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Mr. Woolas: I take it that the hon. Gentleman will give the House an undertaking never to pray in aid the views of the Federation of Small Businesses, given that he discounted it on this occasion. Did he read last nights editorial in Londons Evening S tandarda paper not known on the whole for supporting my partythat praised the measure for supporting small shops?
Michael Gove: I read the shameful piece of spin for which the Minister was responsible when he managed to get his particular gloss or varnish on the legislation into the Evening Standard, whose normally Olympian standards of objectivity buckled on that occasion. That is a tribute to the Ministers guile rather than to the quality of the measure. One of the Governments principal justifications for the measure is that it will encourage the more efficient use of land and promote the regeneration of run-down areas.
Mr. Dunne: I am grateful to my hon. Friend for allowing me to pick up the allegation by the Minister that the Federation of Small Businesses is uniquely in favour of the measure. If the Minister took the trouble to read the federations remarks in full, he would see that it is in favour of the way in which the measure attacks large business. When it comes to the small businesses that it represents, it says:
However, the FSB is keen to ensure that small businesses who are unable to use or sell empty property for legitimate commercial reasons are not punished by the new rules. There should be exemptions in such cases.
Michael Gove: I am grateful to my hon. Friend for pointing out the true way in which we should look at the FSBs case, and the fact that it is capable of more than one interpretation. The devil can quote scripture for his own purposes, and Labour Ministers can always pray in aid submissions from small business organisations at any time they choose. The truth is that the measure will not encourage the more efficient use of land, and it will not promote regeneration: it will actively work against both.
If we look at regeneration projects overall that benefit businesses large and small, as well as the residents of areas that are run down and require investment, we can see that when people attempt to put such a project together, it is sometimes difficult to get all the parcels of land in one place before they can press the button, get the green light and go ahead with a significant regeneration project in, for example, Stoke-on-Trent. It is sometimes difficult to align all the investors that one needs for a project until different parcels of land have been brought together and investors are satisfied. By their very nature, such projects operate on the margins of viability and profitability for some investorsthey are high-risk options. For many investors considering whether to press ahead with regeneration schemes, the existence of the relief is vital in making viable schemes that would not otherwise be so. The removal of the relief will imperil future regeneration projects, and a number of regeneration practitioners, developers and others have made crystal clear in the pages of Property Weekly, the Estates Gazette and other publications the direct threat to future regeneration, particularly in the most vulnerable areas of the country, posed by the measure.
I should therefore like to ask the Minister, when we reconsider the measure in due course, whether he would contemplate amending it to ensure that the areas of greatest vulnerability or areas where regeneration is most needed can enjoy a measure of relief that is not extended to other areas. Is there any opportunity to achieve cross-party consensus to ensure that regeneration in vulnerable areas is not affected by the measure?
Another of the Governments justifications for the measure is that it will help the small businesses to which the Minister referred by compelling property owners to let properties that they are perversely keeping empty. The belief is that because property owners will lose the relief, they will be compelled to lower rents to fill their properties: that is the case that the Minister has made for the measure. The truth, however, is that smaller businesses will find that owners have to take steps to safeguard their properties against the risk of companies that take leases failing, and those properties being left empty. Those businesses will therefore be liable for additional rates without commercial activity taking place on those premises. A case that has been put to me and, I am sure, to Ministers by people with a direct interest in the commercial sector is that the system of leasing commercial property will become more rigid and onerous for smaller companies. Landowners who are concerned about the additional risk of sites falling empty, will frame their leases in such a way as to make them significantly more rigid and more difficult for smaller companies to accede to. I accept that the Minister said that the Government have consulted and want to make life easier for people who want to take on commercial leases. All that good work, however, could be undermined by large property companies wishing to insulate themselves from risk and framing leases that work against flexibility and act as a barrier to entry for precisely the small shops that, I suspect, both of us want to occupy a healthy high street.
