| Previous Section | Home Page |
Column 227
The Minister said that some businesses might receive a reduction following the new revaluation. They may, of course, but at present the revaluation hangs over the heads of small businesses like the sword of Damocles. They do not know whether the Government will kick them or help them ; they do not know whether to invest, or to make staff redundant in preparation for yet another tax hike. They have already incurred tax increases well above the rate of inflation each year : as a result of being on transitional relief, their UBR increases have been the highest in terms of percentage.That uncertainty will inevitably slow the pace of recovery. It will keep the recession going in York. At the last count, 70 shops were empty in York city centre. They are not all empty because of high business rates ; rents have risen, and the recession has played its part. However, we are talking about what is now a national business tax. Rateable values are set by a national civil servant, the district valuer ; the poundage is set by the Government in Whitehall. To increase that tax far above the rate of inflation will inevitably increase pressure on vulnerable businesses.
I hope that the Minister is right, and that some rateable values will fall in the 1995 revaluation. If that happens, it will show that some businesses have been grossly overtaxed in the past five years. If taxes are lowered, that is the only interpretation that can be applied. At the time of the last revaluation, people in York--certainly members of the Labour party-- said, "You do not understand the local market and the local economy, and you are grossly overtaxing businesses, especially small businesses in York." I suspect that, in most cases, the south-east of England will gain most from the new rateable value. Like York, the south-east had a large increase in the last revaluation. Unlike York,
however--thankfully in some ways, from York's point of view--the south-east has been hit especially hard by the recession, and market values have therefore slumped more there than in the north. York has thus lost both ways : it received a southern-scale increase at the last revaluation, but is unlikely to be given a southern-scale decrease in the 1995 revaluation.
One of the reasons for that is the fact that business rate valuations depend on the assessed rental value of properties. Nearly every commercial lease is now based on upward-only rent reviews, which have penalised small businesses in my constituency to a huge extent during the recession.
Mr. William O'Brien (Normanton) : That is mirrored in my constituency--and, I imagine, in constituencies throughout the country. It is disappointing that not one Tory Back Bencher is present : there are two civil servants for every Tory in the House. That demonstrates the general attitude of Conservatives to this important debate.
Mr. Bayley : That is an interesting point. One of our reasons for giving the hon. Member for Newbury (Mr. Rendel) such a hard time is the fact that--apart from the Minister who opened the debate--he is the only non-Labour Member who has spoken so far. Obviously, we must attack the hon. Gentleman ; we have no one else to attack. Now that my hon. Friend the Member for Normanton (Mr. O'Brien) has set me off, I must tell the hon. Gentleman that Labour has no antipathy to business.
Column 228
Unlike the hon. Gentleman, I speak not as a former district councillor, but as someone who has set up and built up a small business. I see no contradiction between doing that and being a socialist. The business was fully trade unionised, and was highly successful ; it generated employment, and large rent rises were a potential problem for it.As for the issue of upward-only rent reviews, if the Government wanted to reduce the burden on small businesses, they would legislate against clauses in commercial leases that provide only for such reviews, as they are being urged to do by many small businesses in the current Department of the Environment review. If they believed in market forces, they would do that.
Businesses are being forced to incur rent rises because their commercial leases include upward-only review clauses, while competing against new businesses with new leases at market rents involving considerably smaller costs. That prevents fair competition. People in the private sector want competition, but they want fair competition. Many businesses in York are on a cliff edge. More than half are still receiving transitional relief. If that relief does not roll forward next year, they will face a problem. The Government must give a rock-solid commitment to rolling it forward ; otherwise, they will simply roll forward the recession.
I welcome the Minister's commitment in his opening speech. I am sorry that he is not in his seat now, because I intend to chase him on that political commitment month after month and year after year to ensure that it is implemented for the benefit of small businesses in my and other constituencies. I intend to start now.
I should like the hon. Gentleman to firm up the commitment and say that, in future, the transitional relief that he said would be rolled forward will limit increases next year and in future years to no more than the limit that the Government are proposing in this legislation for the current year.
I want a commitment that large businesses in out-of-London constituencies such as mine--businesses with a rateable value of £10, 000 or more-- will pay no more than 10 per cent. above the rate of inflation each year as their contribution to the catching-up process ; that smaller businesses-- under the £10,000 threshold--will pay no more than 7.5 per cent. ; and that mixed hereditaments which are part residential and part business will pay no increase greater than the rate of inflation. Will the Minister guarantee those figures ?
Mr. Mike Hall (Warrington, South) : My hon. Friend may have noticed that the Chancellor of the Exchequer is in the Chamber. Perhaps he will intervene and guarantee that the money will be made available.
Mr. Bayley : I am more than happy to give way to the Chancellor if he wants to give that support to small businesses and economic recovery. However, like other Conservative Members, he seems a little tongue-tied today.
