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It is undoubtedly the case that my right hon. