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Mr. Tony Lloyd (Stretford): The Minister may have read the orders as he reads routine technical orders that pass through the House on a regular basis at 1 o'clock in the morning, but if he considers them to be trivial matters,
Column 952he has no understanding whatsoever of the anger of business men and women which will be expressed and will find its way to his desk.
Mr. Lloyd: If the hon. Gentleman will forgive me, he should at least let me get into my speech. I understand where he comes from, however, and I will certainly give way to him in a moment. In the north of England and the west midlands, where the business rate revaluation means that people will pay much higher rates this year, there will a colossal amount of anger. The same frustration will emerge from people in London, who thought that the revaluation would offer some relief.
Mr. Robert B. Jones: I certainly did not say that it was a trivial matter; it is a technical matter and I described it as such. I was referring to orders other than the one relating to industry and commerce. It is precisely because it is such a sensitive matter for property owners throughout the country that we have given great thought to the protection scheme which we have introduced. I hope that we have produced a scheme that, if it is not totally welcomed by people facing increases and decreases, will at least seem to them to have recognised their real fears.
Mr. Lloyd: The Minister had better look again at precisely what the schemes offer. They do not provide the same protection that existed in the past or that industry and business are seeking. The Minister needs to understand how desperately affected some businesses will be and how deeply they will resent what is happening.
Mr. Streeter: In view of what the hon. Gentleman said about anger, I wonder why, with the exception of one hon. Member, the Labour Benches are completely empty. Is that how Labour Members represent their constituents when big issues are involved?
Mr. Lloyd: That point is too trivial for comment. I am happen to debate the issues, but I should point out that only three or four Conservative Back Benchers are representing the party that claims to represent small businesses. No doubt they are present to support a Minister who is sticking the knife into small and large businesses. The hon. Gentleman can do a little better than that and I look forward to hearing his remarks.
Let us examine the background to the business rates system. I refer the House to a speech by the then Secretary of State for the Environment, Nicholas Ridley, on 16 December 1987. He told the House:
"The . . . function of the unified business rate is to remove the arbitrary variations in the amounts businesses pay at present." What can be more arbitrary than the position in Yorkshire and Humberside, for example, where the business rates, which on average went down in the last revaluation by 21 per cent. on 1988 prices, will now increase office costs by 56 per cent? If that is not arbitrary, I am not quite sure what the word means. Even by the then Secretary of State's definition, the scheme simply has not delivered the goods to business.
Column 953now the Government fix the maximum increase in the UBR by the retail prices index? Is that not a considerable improvement?
Mr. Lloyd: The hon. Gentleman does not understand the scheme. Although in normal circumstances the Government fix the maximum up to the level of the RPI, next year the bills that come thudding on to businesses in my constituency will include a massive increase way over the RPI.
Let us look at different regions as that appears to be the nitty-gritty of the debate. The worst affected region is the west midlands, where there were decreases in rateable values in 1990 of about 25 per cent. That was very welcome at the time, but the then Secretary of State, Nicholas Ridley, said:
"Together with the effect of the revaluation . . . these proposals will reduce rates by some £700 million in the north and midlands. The unified business rate alone will reduce rate by £380 million in inner city programme areas. Those reductions will give a major boost to employment in the areas of greatest unemployment and, at the same time, reduce the pressure for development in the south-east."--[ Official Report , 16 December 1987; Vol. 124, c. 1121.]
If, at that time, the reductions were designed by the then Secretary of State to provide relief to hard-pressed businesses in the north and the west midlands on the ground that they would create employment, let me tell Conservative Members that businesses in my constituency and in the west midlands are not so robust that they can calculate their costs on the basis of arbitrary rate increases that they will face next year. If the measures were introduced some seven years ago to create employment, let me tell the Minister and his hon. Friends, who seem to like the present scheme, that the Government had better take on board the destruction of jobs and businesses that will be caused by these rate increases.
We moved from a system of local control, where local businesses were consulted in order to assist. The new system is massively more arbitrary; the swings and variations are much greater than anything seen on a year-by- year basis, when local government had control of the local business rate in negotiation with local businesses.
