Ed Balls: I want to understand the hon. Gentlemans argument. I am worried that the point he is making is not market-based and is more dirigiste. When he uses the term overcapacity, he means properties that are unused. Are they unused because there is no demand or because the rent is too high? Are we not looking for a way to get the price down so that they can be put back into use and there can be more activity?
Robert Key: That is an entirely fair point. Without getting into either endogenous growth theories or Marxism, I would point out that the Minister is right to ask the question, but the answer is no. The problem is overcapacity, not rents that are too high. I will illustrate that with my next example.
We have a large number of former military establishments in my constituency and in Wiltshire as a whole. One of them is the former royal naval armaments depot at Dean Hill, which was built in 1938 and became a major armaments depot, storing under the chalk hills enormous quantities of arms for the Royal Navy from Portsmouth, and latterly for the RAF as well after the closure of RAF Chilmark, which was another establishment that was redundant to the needs of the Ministry of Defence.
The area is hugesome 500 acres with 1,600 sq m of office space. It has a variety of business unitsmore than 40 of themand 24 vaults cut into the chalk offering more than 9,000 cu m of high quality dry, secure storage. That is where the bombs and depth charges were kept. The problem is how the Ministry of Defence disposes of property. It is part of the Chancellors remit to persuade the MOD to get rid of redundant property.
After the property had been empty for years, a splendid company has taken over the site, bought it from the Ministry of Defence, and is successfully converting it into very attractive office and industrial premises in a wonderful environment, with a site of special scientific interest on the spot. I cannot speak warmly enough of the effort of Mr. Richard Parry and his company, who have taken a substantial risk. Having taken over 500 acres from the MOD with all those buildings and facilities, which they had expected to be able to bring into use over a number of yearswith the agreement of the planning authorities in order to avoid overdevelopment, too much traffic on rural lanes in south-east Wiltshire and Hampshire and so onthey could face a crushing liability for business rates if the measure is suddenly introduced now.
That will dissuade investors like Mr. Parry. They simply will not do it. The holding costs of the property will be too great. What about valuation? The district valuers already value Ministry of Defence estates, but they put them on a low value because they are of military use or are not used at all. To return to the point made by my hon. Friend the Member for Surrey Heath, they are not producing business activity or generating wealth, so they currently do not qualify for taxation. What about the district valuer now? He has been to Dean Hill park and assessed individual buildings. As they are brought into use, the district valuer assesses them and the owners rightly start paying their business rate.
What will happen in future? We need to be sure that Ministers have thought about that. Will they suddenly
create an extra army of district valuers who can go round to all these Ministry of Defence sites and revalue hundreds of buildings and other facilities? Have they got the staff to do it? I guess not. When will the clock start ticking? Will people have to start paying this new business rate on 1 April next year or six months afterwards? Perhaps the Minister has not thought that question through yet, but I would be grateful if he could answer it.
We see here, once again, the need for rural proofing. I wonder what the Ministry of Defence will say about this, given that the defence budget is still strapped, despite a modest increase in cash terms. The pressure on it is enormous. Will it be liable to pay the new business rates on all its empty industrial properties, given that it no longer enjoys Crown exemption? I would be grateful if the Minister could answer that, and I dare say his colleagues in the MOD would like an answer too.
I have tried to draw the Houses attention to some of the problems that will affect everybody in rural areas, from large investors to very small family businesses, as well as farming communities. If we must have a window tax, let us make sure that it does not keep the light out.
Anne Main (St. Albans) (Con): My hon. Friends and I have a lot of questions about this proposal. As my hon. Friend the Member for Salisbury (Robert Key) said, we all have our own particular set of problems that it will draw to the surface. I should like to give the Minister a few illustrations from my constituency. It is a city, not a rural area, but it has its own set of unique issues that will be exacerbated or affected by perverse consequences.
