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Madam Deputy Speaker: With this we may discuss Lords amendment No. 5.
Paul Goggins: The Secretary of State is required to make an order abolishing the deputy Justice Minister post three years after the devolution of policing and justice functions, unless the Assembly has resolved that it be abolished earlier or, alternatively, that it be retained beyond that time. As originally drafted, the Bill made such an order subject to the negative resolution procedure. However, the Committee on Delegated Powers and Regulatory Reform considered the order-making power and observed that the circumstances specified in the Bill in which the Secretary of State is required to act are matters of ascertainable fact, not of opinion, and the timing, too, is preordained. In other words, the time scale is set, the period of three years is in statute, and it will be a matter of fact that either the three years have been completed or the Assembly has made a specific request.
In the consequent absence of any element of discretion for the Secretary of State, the Committee argued that the negative procedure was unnecessary. We are content to accept that recommendation, and the amendments give effect to it.
Mr. Laurence Robertson: Having discussed this matter with the Minister, I am satisfied that this is the correct way to proceed.
Mark Durkan: I welcome the fact that the Minister is moving to tidy up an absurdity that had been built into the legislation, for all the procedural and logical reasons that he has pointed out. There was a political anomaly underlying the whole Justice Minister concept—the concept of the creation of a temporary Justice Minister post. I am aware of the circumstances in which the Government produced this idea. It was one of a number of vacuous models that were produced to deal with the issue of justice and policing in relation to departmental structures. We do not need to get hot and bothered about this matter beyond the procedural and logical points that the Minister has raised, because I do not think that this option will have to be pursued, and certainly not for the reasons that the Government thought they should introduce it in the first place.
Mr. Alan Reid: We, too, support the Government on this amendment. As the Delegated Powers and Regulatory Reform Committee has pointed out, these matters are matters of discernable fact and not of opinion, and the timing is laid down. As the Secretary of State has no discretion, there is no point in having a parliamentary procedure, so we support the amendment.
Lords amendments No. 5 to 8 agreed to.
Ways and Means
1.52 pm
The Economic Secretary to the Treasury (Ed Balls): I beg to move,
That provision may be made for and in connection with the liability of owners of unoccupied hereditaments to a non-domestic rate.
This motion precedes a Bill being introduced to the House that will take forward recommendations made by Kate Barker and Sir Michael Lyons that the Government bring the rating of empty commercial property into the 21st century. As my right hon. Friend the Chancellor announced on Budget day, this reform has environmental, social and economic merits. Any Member who supports the continued regeneration of urban areas, the use of brownfield sites for developments to meet both our housing and commercial property needs, and the abolition of distortions in the tax system that artificially hold rents up and apply unwarranted costs to business, will want to join me in supporting the motion.
Perhaps it is worth setting out why Kate Barker and Sir Michael Lyons both considered reform of the rating of empty property to be important. Currently, a commercial property is subject to full business rates when it is occupied but is given relief when it is empty. Different types of property get more or less relief when they are empty. Shops and offices have full relief for three months after they fall empty and then 50 per cent. relief ad infinitum. On the other hand, industrial property enjoys complete relief for as long as the premises are empty. This distinction between the relief given to different types of property—which is, in fact, a very large form of state aid—has its history in the depressions of the 1970s and 1980s, when demand for industrial premises was low and demand from alternative users for such land was also low.
Two important things have changed since that distinction was drawn into the legislation. First, after a decade of sustained growth the demand for, and price of, land has increased dramatically, placing a burden on both households and businesses needing to access property. Efficient land use, and in particular the use of brownfield land to protect greenfield sites, has become a key priority for the Government. Tax relief for empty property—currently worth more than £1.3 billion—needs to be considered in this light.
Secondly, and as a direct result of this increased pressure on land, the Government asked Kate Barker to consider the incentives for efficient land use in her assessment of planning and land use. As part of her analysis, Barker found that the current empty property reliefs are not aligned with risks—there is little difference between the risks of different types of property falling empty. On that basis, the different tax treatments afforded to different types of property do not reflect real conditions in the market and are therefore creating a distortion.
On those grounds alone there is reason enough for Barker to propose reform, but the data become more startling when we look at where the tax relief is going. Sunderland, Redcar and Alnwick were each listed in
the top 10 authorities with the lowest proportion of their commercial property stock claiming relief, while the City, Manchester and Birmingham are all in the top 10 authorities with property claiming relief. Clearly, land is not in such over-supply in those parts of the country that we should be offering tax relief to property that is not in use—and in doing so shift the burden of taxation on to other taxpayers.
Mr. Stewart Jackson (Peterborough) (Con): Does the Minister concur with the views expressed by the Royal Institution of Chartered Surveyors, which suggests in respect of the demise of the United Kingdom engineering industry in the 1970s that a major contributory factor was that the inability to mothball factories during recession and the requirement to pay full rates on non-producing premises frequently led to machinery being sold off and buildings being demolished?