Mr. Oliver Heald (Hertfordshire, North): Is the hon. Gentleman saying that he is against the revaluation? That is what happened under Labour before. The Labour Government refused to revalue year after year and we reached the point where rateable values bore no relationship to market values. The difficulties that we experienced with the introduction of the UBR were a direct result of that. Is he saying that he would cop out, as the previous Labour Government did year after year?
Mr. Lloyd: Once again, the hon. Gentleman has a fairly deficient memory and a poor understanding of the situation. The 1988 revaluation was some nine years into the 10 years of a Conservative Government. The charge of holding back on this matter must be applied to that Conservative Government.
What it is more important--if the hon. Member for Hertfordshire, North (Mr. Heald), muttering away as he does, would have the courtesy to listen for a moment--is
Column 954that we recognise that when we are talking about a locally determined system, variations within rateable values are nothing like as serious as those in a national system.
The introduction of the national non-domestic rating system--the unified national business rate--caused the major problems with the variation in valuation. That was why at the time there were colossal swings and so much pain and anger in inner London, for example, which saw its non-domestic rates bill shoot up by some 39 per cent. In the capital, some 45 per cent. of businesses are still waiting to see the full impact of the revaluation of 1990. Because of the present revaluation, that full impact will never occur. Businesses will be grateful for that small mercy, but they will not be grateful for the fact that the Minister is limiting their capacity to benefit from a revaluation.
One of the concerns expressed by businesses, particularly in inner London, is that the present revaluation, having lurched from a 40 per cent. upgrading last time around to a 40 per cent. downgrading of business costs in London, means that the charge of arbitrariness cannot be avoided by the Minister. What is much more important is that it means that any idea that businesses in London can plan long term for the vagaries of this system is simply ridiculous. Businesses like stability. That is the point that most business people make to Members of Parliament. They like to be able to predict what will take place. There is no ability to predict when there are such wild variations.
I hope that the Minister will take my next point seriously. The whole basis of the revaluation that took place in 1990 has been called into question. Those who represent businesses in inner London have put the point to me that they detect a pattern whereby, increasingly, appeals against valuation have not been successfully challenged by the Valuation Office. That in itself shows that the whole valuation process was wrong in the first place; that is borne out by the wild swing in the national revaluation this time around. The Minister must accept that, if there is no confidence in the basis of the system, businesses will not be confident that the system is either fair or reasonable. The House must recognise that, since the introduction of the scheme, the Government have been caught in an almighty mess. They are caught in a situation in which their initial commitments and promises have regularly been broken.
Let us remember, for example, the promises that were made by various Secretaries of State. We were told in 1987, when the system was first introduced, that the system would be self-financing. We were told that there would be no cost to the Exchequer. From 1987 to 1992, the Government's official line was that the winners would have to pay for the losers, to allow for transition--that the pain would be spread among different businesses. That applied until 1992, when the Government were under such tremendous pressure. It could be a coincidence that a general election was on the way at that time. Businesses complained mightily in parts of the country like the south-east, where the pressure was enormous.
We were told that the transitional arrangements were set in stone when they were introduced in 1990, when the Minister's predecessors stood before Parliament, as he has done today, and said that this would carry through over the next five years; yet, only a couple of years into the scheme, Ministers were coming back to the House grovelling with an apology. That is a bit of an illusion, as
Column 955it is rare for Ministers to come into the House with anything other than their usual arrogance and insulting ways. They should have grovelled with an apology to the industries and companies that suffered so badly when the Government recognised that it was necessary to limit the increase in business rates to the zero per cent. which then applied, in the middle of the recession that they had brought about.
Instead of a no-cost self-financing scheme being introduced, the Government spent £1.4 billion of taxpayers' money propping up their scheme between 1992 and the present financial year. Although the Minister did not quote the figure, we know that, next year, £505 million will be used to effect the transition over that time. Let me say, just in case Conservative Members think that I am going to argue against that move, that I welcome the fact that the Government recognised the stupidity of their scheme and had to do something practical to ensure that we did not see the demise of businesses throughout the country, particularly in the south-east and in inner London.
