House of Commons Hansard Debates for 14 Dec 1994

Mr. Oliver Heald (Hertfordshire, North): I want to make two points. First, the revaluation and transitional measures are good for British business and amount to a fair contribution to local government expenditure. Secondly, they will be good for local business men in north Hertfordshire, particularly over the medium term. Some 170,000 businesses will experience benefits nationally and I hope that a considerable number will be in north Hertfordshire. Before I develop those points, however, let me refer to what other hon. Members have said. The hon. Member for Stretford (Mr. Lloyd) began by saying that there was anger in the north of England--not just because of the revaluation and the increase in business rates, but because of the link with local councils that had been lost, and the loss of the special way in which they had been able to set business rates.

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Mr. Tony Lloyd: It would have been better if the hon. Gentleman had listened to my speech. What I said was that there would be anger next year, when the business rate bills begin to drop through the letter boxes of businesses--not just in the north but in London.

Mr. Heald: I am grateful to the hon. Gentleman for clarifying that. He should have explained, but failed to do so, why there would be anger in the north when the change is being made following a revaluation that reflects property values, when transitional relief is available to help the businesses that are most in need and when the system is generally recognised to be fairer than the previous one.

The hon. Gentleman spoke of the link with local councils. He should recall what the position was like previously. Local authorities were not accountable to businesses for the way in which they spent the money that they had raised; many authorities used non-domestic rates to support increased spending at no political cost to themselves; and there were dramatic year-on-year increases at a couple of weeks' notice.

In the 1970s and 1980s, I campaigned in inner-city areas where business after business would say, "This is ludicrous: look at the rate that we are having to pay, compared with the rate paid in the suburbs." Those businesses would then move out. There was genuine anger, because the system was unjust. No one could say that of the present system, which is based on a proper valuation of premises, regularly updated, and on a poundage that is the same throughout the country.

The hon. Gentleman may recall that the average poundage was 258p. Labour councils in certain inner-city areas, however, had far higher poundages, and businesses in those areas suffered badly. There has been a huge improvement since the introduction of the uniform business rate.

It was a breath of fresh air to hear my hon. Friend the Member for Broxtowe (Mr. Lester), whose constituency is the home of the Bramley apple. Unfortunately, he is not in the Chamber now. He, too, experienced those days back in the 1970s and early 1980s, when local authorities were able to make such decisions. He spoke of the large increases that took place under a Labour authority, and the far better position that existed when it was Conservative controlled. What the hon. Gentleman cannot explain away is the fact that if we do not have a system of regular revaluations and we allow what happened between 1973 and 1988 to continue we shall end up with a hopelessly distorted system, with very low rateable values. It is a cop-out to say that one would not tackle the problem of revaluing year on year.

I shall deal in a moment with what Labour suggests in place of that, but burying one's head in the sand, as happened in 1978--and, I confess, in the early years of the Conservative Government--is no solution. If one says, as the hon. Gentleman does, that the transitional relief should be phased in such a way that people could have the benefit

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of a revaluation immediately if there were a cut, but that an increase should be phased over a long period, one has to explain where the money would come from.

Mr. Robert B. Jones: I can put a figure on what would be required if there were no contribution from those who stand to benefit. Instead of the £500 million that comes from the Exchequer now, the contribution would have to be £1.8 billion.

Mr. Heald: That is a colossal sum, and we have not had a clear exposition from the Labour Front-Bench spokesman of that party's pledge. If there is a spending pledge of £1.8 billion it is incumbent on the Labour party to explain where the money would come from.

Mr. Rendel: Can the hon. Gentleman or any of his colleagues tell us why it is fair that the £1.8 billion--or at least, the £1.3 billion that businesses are presumably putting in--should be paid only by businesses that happen to have suffered from high rates last year?

Mr. Heald: That is obvious when we consider what happened in 1990. Clearly at that stage there had to be a valuation that dealt with property values as they were, but during the recession it was right to have transitional arrangements that took into account the fact that business was in difficulty.

The hon. Gentleman will recall that in the 1992 Budget the package was £1.25 billion, and in 1993 it was £550 million; there will be further help this year. That was all necessary because the fact that businesses were in the middle of a recession and were having difficulties had to be reflected. However, if we compare that with what is happening now, with growth of 4 per cent. and unemployment falling, the picture is transformed. The Government must take account of that fact, as has been outlined.

