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Session 1999-2000
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Delegated Legislation Committee Debates

Draft Non-Domestic Rating (Chargeable Amounts) (England) Regulations 1999

Third Standing Committee on Delegated Legislation

Wednesday 8 December 1999

[Mr. Frank Cook in the Chair]

Draft Non-Domestic Rating (Chargeable Amounts) (England) Regulations 1999

4.30 pm

The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Ms Beverley Hughes): I beg to move that the Committee has considered the draft Non-Domestic Rating (Chargeable Amounts) (England) Regulations 1999.

This is the first opportunity that I have had to serve on a Standing Committee under your chairmanship, Mr. Cook, and I look forward to doing so.

On 1 April 2000 there will be a general revaluation of all non-domestic property. The regulations will phase in its impact on individual ratepayers through a transitional relief scheme. Under the Local Government Finance Act 1988, revaluations must be carried out every five years, and the rateable values of all properties updated in line with changes in their market rental values. The purpose of a revaluation is not to increase the amount of rates paid nationally, but to adjust individual bills in line with relative movements in the property market. This means that at a revaluation many ratepayers' bills are reduced while others' bills are increased.

One marked feature of the revaluation in 2000 is that it will produce a significant increase in the total rateable value for England. That reflects the improvement in the economy since the revaluation in 1995. As I have said, the purpose of the revaluation is not to increase the total amount paid in rates. So, as the total rateable value has increased, the amount paid in rates per £1 of rateable value next year will be less than this year. In other words, the national rate multiplier for England will be reduced. It currently stands at 48.9p for every £1 of rateable value. We estimate that next year it will be 41.6p. It will be the first time since the introduction of the national rate system 10 years ago that the annual adjustment of the multiplier for England has been a reduction rather than an increase.

It was to help the ratepayers who would face increases in their bills next year that my right hon. Friend the Minister of State for Local Government and the Regions announced on 25 November the transitional relief scheme to which these regulations give effect.

The scheme will work by limiting the size of annual increases in rate bills for the five-year life of the new rating lists, and will come into force on 1 April. It has been designed to give help where it is most needed, namely, to small businesses. For small businesses, rates are often a heavier burden as a percentage of turnover and profits than they are for larger businesses. Moreover, smaller businesses often find it more difficult to anticipate and plan for the effects of revaluation than do large businesses, which tend to be more aware of the workings of the ratings system and the revaluation cycle.

For the purposes of the transitional relief scheme, small properties will be defined as those that have rateable values of less than £12,000 outside Greater London and of less than £18,000 inside Greater London. Those thresholds are 20 per cent. higher than those that were used to define a small property in the transitional schemes that phased in the 1990 and the 1995 revaluations. There has been a substantial increase in the threshold.

From next year, if a property ranks as a small property within the threshold, no matter how great the increase in its rateable value, the rate bill will increase by at most 5 per cent. in real terms or by 6 per cent. in cash terms as a result of inflation. For large properties, the equivalent figures will be 12.5 per cent. in real terms and 13.7 per cent. in cash terms. Of course, most ratepayers will be faced with smaller increases, or they will see falls in their bills. Indeed, given the reduction in the multiplier, an increase in the rateable value of a property of up to 17.5 per cent. will still produce a fall in the rate bill in cash terms and in real terms.

In later years, under the transitional relief scheme, somewhat larger annual increases will be allowed in the bills of those who are still not paying the full bill based on their new rateable values. After the first year, for small properties, the annual limits will be fixed at 7.5 per cent. in real terms, but for larger properties they will rise to 15 per cent. in the second year, and thereafter they will be 17.5 per cent. a year in real terms.

The loss of rate revenue that is caused by phasing in increases in bills will be made good by parallel phasing in of the decreases in the bills of those who are benefiting from the revaluation. As their bills fall, they are best able to help to meet the cost of the scheme.

In the early years, the reductions that will be allowed will be less than in later years, given that transitional relief costs more in the early years, when the number of properties needing relief is at its greatest.

Next year, the maximum reduction in the bill of a small property will be 5 per cent. in real terms and that for a large property will be 2.5 per cent. However, by 2004–05, any small properties that are still having the reductions in their bills phased in will be paying 25 per cent. less in real terms than the bills that they were paying the year before. The equivalent figure for large properties will be 15 per cent.

The transitional scheme will benefit more than 600,000 properties throughout England, which is 40 per cent. of the total. In all regions, more than one quarter of properties will get transitional relief on 1 April next year. I am pleased to say that the Financial Times said that the scheme had been

    ``praised by the business community as fair''.

It also suggested that such praise was unusual. The Confederation of British Industry welcomed the scheme because it offered

    ``considerable relief from the full effect of the revaluation.''

