Fourth Standing Committee
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Phil Hope: As the hon. Gentleman heard, the proposals have been subject to considerable consultation. A number of options were considered, including whether the relief should be addressed in relation to profitability. The hon. Member for Runnymede and Weybridge had an idea for his own scheme, which I did not fully understand, perhaps because he did not articulate it in detail. However, his scheme sounded a great deal more complicated for small businesses to understand. This scheme has the benefit of having the support of many in the small business sector—of businesses across the piece. We have support from the British Chambers of Commerce, which thinks that it is a good scheme and is pleased that we are proceeding with it. The Country Land and Business Association, which has some 40,000 members with more than 130,000 rural businesses of all types, welcomes the scheme. The Small Business Council, which is an independent advisory body, welcomes the proposals as addressing the disproportionate impact that business rates impose on small businesses. The hon. Member for Gordon (Malcolm Bruce) is right to make that point, but he should recognise that the business community itself values and supports this approach to providing small businesses with the rate relief that they need, given the disproportionate impact that rates can have on small businesses. Malcolm Bruce: I accept that, of course, but if the Government consult on how the burden of an existing scheme can be eased, people will obviously respond and welcome any relief. The burden of submissions was that they could submit only within the parameters that the Government set. Businesses, particularly small businesses, seek a more radical review of the way in which they are charged for their premises, because sometimes they are paying 35 per cent. of their entire turnover in rates. The Minister is right to say that businesses welcome the proposals, but does he not agree that they are still looking for something more radical for very small businesses?
Phil Hope: We will have to agree to disagree. We have consulted. The Liberals may or may not bring forward radical proposals, along with their proposals to replace the council tax with a new local income tax. We have seen those back of the fag packet or envelope-type figures and we are not impressed by them. They do not persuade us, nor do they persuade the business community. We have identified a problem and come up with a simple, straightforward solution to it: a rate relief scheme for small businesses. In response to the point made by the hon. Member for Runnymede and Weybridge, I am sure that, after today, Labour Members will go to their constituencies to raise awareness across the piece of how the Labour Government are directing tangible support at small businesses, both in rural areas, where we wish small businesses to develop and to improve, and in urban areas. Mr. John Grogan (Selby) (Lab): In my constituency of Selby, many small businesses will gain from the proposals. Does my hon. Friend the Minister agree that there is an onus on councils to publicise the scheme? It is the responsibility of small businesses to apply for the relief, and the sooner they apply for it, the sooner it will take effect. Phil Hope: That is absolutely right. Local authorities, the Government, MPs and the organisations representing small businesses can all play their part in raising awareness of the scheme. It is important that we raise awareness, so that businesses start to benefit from the relief as soon as possible. My hon. Friend will know that, as a result of the consultation, businesses can apply for the relief backdated for some six months after the year in which the rate was levied. Therefore, even if businesses have not heard about the scheme on 1 April, right through to the following year, they can claim for that rate relief and receive it. The scheme is good and generous. It allows the maximum take-up and opportunity for small businesses to benefit. I shall now try to address some of the questions raised by the hon. Member for Runnymede and Weybridge about other statutory instruments that we are not debating this morning. I confirm that the rates yield cannot rise on revaluation, because the Local Government Finance Act 1988—from the year, hon. Members will recognise that it was introduced by the Conservative Government—specifies that there will be no increase in yield. That is why it is subject to the multiplier for the retail price index and to protection against the erosion of the yield due to appeals. For the purposes of this order, it is the 1988 Act calculation that counts. I stress that this is about not increasing the yield, but how we distribute. This is an additional relief scheme and the revaluation itself does not increase the yield— Mr. Hammond: Will the Minister give way? Phil Hope: I will come to the distributable amount in a moment.