Mr. Rendel: The hon. Gentleman has not answered my question. I asked why the particular businesses that happen to have suffered high rates last year must suffer this year, too. If the Government want there to be some transitional relief for those with increases, why do they not ask all businesses rather than only those that suffered last year?

Mr. Heald: Perhaps the hon. Gentleman was not listening to the earlier part of my speech in which I said that a sudden dramatic change in the level of business rates was to be avoided. Business finds that desperately difficult to deal with; that is why the uniform business rate was introduced in the first place.

If there is to be a system that smooths the transition year on year--the Government are committed to that, and it is right--we cannot say that we shall smooth upwards but not downwards. If we did we should have to explain where the £1.8 billion will come from--something that the Liberal party can never do.

Mr. Rendel: The hon. Gentleman has not answered my question.

Mr. Heald: It all reminds me of a former Labour Minister who last week, from the Back Benches, said, "£1.3 billion? Let's just wait and see if we need it." That is typical of the approach during the 1970s, and it is why this country got into the state--

Mr. Tony Lloyd: The hon. Gentleman was not in the House at the time, but he must know that when the Government found themselves in massive difficulties with

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the relief scheme in 1992 they had no difficulty finding £1.5 billion to bail themselves out following their incompetence over the scheme.

Mr. Heald: I am grateful to the hon. Gentleman for saying that, because my argument is that the Government explained where the money was coming from--something that Opposition Members cannot do. We have heard an example of exactly that.

When we consider the transitional relief it is important to remember that without the proposed scheme there would be difficulties in smoothing and effecting a proper transition. The hon. Member for Stretford said earlier that the scheme had not been helpful to business. But businesses in my constituency have been helped. About 350,000 larger properties have had help, and the new transitional arrangements will cover 156,000 offices and 320,000 warehouses. It is important to have such a scheme to help business over the period in question.

Now I shall start on my main argument. I had intended to start by dealing with the background, but perhaps I have already done so. In 1990 it was necessary to examine rateable values because they had fallen so low, and there was no real relationship between rateable values and market values. During the 1980s property values had risen in the south, and the year that was used, 1988--this was especially true of April 1988--was when rental levels were at their highest both in my constituency and across the rest of the south of England. That was not true in the north, where many businesses gained as a result of the revaluation. When we revalue this year there should be a proper reflection of the changes, because since April 1988 commercial property values have fallen sharply. Business men in the south have adapted to the changed conditions, and in my constituency there are 1,000 small nursery companies that are beginning to see growth and are taking on labour; unemployment has fallen by 1,000 there in the past year.

The help that such businesses will receive from the revaluation is much needed. Opposition Members have not mentioned the effects in the south of England, not just in the inner cities but in other areas that are important and should also be considered, especially--as the Minister, who is also a Hertfordshire Member, says--Hertfordshire. Hertfordshire has suffered defence cuts, which have been difficult for our industries. They have adapted, but now that there is a rising trend it is right that they should see the benefits of changing property values, and I am glad that they will. I have no objection to the fact that the changes are to be phased in, because the transition should be smooth.

In north Hertfordshire, as well as the 1,000 nursery companies other small businesses have had a lot of help. There is business link, the Hertfordshire Development Organisation and the KONVER funds from Europe; there are simplified arrangements and less bureaucracy; finally, there are Investors in People and BS5750. That combination of help from the Government, built on this year by a further package of £1.7 billion in the Budget, is helping those businesses out of recession.

The larger businesses in north Hertfordshire--such as Fermark, a most successful company; Irvin, the manufacturer of parachutes for the British Army; Victaulic, which had the first management buy-out; and Johnson Matthey, which has moved from precious metals into new operations, such as those involving catalytic

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converters and diesel catalytic converters, and which is at the forefront of technology--have all had to adapt to the high rateable values that resulted from the 1990 revaluation.

As those businesses have adapted to the new conditions so well, I can say that businesses in any area where property values have increased and where it is difficult to cope with that at first--although there are, of course, transitional arrangements--are capable of adapting, and I believe that they should. Opposition Members argue for a system that is unjust between the north and the south, and that seems wrong to me. If the Labour party has pretensions to be a party of the south of England it will have to do better than that. Businesses in Hertfordshire would expect to have a level playing field. I do not think that the hon. Member for Stretford can say that anything less than that is acceptable. So the businesses which have been expanding and exporting, when unemployment is falling and they are benefiting from the help that the Government have given them, will welcome the orders.

