House of Commons Hansard Debates for 3 Apr 1996 (pt 15)

Uniform Business Rate (Wales)

1.29 pm

Mr. Cynog Dafis (Ceredigion and Pembroke, North): I am very glad to have this opportunity to draw attention to the pressing need for action to help the many small businesses currently being driven to the brink of bankruptcy and beyond by the business rate system.

Launching its campaign against the uniform business rate in October last year, the Federation of Small Businesses described this tax as a "killer rating system", and it is right: the UBR is killing many small businesses--shops, garages and other smaller enterprises--which, given a fair chance, could grow into the viable and valuable firms that Wales and other places need.

Business failure in the small firms sector remains a significant problem. The federation estimated that, in the first six months of 1995, no fewer than 194,000 small businesses in the United Kingdom closed their doors, and many of them were helped on their way by the UBR. Although there has been a decrease in the number of business failures in the United Kingdom, I am afraid that the trend in Wales has gone the other way, with Touche Ross recording a 20 per cent. increase in the number of receiverships in Wales between 1994 and 1995.

Those facts are the background to this call for urgent action right now to relieve businesses in Wales and elsewhere from the crushing burden of an unfair and damaging system. The evidence of the damage done by the system is all too clear in all parts of Wales--north and south, rural and industrial--and in the other nations of the British Isles. The casualty rate among vital economic enterprises is especially severe in rural Wales, which already suffers from higher rates of unemployment, lower than average wages and outward migration. Moreover, rural Wales is now also threatened by an immense potential economic crisis as a result of the BSE situation.

A few examples may help to translate general principles into concrete instances. A business in Ynys Mon has found its trade greatly reduced because of changed traffic flows through the port of Holyhead; yet that reduction in trade has not resulted in an adjustment in its business rate bill, which stands at £6,768. The result has been the loss of four jobs in an area which is an unemployment black spot.

The first objection to the business rate is that it is a job killer. It kills small businesses and reduces employment in the few that survive. So why did the Government introduce it? I wonder whether the House recalls who it was who said on 11 March:

"Small businesses are not some minority interest--they are the backbone of our economy and the main source of future jobs".

It was the Prime Minister, of course, and he went on to promise the removal of unnecessary shackles from business. Words are one thing, however, and removing unnecessary shackles is another--but replacing the UBR really would really make a difference.

Our second objection to the UBR is that it is unfair. It hits the high street shops of our towns while favouring out-of-town hypermarkets, which are becoming more and more evident and influential in the economy of rural Wales. The UBR has increased the difficulties of smaller shops and added to the pressure for increased use of private cars. There is therefore also

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an environmental dimension, and there is considerable concern as a result of reports yesterday that the Secretary of State is unwilling to try to control the growth of out-of-town or edge-of-town supermarkets in Wales.

I will give an example of the effect of the UBR in the market town of Cardigan in my own constituency. A warehouse there found its rateable value increased from £1,400 to £1,800 in the recent revaluation. Another business, a local carpet shop, found its rateable value increased from £6,480 to £8,200, causing its UBR bill to rise from £2,640 to £3,321--an increase, before transitional relief, of more than 25 per cent., which is vastly in excess of inflation. That business already had difficulty meeting its bills, but it now has arrears of £6,000 to add to this year's bill. Unfortunately, that example is typical of a situation which is becoming cumulatively more difficult.

A business management consultant acting for that business appealed on its behalf to the valuation office in Carmarthen for a reduction in rateable value, but to no avail. The consultant--Mr. Gonzalez of Pwllhai, Cardigan--made eight such appeals two years ago, but none was allowed. As a result, five of the eight enterprises closed. He has made 14 appeals this year; one wonders how many of those businesses will still be open 12 months from today.

The alleged basis of the business rate, according to schedule 6 of the Local Government Finance Act 1988, is that it should

"be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year".

But how can the current rate be justified when it is now many times the rent which could be obtained? Currently, the rent of a small office in Cardigan could be as little as £5 per week.

In Denbigh, Clwyd, 22 local traders attended a meeting in July, organised by Councillor Gwyneth Kensler, to discuss the rate increases. One of the traders, who runs a shoe shop, was quoted in the Denbigh Vale Advertiser as saying:

"These rates are crippling. Based on their assessment I'm meant to be able to attract a rent of around £300 a week on my property--the truth is I'd be struggling to make £100."