Ed Balls: I will come back to the views of that institution in due course. Clearly, at that time the combination of low rents and the fact that in the ’70s, ’80s and early ’90s recessions were a regular occurrence was a concern for businesses. As a result of the stability that we have put in place in recent years, that is now less of a concern.
The level of rents in the UK is also a key driver for reform. A series of recent reports by the private sector—including by CB Richard Ellis in 2006 and DTZ research in 2004 and 2005—have identified UK rents as among the highest in the world. That west end office space in London is regularly ranked as the most expensive in the world reflects a variety of influences; land supply and planning restrictions are two important factors. However, as London is the world’s financial capital, it is perhaps less surprising that there are high rents in London than it is to find that office rents in cities such as Birmingham, Manchester, Leeds and Edinburgh are ranked as more expensive than in Manhattan, Madrid, Frankfurt and Sydney by these various reports.
There are significant regional variations in headline rents. In the south-east, Guildford’s rents are £10 per sq ft but Brighton’s are £5.50 per sq ft. In the north-west, rents are £6.25 per sq ft in south Manchester but £6 per sq ft in Trafford park. In the north-east retail sector, rents peak at £330 per sq ft in Newcastle, and fall to £145 in Sunderland and £65 in Stockton.
There is also significant variation within towns and cities. For example, in Newcastle rents vary from £330 in Eldon square—the central shopping mall—to just £70 on Lower Grainger street, which is within half a mile of Eldon square. Office rents in London range from more than £60 per sq ft in prime west end and the City to £48 in prime mid-town and £50 in prime Canary Wharf. In contrast, rents are £21 in Brentwood and £13 in Harlow. Rental prices have a real impact on business, and finding ways in which we can address the efficiency of the commercial property market is a key objective of the reforms.
I am sure that Members in all parts of the House recognise that land should not sit idle while labour and capital pay. Kate Barker said that reforming empty property rates
“would have a number of beneficial effects”.
“when there is the prospect of continued vacancy, landlords are more likely to reduce rents in order to encourage occupation. This is beneficial for both new and existing business tenants”.
“landowners have less of an incentive to hold back land in the expectation that property values will continue to rise or to secure a change of use. This will increase the supply of land for development”.
“development is encouraged on sites which have already been developed, which reduces the need to build on greenfield sites and improves environmental outcomes.”
The Government accepted Kate Barker’s report and asked Sir Michael Lyons to consider the implications arising from these recommendations as part of his proposals for reforming local government finance. Sir Michael received representations from local planners and local government bodies, from regional economic development offices and from the Federation of Small Businesses. All were in favour of reform and recognised that the measures set out in this Bill will increase the supply of land and commercial property available for occupation and redevelopment.
From such local authorities as Hull city council and Hampshire county council came requests for changing the rating of empty property to increase the supply of land and to reduce speculation. Birmingham city council suggested bringing industrial premises back into the scope of rating empty property, and bodies with wider development objectives also responded. For example, Merseytravel recommended that the unlimited period of rate relief in the current system be done away with. The Federation of Small Businesses had already identified this as an important area for reform in its 2005 report. It realised, as did the Barker report, that increasing the opportunity cost of holding property empty will increase downward pressure on rents. As companies that predominantly rent their premises, the availability of property at lower rents is critically important to small companies across the country.
Mr. Stewart Jackson: What feedback has the Economic Secretary had from urban regeneration companies and development agencies about these potential tax changes, given that there is a prima facie case that the entrepreneurial spirit needed to regenerate some very disadvantaged parts of the country—he mentioned such places as Hampshire but, as he knows, generally speaking it is not that disadvantaged—would have a big impact? However, these tax changes will be a disincentive to intervening in those areas to get businesses—retail and others—into those properties and premises.
Ed Balls: Once again, the hon. Gentleman pre-empts my speech. I shall come to how we can ensure that we support regeneration in the areas that he is talking about; indeed, there are ways we can do so through these provisions. As I said, we have consulted widely and we have received a wide range of positive contributions as part of that process.
Sir Michael also received representations that did not favour change, predominantly from the property industry. Some pointed to the past as a reason for not going ahead with change today, suggesting that reform would impact, as was said, on redevelopment. Others, such as the Royal Institution of Chartered Surveyors, suggested that there are a number of other aspects of business rates reliefs and exemptions that also merit re-appraisal. These are serious issues that we have reflected on, and they will in part be incorporated into the detail of the regulation that will be put before the House in due course, and into some of the accompanying measures that I will discuss in more detail in a moment. However, on balance, the Government agreed with Sir Michael and Kate Barker that reform should go ahead. Sir Michael said:
“Demand for land for development is growing as a result of economic change and household growth, and it is clear that, more than ever, we need to ensure that all previously developed land is used most effectively.
Analysis shows that vacant property is found in areas of high demand as well as in areas of low demand and former industrial areas.
Finding ways to raise the opportunity cost of holding unused land and property in areas of high demand at such a time would be desirable. Reforming the empty property relief would help to provide this, and thus assist local authorities”.