Another justification for the measure concerns the overall economic benefit that it is supposed to bring by encouraging the more efficient use of resources and increasing the amount of commercial property and commercial activity. However, as was pointed out by my hon. Friend the Member for Bromley and Chislehurst (Robert Neill), the measure has another economic effect that could be profoundly deleterious, as it impacts on pension funds. Pension funds, as we all know, hold significant property assetsa point acknowledged by the Financial Secretary. If he is right, and the measure leads to the lowering of rents, that will mean that the capital value of those property assets will decline and the yields from those properties will decline. That means [ Interruption. ] It is the Financial Secretarys argument, and I am merely pointing out that if it is correct, it will have an unfortunate effect on pension funds. The Government made a tax change before when they were in a hurry to get revenue for a pet project. They were warned by pension funds and investors in those funds that the tax change would have a deleterious effect. They pressed ahead regardless, and the effect on pension funds was significantly greater than even the most profound pessimists had imagined. There is therefore a serious risk that the value of pension fund assets will be adversely affected by the changes. It is clear that those involved in the commercial property sector fear that as a result of
future projects becoming unviable, of costs increasing and of the greater rigidity of leases, the value of their assets will be lowered. That will have a direct effect on every saver in this country.
Mr. Woolas: I congratulate the hon. Gentleman on the ingenuity of his arguments. He is now telling us that pension funds will be affected because rents will go down. Five minutes ago, he was telling us that the retail prices index cap would be busted because of the opposite effect. Which is it?
Michael Gove: The hon. Gentleman uses two completely separate parts of the argument; however, both emphasise the point that this provision is a tax increase. I should be interested to hear in the Ministers summing up examples of tax increases that are good for business. This tax increase will be an additional hit on business and busts the RPI rule, and it will also have an effect on the commercial property sector. Those who hold shares in commercial property will, like our pension funds, suffer. As I said, I should be interested to hear of any example that the Minister can give of tax increases that work in the interests of beneficial commercial activity, because they very rarely do so. As we explained earlier, the principal justification for this measure is simply the raising of £1 billion.
There are a number of different ways in which this measure will make life more difficult for businesses. We have outlined how it will make life more difficult regarding leases and the adverse effect on pension funds, but the manner of this changes introduction could also lead to an increase in the number of companies contesting valuations, more tribunals, more bureaucracy and additional cost. So as we can see, the original foundations of the Governments case are flimsy. The basis on which they are introducing this measure does not stand up. The costs for business are clear. Crucially, this change will also work against the improvement of the built environment.
The Government now explicitly acknowledge in the Bill that there is a real risk that some people will vandalise their own property in order to escape liability for tax. During the paving debate on the Ways and Means motion, the Minister for Local Government said that it was debatable whether people would rip roofs off buildings and strip out floors in order to evade tax. However, what was debatable then has become a real danger that the Government now feel that they need to legislate to prevent. Indeed, schedule 1(4) is specifically intended to deal with that risk. That legislative change acknowledges the force of our argument that this legislation could lead to all sorts of perverse incentives and temptations in the operation of the commercial property market.
More than that, the measure itself raises all sorts of questions. How will intent be proved? What exceptions will arise? We will have to wait for the answers until secondary legislation is introduced, but the Minister risks putting himself in the position of having to judge the intention of an individual when they change the use of their property, and all because of the creation of a perverse incentive.
The truth, which the Minister has failed to acknowledge, is that the real reason why properties lie vacant for longer than they need to is not the existence
of this rate relief but our dysfunctional planning system. The operation of the use class system and the making of a change of use so difficult prevent the property market from responding as rationally as it should to demand. In the previous debate to which I referred, several of my hon. Friendsmy hon. Friends the Members for Salisbury (Robert Key) and for St. Albans (Anne Main) chief among thempointed that out eloquently. The planning rules needed to be changed, so that the use of certain properties in their constituencies could be changed and they could move from a function that was no longer required to a new one that was very much wanted. However, because of obstacles and delays in the planning system, those properties were compelled to lie empty for too long.
Under this measure, individuals who are desperate to see an active and effective new commercial use for their property will pay additional taxation even as they strive to do the right thing commercially, but are prevented from doing so by the planning system. Our built environment thus suffers, because buildings are not used as they should be. They are not used as effectively and efficiently as they should be to satisfy local demand, to meet local market needs and to ensure a proper return on the investments made.