As I understand it, the Labour party is suggesting that we should scrap the uniform business rate and allow local councils to set their own poundages. If we did that, we would return to the situation that I witnessed in the inner cities in the 1970s and 1980s and which Labour Members, in their heart of hearts, know was wrong for business. It was all too easy to increase the business rate and then go to the local voters and pretend that that was in the interests of them and their employment, when it was completely against their interests to see their businesses forced out of the inner city and to see those jobs go. We do not want to return to that system. If we scrap the uniform business rate and return to the unlevel playing field and the scandalous way in which those matters were dealt with, we will pay a heavy price in our businesses in the inner cities. It will lay them waste as it did before and we should not be prepared to accept that.

The Liberal Democrats talk about site value rating. As I said earlier to the hon. Member for Newbury (Mr. Rendel), site value rating does not take account of the fact that a small business may occupy a large and valuable site, for example, a garage, and that it would be valued in exactly the same way as a large office block, which has far more money-making potential as a building. Are we to say that small businesses on valuable sites should be forced out of such areas?

Mr. Robert B. Jones: My hon. Friend is doing a marvellous demolition job on the hon. Member for Newbury's advocacy of a site value tax. My hon. Friend should remember that the hon. Gentleman's own party has already done such a job. On 22 September, at their party conference, delegates rejected an attempt to revive the Liberal Democrats' proposal for a site value rating system. So I am not sure whether the hon. Gentleman was even speaking for the Liberal Democrats on this occasion.

Mr. Heald: I am grateful to my hon. Friend because I noticed particularly that the hon. Gentleman said "some sort" of site value system. That struck me as not being very specific at all. I wondered if it had anything to do with the comments of Mr. Adrian Slade, who, of course, used to be the president of the Liberal party. He recently said about the idea that it was

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"not sufficiently equitable . . . not based on the ability to pay . . . discriminate against small retailers, especially in prosperous areas".

Is that really what the Liberal Democrats want to stand for?

Mrs. Angela Knight (Erewash): Is my hon. Friend also aware that the system, according to the Institute of Revenues Rating and Valuation, has explicitly rejected site value rating? It also said that the system was completely unworkable.

Mr. Heald: I am not surprised. I am extremely grateful to my hon. Friend for pointing out that something which seemed obvious to myself and to other hon. Friends has been asserted and proved beyond doubt by such a worthy body. It is the expert. It has given its judgment; the former president of the Liberal party has given his. Really, the Liberals will have to go back to the drawing board.

Mr. Win Griffiths (Bridgend): On a point of order, Mr. Deputy Speaker. Earlier this afternoon, in a public expenditure statement on Wales --

Mr. Tim Smith: It took an hour.

Mr. Griffiths: My point will become apparent. In that statement, the Secretary of State for Wales declared that he was presenting a budget for Wales. You know, Mr. Deputy Speaker, that when the Chancellor presents his Budget statement to the House, he also provides for right hon. and hon. Members a full list of accompanying documentation, including press releases issued to accompany the Budget statement. I have been to the Vote Office to try to get all that documentation, including the 14 press releases issued by the Welsh Office, but have been told that, although the Vote Office tried to secure them, the Welsh Office said that they would be put in the Library only and not made available to hon. Members in the Vote Office. I ask you, Mr. Deputy Speaker, to use your good offices to ensure that what is custom and practice for the Budget should become custom and practice for the Welsh Office budget, which the Secretary of State read out to us this afternoon.

Mr. Deputy Speaker (Mr. Michael Morris): It is not for the Chair to decide what should become custom and practice between one Department of State and another. But I am quite sure that the Treasury spokesmen heard the point that the hon. Gentleman made. I am sure that there will be some reaction.