It was on the basis of Sir Michael’s advice that the Budget announcement on this issue was made.
Let me discuss the detail of our proposals, which will be set out in due course before this House in detailed regulation and legislation. The proposed reform will mean that most properties will enjoy a three-month rate-free period on becoming empty; the period for industrial properties will be six months. Three months was the limit on the rate-free period already established in legislation, but because Kate Barker demonstrated in her report that there is no inherently greater risk of particular types of property falling empty, it is right that there should be convergence in the tax treatment of all forms of property. We are therefore bringing the treatment of industrial property toward that for office and retail property, allowing it a six-month period with no rates. We intend to exempt charities and community amateur sports clubs altogether from paying rates on empty properties that they own.
These reforms will impact on the owners of long-term empty property, including existing and new build premises, but because the Government now have the evidence that we need to create targeted support in areas where it is needed, we are bringing forward reform to empty property rates as part of a wider package of incentives for the future use and re-use of land and property.
Anne Main (St. Albans) (Con): I welcome the fact that the Economic Secretary appears to want to target this relief. If he has the information, will he say now whether an assessment has been made of where most of these empty properties are and what sort they are? For example, are they historic buildings or commercial premises built for speculative let?
Ed Balls:
I said earlier that these issues apply to the whole country, in both high and low-demand areas. Particular protections are in place for charities, sports clubs and listed buildings, which will be considered as
part of ongoing consultation on the legislation. However, what we can do is to target particular help on low-demand areas.
We recognise that in some parts of the country there are low levels of demand and that, as a result, commercial property can sit empty for longer periods. By way of response, we have introduced with effect from 11 April—a full year in advance of the proposed changes to empty property rating, which will not come into effect until next April—a new 100 per cent. capital allowance for the renovation of business property in assisted areas across the UK. The business premises renovation allowance is available to owners in these areas of property that has stood empty for more than one year, and it will provide a huge boost to those who want to create attractive commercial property fit for the needs of new and existing businesses.
Given that we also want to maintain high levels of development on brownfield land, especially that which it is costly to remediate, we are consulting now on the extension of land remediation relief to a wider range of contaminated sites. The consultation includes extending the scope of the existing 150 per cent. capital allowance to the clean-up of sites with long-term derelict property on them, as well as to those that have been invaded by Japanese knotweed—which I am sure at least some Members will recognise as a serious threat to many urban and rural locations. We intend also to increase the incentives for on-site remediation, thereby decreasing the pressure on landfill.
To provide flexibility for leaseholders faced with onerous penalty payments to enable them to rid themselves of leases that they no longer need, or which do not provide them with the flexibility that they require, we intend to consult on changing the tax treatment of such payments to ensure that they are fully recognised by the tax system. For those companies actively using property and paying business rates, we have also accepted Sir Michael Lyons’ recommendation that the retail prices index cap on business rates be retained. This fits into our wider strategy of improving business competitiveness. We will also examine the case for local supplements on the rates, as set out by Sir Michael, but while paying the closest attention to ensuring that business has a strong and clear means of holding local authorities to account. Reforms to be outlined in the planning White Paper will help to provide an environment for the development of the quality and quantity of property that UK businesses and homeowners demand.
Finally, let me put this in a slightly broader context. Investment in property is essential to business and to creating a modern, dynamic economy. At the centre of the reforms that we have put in place in recent years has been the launch of UK real estate investment trusts. Thirteen companies have already become UK REITs since the beginning of this year. In addition to the measures that we are debating today, REITs are another way in which we can improve the quantity and quality of finance available for property in a revenue-neutral fashion.
We also announced in the Budget that we are taking the same principles that shape UK REITs and building tax equivalence for property authorised investment funds, thereby allowing open-ended investment in property through unit trusts to enjoy the same tax
treatment as that enjoyed by UK REITs. These are supportive measures to boost the supply of property suitable for investment that meet the needs of British firms. Today’s motion is one part of that reform and modernisation, which spans the whole commercial property market and provides incentives for owners, developers and tenants to produce the right kind of property, and to take advantage of efficiencies in the use of land and property that will increase supply and drive down costs for their consumers.
The Government are working hard to ensure that we provide the right conditions for businesses to grow, for land and property to continue to be developed, and, once developed, for it to be used efficiently. In its submission to the Callcutt review of house-building delivery, the Home Builders Federation signalled the supply of land as the major factor that will determine whether the Government’s target of 200,000 new homes built by 2016 will be met. As the Government increase the supply of housing to meet the needs of households across the UK, a tax relief for property sitting empty on developed sites makes neither economic nor environmental nor social sense. That is why this is a principled reform that is overdue and forms part of a positive set of announcements on the future taxation of land and property.
The measure has had extensive work and consultation by my hon. Friends the Financial Secretary and the Minister for Local Government. It is hard to achieve a consensus with the Opposition on the importance of building new homes, given the continual opposition of shadow Front Benchers to house building in our country, but I hope that we will reach consensus at least on this measure.
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