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The hon. Member for Blaenau Gwent (Mr. Davies) made an important point about how long property remains empty in his area. I am not sure that the Bill would help his constituency or promote occupancy of some of the premises in his area that have been empty for so long. There have been high vacancy rates, on a sustained basis, in some London boroughs for the past seven or eight years. Hackney was mentioned; the vacancy rate there was about 30 per cent. in 1998-99 and is now 28 per cent. There was a dip for part of the period, so the figure did not remain constant. In Newham, vacancy rates remained static and at a high
level, so I am slightly sceptical about the benefits the Government think the measure will bring in terms of the occupancy of empty property. Praying in aid property hot spots such as the City does not strengthen their argument.
My hon. Friend the Member for Bromley and Chislehurst highlighted the fact that the tax increase will raise about £0.9 billion, which will not be recycled to local authorities. The money will stick with the Treasury and be used in different ways, but it will not be returned to the local authorities whose local property market will change as a consequence of the measure.
My hon. Friend the Member for Ludlow spoke not only from his constituency experience but also from his business experience in retail. He made some important comments about the state of the property market and how letting voids can occur in small provincial high streets. As he said, it is a complex sector yet the Government propose a one-size-fits-all policy for every high street and every industrial park in every constituency and the effects will differ depending on what is happening in the market in each of those constituencies. That makes it hard to argue with the certainty expressed by the Government that the measure will suddenly produce lower property rents and enhance economic activity in our constituencies. That will not necessarily be the case.
My hon. Friend mentioned the caveat to the Federation of Small Businesses argument. The Government have prayed in aid the FSB in this debate and elsewhere, but it recognises not only the possible benefits but also the possible costs of the measure to small businesses, demonstrating yet again that the measure and its impact are not straightforward. That is part of the problem with the proposal. As hon. Members on both sides of the House have indicated in speeches or interventions, there is going to be a differential impact that will not to be easy to predict. Prior to introducing the measure, the Government should have consulted much more with those involved in the property market to work through the impact fully, rather than looking at things in a somewhat piecemeal way.
At the heart of the measure is the fact that it raises £900 million in tax. The fact that the debate was opened by a Treasury Minister, for the second time, indicates that the fundamental driver of the measure was to raise additional money to sort out some of the Chancellors financial problems at the time of the Budget. The Barker and Lyons reports were a convenient fig leaf to justify the increase. The Financial Secretary prayed in aid the Lyons report, but, as my hon. Friend the Member for Ludlow and others have highlighted, the Lyons report suggested that the proposals could be introduced in 2010, not the next financial year.
This year, the property sector has seen not just a change in the relief for empty property, but the start of the abolition of the industrial buildings allowance and the agricultural buildings allowance, which we have debated in the Finance Bill Committee over the last few weeks. Those are significant tax changes that will impact on the way in which the sector operates. [ Interruption. ] The Financial Secretary said from a sedentary position that he referred to the example of
real estate investment trusts. We seem to have one set of measures that move in one direction and another set that go in another direction. There is a lack of consistency when it comes to the direction that the Government are taking on the matter.
The Government have argued that changing the empty property relief will bring forward new commercial property for rent, which will reduce rental levels. However, the detail in the regulatory impact assessment indicates that the fall in rental would be about 0.25 to 0.5 of 1 per cent. That would be insufficient to tackle the international differences, the inter and intra-regional differences, and the intra-city disparities that have been cited by Ministers over the course of the debate.
When the Economic Secretary opened the debate on the Ways and Means resolution, he cited the difference in property rentals in different locations in Newcastlea city with which I am familiar and that I visit regularly. He said that there was a big difference in the rent between Eldon square and Lower Grainger street. If the Economic Secretary, or any other Minister, visited those two centres, they would see exactly why there is a big difference in rent. It is nothing to do with the level of empty property; it is because one area is a major shopping centrea destination for people across the north-east to visitand one is not. To a large extent, simple market forces dictate why those rents differ. I cannot see how the changes that the Government have brought forward will reduce significantly the disparities in the rents in those locations.
So, what are the arguments against the measure? It is worth reflecting that the weight of opinion seems to be critical. The British Property Federation and the Royal Institution of Chartered Surveyors highlighted the impact that the measure would have on the viability of regeneration schemesa point that was also made eloquently by the hon. Member for Stoke-on-Trent, North. There is a possibility that buildings will remain empty and that the costs that people will incur as a result of the measure will dissuade them from putting together development packages and will make it less attractive for them to regenerate areas.
The Financial Secretary mentioned in his opening remarks the business premises renovation allowancehe also cited other measures, such as ones to tackle Japanese knotweed. It is interesting that the British Property Federation said that the allowance
will not, in our view be sufficient to redress this concern as it will only apply to specific areas.
