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“The Government should conduct a review of exemptions and reliefs to consider the scope for removing inappropriate subsidies and distortions”.
That is clearly a recommendation for a review, a discussion and consultation to seek evidence from the wide range of parties who have a strong interest in the matter. The Financial Secretary referred to a blizzard of reviews. Perhaps the Minister will confirm whether that specific recommendation of the Lyons review has been taken up.
As other speakers have said—I do not wish to trade bodies with other hon. Members—there has been a lot of feedback and many different responses, which I am sure all hon. Members taking part in the debate have received. A range of contrary views has been expressed. We have heard about consultations on rate relief for brownfield developments. We have heard about consultation that is shortly to take place on the position of leaseholders—a matter to which I am sure other contributors to the debate will return. We have also heard about proposals for 100 per cent. relief for regeneration in assisted areas. That rather invites the question why, if we are having consultations on all those matters, the Government are rushing ahead with the Bill.
We were previously treated to an exhibition of joined-up government. I am afraid that one element of that “joined-upness” has left the Chamber now. If the Government seek to have a joined-up, coherent approach to reform of the business rating system, why rush ahead with this one element when all the other elements are being consulted on? It suggests that the motivation behind the Bill is perhaps not as straightforward as the Minister would have us believe.
The Government are trying to persuade the House to support the measure on the basis that they are thinking about all these other nice things. They hint that, when those consultations are completed, countervailing measures that will modify the impact of the Bill in areas such as Stoke-on-Trent will be introduced and we will see then an overall balanced package, which is not before us today. I am not sure that many outside the House will want to accept those assurances. They would like to see the whole package—the results of the consultation and the countervailing measures as well as the measure contained in the Bill—before deciding whether it is worth accepting. To do otherwise might be considered to be accepting a pig in a poke.
Anne Main (St. Albans): Does the hon. Gentleman share my concern that there might be a perverse consequence? Smaller businesses will be disproportionately affected, given that they cannot afford to pay extra taxes or rents, whereas larger businesses can afford to play a waiting game? Tesco in my constituency can afford to buy up smaller businesses and keep them waiting while it gets a land bank together. A smaller business would be forced to do something somewhat more quickly, with this extra burden.
Danny Alexander:
The hon. Lady makes a serious point. In other circumstances, I have expressed a great deal of concern about the land-banking practices of supermarkets. They acquire property and do not use it until such time as they are ready, perhaps to keep competitors out of the market. The Minister might say that the Bill represents a tax on such land banks, but if
land bankers can afford to pay that tax easily, it is of no real concern to them. It may be of benefit to the Exchequer, but it is not of benefit to the local economy, which is the argument that the Minister seeks to advance in favour of the legislation. I do not see it necessarily in that way.
What is the true purpose of the Bill? Is it, as the hon. Member for Surrey Heath suggested, simply a revenue-raising measure dressed up as a measure designed to promote regeneration? If it was a measure designed to promote regeneration, I would have hoped that we would see the Government bring forward a revenue-neutral set of proposals that took more money from empty properties—there is no doubt in my mind that the system for taxation of empty property is in some need of reform; the question is whether this is the right reform—and used it for the regeneration of local economies in the manner suggested by the hon. Member for Stoke-on-Trent, North (Joan Walley) in the form of other reliefs. However, as the explanatory notes make clear, the Government expect net additional revenue to the Exchequer of £950 million in the first year and £900 million in the second year and, presumably, further net revenue thereafter.
Mr. Woolas: Has the hon. Gentleman considered why it has been calculated that revenue would actually go down? Does not that reflect the fact that rateable values in the non-domestic rating system are based on rental values, not capital values? If the policy is successful, as we expect it to be, there will be a decrease in net revenue to the Exchequer.
Danny Alexander: I understand the Government’s argument that the Bill would lead to lower rents over time and to empty properties being filled more quickly, and thus more revenue from those occupied properties.
As I was saying, the Liberal Democrat approach to environmental taxation is to propose additional taxes for environmental pollution and to return that money in a way that encourages good behaviour. However, the Bill would act as a stick from the Government—because they want to discourage bad behaviour—with no carrot to encourage good behaviour. Without hearing more about which other business and property taxes the Government propose to reduce by using the £1 billion that will be raised by the Bill, it is hard to avoid the conclusion that it is intended as a revenue-raising measure rather than to promote regeneration.