Mr. Hammond: In that case, I will not mention it now. As I accept the Minister’s explanation, I simply ask him whether he can explain, in the context of his comment, why the Library figures show a gross yield of £17.88 billion in 2004-05 and £19.47 billion in 2005-06. Phil Hope: I will do my best. The distributable amount is not the amount that is expected to be paid by businesses. It is the total amount of business rate income due to be given back to local authorities for 2005-06, and it is calculated using the latest available information. Most of the increases that the hon. Gentleman identified are as a result of information from local authorities suggesting that a small surplus should be brought forward from this financial year, 2004-05. Last year’s figure was pushed down significantly by a deficit carried forward from 2003-04. He is right to suggest that the rest of the increase is due to the forecast increase in rate yields between this year and next, as well as allowing for an increase in line with the RPI. The multiplier is adjusted to take account of expected losses from appeals over the lifetime of the 2005 rating list. That minimises the need for over-inflation increases in future years. It also assumes that in-year growth in rateable values next year will not be offset by any losses on appeal from the 2005 lists during 2005-06 due to appeals from the 2000 list still being considered. I emphasise that the increase in the distributable amount does not in practice make any difference to the total level of grants received by local authorities. That is because the overall total of formula grant is fixed for 2005-06, with the increase in the national total of redistributive business rates being offset by a lower amount of revenue support grant than would otherwise be needed for 2005-06. We estimate that rate bills will fall for 60 per cent. of businesses. In terms of the transition, some businesses will face increases as a result of revaluation. That is why there is a transitional relief scheme, which we have already announced, to ensure that those increases are phased in over the four years. Mr. Hammond: Does the Minister have a regional breakdown of the 60 per cent. of gainers? How is that distributed nationally? Phil Hope: As we are discussing the small business rate relief scheme, not the impact of the transitional relief scheme, which is a completely different statutory instrument, I do not have the figures and the details of the impact of the transitional relief scheme to hand. If the hon. Gentleman had been present when we debated that scheme, those figures might have been available. However, I will endeavour to give him those figures when I can. The hon. Gentleman raised a particular point about a past transitional relief scheme in 2000-05 involving a Treasury subsidy by the general taxpayer. He is right
Mr. Hammond: I am simply trying to get an answer to the question whether the change to the arrangement, whereby the transitional relief scheme balances over five years, despite what the Minister said, means that there will be an increase in the business rate yield in order to replace what was formerly a Treasury subsidy. I accept that the former Treasury subsidy was a burden on the general taxpayer, and moving to a self-funding transitional relief scheme transfers that burden to the business rate payer. I am not expressing any opinion as to whether that is right or wrong, but simply asking the Minister to confirm that that is the case, so that we can make some progress in answering those business ratepayers who come to us saying that the Government tell them that the business rate yield is not going up, even though that is not how they see it. That is partially an explanation. The business ratepayer will have to fund an additional sum of money—perhaps £650 million or more. That goes some way to explaining the burden that they see. Phil Hope: The hon. Gentleman simply cannot get away with the idea that businesses oppose the new scheme. We have conducted widespread consultation and they think that it is an excellent scheme. The fact that it is self-financing— Mr. Hammond: I am talking about the transitional relief. Phil Hope: But this is the small business rate relief scheme order, not the transitional relief scheme order, which we are looking forward to debating soon. Mr. Hammond: On a point of order, Mr. Cummings. Just for the record, the Minister tells me that we are looking forward to debating the transitional relief scheme soon, but if I am not mistaken, he accused me a few moments ago of not turning up to debate it. The Chairman: That is not a point of order. Behave yourselves. Phil Hope: I think that we should probably move on. I have some good news for the hon. Gentleman. Inspiration has arrived, and I can tell him that the