One example is the West Hall site in Napsbury, formerly the site of a hospital. It has many buildings that do not come under the national listings but are locally listed as having importance. The site has been designated for housing, but many such applications get stuck in the system for a long time, and rightly so according to local residents, who do not want bad development in St. Albans. While they accept the need to have housing on the site, they also feel that a degree of caution should be exerted. They do not want to end up with 37 flats all squeezed into one commercial building; that is also seen as unacceptable by the local authority. Being stuck in the planning system can be a good or a bad thing. The problem is that we are not sure whether the proposals will make matters better or worse.
Another example is the former Eversheds commercial print works site, which has been vacant for a considerable period. It was redesignated for housing, and housing permission was sought and obtained. However, it has since been sold on to Tesco, which is trying to develop it as a commercial site again. We would prefer that it remained designated for housing. I am worried that the rush to try to make it a commercial development will stand in the way of local people who would rather see housing on what is a truly sustainable site, and that Tesco will try to get its big building up as quickly as possible before local people can exercise a degree of pressure on their local authority to ensure
that the local district plan is upheld and housing is built there. Can the Minister tell me at what point the commercial building rates will be paid? Will they have to be paid until development occurs that changes the sites use?
On the London road in St. Albans, we have a listed cinemathe Odeon, which has an art deco façade. Unfortunately, it went out of use some 11 years ago. People are desperate to keep that landmark property in St. Albans. It has been stuck in the planning system for 11 years. Perhaps it will be turned into some form of housing development, but local people welcome the fact that there is no rush to do that because they hope to bring it back into commercial use as a cinema, which we do not have in St. Albans. There is huge support for that but, because the building is small, it is difficult to find somebody who is prepared to take it on. Delicate negotiations are going on all the time behind the scenes, conducted by those who want a cinema in St. Albans.
However, 11 years have passed. At one point, the decision was held up speculatively and then applications for housing were constantly refused. However, local people do not want things to be rushed. They do not want the cinema, with its characterful façade, which could be revitalised, to be quickly put to another use because of the commercial rates that suddenly have to be paid on it.
There are flip sides. Good results can be achieved through bringing buildings back into use, but I am worried that the process may mean the loss of the slow pace of change that local people welcome when they want to ensure that historic sites and buildings are not suddenly put to commercial use or demolished, with the site used for housing. We need answers, and I believe that the planning system will play a crucial role.
A roof tax has been mentioned. However, as my hon. Friend the Member for Salisbury and many reports stated, there is a concern that it may mean that the roofs are simply removed from buildings, resulting in some vandalism. The Odeon cinema still has its roof. The vandals have picked away at it, but it remains intact. I would hate to allow commercial vandalism, resulting in the removal of the roof, simply because people who are suddenly in the position of having to pay tax on a building want to ensure that it is useless, and thus take away all hope from local people.
Estate agents, such as Cluttons, who have an interest in the matter, have expressed some views. I would like some answers to their concerns and to ascertain whether the Minister has conducted any assessments. People already challenge the Valuation Office Agencys level of rating. Several cases of buildings, which currently pay only 50 per cent. but seek a nil value, have been heard before the tribunal office. If empty commercial property owners now have to appeal against rating assessments and any new categories that are introduced, surely the appeals will create an increased administrative burden, as people in the nil rating bracket find themselves in a new rating bracket. Has any assessment been made of the extra staff that the Valuation Office Agency may need and the extra costs that it will incur through the additional burden?
I should like some clarity at some point in future, if not todayI understand that we are exploring the
matter todayabout buildings that might be considered exempt. I should like to ensure that the many historic buildings such as churches, which may not have charitable status and could simply be landmarks, do not face an extra tax burden. I am sure that it is difficult to identify the ownership of some buildings. I know of a house in St. Albans that was caught up in that sort of confusion for some time. It was eventually compulsorily purchased. I am also concerned to ensure that a retrospective charge is not levied against families who are unaware that they own and may have some ongoing interest in a building, which suddenly comes to their notice. There are some complex probate cases and I wonder whether the Minister has taken them into account.