The Government say that transitional relief is needed this year because the recession is not yet over. The transitional relief scheme is structured so that the money goes to all businesses facing high increases in their business taxes, regardless of whether they can afford to pay. It means that some businesses, such as the large multiple chain stores with city centre shops, are laughing. They are getting a tax break when they do not need it,
Column 229
because they are making huge profits. At the same time, small local firms are going to the wall because they are not getting the relief from tax that they need to keep themselves in business and to keep employees in jobs.Is that a wise or just way to spend £100 million of public money ? When the Government are saying that they have to cut many of their programmes, including welfare, education and health because of the pressure on their budget, would it not make more sense to target the money that is available for transitional relief on providing help to companies that need it and not to contribute to the profits of companies that do not need it ?
Would it not make more sense to put greater resources into supporting discretionary relief ? It has the advantage of being agreed by the local authority so it is local and flexible. It is agreed by people who know the businesses concerned and have time to investigate the trading position of those businesses. It is clearly needed.
When it was introduced in 1990, only £23,000 was spent nationally on discretionary relief. By 1993, that had risen to £835,000. However, that is still less than 1 per cent. of what the Government are spending on their broad-brush approach to transitional relief. On this point, I agree with the hon. Member for Newbury. He raised an important point. Transitional relief goes, in part, to small businesses such as those in my constituency that desperately need it because they are being clobbered by unfair tax rises, but it also goes to larger businesses which do not need the relief and to which it does not make the difference between trading and not trading or between keeping employees and casting them into unemployment. If the Government modified the discretionary relief scheme so that they paid 100 per cent. of the discretionary relief instead of just the 75 per cent. that they pay now, that would provide an incentive to local authorities to look carefully at businesses and to award the relief where it was needed. At the moment, the 25 per cent. contribution has to be taken from hard-pressed council tax payers, and there is pressure on local authorities not to award it. The Government may say that, if they paid all the money, there would be an incentive to local authorities to hand out the money willy-nilly. I do not think that that would be the case, because there is a tight statutory limitation on how discretionary relief may be used, but it underlines the fact that the uniform business rate is no longer a local business tax set by local authorities, contributing to local authority coffers and spent by local authorities on services for the local community. It is a national business tax, because the money comes to national Government.
If it was a local tax, there would be an incentive for local authorities not to give relief except in the most extreme circumstances, because it would mean that the spending power of their budget would be cut. That is not the case when it is a national tax. If the Government want to target the resources that they say it is so hard to find this year on the businesses that need it most, they should do more to improve the discretionary relief scheme. I am asking simply for a firm commitment that the areas of the country that have been hardest hit by business rate rises will be protected by transitional relief on terms no less favourable than the Government are proposing this year in
Column 230
this Bill. I want a commitment that that will roll forward in future years. Also, I want a commitment that whatever money is available will be targeted on businesses in greatest hardship where jobs are at greatest risk.7.6 pm
Mr. Jim Cunningham (Coventry, South-East) : At the risk of being accused of attacking the hon. Member for Newbury (Mr. Rendel), which is not my intention, we must put him right on one or two issues. The Labour party has supported businesses since 1945 and probably earlier. I am sure that the hon. Member for Newbury will accept that from time to time it is right and proper that if a political party feels that it is necessary, it can and should criticise business and business performance. In my view, it seemed a strange logic to be criticising the Government at the same time as criticising the Labour party for tabling an amendment. I am sure that the hon. Member for Newbury knows what he meant when he did that and I would not want to try to read his mind.
Some of the Government's problems stem from the fact that their manifesto for the 1979 election said that by hook or by crook they would do something about the rating system in this country. By hook or by crook, they have got themselves on a hook. They have not yet come up with a formula that is acceptable to either the business community or ratepayers in general. That is the Government's dilemma.
I am worried about where the Government go from here. In two or three years the evidence will be mounting that the Government's efforts in controlling the business rate have created problems. One of the problems will be caused because they are creating an artificial platform for the business rate. Therefore, in two or three years business men will receive a hefty bill because the Government will be looking for ways of withdrawing transitional relief. A charade has been imposed on local authorities year after year. I have had 20 years experience in local government. It is one thing to be a Minister for two or three years and have various theories about local government, but it is another to have 20 odd years experience of dealing with domestic ratepayers and the business community. In my experience in Coventry, local government representatives sat down with members of the business community to discuss the problem and, where possible, we adjusted our budgets to assist them. The adjustments took many forms, such as allowing the council to provide grants which it is probably not able to do under the present system. Year after year, business men go through the charade of explaining their problems to local councillors and asking for their assistance, but the councillors are powerless to do anything because the power rests with central Government.