6.4 pm

Mr. Clive Betts (Sheffield, Attercliffe): Ministers and other Conservative Members have presented the arrangements for the business rate as being a solution to a great many perceived problems, many of them imaginary from my experience. If they came to the House and admitted that there were difficulties and problems, which they were struggling to resolve, Labour Members may have a little more sympathy with their predicament. But when they try to explain that there are no difficulties or problems, that the new system is wonderful, that it has replaced a terrible system and that all they should get is congratulations, we have a right as Opposition Members to raise one or two matters and ask them to give some answers.

My hon. Friend the Member for Stretford (Mr. Lloyd), the Labour party Front -Bench spokesman, highlighted a number of problems and said that he felt that when the

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rates bills drop on the doorsteps of businesses next year, there will be a great deal of anger, confusion and concern about why this system, which is supposed to solve the problems of business, has created so many problems. Businesses will be faced with rate bills that will have risen far higher than the rate of inflation. While the Government pretend that a recovery is going on throughout the country, businesses are still struggling, their margins are still thin, and they are still looking to retain their employees. If they are faced with large rates increases, it will create problems for them. Revaluations are never popular. Labour Members do not pretend that they are, nor that a change of Government would make them popular. We accept that revaluations have to occur from time to time and that there have to be transitional arrangements to see them through. But we are asking Ministers to recognise that the revaluations this time have led to some very large increases. The Yorkshire and Humberside average rate increase, I am told, for all businesses is 26 per cent. Obviously, when businesses see those figures, they start to be concerned about the impact not only in the first year, but in the second and third years as transitional arrangements wear off. The increase for factories is 23 per cent.; for warehouses, it is 32 per cent. Those are very large increases.

Conservative Members tell us to consider the problems in the south and to look at the difficulties that businesses in the south are facing. They say that it is fair to have a relative readjustment between businesses in the south and in the north. Labour Members accept that because of the Government's economic policies, businesses in the south are struggling and have struggled in the past few years. Since businesses in the south are going through a far worse time than they may have done in the recession of the early 1980s, as compared with businesses in the north, let us not pretend that many businesses in the constituencies of myself and my hon. Friends here today have not also suffered considerably. Such revaluations, therefore, are worrying, alarming and concerning.

We want Ministers to recognise that they have problems with a system which is supposed to clarify and sort out all difficulties and be a new, improved system which everyone should welcome. Increases in rates, which will come out next year, will be well above inflation for many firms and those same companies will be seeing forecasts of rates above inflation for future years. The transitional scheme is complicated by the fact that it is a transitional scheme on top of a transitional scheme. In other words, it is not simple and easy to understand. I readily accept that Ministers have difficulties. They have large increases on the one hand and on the other their transitional scheme is overlapping a previous scheme, causing complications and difficulties. If Ministers would at least accept that the scheme that they set up contains problems and difficulties, it would be worth hearing from them.

I also want to respond to what Conservative Members have said about why the scheme was introduced in the first place, why we will need to retain it and what was so awful about the previous arrangements. Again, that is not my experience. Most of the perceived problems that I recall came in the early 1980s, when there were some very large increases in business rates in some authorities.

At that time, it was not that authorities under Labour control were maliciously against business in their areas and were trying to increase business rates in order to gain

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money to go on a spending spree. Central Government were reducing grants to those authorities by large amounts. In response, those authorities increased their rate to compensate and to maintain the services which the people in their communities put them into office to preserve. It was very simple.

I was a member of an authority in Sheffield which did precisely that. We had some large rate increases in the early 1980s. The authority went to the electorate and asked, "Do you agree that that was the right thing to do in response to the Government's actions?" The response was decisive. The Conservative party lost seats in Sheffield because of that action. Conservative Members forget that, when we had alternative arrangements and business rates that were set at local level, there was a direct connection with the electoral process because business rates were directly linked to domestic rates. We could not put up one without the other. A local authority which increased business rates at that time had to increase domestic rates, and it had to do so by a slightly higher percentage.

Mr. Tim Smith: Is not it the case that, in many areas, more than 50 per cent. of voters paid no domestic rates and had no interest in how much money was raised?