The whole point is that, now we have come to the present revaluation, once again the Minister is in an almighty mess. We know that the kind of promises that were made--that the rate increases would be kept down--have not been effective. When the then Chancellor said in his Budget statement in 1992 that, throughout the 1980s, business rates had increased in real terms on a nationwide basis by some 37 per cent.--and used that as justification for the present scheme--he was not aware that this year alone there would be increases that would swamp that 37 per cent. and that, over the period of the present revaluation, many of the small businesses which the Minister said he would protect would be protected only to the extent of 7.5 per cent. over the next two years. That in itself is a guaranteed increase of 15 per cent. over and above the RPI increase. Then the lid will begin to come off.
As we go around the different parts of the country, we will see that the real increase--not a notional increase, not one protected by inflation--for business and commerce, whether for small or large firms, will be significantly greater. Once the protection is off, the full impact will be felt.
Mr. Robert B. Jones: The hon. Gentleman seems to have confused the particular with the general, because the fact is that the income being raised from the non-domestic rate will go up in line with inflation. Of course, some individual businesses will face increases, which, in turn, will reflect the valuations put on properties, which are largely based on current rental evidence. That has been the principle of a rating system ever since it was introduced. I cannot see why the hon. Gentleman thinks that, just because some individuals will face increases, and some will face decreases, industry and commerce in general will be penalised. As I have said, they will simply face increases in line with inflation.
Mr. Lloyd: That is probably the most ludicrous retort that I have ever had to answer in the House. It is the Minister who is confusing the general with the particular. Does he want to come with me and visit a business--for example, a company in the north-west of England that owns an office whose rateable value has gone up by 51 per cent., which is the average figure for the north-west--and say, "Don't worry about it. You'll be happy to know
Column 956that, on average, the business rate for industry and commerce is zero. The fact that you will have to find half as much again should not detain you at all"?
If the Minister really wants to come and talk to people like that, he may find that in general he is right but in particular those business people will be extremely angry with a Minister who is stupid enough to give that kind of excuse. Does the hon. Gentleman wish to intervene again to argue that point, as it is very important?
Mr. Jones: The hon. Gentleman's argument now seems to be that nobody should face any change in rateable value when revaluations take place and that, somehow or other, we should go on as before. That, in effect, was what the previous Labour Government said by not updating valuations. Businesses in areas where the desirability of property goes down will never take advantage of that, and businesses in areas where property is more sought after and where, therefore, rental values are on the increase, will in effect pay less than their fair share. That is not a fair system. The hon. Gentleman could argue for a totally different approach to the contribution that business makes to local government--I should be interested to hear his views on that--but, as long as we have a rateable value system, there must be revaluations to make it fair.
Mr. Lloyd: I have already told the Minister that if he were to tell the businesses that will face the incredibly arbitrary changes that this is all okay because, on average there is no increase or because it is simply a technical fix which is in the nature of the rating system, he would find that they are angry.
I was talking to a small shopkeeper the other day who was telling me how difficult it is nowadays for somebody trying to run a general shop. If the figures that apply in my region are typical, he will face a real-terms rate increase of 31 per cent. over the next five years. He will be cushioned next year so that the increase is only 7.5 per cent. in real terms and he will be cushioned the following year so that it is only another 7.5 per cent. in real terms. Thereafter, he will be less cushioned and he will reach the full 31 per cent. increase.
If the Minister knows anything about small businesses, he will know that they always complain about the disproportionate impact of rates, relative to other costs. I can assure the Minister that my small shopkeeper friend will be extremely angry about the position in which he finds himself because his is already a marginal business. It is beset on all sides. The landlord wants to put up the rent, the suppliers want to put up costs and the recession is still having an effect on the incomes of people in the area in which he trades. For a small business an increase of 30 per cent. plus is not a small cost. That business man will be entitled to say that the Government are extremely unfair to him as an individual trader and, more generally, to small businesses.
The Federation of Small Businesses has said that it is disappointed that the revaluation winners are required to contribute to the payment of relief to the losers. It also said--the Minister should take this on board--that the transitional relief scheme, which is now operating for a second five- year period, totally undermines the credibility of the uniform business rate. The Minister must address that. The original transitional system had not worked its way through before we moved on to the next revaluation and the next transitional scheme. Such a system is neither stable nor credible. The Forum of Private Business, which
Column 957writes to hon. Members regularly, makes a similar point. It is concerned about the impact of the business rate on small firms in particular. It says that it is a proportionately higher cost than that borne by large businesses. It advocates a profit-based scheme, which has its demerits. The Minister seems to be oblivious to the doubts and concerns about the present system. He must accept the real concerns that businesses are expressing.