However, we are not complacent. Every revaluation since 1990 has given ratepayers serious problems, which had to be dealt with through successive transitional relief schemes. However good the transitional relief scheme is–in this case, it clearly is good–that situation is unsatisfactory. That is why my right hon. Friend the Minister for Local Government and the Regions announced on 25 November that we would review the whole system of revaluation and increase its stability, certainty and simplicity. However, pending that revaluation, the transitional relief scheme that is contained in the regulations will give ratepayers the immediate help that they need on 1 April 2000. I therefore commend the regulations to the Committee.

4.40 pm

Mr. Nigel Waterson (Eastbourne): First, I must say how pleased I am to speak this afternoon under your tutelage, Mr. Cook. With your assistance, I hope that we shall get through these rather complex regulations before the time that is allocated for our sitting has expired.

As I said in the Chamber a few days ago, we broadly welcome the announcement of the transitional relief scheme and I am grateful to the Minister for explaining it so well. It would be unthinkable not to have a scheme under the present system and the Minister recognised that. While there is a system of five-yearly revaluations, it is difficult to imagine any Government not having some sort of transitional relief and, as the Minister said, we did much the same when we were in Government.

At the time of the previous revaluation, a simple transitional relief scheme was not enough in my constituency. Business people throughout the country experience many difficulties when there is a great shift in valuation, as happens after five years and certainly happened last time. It is not satisfactory or reassuring for business men and women when the valuations of their business property increase dramatically. There is always anxiety about the end of the transitional period because the valuations increase.

Even under the transitional relief scheme, the annual increase may be as much as 17.5 per cent. for larger properties towards the end of the scheme. Even a 5 per cent. or 7.5 per cent. annual rise for smaller businesses may significantly outstrip the increase in revenue and profit. For some marginal small businesses, which are often desperately needed in local communities, it may make all the difference between surviving and going out of business. I should be grateful if the Minister would say whether she accepts those general points.

The regulations simply introduce the transitional arrangements that were announced by the Minister of State for Local Government and the Regions on 25 November. I was toying with the idea of asking her to explain in detail the formulae on page 12, but I am not that sort of person, so I shall move rapidly on–[Interruption] The hon. Member for Finchley and Golders Green (Dr. Vis) seems to have got to grips with the formulae and no doubt we shall hear from him later in our debate. I shall deal with the broad concepts of the regulations.

As always, there are winners and losers and the purpose of the transitional relief scheme is to iron out the differences between winners and losers. An increase in the total rateable value of non-domestic property is to be expected and, therefore, the rate poundage is to be reduced. The Minister echoed a comment made by the Minister of State for Local Government and the Regions, who said:

    ``Revaluation does not mean that more money will be raised from the rates over the next five years''–[Official Report, 25 November 1999; Vol. 339, c 770.]

I wonder whether that is correct, because the settlement figures seem to tell a different story. In 1999--2000 the settlement figure of national non-domestic rate income in England was £13.6 billion, but according to the figures released last week, it will be £15.4 billion in 2000--01. By my reckoning, that is an increase of 13 per cent. My arithmetic may be wrong, but I should be grateful for the Minister's explanation.

The problem is borne out by anecdotal evidence. As part of the overall settlement, the Government are balancing the books with an increase in business rates of more than 13 per cent.–six times the expected rate of inflation–and ignoring the local engine room of the business community, particularly in shire districts.

To take Kent as an example, a similar situation arose last year, because there is a three-year period for settlement purposes. The standard spending assessment was increased by 4.8 per cent., but overall expenditure was increased by 5.8 per cent., largely because of Government requirements. The Government grant was increased by 1 per cent., but the business rate was increased by 9 per cent. and the council tax by 8.9 per cent. Will the settlement lead to similar increases in places such as Kent? Will council tax payers and the local business community have to pick up the bill?

As I understand it, at the time of the settlement, further detailed information on business rates is normally published. Is such information about to be published? Perhaps it has been published, and my e-„mail is not up to the job. If so, perhaps the Minister could direct me towards that information.

With regard to the review and five-year revaluations with transitional relief, the Minister said, ``We can't go on like this'', and that there must be a better way to approach the matter. When will details of the review be published and what will be the time scale? Will the Government suggest options for consideration? Can the Minister say at this stage how the review will be conducted?

According to the table that I have in front of me, for shops in the south-east, the revaluation factors–the likely percentage increase in rateable value for 2000–are approximately 17 per cent., with a total figure of 22 per cent. In inner London, the likely total percentage increase is about 60 per cent. Those are merely examples, but they constitute extraordinarily large shifts in revaluation. Will the Minister confirm those figures? Does she accept that, as I have said, even where a reasonably generous transitional relief scheme exists, such revaluations–even though they exist for the moment only on paper–are an enormous worry to small business people, especially those who operate on the margins?

Subject to receiving satisfactory answers to those points–I am happy for the Minister to write to me about some of them–I shall not seek to divide the Committee, because we broadly welcome the transitional relief scheme, which mirrors in many ways the scheme that operated when we were in government.

4.48 pm


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Prepared 8 December 1999