As has been proved by the events of the past eight days, we now have government by regulation, not by debate or scrutiny in Parliament ; government conducted on the whim of a Minister who may decide to invoke regulations or create new ones. That is one of the great dilemmas facing the country, not only in terms of local government but in terms of the way the country is run. The way in which the Government are rushing the Bill through the House is symptomatic of that dilemma. No one can scrutinise the legislation. In November most local authorities will have begun consulting the Government to ascertain the rate support level. In about March they will be
Column 231
fixing their budgets, but meanwhile they are going through their annual policy review process. The Government are defying all logic in rushing the Bill through the House without proper scrutiny. We now have government by regulation, but let us consider another charade. Local councillors may believe that they are making representations to Ministers, but do the Government give anything or take any notice? No, they do not, because they resent local democracy, a subject which forms part of tonight's debate.A contradiction highlighted by the debate is the fact that large companies such as British Gas and the electricity utilities are treated in exactly the same way as the small business community ; there is no distinction between big and small in terms of Government assistance. That is because Government policies are ill thought out and ill conceived. In a couple of years, the Government will no doubt find themselves once again having to review how local government is financed.
I have outlined some of the dilemmas facing the Government and the House, but the problems started way back when the Tory party fought the 1979 general election on the basis that it would do something about local government finance. It ignored the warnings and the pitfalls that were pointed out in the Layfield commission's report. The Government seldom mention that report.
As I said in an intervention, the Government said that rate levies deterred businesses from setting up in various communities. I am sure that the Government have their own statistics, but their views do not stand up because, according to any survey, rates represented only 2 per cent. of business men's total costs. The Government have never been able to refute that. Coventry city council has lost well over 30 per cent. in terms of rate support relief over 12 years. That means that it has lost more than £200 million. As a consequence of such losses, authorities such as Coventry had to pass on the burden to the ratepayer. The Government did not like that and called the authorities profligate. Yet the Government believed that they themselves could introduce the poll tax and squander £18 billion in the process. They have never been held to account for that, but if any local authority squandered vast amounts of public money its councillors would be disqualified or at the very least subject to investigation.
For all those reasons, I shall support the amendment.
7.14 pm
Dr. Roger Berry (Kingswood) : I have been sitting here wondering whether Conservative Members have gone on strike and withdrawn their labour. Are they trying to prevent this debate by the simple device of not participating in it? I suppose that the alternative is that the Prime Minister has set a competition to find who can best define "back to basics" on one side of A4 paper. Conservative Members probably do not realise that whoever performs best in the test has to face the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) on "Newsnight" at 10.30 pm tonight, which is something that no one would want to do on that particular issue.
I am not surprised that Conservatives are embarrassed by the Bill. It is a cause of embarrassment for a number of reasons. Everyone recalls that when the Government introduced the uniform business rate and made it national with effect from April 1990, and when they set up a transitional relief scheme to deal with that and the rating
Column 232
revaluation, they introduced a scheme that they said would operate for five years. It is significant that the Government had to abandon the original scheme because of the recession and their economic mismanagement and because they did not realise what was happening in the economy. The facts are clear.The original intention was that the maximum increases in non-domestic rates in real terms in 1991 would continue throughout until 1995. As we know, however, the Government eventually woke up to the fact that the economy was in recession and, as it turned out, the recession cost businesses billions of pounds--far more than anything provided in transitional relief. The 1992 Budget therefore abandoned the original scheme and froze real-terms rate bills for 1992-93. Nevertheless, there were said to be green shoots of economic recovery all over the place and we were told that that year was a one-off, that it was the one year when there would be a change in the original scheme for transitional relief.
Unfortunately, the sightings of green shoots had been somewhat premature and the following year the Chancellor had to tell the House, "Oh dear, we have got a recession ; we had better freeze the real-terms increase for 1993-94 as well." The Bill does not continue the freeze in non-domestic rates except in the case of small, mixed-use properties. The maximum increases are to be half of those originally intended. I am not sure whether that is good news, in that the Government are now apparently slightly more confident of economic recovery this year than last year, or whether it is bad news because they are less optimistic about recovery than they were three years ago.
Relief is to be provided to keep down the costs to businesss, which we all support, but if one reflects on the history of non-domestic rating since 1990, one cannot say other than that the Government had to abandon the original scheme simply because of economic mismanagement and because they did not understand what was happening in the economy.
The damaging effects of the recession on businesses have been so great that they have swamped the small amelioratioon brought about by successive Non- Domestic Rating Bills. Billions of pounds have been lost in sales during the recession. We have just come through the worst recession in any industrial country in 25 years and it is sheer fantasy to pretend that transitional relief schemes could compensate businessses for that. That may be one reason why this year, unlike others, we do not hear the usual chorus of Conservative Members jumping up and down and saying how wonderful their schemes of transitional relief and support for the business community are, and that theirs is the party of business. I suspect that they are not singing that song tonight because they realise that no one would fall for it. Not only have we experienced the worst recession in any industrial country in 25 years, but we have experienced the largest rates of business failures in the country since the war.
It is horrifying to contemplate the statistics. Business failures in the 1970s peaked at about 10,000 per annum. In the 1980s, they exceeded 21,000 each year. In 1992, they climbed to 63,000. There has not been a scale of business failures of that magnitude in this country in the post-war period. No wonder Conservative Members are reluctant tonight to speak in the Chamber about how they "understand the business community". They have put the business community through the worst recession in living memory.