Mr. Tim Smith: The implication of what the hon. Gentleman is saying is that either he is against having a revaluation next year or he is in favour of never having a revaluation. What is the Labour party's policy on that?
Mr. Lloyd: As is sometimes said, all will be revealed shortly. I believe that the hon. Gentleman supported the legislation that introduced this system. It is important to examine the defects of the system adequately. We must recognise the frustration and anger felt by business people about a Government whose language seems to be friendly to business while demonstrating the most peculiar form of embrace--a poisoned cuddle. Some businesses that find themselves moving towards the bank manager, or even the bankruptcy courts, may feel that the Government have given them rather more than a cuddle.
Mr. Jim Lester (Broxtowe): I used to be the chairman of the finance committee of Nottinghamshire county council and we were responsible for setting the business rate for our local community. I can remember that there was less anger when we were in charge than when the Labour party was in charge and the anger in those days was a jolly sight stronger. If the hon. Gentleman looks back at the debates on rates in the House between 1974 and 1979, he will see that there was a great deal more anger and concern than are expressed today.
Mr. Lloyd: It would be churlish of me to remind the hon. Gentleman that, during that period of the Labour Government, a great deal of local government was controlled by the Conservative party. If the hon. Gentleman feels that Conservative local authorities did a bad job, he may have an interesting point that I shall try to absorb. The simple truth is that there is a great deal of anger. The present system lurches from five-year period to five-year period and not from year to year. In the east midlands, in which the constituency of the hon. Member for Broxtowe (Mr. Lester) is located, businesses saw a 15 per cent. reduction in rateable values in 1990 with the introduction of the 1988 revaluation. Those businesses will be less than enamoured of the support of the hon. Member for Broxtowe for this measure when they find that their bills are increasing by 20 per cent. That will be the real-terms effect of the revaluation on the east midlands.
I am sure that there will be winners and losers. The Minister has tried to explain that, on average, everybody will be happy. I can assure the hon. Member for Broxtowe that the losers in his constituency will be less than enamoured of him or the Minister if he really believes that a 20 per cent. plus rates increase will do their businesses any good.
Let us look round the country at the different valuations. I hope that the Minister will accept the figures, because they have been drawn from parliamentary
Column 958answers provided by his colleagues. The west midlands is the worst affected region. Across all businesses, the revaluation will increase rateable values by 34 per cent. That is a large increase, but even that manages to disguise the impact on some businesses. For example, office rateable values in the west midlands will increase by 54 per cent. Commercial activity such as that is necessary in areas such as Birmingham, which, like many cities outside the south-east, is trying to move from the traditional manufacturing base to a much stronger commercial base. Such a revaluation will do great damage. Warehousing has become a feature in traditional manufacturing areas where, sadly, it has replaced traditional manufacturing industries. Warehousing revaluation has meant that there will be a 49 per cent. increase in rateable values. That is a massive increase for an industry that is labour non-intensive and relatively property intensive. It will increase warehousing costs disproportionately. The same thing will happen with factories. The west midlands is still famous, even now, for its manufacturing base, but the revaluation will mean a 40 per cent. increase in the cost for factories.
As I have already said, the overall increase in the east midlands will be about 20 per cent. Ironically, at 20 per cent., businesses there get off relatively lightly. The hon. Member for Broxtowe will be able to tell businesses in his constituency that things are not so bad because they are worse a few miles down the road in the west midlands. I am sure that those who will be paying an extra 20 per cent. will say that they are truly grateful.
The northern region is still suffering heavily from
de-industrialisation. The overall increase there will be about 24 per cent. That will not be welcome. In my region, the north-west, the increase will be 32 per cent. That disguises individual variations. A city such as Manchester is increasingly seeing investment in office-based activity and that has become important to the local economy. However, office rateable values will increase by 51 per cent.
