other metrics. He also raised the 100% business rates retention pilots and expressed hope that we would pursue that measure. We will pursue it with vigour. I am watching it very closely in Devon, where the pilot scheme is also operating. I very much look forward to catching up with the report of the Housing, Communities and Local Government Committee, which he chairs.

My hon. Friend the Member for St Ives (Derek Thomas) raised the issue of second homes being designated as businesses because they are holiday lets. We are engaged with the VOA to ensure that no abuse occurs in those circumstances. He will be aware that certain criteria have to be met for individuals or companies to treat properties in that way. I am happy to engage with him outside the Chamber on that issue, because he raised one or two interesting points. He also raised the issue of different businesses paying different rates and gave an example of two businesses right next door to each other. He and I have discussed that, and I look forward to looking in greater detail with him at the examples that I know he will come forward with.

The hon. Member for High Peak (Ruth George) raised a point about pubs and suggested that information being made available to the public might drive crime. I am certainly prepared to look at that. I imagine that those who are out to raid the premises of pubs have other measures by which they might be able to discern whether a lot of cash is being taken—how many people are in there drinking on a Friday night, for example—but I am certainly happy to speak to her about that. She also raised the way pub rates are calculated. They are valued by the VOA using the fair maintainable trade method, which has been agreed with the British Beer and Pub Association.

Let me point out the numerous things that the Government have done on business rates to support businesses. In 2016, we announced around £9 billion of relief on business rates. We made the 100% small business relief permanent, which took 600,000 businesses out of rates altogether. We increased the threshold for the standard multiplier, removing 250,000 businesses from the higher rate of business rates. Of course, we were able to do that only because of our prudent stewardship of the economy, which has allowed us the space to provide that relief to the business community.

I have limited time, but I will dwell for a moment on the online business threat, which a number of hon. Members rightly raised. There is a growing number of online businesses in this space, and an increasing number of purchases are happening through online companies. It is important to make the point up front that when we refer to some of those companies paying relatively small amounts of tax compared with high street operations, we are talking not about tax avoidance but about whether the way the international tax regime operates is appropriate or functional for the 21st century. It is not. We need to find different ways of taxing online platforms, whether they are search engines, social media platforms that generate revenue, or online marketplaces, where significant value generation occurs through the relationship between users based in the UK and the platform itself.

[Sir Hugo Swire]

It is reassuring to hear the Minister say that we need to look at ways of taxing those rather more mobile forms of purchasing online. Will he say whether there is a team in the Treasury doing that, and when it is likely to report?

[Mel Stride]

There is indeed. I am personally engaged in that matter, which has been taken up at the OECD and the European Union. They have both produced interim reports on the issue and suggested that we might look multilaterally at some kind of revenue-based taxation, albeit—to get back to the problem of revenue-based tax—we do not want to choke off new entrants to the marketplace, which may be loss-making, so there may have to be some de minimis thresholds associated with that formula. We are actively pursuing that on a multilateral basis with countries in those two institutions. I discussed exactly this issue with Finance Ministers from OECD countries at the ministerial meeting of the OECD in Paris last week. We have made it clear that, although it would be most beneficial to move multilaterally with other countries, we will make a unilateral move if we need to.

I am conscious that we are down to the last minute and I would like to give the hon. Member for York Central an opportunity to respond, so I will draw my remarks to a conclusion.