Mr. Betts: I do not think so. It certainly was not true in Sheffield. There certainly was a system of benefits on rates, but that did not mean that more than 50 per cent. of my constituents--I was a local councillor at the time--paid no rates at all and had no incentive in the rate levels in the city. They had a very strong incentive, of course, in the services that were provided. The democratic link, therefore, was absolutely clear. As I was explaining, the increase in domestic rates was higher because of the existence of domestic rate relief, which meant that for any increase in pence in rates there was a higher percentage increase in domestic rates. Conservative Members think that we had to have the new system in the 1980s because manufacturing industry was shutting down all over the north of the country after Labour authorities had put up rates. That is nonsense. The evidence at the time showed no link between the number of firms closing or the increase in unemployment and what was happening to rates. That information was made available in the Library at that time.

The city council examined the balance sheets and accounts of some major companies in Sheffield. The rates bills of major engineering and steel companies were less than 2 per cent. of their costs, even in the most extreme cases. They were and still are suffering from high energy costs, particularly electricity costs. That was a far greater burden on those industries. It was a far greater problem for them in terms of maintaining their viability and continuing in a major recession in the early 1980s than the impact of the business rates.

We were told that we would have a new system which removed all the problems. I do not think that businesses in Sheffield believe that the convoluted orders are a better, simpler system for them. When rates were set at local level, businesses could go to the town hall to consult. We believe in consultation. In Sheffield, we certainly consulted local businesses long before the Government made it mandatory at national level. It is a two-way matter. Local business has the right to be consulted, but it has the right also to contribute to the community in which it is based. The very existence of industry creates

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costs for the local community. It is right that there should be a link between them. The business rate should not be set at national level in the way that the orders will force central Government to do.

Some of the difficulties of the early 1980s were forced upon local councils. Central Government produced the national rating system. Local authorities put up rates in response to the actions of central Government. Out of some of the difficulties that arose in my city and in many others, there were initial conflicts between business and local authorities, but, at the same time, they brought about a more harmonious working relationship between authorities and a belief that there were common interests between authorities and local businesses.

Partnership initiatives were developed in many Labour-controlled authorities. Central Government are now trying to claim credit for the development of partnership initiatives, whereas it was the Government's policy to be against them. Local authorities entered partnership initiatives, despite the fact that businesses were paying rates to the local council and sometimes having arguments about it. Conservative Members constantly challenge Opposition Members to state what Labour policy is or will be. We made our policy absolutely clear before the previous election. I am sure that we will restate it before the next election. We believe that there should be a link between businesses and their community. We believe that businesses should pay a rate to their community. The business rate should not be set nationally by central Government and then distributed on a per capita basis.

A per capita distribution of the business rate is nonsense. It does not relate to anything. It does not relate to the number of businesses in an area, to the needs of an area or to the resources of an area. It simply relates to the number of people who happen to live there. That is not fair or equitable. It certainly has nothing to do with local businesses or how much they contribute to or cost the local community. Labour party policy is right. We should recreate the linkage between local business and its community.

The nonsense is that when everything is centralised, of course there will be complicated formulae. Many businesses--it is interesting that the Confederation of British Industry has made similar comments--would prefer a system whereby rates were set at local level and businesses could consult local authorities and relate what they do to the local community to which they make a contribution through the rates.

At present, there is no direct incentive for local authorities to encourage business in their areas. Many do that, and I commend them for it, but would not it be better if local authorities that are determined to assist business and attract business to their areas had an incentive to do so, and if the rates that were gained from the creation and development of business in their areas actually brought some benefit to local communities in terms of rates paid to local exchequers for local councils to use for the benefit of their local communities? I should have thought that Conservative Members would have preferred such

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incentives to be created for local authorities, rather than the arbitrary national arrangement in which local authorities are completely removed from the process.

Mr. Robert B. Jones: I am sorry to interrupt the hon. Gentleman, because he is making a rather better fist of putting forward Labour policy than did his Front-Bench colleague, the hon. Member for Stretford (Mr. Lloyd), although I do not agree with everything that he says. Surely the hon. Gentleman must address the issue that industry and commerce are not uniformly spread over the country; there are areas in which there is relatively little and areas in which there is much successful and enterprising business. Therefore, there would have to be a redistribution system, which immediately weakens the hon. Gentleman's argument. That is why we ended up in such a position, apart from all the other points on the deterrence of business from locating in certain areas.