Even if we rely on the Ministers stand-by of the package of measures, given that the package will not apply throughout the country, there will be differential effects. Insufficient might be done to make schemes in the constituency of the hon. Member for Stoke-on-Trent, North financially viable.
My hon. Friend the Member for Ludlow touched on the fact that we are going through a process of economic change. The way in which people manage their property portfolios is affected by changes to the economy. As the economy expands and contracts, the nature of activity changes. My hon. Friend cited the fact that in retail there is a move away from bricks and mortar towards the internet, which will have an impact on peoples decisions about what to do with
their premises. If people with expanding businesses think that moving to larger premises will cause them to incur a higher cost because the old premises will remain empty for a long time, it might inhibit them from adjusting their operations and taking advantage of opportunities.
The measure might discourage landlords from accepting lease surrenders because they would prefer the occupier to pay the cost of an empty property. Again, that would have an impact on businesses of different sizes throughout the country. There is a general move towards more flexible leases and attempts are being made to promote better relationships between landlords and tenants. However, if the period for which a property may be empty is reduced, landlords will not be keen to grant short leases or regular break periods because they will want to protect themselves against additional costs. Both the British Property Federation and RICS have expressed that concern in their briefings on the Bill.
The comments made in the Chamber and elsewhere have given me the loud and clear message that the measure has been introduced without proper consultation on its impact on the complex relationships between landlords and tenants, and business sectors and communities. The Government are yet again acting in haste and making decisions on complex matters that will need revisiting. In the time since our debate on the Ways and Means resolution, there have been changes to the treatment of property that could be vandalised, which the Government have reflected in the Bill.
A proper consultation with industry would allow a reform of business rates on empty property based on how the property markets actually work, rather than measures based on very limited evidence, including certain well publicised behaviour that has in the past occurred at the margins. It is for this reason that the principal recommendation of the combined industry group is that the proposals are deferred until 2009 in order to allow this consultation to be undertaken.
The Treasury has not always a demonstrated a clear understanding of the way in which property markets work. The Government have already made several U-turns on property measures. Residential property was going to be in the SIPPs schemeself-investment personal pensionsbut was then taken out. Stamp duty was reintroduced for commercial property in disadvantaged areas because the Government misjudged the take-up of the relief. As the speeches made by hon. Members on both sides of the House have demonstrated, the Government need to think through the impact of the Bill very carefully. When we consider the Bills remaining stages next Thursday, we will have yet another opportunity to air these issues. The Government will be able to demonstrate whether they have listened to the wise words spoken not only in the House, but outside it.
The Minister for Local Government (Mr. Phil Woolas):
Hon. Members on both sides of the House have made well-informed speeches. They clearly did their research before putting forward their arguments, as was the case in the debate on the Ways and Means
resolution. Many of the matters that were raised were points of detail, although some were points of policy and principle. I hope that you will forgive me, Mr. Deputy Speaker, if I am not able to respond to every comment because although a relatively limited number of Members have spoken, many detailed points were made.
I start by referring to the opening remarks of my hon. Friend the Financial Secretary to the Treasury, because in much of the debate two policy points have been missed, although this is a Second Reading debate. The first refers to the 1983 White Paper to which my hon. Friend referred. It said that the purpose of the original measure on empty property rates was to reflect the fact that there was a period of recession. Before that, of course, different measures were in place. The arguments that have been put forward todaysome based on evidence, others ingenious in their contortionsmiss the big picture, which is that the measures were introduced at a time when, as a result of the infamous 1981 Budget, there was deliberate industrial vandalism as a part of macro-economic policy.
Secondly, I congratulate the hon. Member for Surrey Heath (Michael Gove), who is proving an eloquent performerperhaps performer is unkindat the Dispatch Box, but he has adopted the technique of the right hon. Member for West Dorset (Mr. Letwin), who perfected the art of assigning to us a premise to which we do not sign up, and then proceeding to demolish it. The arguments put forward by the hon. Member for Surrey Heath are fascinating, coherent and completely irrelevant to what we are putting forward. No doubt that is entertaining for sketch-writers and colleagues at The Times, but it is of no relevance whatever to the British property market or the measure before us. The fact of the matter is that non-domestic rates in this country are based on rental, not capital, value. If a property has been empty and is in an area of weak demand, the rent for that property will be very low. That is why we base non-domestic rates on rental value, not on capital value.
In addition, it was argued that we were introducing the measure because we believe that property developers deliberately build premises and keep them empty. We have not said thatwe put forward the measure as an incentive for owners to bring those properties on to the market. We have not hidden from the fact that the measure will raise revenue. I remind the House that if the measure had not concerned local taxation, it would be in the Finance Bill. It was a Budget announcement. Of course, we have followed the correct procedure, but we have not hidden the fact that it is a revenue-raising measure. That takes me back to my previous point, which was made previously in our debate on the Ways and Means resolution.
