Draft Non-Domestic Rating (Chargeable Amounts) (England) Regulations 2016

Teresa Pearce Excerpts

Monday 12th December 2016 General Committees

[Teresa Pearce (Erith and Thamesmead) (Lab)]

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

The draft regulations set out the rules for the transitional relief scheme that will apply when the business rates revaluation comes into effect next year. Business rates are revalued roughly every five years. The most recent revaluation was carried out back in 2010, as has been mentioned, and it was based on values from 2008. Revaluations have a big impact on small businesses throughout the country. The transitional rate relief scheme is worth £3.4 billion, so it is only right that we properly review and scrutinise the proposals.

Business rates have been revalued for the first time in seven years. The new rate will come in at the beginning of April 2017. Although some businesses will get a rate cut as a result of the revaluation, others face rises. Some areas of the country will be affected more than others. The Institute for Fiscal Studies studied the latest business rates revaluation and found that there is a “growing divergence” in property prices throughout the country, and especially between the capital and the rest of the country. Because of the extortionate prices of property in the capital, London raises more from business rates, but businesses in London are often disproportionately affected. The revaluation will see the values in some parts of London jump by as much as 400%.

The Minister says that the revaluation is fair, but a whole host of organisations have come together to oppose the proposals. The Mayor of London, London Councils and 43 bodies representing retailers and businesses, such as the Federation of Small Businesses London and the New West End Company, have opposed the proposals. They have estimated that London businesses will have to pay £885 million more in total annually due to the revaluation. In fact, because of the proposals, they have called for a full review into the effectiveness of the business rates system. I heard what the Minister just said about how the regulations will benefit London and advantage, rather than disadvantage businesses. What literature and advice has gone out to businesses in London to ensure that they are aware of the situation?

Some industries are particularly badly affected. For instance, analysis from CVS shows that pubs across England and Wales will face a tax increase of £421 million in the five years after the revaluation. Some pub operators have estimated that they might need to increase prices by 30p a pint, and I am sure that none of us wants to see that. What advice has gone out to that industry to explain the transitional relief and the multiplier? The industry is scared about what will happen, but the Minister seemed to suggest that there will be a relief that operators can claim or automatically get.

A hike in business rates on the scale proposed by the Government could damage many businesses. That is why the transitional reliefs are so necessary. Local government has already severely suffered from brutal, devastating cuts to its funding. The Institute for Fiscal Studies has estimated that between 2010 and 2020, local government will have had its direct funding cut by 79%. Those cuts are often unfair, because they hit some of the councils with the greatest need the hardest. Nine of the 10 most deprived councils in England have had cuts higher than the national average.

On top of that, reforms to local government finance have increased reliance on council tax and business rates. Owing to the huge divergence in income-raising power from tax bases in different areas of the country, the measures could entrench regional inequality, which is having a drastic impact on local government services, including youth centres, museums and libraries. Many libraries have had to close and our social care system is teetering on the edge of crisis. Councils are having to prioritise efficiency savings over the health and happiness of their communities.

While the transitional relief scheme and the multiplier are an important system, they will not help to plug the enormous gap in local government finances. Although we do not oppose the statutory instrument, I would be grateful if the Minister could let the Committee know what thinking is going on regarding the long-term future of business rates. We see more and more that businesses exist in the digital economy, rather than on the high street, and if we are committed to funding local government—I am sure we all are—there needs to be a root-and-branch review of how that money is to be raised.

The Minister mentioned modernising business rates, but a tax on business properties in a digital age seems a bit 20th century. I would be grateful if he could let the Committee know whether there are any plans to bring the rates into the 21st century. It is fair to say that local government finance is complex, but it is vital, and I am more than happy to work with him to find a long-term, sustainable solution to the funding of local services that our constituents rely on. That problem has been ducked time and again, and I hope that he agrees that on our watch we must push to find a modern, long-term, sustainable solution.