Mr. Betts: I thank the Minister. I recognise that point. The Labour party addressed it in its manifesto for the previous election. Of course there must be a resources element in Government grant. That is accepted; it occurred before rates were nationalised by the Government; it must exist. However, that does not mean that we must have a resources element that completely removes incentives for local authorities to help to develop business in their areas. We can have an incentive element to enable the process to be meaningful. Another problem which Conservative Members should address, because it is the most significant problem created by setting up the national business rate system, is the small amount that local authorities now raise on their own account and which they are able to determine. Roughly speaking--it varies from authority to authority according to how much authorities receive from national Government in grant as a percentage of their budgets--about half the money comes from central Government, or perhaps slightly less than half in terms of the revenue support grant. About a third of the money comes from the rating system, and a sixth comes from the council tax.

That is very worrying because it creates a difficult gearing problem. Some authorities now collect less than 10 per cent. of the money that they spend. That creates a divorce between the democratic process of people being elected, spending decisions, and the taxation to pay for that spending. I think that the Government should be very worried because it has undermined and undervalued the local democratic process. In elections people vote for services and for taxes which have to be paid in order to finance service provision. If the average local authority decides to increase its expenditure by 1 per cent., it will face a taxation increase of 6 per cent-- the figure is even higher for some authorities.

That creates a substantial imbalance, and that gearing problem can be addressed only by giving local authorities more power to raise finance at the local level. To facilitate that, we must abolish the complicated and convoluted nationalised business rate system. If the rate is returned to local authorities, the amount of money collected from business will be tied to that which is collected from the rest of the population, so local authorities cannot simply raise business rates without raising rates for local voters.

Let us kill the myth that it is wrong to return business rates to local authorities because business rate payers do not vote in local elections. At present, business rates are set nationally by central Government and business rate

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payers do not have an extra vote in national elections. They have the same number of votes at national and local elections as the rest of the electorate, and that is how it should be.

I do not think that the Government should bring forward orders which permit Parliament to determine local matters. If we give local matters back to local government we will have a much better system. 6.20 pm

Mr. Tim Smith (Beaconsfield): The hon. Member for Sheffield, Attercliffe (Mr. Betts) seems to have learnt nothing from recent experience. In 1975, Anthony Crosland said, "The party is over." He meant that the consensus between central and local government had broken down and something had to be done about it. It is beyond belief that we are being asked to return revenue-raising powers to irresponsible local authorities.

Businesses do not like paying taxes. The Government levy three substantial taxes on businesses: social security contributions on their employment costs, corporation tax on their profits and business rates on their properties. We should be very wary of any proposals which will lead to an increase in taxation for businesses. Businesses create jobs and the money to spend on Government services. Businesses do not have votes and they are not able to influence local authorities. There may have been consultation between local authorities and businesses in the past, but in the end local authorities could simply ignore what businesses said. Corporation tax and social security contributions are levied at national rates-- no one suggests that those rates should vary from one area to another. I think that the reforms introduced in 1990 were entirely correct, and I fully support the uniform business rate.

The hon. Gentleman suggested that the Government do not recognise the difficulties in that sector. The transitional arrangements are a recognition of the problems associated with the introduction of the new system. If there had been no problems, we could have moved straight to the new system.

However, we were not able to do that because revaluations had not taken place for 17 years. As a result of that fundamental difficulty, there were large revaluations in the south and substantial devaluations in the north of England. We should have regular revaluations, but I do not think that Opposition Members can run away from the consequence of that, which is that some businesses will pay more while others will pay less.

For example, in the west midlands, manufacturers face a 40 per cent. increase in the rateable value of their properties. There is only one reason for that: rents in the area have increased by the same amount. Rents on manufacturing properties have increased in the past five years because demand for manufacturing capacity in the west midlands has risen also. That is good news for the west midlands. Manufacturing in the west midlands is booming. British exports increased by 14 per cent. last year, and businesses are facing substantial revaluations. Many businesses will have paid rent increases of 40 per cent. over the past five years. They have coped with those increases by driving down other costs, increasing productivity and becoming more competitive. That is good news.

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When we discussed these matters five or seven years ago, people talked about the north-south divide-- there was then a substantial divide-- but no one talks about that divide today. We have seen substantial change in the past five years. The last recession hit the south far harder than the 1981-82 recession and, as a consequence, property values in the south have fallen. It is inevitable that rateable values will fall also and that businesses will benefit as a result.