Mr. Richard Bacon (South Norfolk) (Con): My hon. Friend reminds me of an occasion when a pig farmer constituent of mine came to see me. He wanted to use his pig sheds for other purposes because, unfortunately, the demand for pigs was not as great as he had hoped. He wanted to turn the sheds over to light office use, and he has been fighting the planning system for several years. The buildings are still lying empty; I drive past them regularly. How much more difficult will the situation be when he has to pay a tax on top?
Michael Gove: My hon. Friend crystallises the point that was made equally eloquently in the debate of just a few weeks ago by my hon. Friends the Members for St. Albans and for Salisbury. The way in which the use class system currently operates prevents properties from being deployed in the most efficient way. The problem is not just the use class system, however; other aspects of the planning systems operation prevent properties currently lying empty, because their old use is no longer appropriate, from being redeployed for a more appropriate commercial or other use.
When the real answer to a problem is deregulation, it is typical of this Government to propose a tax increase. It is a particular pity that the eloquence and intelligence of these two Ministers has been deployed in the service of making life more difficult for businesses, when their hearts surely cannot be in this measure. It is genuinely sad for us to have to contemplate these two Ministers bringing forward a measure that will mean that, once again, the wealth creators, the enterprising and the bringers of opportunity are forced to pay for the Chancellors inability to balance the books, but there we have it.
Joan Walley (Stoke-on-Trent, North) (Lab):
I do not wish to let the opportunity pass of having a Treasury Minister and a Local Government Minister side by side on the Front Bench without flagging up some issues of
regeneration. This is a short Bill, but it connects with many other areas of Government policy, including planningas we heard from the hon. Member for Surrey Heath (Michael Gove)and many other initiatives. It is important to put on the record some of the issues that I wish to be considered in some detail in the reviews that will flow from this Bill and the proposals in the 2007 Budget, and in respect of the joined-up Government agenda on the changes in how No. 10 and No. 11 will operate. It is critical that we consider regeneration and how this Bill will help that.
The origins of the Bill lie in the Barker report on housing and land use planning, and in Sir Michael Lyonss review of local government. I have grave reservations about the implications of the Bill for areas of hard-to-let properties, such as those in Stoke-on-Trent. It is a good thing that we are encouraging developers not to let buildings stay idle. Developers can stand by waiting for the right time for speculative developments and that is all well and good in the south-east. When Kate Barker came before the Environmental Audit Committee, much of the thrust of her recommendations related to the particular problems of lack of affordable property and the overheating of the economy in the south-east. In the Committees report on that inquiry, we considered the Egan report on the predict-and-provide approach in the south-east. The Minister mentioned the Lyons report, and Michael Lyons has confirmed that it was about hard-to-let areas and the rest of the country. He also said:
Finding ways to raise the opportunity cost of holding unused land and property in areas of high demand would be desirable.
The Bill is about areas of high demand, and the danger is that we end up with a one-size-fits-all approach that will not have the same relevance for places such as Stoke-on-Trent. I do not want a Bill on empty properties that has no relevance to my constituency. We already have a fragile economy in the area, but we also have strong regeneration strategies in place. They should not be weakened by a blanket proposal to end all relief on empty commercial properties.
The hon. Member for Surrey Heath mentioned further reviews and flexibilities. I hope that Ministers will look at how areas of low demand that need regeneration can benefit from the regulations and statutory instruments that will be introduced as a result of the Bill. That secondary legislation should be used to increase the flexibility in areas such as Stoke-on-Trent.
The Government are concerned about the economic performance of areas such as mine, and I hope that Stoke-on-Trents record in that respect will be included in the terms of reference for the commission that my hon. Friend the Minister for Local Government is about to set up. We urgently need a joined-up approach to regeneration.