Column 233
We are now told that 1993 was slightly better than the year before. It is true. Last year, there were only 56,000 business failures, but there was a scale of business failure that in the 1980s, and certainly in the 1970s, would have been regarded as inconceivable. Today, as Dun and Bradstreet and others confirm, every week 1,000 businesses go bust.In my region, the south-west, the latest recession has hammered our businesses even more severely than those in the rest of the country. That is probably why, for example, the availability of industrial floor space in Bristol is at its highest since the property slump of the mid-1970s. Even last year, 1993--not quite the unmitigated disaster of 1992--there were more than 7,000 business failures in the south-west. That figure is greater than the national figure for business failures throughout most of the 1970s. Last year, in the south-west region alone, businesses were going bust at a rate that was greater than that for the country as a whole thoughout most of the 1970s. That is the record of a Government who "understand business".
The most recent figures are also very grim for my region. In 1993, the number of business failures decreased by a mere 4 per cent. It was the smallest reduction in business failures of any region in the country, equalled only by the north-east. In those circumstances, it seems to me that if anyone, whether it be the Minister on his own or the Minister with perhaps one or two colleagues in support, were to present the Bill as evidence of the Government's concern for, and understanding of, business, they would have about as much credibility as the aforementioned "back to basics". The Government have destroyed more businesses, more jobs and, as a result, more families than any Government since the 1930s.
My third argument about the Bill was made by a number of my right hon. and hon. Friends, and will continue to be made. The Bill provides no guarantee that shortfalls in the business rate pool will be made up from central Government funds. Like my colleagues, I do not want to sound disrespectful and I certainly do not wish to imply that hon. Members are saying things in the Chamber that might subsequently necessarily turn out to be inaccurate. However, when a Minister comes to the Chamber and says, "Yes ; it is not in the Bill, but do not worry ; there is no question whatever of local government not being reimbursed for any shortfalls in the pool" and one has the assurance, "We have no plan, we have no intention of doing that", so soon after the imposition of VAT on fuel, when, of course, there was no plan and no intention to do that ; so soon after an increase in national insurance contributions for employees, after a categorical assurance that that would not happen ; and so soon after the biggest tax hike in British history after an election at which we were told that the Conservatives would reduce taxes, I think that the average person in the street might wonder how reliable some of those assurances are.
If the Government will make up any shortfalls in the business rate pool, why on earth cannot that be set down in the Bill? It is a matter of record that, since the Minister sat down, not a single Conservative Member has stood up to answer that question. Given Government policy towards local councils during the past 13 or 14 years, it would be foolish for hon. Members simply to accept that bland assurance.
Column 234
Obviously, we fear that those shortfalls that might occur will not be made up and that local councils will be confronted with the usual choice. As a result of Government decisions, they will either have to jack up the council tax or make further cuts in services. The largest local authority that provides services for my constituents in Kingswood is Avon county council. I know that the Government have plans to abolish it, as they have for local councils in one or two other regions, but, given the cuts in the budget of that local authority as a result of Government expenditure capping, those questions need to be answered. Last year, Avon was forced by the Government to cut £37 million of services--7 per cent. of its budget. The party that thinks that "back to basics" is about improving education and about improving good neighbourliness was the party which forced my local council- -like many others--to cut our children's opportunities in schools and to reduce day care and home care for the elderly.This year, my council is likely to be confronted with another £18 million of cuts and Conservative councillors on Avon county council are saying that more education cuts should be implemented to meet that target.
Mr. Deputy Speaker (Mr. Michael Morris) : Order. I am most grateful to the hon. Gentleman. This is not a general political debate. He wove in one or two general points, which is perfectly fair, but I should be grateful if he would get back to the Bill.
Dr. Berry : Given those difficult, not to say intolerable, circumstances in which my council and other councils find themselves, if there is any fear that the Government may not secure the business rate pool, resulting in a reduction in funds being redistributed via that mechanism to local councils, we should seek further assurances. My final argument is on a subject that was mentioned by some of my hon. Friends--the control of the business rate. The Bill tackles a situation in which the Government have removed from local councils the power to set the business rate. That power was removed as part of a general attack on local councils and has to be viewed in that context, as part of a financial attack on local councils--an attack which has also taken the form of direct attacks on services and the abolition of some tiers of local government.
When we debate the financing of local councils, we must first be sure what we want local councils to do. If we want our local councils to be important participants in a pluralist democracy--as all parties used to believe--it is necessary not only to take the shackles off local councils, in the sense of allowing them to make democratic decisions properly and freely, but to ensure that they have the financial resources to finance their decisions.
As long as such a large proportion of the revenue that accrues to local councils is directly under central Government control, as is non-domestic rates income, local government will decline further. It is important that, along with the debates about future funding and transitional arrangements, those who support local government make it perfectly clear that non- domestic rates should not be under central Government control but under the control of locally elected, democratic councils.
