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1.45 pm
The Parliamentary Under-Secretary of State for Wales (Mr. Gwilym Jones): I am glad that the hon. Member for Ceredigion and Pembroke, North (Mr. Dafis) has given me the opportunity to discuss the important matter of business rates.
I should perhaps begin by recalling why six years ago we abolished locally set rates. In the 1980s, rates in England and Wales rose on average by 37 per cent. above inflation when many local authorities chose to load the costs of high spending decisions on to businesses because they knew all too well that businesses had no vote. We can see that happening again as Wales is being caned by increases in council tax of up to 25 per cent. The difference between the much lower increases of last year and those of this year is that this year there are no elections in Wales to hold those councils accountable.
By 1990, under the old business rates, the poundage in Wales ranged from 241p to 334p. Businesses were unable to operate on an equal basis--a position exacerbated by the fact that values were outdated, going back to 1973.
Unpredictable annual increases in rates made it impossible for businesses to plan ahead. The business community was vociferous in its complaints about the local rating system and pressed for change to national arrangements.
The uniform poundage for Wales means that businesses throughout the Principality are now treated on an equal basis. Five-yearly revaluations provide that rateable values are reviewed and updated regularly. Year on year, between revaluations, the poundage cannot rise ahead of inflation. In a revaluation year, the poundage is set to raise the same amount in real terms as in the last year of the old list. Those arrangements give the business community certainty and it does not want to return to the old rates system.
The starting point for rating is any actual rent paid on the property itself. For the 1995 revaluation, occupiers were asked for details of the rents they were paying. The evidence was used to assess the open market rent, which takes account of any incentives given to occupiers such as a lump sum payment or a period when no rent is payable, and any other special considerations. It is therefore possible that a business's rates could be higher than its rents in special circumstances. Nonetheless, it is important that values are assessed fairly. Before setting the rateable value, the valuation officer examines the rental evidence for similar properties in the area and ensures that rateable values are consistent. Data collected by the Valuation Office Agency show that, in the hon. Gentleman's constituency, shop rents rose between 1988--the valuation date for the 1990 non-domestic rating list--and 1993, contributing to a rise of some 25 per cent. in rateable values for shops in Ceredigion.
The hon. Gentleman mentioned the differences between town centres and out-of-town areas. I assure him that the system of assessment is carried out on the same rentals basis for both types of area. The hon. Gentleman strayed into planning issues, and I have to remind him that planning is a matter for the local planning authority. We have set out clearly in our new guidance the sequential approach--when considering shopping developments, local planning authorities should look first at town centres, only then at edge-of-town centres and only then at out-of-town centres. At the same time, they should have regard to the effect that out-of-town developments have on existing developments.
I acknowledge that rates are a tax on property rather than on individual businesses. The rental value of property does not reflect the profitability of a particular business, but rates do reflect the rentals that occupiers are able to pay. The hon. Gentleman's party argues for a different basis for local taxation of businesses. As the hon. Gentleman said, his party proposes a local income tax and an additional contribution of corporation tax by limited companies. However, he would have to consider whether that would mean that local businesses were making a contribution to the cost of local councils. I believe that they should, but it would depend on the location of their head offices.
Another difficulty is that of, in effect, relating local tax to profits, which would be very burdensome. Profits vary from year to year. The tax would be complex, it would provide no certainty for businesses, and it would remove links between local authorities and the business community. Nor do I believe that such a change would find favour with the business community. The hon. Gentleman may care to reflect on the recent report by Dun
and Bradstreet, which states that firms in Dyfed are the most profitable in the United Kingdom--so a tax on profits could have serious consequences for his constituents.
The overall effect of the 1995 rating revaluation was a 20 per cent. increase in rateable values in Wales. Given the requirement that between revaluations the rates yield should be broadly the same in real terms, the poundage for Wales fell from 44.8p to 39p. Some 59,000 ratepayers were expected to face rateable value increases while some 21,000 were expected to have decreases. We therefore, very naturally, introduced a transitional scheme--I was surprised by the hon. Gentleman's opposition to it--along the same lines as the one applied in 1990, so as to spread the increases over the five-year life of the rating list. As a result of the transitional arrangements, no business faced an increase in its rates bill of more than 10 per cent. plus inflation.
We were especially concerned to help small businesses. For properties with a rateable value of less than £10,000, increases were limited to 7.5 per cent. in real terms. For small composite properties consisting of business and private accommodation, increases were limited to 5 per cent. in real terms. From 1996-97, the Government have made that help to small businesses even greater: small composite properties will be limited to real terms increases of 2.5 per cent., other small properties to increases of 5 per cent,. and larger properties to increases of 7.5 per cent.
The total cost of that extra help in Wales is around £8 million for each of the next three years. The arrangements particularly favour small retail businesses, including sub-post offices and village shops. For the 1995 list, the transitional arrangements continue to apply even when premises have a change of occupier. The transitional arrangements are also of particular benefit to businesses in Ceredigion, where just under two thirds were in transition to higher bills in 1995-96 as a result of the 1995 revaluation. On average, shops in Ceredigion have seen a real-terms increase in rates bills of 5 per cent. in 1995-96.
Mr. Dafis:
I should make it clear to the Minister that I was in no way expressing opposition to the idea of transitional relief. I was merely saying that the fact that there is a need for such a mechanism shows that the system is seriously flawed.
Mr. Jones:
I do not accept that. It relates to rental values, and it moves as the rental values move--not independently or arbitrarily. That is why, so long as we maintain a rating system of a tax based on property, we need to have the greatest consideration for small businesses and to establish transitional arrangements at the time of changes in valuation. The five-year period means that there are greater changes, but in itself it gives
The hon. Gentleman asked about the opportunities for local authorities to give discretionary relief on hardship grounds. They are able to do so--there is no difficulty about that--but I know what he means about the limited use of hardship relief in Wales. More than £1 million was offset centrally from the rates pool in 1994-95 to cover all discretionary reliefs, including relief for charities and other non-profit-making bodies. Of this, however, only about £10,000 was for hardship relief, with only 15 out of 37 authorities granting such relief.
The Government, too, are concerned and are reviewing the situation, asking billing authorities about their policies and asking ratepayers for their views on how the relief provisions are being used. We will consider what action is needed in the light of that assessment, but it is likely to include identifying examples of good practice and issuing new guidance.
I believe that businesses are far better off under the system of uniform business rates than under either the old rating system or the system of local taxation that Plaid Cymru favours. Businesses have the assurance that there will be no real terms increases in their rates burden to finance extra expenditure. Indeed, in the previous five Budgets, the Government have committed a considerable amount of additional transitional relief to ratepayers, which means that, overall, in real terms ratepayers pay less in rates than they did in 1989-90.
The transitional relief arrangements and the review of the hardship arrangements show that the Government take careful account of the needs of small businesses. Our concerns for such businesses are also clear from the proposals set out in the White Paper, "A Working Countryside for Wales", in which we propose to provide additional relief for village shops and post offices. I was glad to have the hon. Gentleman's welcome for that. We shall shortly be issuing a consultation document, seeking views on the conditions which should attach to the relief in terms of the location, size, purpose and importance to the community of the shops concerned. I expect large parts of Wales to benefit.
As I have been at pains to stress, the Government take the concerns of small business about the business rate very seriously. We have listened to what small firms have said on this issue in the recent "Your Business Matters" series of conferences, one of which was held in Cardiff last November. At the national conference for small business on 11 March, the Prime Minister said that we are prepared to consider whether sensible changes could be made to make the business rating system fairer and more transparent. All the concerns of small businesses are under active consideration. I invite the hon. Gentleman to watch for developments in the coming months.
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