Ministers have made the point that the Bill is a way of trying to change behaviour, which can of course be an important part of the tax system, as it is in the environmental sphere, for example. Has the Minister considered the representations made by the Local Government Association? Indeed, he may want to pray the LGA in aid, because its briefing notes that it supports the Bill. However, it states:
“It is crucial...that the additional revenue raised is reinvested in the local economy. HM Treasury estimates that £950 million...will be raised...and councils are best placed to decide how and where the additional money can be spent to best effect locally”.
The policy of the LGA is that if money is to be raised it should be used to good effect; otherwise the measure is simply a way of clawing back more money from businesses.
Mr. Woolas: The LGA makes the important point that it wants the extra revenues raised to go back to local government, but can the hon. Gentleman clarify whether he means that the money should go back to the local area where the business rate is raised or should it be distributed across the country? If the former, which is his party’s policy, it would make better-off areas with empty property much richer.
Danny Alexander: I am grateful to the Minister for that intervention. I am trying to make a more general point: there should be some degree of balance in the proposals so that the measure is revenue-neutral rather than a means for Ministers to take an extra £1 billion a year from the business community.
The impact of the measure is the most important aspect of the debate. It was rightly asked—not least in the context of Stoke-on-Trent—whether the Bill would really promote regeneration. The hon. Member for Stoke-on-Trent, North characterised it as a one-size-fits-all measure that might not be appropriate to parts of the country that are most in need of regeneration.
There are arguments about empty property relief, especially in relation to pension funds and other property owners. As my noble Friend Lord Oakeshott pointed out in another place, for offices and retail premises full relief would apply only for three months. However, even the most assiduous landlord working as hard as possible would usually take longer than three months to let their premises. When the Minister for Local Government responds, perhaps he could say where that three-month time period came from. I hope that it will not be disputed that even the most responsible property owner could take more than three months to re-let their property. If the Minister has not considered that matter, perhaps he could reflect on it and table amendments at a future stage. It would not seem right if even landlords who sought to re-let their properly as quickly as possible were caught with an additional tax burden. If the previous tenant in a shopping centre went bust, it might take some weeks to recover the property, because of the legal process that have to be gone through. In that case, three months would be far too short. It might be six months or longer before even the most assiduous landlord was able to make sure that their property was re-let.
Anne Main: Has the hon. Gentleman noticed the discrepancy between the Bill and empty dwelling management orders, which are usually sought after six months? That is considered a reasonable period of time when letting an individual property, but when it comes to letting a complex commercial property, which can often take far longer, half that time is given.
Danny Alexander: I am grateful for that intervention—and, as the Minister said, well spotted. That is a good point. It suggests that six months is a minimum reasonable period in any such situation. It seems odd to have a period of three months. The Financial Secretary did not offer a justification for that when opening the debate; perhaps the Minister for Local Government will do so in his response. I hope that the other speeches are long enough to ensure that he has time to receive the information that he needs.
In areas where regeneration is needed, the development of commercial property—whether office or industrial—is often done on a speculative basis. Property developers will develop a series of industrial units on the basis that they can see a commercial opportunity. They may have acquired some land and heard a suggestion from the local authority that business parks in the area might help to promote the economy. I am worried. Will the new tax regime in the Bill discourage that sort of speculative property regeneration, on the basis that the developer will be in a less advantageous tax position while the properties lie empty? That question has to be answered.
That raises a further point. Is the proposed new rating regime a tax on change? It takes time to change the use of a property. It takes time to refurbish a property and it can often take an inordinate amount of time to get the relevant planning permissions in place, although that varies across the country. I represent Inverness, which is the fastest-growing city in the United Kingdom. In locations that are growing quickly, or areas that are changing in the opposite direction and where the economy is contracting, there should be an incentive to encourage people to change the use of their business premises—perhaps moving from factory to retail, office to retail, or retail to domestic use. Planning changes and refurbishment are required in those circumstances. All those things take time—potentially quite a lot more time than the three or six months allowed in the legislation. When he responds, will the Minister address the concern that the proposal will discourage the sort of business changes in local economies that need to be encouraged as cities, towns or local areas grow? Although I would not suggest this, at its most pejorative, the measure effectively means that businesses will be faced with a new tax while the planning system delays their projects.