For those reasons and many others, hon. Members should support the Labour amendment. I look forward to hearing contributions from Conservative Members and
Column 235
shall sit here interested to see whether they deal with any of the points raised this evening or whether they have gone on strike. 7.30 pmMr. Jamie Cann (Ipswich) : The national non-domestic rate was introduced in April 1990 along with its ugly sister, the poll tax. Both were essentially attempts by the Government to control the amount spent by local government. The national non-domestic rate has been with us ever since.
It is a bad tax because it is cumbersome to administer. Previously, local authority treasurers would set a rate, the treasurer would notify businesses, businesses would pay the rate, and that was that. Nowadays, councils do not set the rate. Instead, it is set by the Government and councils are then notified. Councils must then send out demands, collect the rates, and transmit them to London where they are shared out among all the councils. That is a cumbersome procedure and must cost the Government a lot of money.
That system of taxation seems unable to exist without transitional arrangements year after year. After all, the tax started in April 1990 and we are now in 1994 and still talking about transitional arrangements four years' hence. Can a tax be satisfactory or acceptable if it is never paid in full by everybody to whom it should be applied? The whole system seems to be fundamentally flawed. That leads to terrific confusion because people cannot understand why a business down the road pays less tax just because the owner was in that property before they were in theirs. It seems to be fundamentally unfair. If it were ever unravelled so that everybody paid the correct amount, the rate might be more acceptable, but we seem unable to reach that position. Revaluations every five years will clearly carry that on. The confusion then leads to appeals and, as other hon. Members have pointed out, the appeals system is clogged up. People wait for years to have their appeals heard.
This is a thoroughly bad tax because it is difficult to administer, to make properly accountable and to justify as fair to everybody paying it. Nevertheless, that is not my main complaint about it. My main complaint is its impact on local democracy, particularly in towns and cities. Cities such as Birmingham, Manchester, Liverpool, Leeds and even my small town of Ipswich grew because of the virtuous circle. Local business people paid rates, which were used to develop the town's infrastructure. In Ipswich, a considerable amount of the town centre was built on land that had been drained by the local council. That was paid for out of rates, the town centre developed and the town grew. Ipswich prospered and the town's taxation base grew with it. If the town shrank, as Ipswich did during one period in the mid-1800s, so did the taxation base. Its buoyancy went with business.
The Government have severed that connection. The money received by the council bears no relation to the prosperity or otherwise of local business. That cannot be right. The virtuous cycle no longer exists, which means that, all too often, the public sector limps along falteringly behind business. Business grows--Ipswich boomed at the end of the 1980s--but what happens to public infrastructure?
As business grows, there is a need for more car parks, public transport schemes and pollution control. Many
Column 236
facilities need to be provided by local authorities. However, now when business grows, the taxation base of local authorities remains the same, rigidly controlled in Whitehall. A town's success is now penalised because it brings problems that public authorities do not have the wherewithal to solve. That is pernicious and cannot be right.The Government should do what the Prime Minister said a few months ago that he would do--stop the warfare against local authorities, trust councils to get on with their business and free them so that they are locally accountable and flexible. I believe that an opportunity to do that will arise when unitary authorities are introduced, because then, for the first time for goodness knows how long, we shall have a system of local government in England that is the same from one end of the country to another. We shall have unitary authorities in the big metropolitan areas, London boroughs, rural areas and shire towns. The Government must free those unitary authorities, as they used to be free, to raise money from local business and the ordinary people of the town through council tax. That is what should be done for the future.
The introduction of a national non-domestic rate was justified by some because it controlled local authorities' demands on local business. It was argued that local businesses in some parts of the country were being unfairly penalised by having to pay more rates than those in other parts of the country and that that was wrong and needed to be controlled. Although there was some truth in that argument, we are now in a different position from five or six years ago. Now, no council leader would want to be responsible for a business man saying that his business might have to relocate. It would freeze his heart and, if it got into our vigorous and vibrant local press, would ensure that he was not leader of the local council for much longer.
Every council that I know of--I know of quite a few--works with local business as much as it can for the prosperity and future of the town. Many businesses cannot understand why their local authority does not receive the rates that they pay and why the rates cannot be spent on their town's infrastructure. Again, the virtuous cycle has been severed.
The future of local government is at a crux. If we continue as we are, within two or three years we shall simply have a system of local administration in the same way as the Department of Social Security is locally administered. Is that really what we want and is it what the Government set out to achieve in 1979 when they said in their manifesto that they wanted to free local government from central Government interference? We have gone a long way from that statement--a long way in the wrong direction. I hope that today we can at least start to reverse that foolishness.