In Yorkshire and Humberside--I say this for your benefit, Mr. Deputy Speaker--there will be an overall increase of 26 per cent., which disguises some of the sectoral increases which are much greater. The Minister talked about transitional relief, but every one of those regions faces serious and real increases in industrial costs. In inner London, the position is reversed. Office valuations there have shot down by 59 per cent. With that decrease in industrial costs, one would have thought that, in considering the massive unemployment in London, the possibility existed of more employment of that sort being located in the capital city. That will not take place for some years because of the transitional relief package, which gives transitional relief only in one direction. It will bring transitional misery for people in inner London, who will not receive the benefit of the revaluation that they thought might give them relief.
Mr. Robert B. Jones: The hon. Gentleman has ruled out increases for anyone that is angry and has problems. He wants people who will benefit from revaluation to gain immediately. The logic of his position, therefore, is that there must be a substantially greater contribution from the Exchequer. I ask him to put on record precisely how he would find the extra contribution. Would he raise VAT or income tax to cover it? Since the matter relates to
Column 959business, would he raise corporation tax or something like that? Might we even return to that hoary old Labour chestnut --a selective employment tax? If the hon. Gentleman is moving down that road, it is up to him to tell us where he would get the money from.
Mr. Lloyd: It is not up to me and I shall explain why. It may have escaped the Minister's attention that my party is not the party of government. The Government faced the same problem in relation to revaluation in the early 1990s. It is up to them to tell us why, having told us that there was no more money, all of a sudden they produced £1.5 billion out of a hat to pay for the scheme. It is not up to the Opposition to find the money in the Chancellor of the Exchequer's bag. It is up to the Government to set out a scheme that is affordable and consistent. They did not do so from 1990 until now and they will not do so in the future. That is the reality of the position.
Mr. Jones: Since the hon. Gentleman is being transparently dishonest in failing to deal with the question of where the money would come from, will I at least receive an answer to the question whether the Labour party would fund any such scheme out of Exchequer money--wherever it may come from--and whether Labour would not fund it in the way in which the Government propose in the orders?
Mr. Lloyd: That is a good try on the Minister's part, but unfortunately it is not good enough. This is the Government's scheme. The present unified business rate system was introduced by the Government. The problems have been brought about because of the Government's incompetence. The Minister must deal with that incompetence. He cannot get away with asking other people to drag his chestnuts out of the fire. His Government are loading the costs on to industry. They are not able to tell businesses in inner London why they will not benefit from a revaluation that works in their favour. That view is not unique to me. I think that it is the position, for example, of the Confederation of British Industry, which says that protection should go to the losers and that the winners should not pay for the whole thing.
Mr. Lloyd: In time-honoured Tory Whip fashion, the hon. Gentleman said that my speech was a filibuster. He plays little role in the Chamber nowadays and I understand that he is out of practice in such matters, but Conservative Members have been engaged, unusually for hon. Members, in something of a dialogue on an issue that obviously concerns them. I should not want him to dismiss their comments in the way that he does and as if they have no value, because they have played an important part in a debate that is of concern, perhaps not to him as a Member of Parliament but certainly to businesses in his constituency. When their rates go up next year, they will be worried that he thinks that this is such a trivial matter. He might want to write to his local chamber of commerce to explain his view on the matter.
Conservative Members asked, "What is wrong with the present system?" I shall tell them what is fundamentally wrong with it. When the Government chose to nationalise the business rate, they made a fundamental mistake. They
Column 960broke the link for local business. When the scheme was introduced, Mr. Nicholas Ridley, a former hon. Friend of the Minister, said: "Under the present system half of local revenue is raised from businesses which are defenceless against exploitation by authorities". --[ Official Report , 16 December 1987; Vol. 124, c. 1115.]
The problem is that the scheme does not defend businesses from exploitation by central Government. That is the nub of the matter. Central Government have been a much worse custodian of the business rate than local authorities were before. That is why we must have a return to some sort of local control of business rates, so that local businesses can negotiate with local authorities, which are served by people who are closer to them and who will listen to them. That at least is what we must begin to do.