The hon. Member for Salisbury (Robert Key) made an excellent speech on rural communities during the Ways and Means debate. There are serious aspects of the measure that will affect rural areas, rather than urban areas. I would be especially grateful to hear from the Minister the efforts that the Government made to rural-proof the Bill before bringing it forward. It is supposed to be common practice that all legislation is rural-proofed. If there is documentation on the rural-proofing of the measure, I hope that the Minister will place it in the Library so that all Members concerned can read that information.
Those of us who represent rural constituencies know that changing economic circumstances might necessitate, for example, the conversion of a hotel into flats, which happened in a village in my constituency relatively recently. Again, that process takes a great deal of time.
Robert Neill:
I agree with the thrust of the hon. Gentleman’s argument. Will he consider what would happen if, as sometimes occurs, a local authority or another agency wished to put together a significant regeneration scheme? As part of that scheme, the authority or agency might well acquire commercial property and the residential property surrounding it, as
happened with the pathfinder schemes in Manchester. If the homes that feed local shops are acquired, it is inevitable that the agency or authority will have to acquire the nearby commercial premises as well because their business will have gone. While the agency or authority assembles the rest of its desirable scheme, will it be penalised by the empty business rate? Surely such a situation would be perverse.
Danny Alexander: I can do no more than express my wish that the Minister will address the hon. Gentleman’s useful intervention during his winding-up speech.
The Minister needs to reflect more on rural communities. It can take a good deal of time for a small industrial unit in a rural area to be re-let, even with the owner’s most assiduous efforts. It can often take a great deal of time for a new business venture to spot an opportunity in a rural location. Changing the tax regime will not alter that situation, but simply take more money out the system and perhaps threaten the viability of the business owner who wishes to make a change.
The measure could affect the situation facing post offices. I deeply regret the fact that the Government are going ahead with plans to close 2,500 post offices. As the House will know, sub-postmasters and postmistresses are small business people who own their premises. If they will be subject to compulsory closure, they will no doubt receive a compensatory payment, as would be only appropriate, but it might well be for them to find an alternative use for the property, whether by letting it or selling it on. Will former sub-postmasters and postmistresses be expected to pay the new taxation while their premises remain vacant, even though the Government will have enforced the closure of the business? I hope that the Minister will address the circumstances of post offices because that is a significant issue.
The Bill rightly contains an exemption for charities and community sports clubs. However, the ownership of community facilities by community companies is becoming more prevalent. Perhaps that trend is more common in Scotland than in England and Wales, but it is none the less increasing. I hope that the Minister will be able to reassure me that premises owned by community companies will be exempt from the change, given that, as I would hope that hon. Members on both sides of the House would agree, such community involvement in the ownership of facilities should be encouraged. Substantial risks for community companies could be inherent in the new regime, so the situation must be addressed.
Will the Minister clarify one other point that has been raised with me? It relates to unoccupied buy-to-let properties. There may be differences of opinion about the buy-to-let market among Members of different parties, but in my constituency it causes great problems with the sort of property that first-time buyers might seek to acquire. What is the position of unoccupied buy-to-let property under the Bill? I have heard stories about buy-to-let; indeed, in my constituency, there is a case of a buy-to-let property speculator buying a number of flats in one development and not letting them, but instead sitting on them in order to take advantage of the capital appreciation.
A point has been made about the impact on pension funds, and that is a significant issue that needs to be addressed. My noble Friend Lord Oakeshott has calculated that the measure would take some £150 million a year out of pension funds, and the impact on the overall capital value of pension funds would therefore be worth some £3 billion. I do not think that that is scaremongering. The Minister may regard it as a price worth paying, but I should certainly be interested to hear his justification on that point.
I understand and have some sympathy with the Government’s overall objectives, but a great number of questions concerning the Bill remain to be answered. I hope that they will be dealt with satisfactorily as the Bill completes its further stages.