The hon. Gentleman was worried about whether there would be a shortfall or a surplus through the way in which the multiplier operates in the small business rate relief scheme. If there is a shortfall or surplus—if it does not balance out—there will be a correction to the multiplier to ensure that the scheme works. I hope that that small point has been dealt with. I turn to small businesses within a BID area. They are entitled to apply for small business rate relief, and we would expect them to. However, it does not apply to the BID levy, which is a separate scheme. The relief will depend on the nature of the levy, which will vary from one BID to another, depending on the specific proposals within a BID. They could include a proposal that small businesses within the BID area pay a smaller levy than larger businesses. That depends on the various BIDs. I am pleased to say that we have received three successful ballots for business improvement districts—20 or so currently exist—and I am looking forward to further successful support from the business community for the new measures to improve town centres and other parts of local communities. The hon. Gentleman asked whether the surcharge—the amount that larger businesses pay to support the reduction of rate bills for smaller businesses—is automatic. It is not. Ratepayers in the buffer zone will need to register with their local authority, because they need to declare that they fulfil the eligibility criteria. Businesses have to apply for the relief so that it can be clearly shown that they qualify under the criteria. I hope that that clarifies that detail. By the way, the hon. Gentleman mentioned that there was some tortuous drafting, but it was in fact his own party, while it was in government, that worded the 1988 Act. I thought that he might like to know that. In 2000, small business organisations felt that transition would be in their favour but, when they did the analysis, they decided that it would not, because the caps in place were quite small. The 2005 transitional scheme is extremely favourable to small businesses. I want to emphasise that those in upward transition have a gentle introduction to the increases; their rateable value has gone up, but the transition of the increase in their rates will be gentle. For those in downward transition—businesses that have reduced their rateable value—the transition will be arrived at quickly. Small businesses will benefit from a 30 per cent. reduction in year one. They will benefit substantially from the 5 per cent. cap and few will actually contribute. That was about the transitional relief scheme, which is not what we are debating today. I want finally to address points about the benefits of the small business rate relief scheme. It is estimated that the scheme as amended will provide relief to about 520,000 small businesses. The introduction of a buffer zone means that a further 80,000 businesses will not
Mr. Hammond: Can the Minister confirm that he said that the downward cap for small properties would be 30 per cent? The figures in front of me say 17.5 per cent., so could we be clear on that? He also said earlier that he would address the question of why the London differential, which is in the upper threshold, is not incorporated into the threshold for the actual relief, so that there would be a higher threshold for small business rates relief in London. What is the logic of recognising the need for a differential threshold on the surcharge but not on the relief itself? Phil Hope: I thought that I explained that earlier. The threshold and differentials are linked to the two schemes to make them parallel. That is what we announced for the consultation and it was felt that it would be much easier if the thresholds in one order matched those in the other. In other words, the thresholds for the small business rate relief scheme and for the transitional scheme are the same for London and outside. Small businesses see that as sensible and simple, rather than our making things more complicated than they need otherwise be. The hon. Gentleman concluded with a series of questions about raising awareness of the scheme, and he was right to do so. I have suggested that local Members of Parliament might play an interesting role in publicising it—I hope that Members have got that now, as I have said it four times this morning. It is important that we use the opportunities that we have as local MPs, in business breakfasts for example, to promote widely the scheme and the benefits that the Government are bringing to small businesses. The Office of the Deputy Prime Minister and the Valuation Office Agency have launched a new website resource, www.mybusinessrates.gov.uk. Many small businesses now use the internet, and there is a clear opportunity for individuals to go online and discover the possibilities there. It is aimed primarily at small businesses and contains a raft of information about the business rate system and the various reliefs available. Hon. Members will know about the rural rate relief scheme that helps post offices and village shops in rural areas. We are also updating “Business Rates—A guide”, the ODPM booklet that explains how the business rate system operates and will include information about the small business rate relief scheme. To respond to the hon. Gentleman’s query about the caps on the transitional arrangements, there is a table that shows that the 30 per cent. figure is correct. In other words, the downward cap for small businesses is 30 per cent. I am not sure where he got his information, but my figure is correct. Column Number: 17 I hope that I have dealt with most of the hon. Gentleman’s queries. I have mentioned where the available information is from and the new leaflet that we will be updating. We have sent billing authorities two business rates information letters, so that the local billing authority is aware of the scheme—my hon. Friend the Member for Selby (Mr. Grogan) raised that point—and can conduct its own promotional awareness-raising activities. We have had an important debate, which has ranged far and wide. I have endeavoured to respond to all the issues outwith the order to help the hon. Member for Runnymede and Weybridge. On balance, he may want to reflect on the position of the Conservative party. It
Question put and agreed to. Resolved,
Committee rose at nine minutes to Eleven o’clock. |
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