As of now, it is up to the Government to recognise the real misery that will be imposed on individual businesses and to begin to deal with the problems that will be the subject of Conservative Members' letters in their postbags from about next February, when the bills begin to go out. The Government must recognise that the transitional scheme is inadequate and will not deal with the problems that will be caused.
I have concentrated the bulk of my remarks on the transitional relief scheme because, in many ways, it is the subject of the most important of the measures that lie before the House. The Minister referred, however, to the six other orders and I want to press him on the formula funding system. Will he tell us what the likely rates of increase in valuation will be in practice for industries in forthcoming years? We have a good idea of what the increase rate will be for companies that operate outside formula funding and in the ordinary rating valuation system.
We need to have a comparison with industries that find themselves in this slightly anomalous situation. Although I welcome the fact that the Minister has repeated the Government's assurance that they intend to move to a rating valuation system for the bulk of those industries, I should like to press him on why it is necessary to let that process run through to the year 2000, which is a long way off. Given that negotiations have been under way for some time, I should have thought that it would be possible to consider ways of speeding up that process. It is in everyone's interest to ensure that there is no discrepancy or favouritism and that industries are not disfavoured by the system. I should be grateful if he would spell out the reasons why it has to take until the year 2000.
The Minister did not mention railways as one of the candidates to be brought within the rating valuation family. Full privatisation is still the Government's policy. With the break-up of railway companies, why will the railways still operate under a formula funding mechanism after the year 2000? Why cannot we begin to move the railway system on to the same basis as other industries?
At every point, the Government have established principles by which business rates would operate. At every point, those principles have been rendered null and void when circumstances have changed and when the Government have come under pressure. The Government will come under tremendous pressure next spring and thereafter when businesses realise the full consequences of what is taking place. I warn the Minister that, unless he can give answers that are better than those that he has
Column 961given today, businesses up and down this land will believe that the Government have done serious damage both to the employment base and to the industrial and commercial base.
Mr. Peter Brooke (City of London and Westminster, South): I do not share many things with the hon. Member for Stretford (Mr. Lloyd) apart from possession of an MBA degree. On the principle that we MBAs must stick together, I hung on his lips and did not intervene, even during his most controversial propositions. I shall content myself by saying that even if his speech was not meant to be a filibuster-- perhaps to cover the emptiness of the Opposition Benches behind him-- I look forward greatly to the occasion when he is really trying and is speaking to produce a filibuster.
My constituency interest lies primarily in the Non-Domestic Rating (Chargeable Amounts) Regulations 1994, which my hon. Friend the Minister identified as the main pabulum for the debate. The working population of my constituency exceeds the national average per constituency by a factor of 17. In the W1 postal district, there are as many businesses as residential households. Therefore, in my constituency we have had a disproportionate interest in the Government's consultation on transitional arrangements.
The draft order is an inspissated rather than a pellucid document. In the intellectual challenge that it sets the reader, it has an echo of those Christmas puzzles of one's youth, which used to start, "Mr. Black, Mr. Brown, Mr. Green and Mr. White live in houses that are, but not necessarily respectively, black, brown, green and white." Of course, their interest was domestic rather than non-domestic. I do not complain about the inspissation. It is in the nature of the proposed legislation and not a function of perverseness or mischief by the Department of the Environment.
Nor am I here to register a complaint that London has been ruthlessly robbed, pillaged or despoiled. I appreciate that the Government have consistency on their side in pursuing the transitional arrangements of 1990, especially in the form improved by amendment in the past five years in respect of properties that have changed hands.
Where the result of consistency on the one hand and inspissation on the other cross over is in whether the modest relief granted in London is the most generous that could have been achieved, especially when fuelled in 1995 by a direct Treasury subvention, which was not mirrored in the 1990 arrangements, even though one occurred willy-nilly in later years because of changes to the scheme. The argument for transitional arrangements is that they should soften extremities of change, and notably increases. What should not be lost sight of, however, was that in 1990 we were coming to our first revaluation for 17 years and to a new system of calculating non- domestic rates. The effect was therefore likely to be sharp in significant areas--I use "areas" geographically. In London, we were unlucky that the process coincided precisely with a recession. There were, however, other concomitants to the change in procedure.