Opposition Members refuse to face up to what that means. They do not want businesses to have to pay any more rates; they do not accept any increases. Yet they tell us that those businesses which will benefit should receive the whole of the benefit in 1995. That is simply not realistic-- it would cost a great deal of money. The largest Budget item designed to help business is the £525 million which the Treasury is making available for transitional arrangements. How much would the proposals advanced by the Opposition parties cost? I am sure that it would be many hundreds of millions of pounds more. It would also mean living with a permanent distortion in the system.

In the past few years, it has been difficult to arrive at a genuinely national system with national rateable values and national rate poundage. That is what we are now moving towards, and we can achieve it only if there is some yearly movement in real terms both for those who will have to pay more and for those who will benefit. The Government's approach is an entirely sensible one.

Mr. Streeter: Did my hon. Friend notice that the speeches of Labour and Liberal Members were indistinguishable on one important aspect? They supported phasing when business rates were increasing, but, as my hon. Friend has said, they were not in favour of phasing when business rates were falling. They failed to recognise that that would leave a shortfall for the Government to pick up, and they certainly failed to say where the money would come from.

Mr. Smith: My hon. Friend is entirely correct: the Opposition parties always fail to say where the money will come from.

Mr. Rendel: Will the hon. Gentleman give way?

Mr. Smith: I wish to reply to my hon. Friend. I believe that a party which aspires to Government should answer some of those questions. It is totally irresponsible not to face them. Perhaps the hon. Member for Newbury will answer the question.

Mr. Rendel: I wish to reply to the previous intervention. It is not true to say that I was at one with the Labour spokesman in not knowing where the money would come from. I made a quite different point. I said that if transitional relief is to be provided to those businesses whose rates will increase, it is unfair that all the money should come only from businesses which have had high rate increases in the past. It should come from all businesses-- not just from those which have paid high rates in the past.

Mr. Smith: I am grateful to the hon. Gentleman for that obfuscation. I am not sure that I fully understood what he said; perhaps the Minister can clarify Liberal policy.

Mr. Robert B. Jones: I can tell my hon. Friend precisely what the hon. Member for Newbury means. He argues that the people who will gain under the present

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system should become losers and that those who are losers should become even bigger losers, in order to ensure that the money comes from the business sector as a whole. Presumably the hon. Gentleman accepts the capping of those who are most adversely affected, as that can be the only consequence of what he is arguing.

Mr. Smith: I am sure that my hon. Friend is entirely right. The hon. Member for Newbury (Mr. Rendel) said that some businesses which had benefited from transitional arrangements had been playing downhill for the past five years. I think that he was talking about businesses whose rates bills have increased year in, year out. One of the difficulties is the 17- year gap between 1973 and 1990. I understand the point made by my right hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) that there is a close relationship between rent levels and rate levels in a particular area, and that substantial increases or reductions in rates will have a knock-on effect on rent levels in that area. The Government are trying to reach equilibrium between the two matters. They will achieve that, although it will take place over a period of time. I am sure that the approach which the Government are adopting is the right one. It is taking time, as it is bound to, but we cannot have a situation in which there is no movement. There must be, and there will be, some movement. We are seeing not just a simple reversal of the north-south divide, because even in the south and in London we will find--as my hon. Friends have said--that some properties will have an increase in their rateable value, while the majority will have a reduction. That is an inevitable consequence of a revaluation, and one which we must face.

We cannot simply kick all the problems under the carpet. We must face up to them in a realistic way and enable businesses to plan by letting them know exactly what their future increases will be. I very much support the orders, which I think provide a sensible balance. 6.31 pm

Mr. Gary Streeter (Plymouth, Sutton): It is a pleasure to follow my hon. Friend the Member for Beaconsfield (Mr. Smith) who injected a refreshing note of realism and wisdom into the debate. I am pleased to take part in a debate on what may be considered by some to be a dry measure. In fact, the issue of business rates is vital and touches real businesses, large and small, which are the life-blood of the UK. My hon. Friend said that businesses generate jobs, an idea which the Opposition fail to understand.

I wondered whether there were any businesses in which property did not play an important part. For most businesses, the places in which they do their business are an important part of their overheads. My mind wandered to a company based near my constituency called the Ugborough hot air ballooning company, whose main activity takes place off the ground. Then, it occurred to me that the balloons must take off and land somewhere, so the business rate is critical even for that company.