We are being asked to vote for a pig in poke if we are not absolutely sure that all the questions that my hon. Friends have asked today are considered. We do not want properties to remain empty. The Economic Secretary made the valid point that that makes no environmental sense, and I agree with him. However, it does not make environmental sense to rush towards removing roofs or damaging buildings in some way, yet such acts may be the perverse consequences of the proposals. As my hon. Friend the Member for Salisbury said, it makes no environmental sense to charge people who are genuinely trying to market a building.
In areas where there is a commercial property, people often have to fight the rigmarole of a local district plan to prove that the building no longer constitutes viable commercial premises. That can take such a long time that some poor family or small business could be left with an enormous charge on a property that has been incurred through no fault of their own. That is perverse.
I welcome the exploration of the idea of bringing back buildings into use, because St. Albans is very tight on space. It is a matter of record that I feel that we are put under enormous pressure to build and develop in St. Albans, but we also consequently have commercial premises sandwiched in areas that we do not want to be vandalised. We want to see buildings brought back into use, but where that is not feasible, we want to ensure that time is spent considering the best uses for them and that nobody pushes through a quick commercial use order to avoid paying any form of development tax.
I would welcome the Ministers consideration of all the points raised in the debate, and particularly of whether, when a change is made under the planning systemas on the Evershed sites, for exampleit should apply when planning is granted or when development occurs. Those vagaries will not provide much confidence or support for the measure.
I agree with some of the business-related comments that have been made, as the proposal is seen as a stealth raid grab. If it is seen as a stealth raid grab with good consequences, there may be some support for it; but if it is seen as a stealth raid grab with perverse consequences, I feel that many Conservative Members will view it as a move too far. Given that the Federation of Small Businesses also has many concerns, I am sure that we are going to hear a lot more detailed comments about the measure in the future.
Mr. Stewart Jackson (Peterborough) (Con): If I may pre-empt the Chancellor and beg the Houses indulgence, I would like to congratulate the Economic Secretary on his inevitable promotion in approximately seven weeks time.
It is a pleasure to follow my hon. Friend the Member for St. Albans (Anne Main) and, indeed, my hon. Friend the Member for Salisbury (Robert Key). They were perhaps far too polite to state the obvious and place this particular proposal in context by observing that it is one of 111 stealth taxes that the Government have imposed over the past 10 years. It represents the big clunking fist approach to commercial property, and we are no doubt going to see a lot more of it over the next few years.
This proposal has all the characteristics of the stealth taxes that we have learned to know and love. It is a consummate stealth tax because it is typical of the sleight-of-hand taxes that we have become used to over the past 10 years. It is sneaky. It has been announced only in the last few months, but its effects will not come into force until April 2008. Of course, it does not appear in the Finance Bill, but has been brought before the House through a Ways and Means resolution. It is also ill considered and damaging, and, as my hon. Friend the Member for Salisbury eloquently explained, it will have unintended consequences. It is indeed, as my hon. Friend the Member for St. Albans said, a straightforward tax grab, netting the Treasury £1.85 billion over the next two years. The proposal is, of course, dressed up in euphemistic language, when it is described as modernising empty property relief. That is rather like the Prime Minister saying that Labours local government election results were a springboard for a general election victory, when we all know that it was more like a belly-flop.
We can see a dichotomy in the Governments treatment of private and commercial property. This is a Government who have entrenched the principle of holding capital by way of propertyforgive me if I sound rather like the right hon. Member for Oldham, West and Royton (Mr. Meacher), who is the Ministers parliamentary neighbourwhen foreign nationals who are non-domiciled in this country own huge portfolios of property, which are left empty while people are left homeless and more people than ever before in the past 10 years are on waiting lists or in bed-and-breakfast accommodation. There are 6,000 of those people in my own constituency. At the same time, the Government seek to penalise and disadvantage British business people with this particular tax grab.
As I said when I intervened on my hon. Friend the Member for Surrey Heath (Michael Gove), this has been a £50 billion tax grab over the past 10 years, and there has been no corresponding offsetting tax reduction, as expounded by the Treasury. Indeed, small businesses took a significant hit in tax increases in the Budget.