7.39 pm
Mr. Clive Betts (Sheffield, Attercliffe) : The Bill is important because it deals with local authorities and the financial resources that they spend on extremely important public services. They have seen those resources reduced in real terms throughout the 1980s as a result of a series of Government measures. They are under pressure to continue to provide a good standard of basic services for their constituents. They are also under pressure to avoid the
Column 237
necessity of making people redundant at a time when many of their constituents are facing redundancy in the private sector. The Bill is important for small businesses, especially when one considers the number which have gone to the wall in recent years, as my hon. Friend the Member for Kingswood (Dr. Berry) amply illustrated. For many small businesses, the recession has not come to an end. I know that many in my constituency are still under pressure. Even though there is the faint prospect of increased demand, small businesses are still saddled with the financial burdens imposed in the past three years. Many of them were able to keep going only by building up debts and those debts must still be serviced. Because of that pressure, they are concerned about the impact of business rates on them. They are anxious about the impact of the Bill on the next financial year and in the future.The Bill is important to my constituents who still face the problem of an above-average unemployment rate. In the past few weeks they have seen job possibilities go as United Engineering Steels announced 500 redundancies and Sheffield Forgemasters, where many of my constituents work, announced a further 100 redundancies. My constituents are concerned about job prospects in the private and public sectors, especially since the public sector receives its funding from, among other sources, the business rate. They are also concerned about the services that they receive from their local authorities.
The Bill is far too important to my local authority, local businesses and my constituents to be rushed through in a day without proper parliamentary consideration. Presumably the Government have decided to rush the Bill through its various stages in one day because they, too, believe in its importance. I can only assume that that is the case, given that they have decided to give the Bill priority and to rush it through far quicker than Opposition Members believe appropriate to the proper exercise of the democratic functions of the House.
It is of great concern to me, my constituents and those of my hon. Friends who have participated in the debate that only one Conservative Member--the Minister--has so far managed to stay in the Chamber, despite the Bill's importance to the Government. I am aware that others have come and gone, but only one Conservative Back Bencher has contributed. I do not know how the Government square the importance that they obviously attach to the Bill, given that they are trying to rush it through in a single day, with the lack of importance that virtually all other Conservative Members seem to attach to it.
It appears that most Conservative Members are not interested in business, local authorities, the services they provide and the proper democratic function of the House. No doubt they will turn up in due course to troop through the Lobby to ensure that debate is restricted and the Bill is forced through. They are so uninterested in the Bill's importance to their constituents that, with the exception of the Minister, none of them has bothered to come to listen to the debate.
The Bill is important for the Government because it deals with revaluations, which have always been extremely important. The Government might like to have had the opportunity to think again about the revaluations that were made in Scotland in the 1980s. The panic that they caused
Column 238
in the Scottish business community spread into the Conservative party. That led to a further panic measure, despite all the advice contained in the Layfield report and the Green Paper on local government finance that the Government produced in the early 1980s, when the Government took steps to avoid subsequent revaluations of domestic rates in Scotland with the introduction of the poll tax. It was then introduced in England as well. Revaluations obviously have a particular place in the history of local government taxation and local government finance and it is important that we subject them to proper detailed scrutiny and adequate consideration.I am not opposed to revaluations because as time goes by and circumstances change it is often necessary to consider how the burden of taxation should be spread between businesses. Revaluations do not determine the total size of the Government take to fund taxation, but they determine how much money different businesses should pay towards the agreed total. Revaluation take into account changed circumstances and it is important that it is thought out properly and subjected to detailed scrutiny.
I do not agree with the hon. Member for Newbury (Mr. Rendel) that we should have some form of site valuation instead of the current system of business rates. A site might be valued in terms of what could be expected from future development, which could prove extremely damaging to small businesses. A site might offer attractive alternative purposes and that might lead to an increase in its valuation. That increase would penalise small businesses on that site, already providing jobs for the local community, which did not want to move. I would caution the Liberal Democrats on that policy because they have not thought out its likely impact.
I accept that a gain from a particular site might be subject to taxation, and perhaps that will be the subject of a review of the tax law. Perhaps we should tax on planning gain so that the public sector can benefit. We should not, however, change the whole business rate system, as proposed by the hon. Member for Newbury, which could cause immense damage to small businesses.
Periodic revaluations are made as business circumstances change in order to determine what each business should pay towards the total business rate. We must have some system, however, that reflects the fact that those changes can be substantial. That is why transitional relief was introduced, but the Bill is now attempting to change that. That relief is appropriate, however, because although revaluations are part and parcel of a proper exercise, they tend to have a lumpy effect. They may be conducted once in five years, 10 years or 20 years, and they try to reflect in one go all the changes that may have occurred in that given time. That being so, it is not fair to expect small businesses to absorb, at one go, the impact of changes over a period. So transitional relief is a reasonable response to the problem.