3.11 pm
Robert Neill (Bromley and Chislehurst) (Con): As a matter of principle the House should be wary of legislation that begins with an algebraic formula, although that may be a throwback to my wrestlings with algebra when I was at school. The Bill actually begins with two formulae; in fact, the whole of the first clause is effectively two algebraic formulae. The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) rightly observed that legislation has to be rural-proofed, but I am beginning to think that it should be mathematics-proofed, or algebra-proofed, too. I am tempted to read out the whole of the first clause for the edification of those who have not read it, but I will spare everybody that. It makes one wonder what lies behind the algebraic formula, and that brings us to the motives and to the point that I raised in an earlier intervention, which has already been addressed. I know that the Minister for Local Government is straining to say that there were other things that he could have cherry-picked, but it is significant that the Bill has been brought forward as it has been.
Mr. Woolas: The hon. Gentleman criticises the Bill on the grounds that clause 1 starts with a formula, but the formula derives from the Local Government Finance Act 1988, which the Bill will change, and of course the 1988 Act was intended to nationalise business rates and take control away from local authorities. I trust that he will bear that in mind when we come to debate the Sustainable Communities Bill.
Robert Neill: As always, I am grateful to the Minister for his useful point. I assure him that my aversion to algebraic formulae knows no party boundary, and I suspect that the 1988 Act did not commence in the same stunning fashion as this Bill. What concerns me is that there is a feeling among many people, and certainly among my constituents, the Federation of Small Businesses notwithstanding, that the Bill is essentially a revenue-generating exercise. The Financial Secretary to the Treasury, with his usual reasonableness and skill, said, “No, this is essentially a regeneration exercise, and a supply-enhancing exercise”, but some of us are rather sceptical about that given the way in which the measure has come about. There is a real worry among many of my constituents, particularly those with small businesses, about what lies behind that algebraic formula.
Hon. Members in all parties have drawn attention to the situation in London and the south-east. If the Bill is a regeneration exercise, it is a high-risk strategy that the Government have embarked on. Those risks have been mentioned by every speaker in the debate, except those on the Treasury Bench. I hope that, as the Bill makes progress, Ministers will flesh out what they intend to do to ameliorate and mitigate those risks.
It was suggested earlier that the Bill was designed to tackle the particular situation in London, and the Financial Secretary referred to the vacant property rates in London and one or two other places. As I endeavoured to point out when I intervened and as I shall elaborate, even to me as a London Member of Parliament the situation in London is not entirely straightforward. There is a huge difference between the highly charged economy of the west end and the City of London, which is financial-services dominated and where property and rental values have been driven up for a raft of reasons, and the economy of other boroughs in the city. That applies to suburban areas such as mine, and also to some of the inner-city boroughs, where there is a real regeneration issue. That is why the concerns expressed by my hon. Friend the Member for Surrey Heath (Michael Gove) and others about the effect of the Bill on regeneration activities are well founded.
The Financial Secretary spoke about the worryingly—from his point of view—and, I assume, the unacceptably high vacancy rates of 16 per cent. in the City of London. He might take comfort, for his argument, from the thought that according to the published statistics that has broadly doubled since 1998. That is by no means the whole picture in London. The London borough of Newham has vacancy rates of some 14 per cent. That figure has remained consistent throughout the nine or 10-year period, so it cannot be suggested that in Newham there has been a speculative holding on to vacant sites because of the potential from, say, the Olympic development. The situation existed long before that possibility arose.
In Hackney, for example, there has been a fluctuation from 30 per cent. at the start of the period down to 20 per cent. and back to 28 per cent. The vacancy rates have always been stubbornly above the 20 per cent. level, which indicates that there are a raft of reasons or high levels of vacancy. The reasons why it is difficult to get commercial premises let and occupied in Newham and Hackney are very different from those causing premises to be vacant in the City of London or Westminster. Unless significant exemptions and safeguards are built in, perhaps by the regulations, about which we have not heard much at this stage, the Government’s approach may be a blunt instrument that does as much damage in some quarters as it seeks to do good in others.
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