The proposal will have the effect of pushing up existing business rents and adding to inflationary pressures. It will distort the commercial property market by driving up service charges as well as rents, as a result of businesses quite properly attempting to recover empty rates. The Royal Institution of Chartered Surveyors describes the proposal as
purely a revenue raising exercise with no thought of the potential consequences.
The measure will also inevitably lead to a rise in on-costs in respect of rating appeals and valuation tribunal cases. That will incur significant costs across the economy. A further consequence will be a policy of deliberately damaging buildings, as my hon. Friend the Member for St. Albans pointed out. Of course, we would not condone that, but we have to accept that it happens. It will be an unintended consequence of this tax policy.
The policy demonstrates a fundamental ignorance of the fluctuations and cycles of the commercial property market. No business wants to keep a commercial property empty, but the mechanisms and vagaries of supply and demand mean that it is an inevitable feature of the market that, owing to commercial considerations or to reasons such as time lag, some properties will sometimes be empty.
The policy will do nothing to encourage local regeneration. I know that that is a subject dear to the heart of the Minister for Local Government. It was interesting that the Economic Secretary skipped past my direct question about the consultation to ascertain whether regional development agencies and urban regeneration companies wholly supported the proposals. The corollary of this policy is that entrepreneurs will take far fewer risks when investing in difficult areasareas that find it difficult to attract niche entrepreneurswhich will affect the creation of jobs, businesses and, obviously, the tax take for the Treasury.
In 2005, the business rates revaluation penalised small, medium and large business by tightening the grounds for appeal and decreasing the reduction in rate bills for firms whose rateable value had fallen. That was another typical sleight-of-hand policy. The Government are ignoring the underlying factors relating to the fact that some commercial premises are sometimes empty for longer than is desirable. This can happen, for example, as a result of restrictive alienation clauses preventing sub-letting or assignment. I do not think that the Minister mentioned that, although I might have missed it.
Anne Main: My hon. Friend prompts me to inquire whether the Minister has taken into account restrictive covenants on buildings. It is sometimes almost impossible to find exactly the tenant prescribed in such a covenant. Might that also be an issue?
Why does the Treasury seem to be at odds with the voluntary leasing business premises code that was produced by the Department for Communities and Local Government? That code has not yet had a chance to bed in, and it has not been given adequate time to work.
I want to return to regeneration. I speak not from a rural perspective, as did my hon. Friend the Member for Salisbury, but from an urban one. My constituency has an ambitious regeneration programme for the next 15 years. It is highly dependent for jobs on logistics, warehousing and transportation. It also has pockets of
considerable urban deprivationPeterborough has three of the poorest wards in the eastern regionand there is a great need for more employment. The proposals do not provide sufficient incentive to business to be entrepreneurial and to create new businesses. I am talking not about mass-market chains but about the niche businesses needed to create new jobs and to help the area to go from strength to strength.
This is a repeat of the situation in the 1970s when an empty rate was introduced in the form of penal rating surcharge. However, no new lettings were created by the surcharge and it led to the deliberate vandalising of property, such as removing roofs, in order to avoid rate liability. If there had been a consultation on this topic the potential impact could have been considered.
I shall finish with some key questions to the Minister, and I hope that he is able to allay my concerns and answer all my hon. Friends questions. Is he confident that regeneration will not be affected by the change? What steps does he think it prudent to take to prevent deliberate vandalism of empty property? Will he consider the suggestion of the Federation of Small Businesses that exemptions should be put in place for firms that have made a demonstrable effort, even though it might be unsuccessful, to fill their property? Finally, why is there no recognition of the regional differences in the commercial property market across England and Wales?
To conclude, the tax change will do nothing to make the property market more dynamic. It will stifle efforts to regenerate some of our most deprived areas. I fearcall me cynicalthat it is a good old-fashioned tax grab. Ministers need to think hard again about whether they should proceed with the proposal.