Opposition Members have no objection to a system of transitional relief backing up a system of revaluation. We have no quarrel with the Government over that. The problem comes with deciding how the relief will be applied. The Government want to give themselves powers to determine by regulation the nature of the transitional relief. We know that Governments rather like handing out goodies to businesses, not taking them away. If Ministers can go round their constituencies pointing out how much extra taxation they have saved businesses, they can make
Column 239
themselves popular. If, on the other hand, they promise to limit the amount of reduction in a business's taxation following revaluation, they will not be so popular.The temptation is always--the same applies to this Bill--for Ministers to seek to cap rises following revaluations but not to seek to limit reductions from which businesses will benefit following revaluations. Having set a certain poundage, if the Government limit revaluations upwards but do nothing about revaluations downwards, an asymmetry leading to a shortfall in the money to be raised from the business sector will result.
Here we come to the crux of our objections to the Government's proposals. If the Government are tempted to cap rate increases that businesses may suffer as a result of revaluations but take no action to limit downward movements, and if a shortfall results so that the money canot be passed on to local authorities, who will make up the shortfall ? We have argued strongly that the provision in the Bill stating that Ministers "may" make up the shortfall is inadequate. We say that the Government must make it up, and we have tabled a simple amendment to that end. If the Government truly intend not to make the constituents of local authorities pay for any shortfall that is created, all that they have to do is to accept our simple amendment. I could not follow the Minister's argument. He claimed that until he has brought in the transitional arrangements which the legislation empowers him to put in place he cannot agree to legislation stating that the Government will make up any shortfall that the arrangements may create. His argument that he cannot in this legislation prejudge what he will do later by regulation does not seem logical. We do not need to know exactly what the transitional arrangements will be before we are given a commitment in legislation that any shortfall resulting from those arrangements will be made up.
The only reason I can detect for the Minister's claim that such a commitment cannot be given in legislation now is that he may know of circumstances in which it may not be possible or convenient for the Government to deliver that commitment. He may give the House his word in all honour that he has no plans not to make up the shortfall once the legislation is passed, but unfortunately my constituents have heard Ministers say such things in the past, and then later to say that circumstances had unfortunately changed so that the original commitments could not be honoured. As my hon. Friend the Member for Blackburn (Mr. Straw) clearly said, the Minister giving the House these commitments tonight may not be the Minister in charge in two years' time when they are not honoured.
I must also tell the hon. Member for Newbury that he is displaying funny logic when he says that we should not vote against Second Reading on the ground that we should trust the Government to bring in another Bill later. My constituents cannot trust the Government because the Government have broken promises in the past, especially during the election, and they would sooner not trust the Government now. We should not allow the Government a Bill that relies on trust, or trust them to introduce another Bill in due course. The House may express the wish not to give the Bill a Second Reading because the Bill is inadequate ; it does not give us a commitment that a Minister "shall" make good any future shortfall. It is therefore better to vote the Bill down and then argue the
Column 240
case for a different Bill. Even better, we might persuade the Government to accept our amendment, and then we can all have done with the problem.I cannot return to my constituents and tell them that I voted for Second Reading because I trusted a future Conservative Secretary of State for the Environment. Such a remark would leave me in danger of deselection. No Labour Member can trust a Conservative Secretary of State for the Environment with local government finance after what the Minister's predecessors have done to local government finance and services since 1979. Any Labour Member who gave such trust would find it difficult to convince his supporters in the constituency that he had not temporarily taken leave of his senses.
What would happen if the Bill were passed and the shortfall not automatically made good but left to the judgment of a future Minister? What would be the consequences for local authorities and their constituents? Local authorities would face a choice. They raise almost all their own revenue, with the small exception of charges which, outside the statutory housing account, are fairly limited. If the business rate does not provide the resources and the Government do not increase the revenue support grant, the council tax will have to be put up to compensate.
Contrary to certain misunderstandings, the Government do not limit the amount of council tax : they cap relevant expenditure. If the business rate is reduced and the relevant expenditure is unchanged, the council tax can be increased to make up the difference. I do not agree with the hon. Member for Newbury, who said that the Government can fiddle the figures as they choose in order to make up any shortfall in the business rate--for instance, by altering accordingly the relevant amount of revenue support grant. We should be trying to render Government actions transparent and to limit their opportunities to switch between headings in a way that disadvantages local authorities.
This will be a difficult choice for local authorities to make, but I know what Ministers will say. If any Labour-controlled authority faced a reduction in business rate that resulted in a shortfall and then sought to increase the council tax, the Secretary of State would castigate that authority. We can easily imagine which authorities will head the list, according to their political unpopularity at the time--
Mr. Mike Hall : Wandsworth, Westminster--
Mr. Betts : Those names do not exactly spring to mind, although given how Westminster has spent public money in the past it may well spring to mind tomorrow when the report is produced. If as a result of the measure local authorities had to increase the council tax, I know what the Minister's reaction would be.
My hon. Friend the Member for Blackburn spoke about the understanding of business leaders of the current difficulties facing local government. Ministers do not address the enormous problem of gearing, which is central to local government accountability and democracy. When local government revenue is cut by 1 per cent., council tax has to rise by 5 per cent. That is because council tax accounts for less than 20 per cent. of local government revenue. The gearing factor is difficult to explain to constituents. Perhaps that is why Ministers do not bother to address it : they know that it is unpopular, but ultimately it is their responsibility.
