Local Government Finance Act 1998 (Non-Domestic Rating Multipliers) (England) Order 2017

Mel Stride Excerpts

Monday 29th January 2018 General Committees

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

I beg to move,

That the Committee has considered the Local Government Finance Act 1998 (Non-Domestic Rating Multipliers) (England) Order 2017.

It is a pleasure to serve under your chairmanship, Mr Austin. The order changes the annual inflationary increase in the business rates multiplier for the coming financial year from the retail prices index to the consumer prices index, which is lower. The Government have also committed to switching to CPI as an uprating measure in all subsequent years.

The multiplier is effectively the tax rate applied for the calculation of business rates. There are two business rates multipliers: the small business multiplier and the standard multiplier. Historically, these multipliers rose in line with the preceding year’s RPI figure. On that basis, the multipliers were due to increase to reflect the September 2017 RPI figure of 3.9%. Given the high rate of inflation, the Chancellor announced in the autumn 2017 Budget that he would bring the planned switch to consumer prices indexation forward by two years, to April 2018. This decision, which was a key ask from business at the Budget, further reaffirms the Government’s commitment to supporting firms of all sizes to achieve their potential.

The benefit to ratepayers from this change will grow significantly each year because business rates will be uprated by a lower rate of inflation year on year. For example, it is estimated that business rates on the average property could be approximately £1,200 lower in total by 2023. Bringing forward the planned switch will be worth £2.3 billion to businesses over five years—the switch to CPI will be worth £4.1 billion in total by 2023.

The Government recognise that business rates can represent a high fixed cost for firms, so in the 2016 Budget, following a fundamental review of business rates, we announced major reforms and reductions at a cost to the Exchequer of approximately £9 billion over five years. Those reforms included making the 100% small business rate relief permanent and increasing its threshold from April 2017, as a result of which 600,000 of the smallest businesses will not pay business rates again. We also increased the threshold for the standard multiplier from April 2017, taking 250,000 properties out of the higher rate of business rates. As part of the package of reform, we announced that we would switch the annual indexation of business rates from the RPI to the lower CPI. In addition, in the spring 2017 Budget we announced a £435 million package to support businesses that face the steepest increases in bills following the recent revaluation.

The order is the necessary secondary legislation required to effect the change in the inflationary increase for business rates from RPI to CPI. It sets out the new equation for setting the multipliers for the coming financial year so that the September CPI figure of 3% is used instead, meaning that in 2018-19 the small business multiplier will be 48p and the standard multiplier will be 49.3p. The change represents a cut in business rates every year that will benefit all ratepayers and free up cash for businesses. We are committed to fully compensating local authorities for the business rates income that they will lose as a result of this measure, and we will provide the devolved Administrations with funding to enable them to provide similar support if they so wish.

The order is part of a wider package of measures in the autumn 2017 Budget to reduce business rates and improve the fairness of the system. This includes legislating retrospectively to address the so-called staircase tax and reinstating small business rate relief for ratepayers who lost it as a result of a recent Supreme Court ruling. We are continuing the £1,000 business rates discount for pubs with a rateable value of up to £100,000 for one more year. We also announced that we would increase the frequency of property revaluations by the Valuation Office Agency from every five years to every three years after the next revaluation, which is due in 2022. This is to ensure that bills are fairer, more closely reflecting properties’ current rental values. We will consult on the detail of the revaluation policy in the spring and would welcome the views of stakeholders.

The order will change the annual inflationary increase in business rates from the RPI to the CPI in 2018-19, reducing business costs for all ratepayers in England and giving the economy a further boost, and I commend it to the Committee.

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[Mel Stride]

I thank the hon. Member for Oxford East for her contribution and for welcoming the measures, albeit that she did caveat her remarks fairly heavily. She asserted that the Government are not doing enough, but bringing forward the change to the revaluation approach by two years is a £2.3 billion move. The total value of moving from RPI to CPI, including the fact it is being brought forward by two years, is £4.1 billion across the spending period, which is a significant amount of relief for businesses.[Official Report, 20 February 2018,Vol. 636, c. 2MC.]

The hon. Lady asked about delays in revaluations. As she will know, 2022 will see the next revaluation, and we have committed to it being every three years thereafter. To go annually might tip us into being slightly disproportionate. Three years seems to be about the right balance, and the VOA is comfortable with it.

The hon. Lady asked about the number of outstanding appeals. The technical problems we had with the system some months ago have largely been resolved and things are moving strongly in the right direction. I will get back to her with the precise answer to her question.

The hon. Lady raised the reduction in the number of VOA offices. We will be moving to 26 offices in total. As with Her Majesty’s Revenue and Customs offices, the point to register is that the modern way of working of such organisations—bringing together skills and technology —lends itself not to a large number of offices but to a smaller number that are appropriately equipped for the task in hand.

The hon. Lady asked about 100% business rates retention. We are piloting that and it will be an important step towards ensuring a strong connection between the incentives of local authorities on the one hand and the encouragement of business, and benefiting from that encouragement, on the other.

I conclude by saying that the measure is significant— £2.3 billion of additional relief for our businesses—and that, once again, I commend the statutory instrument to the Committee.

Question put and agreed to.