Column 962If I temporarily disregard the City of London element in my constituency as being sui generis, as indeed the legislation has itself allowed, though my later remarks apply to it as elsewhere, prior to 1990, under borough determination, the rates in Westminster were lower than in Camden, an authority to which I choose to refer for its adjacence and because I once served within it as a councillor. As a result, rents were lower in Camden because Camden had to compete with Westminster for office or retail accommodation. Therefore, the combination of rents and rates needed to be the same, or about the same.
The logic of 1990--I use the date as a proxy for the change--was that, if rates were harmonised on a national basis, rents would follow the new level of rates. As Westminster's rates rose, its rents would fall, and vice versa in Camden. That prospect, in the recession, offered some comfort and relief in Westminster, but the very effect of transitional arrangements in smoothing the sharpnesses was also necessarily to delay the rearrangement of the market to reflect what I have just described. There is an equal hazard that the repetition of the transitional arrangements now will likewise delay the return of recovery in London, which is widely acknowledged to have been very hard hit during the period of recession. That is the more serious as the otherwise admirable absence of inflation in the housing market still leaves the south-east's consumer enthusiasm much tempered by the continuance of negative equity in domestic properties. Moreover, just as the climate in the Chamber determines the political argument throughout the country, so the feelgood factor in the nation will remain diluted as long as London's prosperity is muted. My right hon. Friends on the Treasury Bench have an interest in not delaying the feelgood factor spreading for too long. My hon. Friend the Minister will know that currently in London we have properties where rates exceed rents; that cannot make even medium-term economic sense.
Although, as I have made clear, I do not quarrel with the concept of transitional arrangements, I have queries about their application. My right hon. Friend the Secretary of State for the Environment was good enough to write us all a letter in which he sought to set our minds at rest on a problem that I had not posed. I do not blame him for concentrating on his own agenda and setting it out and not making his letter comprehensive, but at the end of the exercise I am left with no clear arithmetical picture of how the calculations were prepared to produce the particular conclusions that they did. My right hon. Friend the Secretary of State for the Environment will know, not least because he has some departmental responsibility for the property industry, of the dire economic and employment straits of great swathes of the industry today. He may disclaim their calculations on the grounds of bias or self-interest, though I imagine he would be pleased to see the infrastructure of the industry returning to health. He will know, however, of the scale of the research that the industry undertook during the autumn and early winter on the subject that we are now discussing. Its postulated calculations are that the Government could have gone to a 15 per cent. rate reduction in real terms rather than one of 5 per cent.--admittedly, for larger properties--in the improvement in London next year.
Column 963All that I am asking of my hon. Friend the Minister--it is too complicated a subject to be dealt with on the Floor of the House--is that in correspondence and in measured time he might lift the veil a little on the calculations of the Department of the Environment to let us know why they have been significantly more pessimistic than those of the industry, which has the advantage--I acknowledge self-interest--of being closer to the real market than some of those who advise the Government.
Mr. Brooke: I am grateful for that harbinger of correspondence. The changes that had to be made after 1990--I am referring to changes of detail, not to the results of the beneficence of my right hon. and learned Friend the Chancellor of the Exchequer--revealed that even in the best ordered of Governments the market can still teach some lessons. That is what I am seeking to say this evening. As we are a thin House and I am not likely to rob any hon. Member of the opportunity of a speech by adding one further thought, I shall allow myself the self-indulgence of a general remark about the legislation under which the orders apply. When the Government, by introducing legislation, cut the link between businesses and their immediate local authorities, they seemed to rob local authorities, too, of their interest in those businesses. In my constituency, the Corporation of the City of London has long taken a profound interest in the welfare of its business constituents, for understandable reasons. I am delighted that, despite the direct link being cut, Westminster city council has within the past five years recognised the holistic nature of a community and is deliberately renewing its links with the business community in a most constructive way, which in turn has been welcomed by the business community.
Given the exceptional constituency employment figures that I quoted at the beginning of my speech, the dual thrust by the two local authorities within my constituency is good news for the economy at the heart of the nation. I hope that in subsequent debate, which my hon. Friend has promised me, he can reinforce the progress that has been made by the instruments at his disposal.