Mr. Woolas: I shall make my point first, if I may, then the hon. Gentleman can argue against my actual premise, rather than the premise that he is ascribing to me. That is an art that he has perfected.
If the Governments policy is successful, as we obviously hope and expect that it will be, rent will come down. The multiplier for non-domestic rates is capped at the retail prices index. The yield from non-domestic rates broadly rises with RPI broadly; that has been the experience. The hon. Member for Ludlow (Mr. Dunne) has done his research very well and he has significant experience, particularly of the retail sector, as his entries in Dods and the Register of Members Interests show, but his argument that the proportion of tax from business rates has gone up misses the obvious arithmeticor is it algebraic?point, which is that that is because corporation tax has gone down.
Of course, the proportion coming from business rates relative to corporation tax will have gone up if corporation tax has come down, as it has again in the recent Budget. That point has not been made by hon. Gentlemen on the Opposition Benches and hon. Ladies from a sedentary position, yet I can still argue with justification that non-domestic rates have been capped at inflation as well. That is one of the reasons why the Governments economic policy has been so strong for business. I invite the hon. Member for Surrey Heath to criticise the argument that we have actually used, not the argument that he says we have used.
Michael Gove: I am grateful to the Minister for acknowledging that, in his Budget speech, the Chancellor of the Exchequer accepted the submission made by my hon. Friend the Member for Tatton (Mr. Osborne) and lowered corporation tax, though not quite to the level that he suggested.
there are many examples of companies who build offices, turn the lights on brightly to advertise them, stick a For Rent notice outside, hire a security guard and disappear to the Mediterranean.[ Official Report, 10 May 2007; Vol. 460, c. 363.]
Mr. Woolas: The hon. Member for Ludlow argued that in his experience, which is more substantial than mine, property developers made speculative decisions. I presume the word speculative means that they take a risk. At present they know that they will not be required to pay business rates on empty properties, so they factor that in.
My right hon. Friend the Member for Rutherglen and Hamilton, West (Mr. McAvoy) is ever present and I need to answer the debate. He is not in the Chamber; he is just ever present [Interruption.] And all-powerful.
The point about deliberate vandalisation, which was mentioned by a number of speakers in the debate, relates to the schedule. We see it is good planning to ensure that there should not be such a tax avoidance measure. I can give reassurances on that point, and on the allegation that there may be increased bureaucracy. Empty properties are already part of the tax base and there is no expansion of that. The Valuation Office, whose job it is to consider such matters and appeals, already has empty properties in its remit. Although it is
the billing authority that collects the tax, it is the Valuation Office that checks that. I hope that that provides some reassurance.
I thank the hon. Member for Blaenau Gwent (Mr. Davies) for staying through the debate to make his points on behalf of his constituents. He raised three points, the first of which was about his fear about empty properties. It is a similar point to that raised by my hon. Friend the Member for Stoke-on-Trent, North (Joan Walley). If properties are empty for a substantial period as a result of low demand, the valuation, which is based on rent, will be very low. By definition, a valuation officer is required to assess the valuation on that basis.
In our argument we use the City of London, Westminster, Manchester and Birmingham as particularly strong examples of areas where there are high rents and relatively high vacancy rates. This is not a south-east matter. As I have said before, my own area in Greater Manchester, Manchester city, has higher rents than the island of Manhattan. That is a testament to this Governments hugely successful stewardship of the economy, which is a matter of fact. Twenty years ago, I doubt whether I would have been able to say that cities such as Birmingham and Manchester were in these high-growth areas, but they are now. This is not a north-south issue. I caution Conservative Members not to make the mistake of thinking that we are all poor up north. We are not: we have some very rich areas raising high business rates, which we redistribute to poorer areas, some in the south of England, goodness me, and not far away from the constituency of the hon. Member for Fareham (Mr. Hoban)! I am pleased to report back to the House about that.
More seriously, let us look again at the figures on vacancy rates and the amount of empty property relief claimed, to which my hon. Friend the Financial Secretary referred earlier. The latest figures for 2006-07 show the 10 highest authorities and top of the list, of course, is Westminster, with some £72 million. Then we have the City of London at £65 million; Birmingham, £42 million; Manchester, £37 million; and so forth. The latest figures published last year show at the bottom of the list areas such as Teessdale at £91,000; Chester-le-Street, £192,000; and Castle Morpeth, £307,000but they are not all in the north. I was hoping to tempt an intervention from a southern Member, but so far I have not. I am holding back on some in the list [Interruption.] It looks as though I have tempted someone to intervene.
Mr. Dunne: I was going to ask the Minister not to comment on the geographic dividehe is doing so eloquently, going into impressive detail on different areas vacancy rates and so forthbut on something else. I asked him earlier whether any assessment had been done of vacancy rates by type of occupierowner-occupier or tenant, for exampleand I hope that he will come on to that in due course.
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