Column 241
The Government might decide to tamper with the capping rules, especially by way of the year on year expenditure increase, to try to constrain local government from passing on, by increases in council tax, any shortfall in the business rate. I would not put that past the Government. If local authorities decide, for reasons particular to their areas, that an increase in council tax to support a reduction in the business rate is inappropriate, they can reduce expenditure. But that would be a most appalling prospect for my authority.It is easy for Sheffield to calculate the impact this year, under a transitional arrangement, of a shortfall of £90 million which is not made up by the Secretary of State. As Sheffield is approximately one hundredth of the country, it would lose about £900,000. That is not a large sum compared with the reduction that my authority currently faces. A clear, concise and well argued report from the city treasurer points to a potential shortfall next year of between £30 million and £40 million in the authority's resources to deliver the current standard of services.
That report is not a political gesture to frighten constituents or to push the Government into a more favourable settlement of the rate support grant. It is not a case of doing away with luxuries in Sheffield, unless the Government think that nursery education, which is not statutory, is a luxury. Some Tory authorities such as the one in Gloucester have never provided that service even though they have had the rate support grant to pay for it. Such services, which the Government regard as luxuries, are threatened in my constituency. A shortfall of £900,000 would add to a serious and desperate situation. I shall spell out in simple terms what it would mean for people in Sheffield. It would pay for about 90 home helps. That is one of the most important services provided by local authorities because it allows the elderly to be independent and to stay in their homes. I understood that that was what care in the community was all about, and home helps are a vital part of the process.
Such a shortfall could mean the closure of three or four primary schools, and that is on top of the review already undertaken by the council. The report of that was sent to the Secretary of State several months ago, but we are still waiting for an answer. The shortfall could mean the complete abolition of nursery education. It could close every library in my constituency and mean the end of refuse collection. Compared with the vast amount that the Government spend each year, £900,000 may not seem like much, but it can have a serious effect on a local authority. Of course, there will be no such effect if we trust the Secretary of State for the Environment, whoever he may be in two years if the Government are still around. My constituents have good reason to tell me not to trust Ministers but to argue for guarantees to be written into the legislation so that people will not suffer further increases in council tax or reductions in expenditure. That could happen if Ministers find that plans which they have no reason to implement now may be necessary in the future.
All our debates on local government finance suffer from the process that went on during the 1980s when the Government's intention was to reduce local government expenditure. They thought they could do it initially by enforcing reductions in rate support grant and became
Column 242
rather upset when Labour authorities raised the rates to compensate and were returned with larger majorities. The Government thought that Labour authorities would have to cut expenditure or impose massive rate increases and be voted out of office. But in the end the Government got the blame and decided to introduce a panoply of measures on capping and on restricting the creation of local authority companies.Ultimately, the Government decided to remove from local authorities the power to levy a business rate. When the business rate was centralised the Government realised that they would be criticised when revaluations raised it. They did not like that very much and sought to introduce transitional arrangements. However, the Government have a problem with transitional arrangements which work in only one direction because that creates a potential shortfall and, as my hon. Friend the Member for Blackburn said, the Treasury is not prepared to underwrite it permanently. That is the crux of the argument.
The Government have passed one piece of legislation after another and have not thought about the consequences. Their sole objective is to control local authorities because they do not agree with the principle of local democracy and accountability and the freedom to deliver services. If those services are wrong and the rates are too high, councillors will be voted out of office. In most of our debates on local government there is a fundamental difference on that issue. On one issue after another the Government re-legislate and the matter has got out of hand as they try to keep local authorities under control. Authorities are innovative and often get around the legislation, forcing the Government to introduce further measures. It is sad that there cannot be a partnership between central and local government. The Government talk about that from time to time, but they are not prepared to put their ideas into practice. Some of my hon. Friends spoke about trusting Ministers, but the problem is that Ministers are not prepared to trust local government. Perhaps I should rephrase that by saying that they are not prepared to trust the people who elect councillors to make the right decisions. We have heard a good deal about the impact of the measure on business. The hon. Member for Newbury spoke patronisingly about Labour's new-found partnership with business. We have not had much experience of Liberal local authorities entering into partnership with business because there are not many such authorities around. However, while the Government have been talking about partnership with business at a national level and producing a massive list of 78 projects of partnership between the public and private sectors--but delivering very few of them--the reality is that in the 1980s those business ratepayers about whom we are talking in the Bill have been entering into partnerships with Labour-controlled local authorities up and down the country to regenerate their cities. That was going on in Sheffield. It was going on when the Government produced a policy document on inner city regeneration which did not mention local government or local authorities once.
The late Lord Ridley was Secretary of State at the time and was responsible for that. As hon. Members have frequently said in the debate, it is important that we look at the issue of business rates in that wider context and get that issue back on the agenda. The measure is fundamentally wrong because it continues to presume that business rates should be levied and determined by central
| Next Section
| Home Page |