One of the incidental contributions that the Government can make in these matters is to speed up the pace of dealing with valuation appeals. I know that the valuation service is not the responsibility of the Department of the Environment, but I know too how much frustration has been caused in my constituency--admittedly it is densely populated in business terms--by the historic delay in hearing appeals over the past five years.
Mr. David Rendel (Newbury): It is good to have the chance to follow what was in some respects an apt demolition job on the way in which transitional relief will be used next year. I was delighted to hear that demolition from a Conservative Member.
Column 964Interestingly, some of the Minister's remarks and some of those made by the hon. Member for Stretford (Mr. Lloyd) have some merit. If we are to have a uniform business rate system, there must be the chance for revaluation, and for revaluation to have a real effect on the level of rate payments by individual businesses. The management of the UBR system so far, however, has meant large--in some cases unbearable--rate increases for some businesses.
When the system was introduced, I understood--as I think most business men did--that the whole idea was to introduce fairness: a level playing field for businesses throughout the country. I thought that the intention was not to allow individual councils to place burdens on businesses in their areas. Sadly, however, that level playing field has not been created, and we are now seeing the farce that the UBR has brought about.
The Government were forced to introduce a transitional relief system to overcome the burden of extra rate increases in parts of the country where valuations themselves showed large increases. That has caused the whole system to break down: far from being given a level playing field, businesses that have been the beneficiaries of transitional relief for the entire initial five-year period can be said to have been playing downhill all that time, with a following wind.
Those businesses received the amount of transitional relief that they received because they had suffered the biggest--in many cases, quite unrealistic--valuation increases towards the end of the 1980s. As I said earlier this year in a debate on the Non-Domestic Rating Bill, that has led to an absurdity: some businesses have experienced real-terms rate increases this year, only to find that, because of a lower valuation, the rates will return to a more reasonable level next year.
Mr. Tim Smith: I understand why the hon. Gentleman describes that position as absurd, but is it not an automatic consequence of regular revaluations? If he does not like regular revaluations, what alternative would he suggest?
Mr. Rendel: May I answer the previous question first? Obviously, revaluations must take place; the problem is caused by the big and rapid jumps in value caused by the extended intervals between revaluations.
Mr. Heald: The problem with the site value system is that it makes no distinction between premises such as office blocks, which have a high usage rate in terms of occupation of the land, and "low-occupation" enterprises such as garages. It is thus grossly inequitable.
Mr. Rendel: That is not true. It depends what planning agreement has been made. Whatever agreement has been made, however, the site value system will lead to the best and most efficient use of the site: that is why it is a good system for business.
Mr. Rendel: If a move from the system that the Government now run happened all in one go, such arrangements would clearly have to operate-- [Interruption.] The hon. Gentleman is now speaking from a sedentary position. Does he want me to give way again?
Mr. Streeter: I thank the hon. Gentleman for giving way to me, following my sedentary intervention. He has spent the first few minutes of his speech criticising transitional arrangements; what would be different about his proposed transitional arrangements?
Mr. Rendel: I am afraid that the hon. Gentleman has not been listening very carefully. I have not been criticising transitional arrangements as such; I have been disputing the need to make the amounts so large and to continue the arrangements for so long. The original point of the UBR was to introduce a level playing field across the country, but it has not worked. It is the UBR system, rather than the transitional arrangements, that I am criticising. Unfortunately, the Government have now chosen to introduce a phasing system for businesses whose valuations have decreased. I consider that totally unfair. I understand the need to introduce a transitional system where there have been large increases; there would otherwise be a serious risk that many businesses would go under. They cannot be expected to take account of very large increases all in one year. It does not seem fair, however, that the system should be paid for by businesses whose valuations have decreased.
The original understanding, five years ago, was that the system would be self-financing--that, as far as possible, the phasing in of the decreases should pay for the phasing in of the increases. This year, no such suggestion is being made. Because of the £505 million that the Government are putting in, no real attempt is being made to make the entire system pay for itself. If no such excuse is left to the Government, it seems extraordinarily unfair that businesses whose rates happened to be high last year should be forced to pay for transitional relief for those that would otherwise pay high rates this year. Just to help themselves balance their budget, the Government are in effect fining businesses next year because they had large rate bills last year. That cannot be fair, and the Government should not be proposing it.