The crux of the orders today is that we are revaluing business properties in 1995 with a sensible transitional relief package, which means that those businesses which

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can afford to pay more of the burden of the business rate will share that burden. It is a tax that is closely linked to the ability to pay, and it is greatly to be welcomed.

After the introduction of the uniform business rate in 1990, there was great relief in Plymouth because the local left-wing council was no longer able to set local business rates. If it were able to do so, the council would certainly be driving many local businesses into the ground with its desire to spend and spend, irrespective of the damage caused to those who must pay the bills.

Business people in Plymouth had a narrow escape following the introduction of the UBR, which was greatly to be welcomed. The prospect of local authorities setting business rates will strike terror into the hearts of many business people. Opposition Members do not seem to understand the connection between businesses and jobs. They say that they want jobs to be created, yet they continue to clobber businesses without making the link between the two. I want to talk about the impact the orders will have in the west country. In a number of sectors, the review which will take place in 1995 will have a significant result for local businesses. A number of local industries, such as agriculture, tourism and defence, have declined for the past five years, for a myriad different reasons. The properties from which businesses in those industries are operated should be revalued to reflect their current value and the return which businesses can make from them.

I ask my hon. Friend the Minister to reflect upon a number of cases in Devon and Cornwall where businesses are suffering particularly badly. The first sector to which I draw my hon. Friend's attention is residential nursing homes. I hope that the sector will greatly benefit from the revaluation which will take place in 1995. My hon. Friend may know that residential nursing homes in Devon are suffering particularly from the implementation of the care in the community proposals by the Liberal-run Devon county council. The council is failing miserably to comply with its requirement to ensure that 85 per cent. of its allocations are made in the private sector, and prefers instead to place people in local authority homes. In many cases, those local authority homes are far more expensive for the ratepayers of Devon.

There is a case in my constituency where the local authority home costs £400 per week, per person, and yet better care can be bought by the local authority in the private sector for less than £200 a week. The local authority home is more expensive for the local authority, and the policy is causing havoc and misery among residential home owners in my constituency. I hope that the issues will be taken into account when the revaluation of the business rate takes place in 1995.

I hope that my hon. Friend the Minister can go better than that, and that he will intervene to try to stop the Liberal-run Devon county council so flagrantly flouting the Government's rules. In fact, I call for an inquiry on that important aspect. Many owners of residential nursing homes have contacted me, and I speak for them when I say that it is important that the value of their homes is reflected in the revaluation of the business rates, as a result of the iniquitous policy carried out by the Liberals on Devon county council. It is a scandal that must be stopped.

Secondly, like all retailers, retailers in the centre of Plymouth have suffered from the recession in the past few years. Retailers in Plymouth have suffered more than

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most, because the Labour-led Plymouth city council is conducting a parking charges policy in the centre of Plymouth which one can only describe as punitive. The charges are driving people out of town, and causing businesses in the city centre to suffer. I hope that that factor will be taken into account when the properties are revalued in 1995.

It would be greatly welcomed if the revaluation could throw a lifeline to retailers in Plymouth and reflect the reduction in the value of their property as a result of the punitive and outrageous policies being pursued by the Labour-controlled Plymouth city council. I welcome the measure as, in one sense, it gives the Government the ability to redress some of the scandalous political practices in my part of the country.

Some sectors are doing extremely well, and it is right and proper that that should be reflected in the amount of business rate which they pay. Out-of- town shopping in Devon and Cornwall is doing exceedingly well, and many of the sheds in which those activities take place are increasing in value and are now much sought after. That is the sort of property which can now afford to pay more in business rates. That is a reflection of how the new policy is placing the burden of business rates where it can be afforded.

As many of my hon. Friends have said, manufacturing industry is doing well. Plymouth has many outstanding manufacturing industries and companies, which are doing exceedingly well, particularly in exports. I visit those firms regularly and I have learnt from them that their order books have never been fuller and that they have never done as well as they have in the past 12 months. They are particularly delighted that they export a range of products to many countries throughout Europe and the Pacific rim. That is incredibly encouraging news. It is quite right that that business success, created by the Government's economic policies, should be reflected in the value of those companies' properties and factories and in their business rates.

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