Earlier, my hon. Friend the Financial Secretary mentioned the private discussions that we have had on this matter. I hope that the forthcoming comprehensive
spending review will be used to continue the £1.5 billion already available through the neighbourhood renewal fund
Joan Walley: I know that my hon. Friend the Minister said that there would be more money only from a sedentary position and not formally through you, Mr. Deputy Speaker, but the neighbourhood renewal fund is used for areas with the greatest deprivation and it is part and parcel of the economic regeneration needed there. The Bill will have implications for those areas, and that is why I hope that Ministers will ensure that the matter is followed through in the context of the CSR. Other local authorities in the SIGOMA organisation take the same view.
There are between 1,500 and 1,600 empty properties in Stoke-on-Trent. It is estimated that the Treasury has lost just under £7 million from loss of rates, and it is clear that it is in all our interests to get those buildings back into use and re-let. That can only happen if a joined-up economic regeneration strategy is linked to the local authority agenda. For that, the money from the CSR must be used in conjunction with the further consultation process already under way as a result of the 2007 Budget, but we must make sure that Department of Trade and Industry policies such as that embodied by Advantage West Midlands contribute to the regeneration that we need.
The Bill must be set in that wider framework. Unless there is a mechanism to ensure that joined-up operations in areas such as Stoke-on-Trent are followed through in the strategies adopted by the Treasury, the DTI and the Department for Communities and Local Government, we will end up with a Bill that benefits the south-east and areas of high demand but does very little for areas of low demand.
Finally, I hope that my hon. Friend the Minister for Local Government, when he replies to the debate, will say something about the talks that he is having with English Heritage, as the flexibilities that have been mentioned will have great significance for listed buildings. Such buildings are often empty for all sorts of very good reasons, and they can need a great deal of help.
Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): It is a great pleasure to follow the hon. Member for Stoke-on-Trent, North (Joan Walley). I am not on my usual territory with this debate, but at least the Financial Secretary is a familiar sparring partner.
The Bill raises some important issues, which the Financial Secretary, who is no longer in his place, set out carefully in the initial presentation. The hon. Member for Surrey Heath talked about the need for cross-party consensus, and there might at least be some small consensus in that none of us wants to see large numbers of empty properties. They cause problems for development, can blight the landscape and for a whole range of reasons are a bad thing. No doubt we will hear more about small shops and town centres from the Minister for Local Governmenthe referred to them briefly during an interventionwhen he replies to the debate than we heard from the Financial Secretary.
As a member of the all-party parliamentary group on small shops, I certainly share the many concerns about the fate of small shops, whether in towns, villages or even cities, such as Inverness, which I represent. Over recent years Inverness has seen a decline in the number of small shops and a gradual replacement of some previously existing retail premises in the older part of town perhaps with charity shops. They tend for a number of reasons, perhaps including the rating environment, to be the sort of tenants to whom landlords find it easier to let. To share those concerns does not necessarily mean to share the Ministers view that the Bill provides the right way forward to address the problems.
I have a number of concerns and questions to raise, which I should like the Minister to answer. I am concerned about the process that the Government have gone through to reach the Bill. I am concerned about the genuine purpose of the measure and, most important about its impact. In opening the Financial Secretary presented a macroeconomic argument for the Bill, but it is in its microeconomic impact at local level that it will be judged. In that I share some of the concerns of the hon. Member for Stoke-on-Trent, North (Joan Walley) about the variability of the Bills impact across the UK. Those serious worries are genuinely held in areas in need of regeneration.
As a Member representing a Scottish constituency, I should point out that the Bill applies to England and Wales only. On one level, therefore, perhaps I should welcome it on the basis that it might promote more property development in Scotland, but I will not go down that route because these are serious matters that will affect the whole country one way or another, including Scotland.
My biggest concern with the process has to do with the lack of consultation. The hon. Member for Bromley and Chislehurst (Robert Neill) pointed out that this was one of the few items from the Lyons report that had been implemented with alacrity. In his opening remarks the Financial Secretary listed a whole range of consultations that were either going on or about to start. We appear to have consultations galore, except on this proposal. While this measure was proposed in one part of the Lyons review, paragraph 8.6 stated:
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