Traditional shopping centres are also suffering, and not only in the rural west and in the valleys. In the village of Dinas Powys, for example, just five miles from the centre of Cardiff, local shopkeepers have recently written to the Vale of Glamorgan council calling for a reduction in this year's bills. The signatories include a hairdresser, a travel agent, a pet shop owner, a greengrocer, a newsagent, and the operators of a grocer's store, a souvenir shop, a linen shop and a post office; such are the many types of business under pressure.

It is clear that the 1995 revaluation has made the situation much worse. The average increase in rateable values in Wales was 25 per cent., with particularly large increases for offices and warehouses. But the rateable values bear no relationship to today's real economic circumstances, where falling rents are not a statistical theory but a market nightmare and a reality. Although the multiplier used to work out the actual bills from the

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rateable value was reduced for last year's bills, and will stand at 40.5p in the pound for Wales next year, the net result has been to drive bills upwards.

Mr. Elfyn Llwyd (Meirionnydd Nant Conwy): My hon. Friend may know that I made representations last year to the Development Board for Rural Wales, asking it to lower commercial rents in mid-Wales. It agreed because the market reflected such a move, which is exactly what my hon. Friend is saying. I agree with him entirely.

Mr. Dafis: That demonstrates the reality of the commercial circumstances in rural Wales.

The net result of the multiplier has been to drive bills upwards to such an extent that the Government have been obliged to introduce transitional relief for the second time since 1990. The fact that transitional relief is necessary is an admission that the whole system is defective--and ultimately transitional relief means just that, because traders face the prospect of their rate bills being driven up to the target level in the next five years.

What justification is there for increasing bills by as much as 10 per cent. when the inflation rate is 2.5 per cent.? Last year, overall receipts from the business rate went up from £478 million in 1994-95 to £516 million in 1995-96--an increase of 7.8 per cent., which is more than twice the rate of inflation.

On 4 March, members of Pwllheli town council resolved to write to my hon. Friend the Member for Caernarfon (Mr. Wigley) to express their great concern at the number of empty shops in the town. It is worth reading some of the letter, written by the council clerk, Mrs. Mair Williams, and translated into English. She said that business rates are much too high and that

"the rates of small shops in the High Street are higher than those of large shops and those on the outskirts of the Town. We fear that reorganisation will lead to a still greater increase in the rate. We understand that it is Government policy not to build more out of town hypermarkets but they are still going up.

The Council asks is it possible to get rid of the business rate which is as unfair as the 'Poll Tax' some years ago, in order to see High Streets of our Towns prospering once more."

I remember that, at the time of the poll tax campaign, many people felt that too much attention was diverted from the problems caused by the UBR, which was introduced at the same time.

The smaller shops have the strongest complaint, because the present system is loaded against them. High street shops are valued according to a zoning method which assumes that the front part of the shop, which includes the entrance and shop window, is the most valuable. Small shopkeepers find that method unfair as their rates are proportionately higher than larger shops, including hypermarkets, which have a smaller proportion of their total retail space in those higher-value zones because most of their space is behind the frontage.

Our third objection to the UBR is that it is a flat rate burden placed on business properties, without any sensitivity to the ability of the business to pay. That has always caused a problem, but it acts in a particularly negative way in two specific cases.

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The first set of circumstances is where a business may go through a bad patch, sometimes for reasons outside its control--for instance, a major road scheme may prevent passing trade from calling at the premises. I recognise that in those circumstances there are powers under existing legislation for local authorities to give assistance towards the cost of the business rate, provided that it is not a long-term subsidy. That assistance helps the business to bridge a limited time of difficulty and is offered where the business has every prospect of being run in a viable manner thereafter.

Unfortunately, many of the old district councils in Wales are either unaware of those powers or reluctant to use them. I am glad to say that the borough of Taff Ely, during the five years when it was run by the coalition led by Plaid Cymru, used those powers and enabled at least half a dozen small businesses to survive which otherwise might not have done so. I therefore wish to press the Secretary of State for Wales and the Minister to bring to the attention of the new unitary authorities the fact that those powers exist and to encourage them to use them where appropriate. I assure the Minister that that help really is necessary. Mr. Gonzalez, to whom I referred earlier, also presented appeals to three district councils for hardship reductions under section 49 of the Local Government Finance Act 1988, but without any success.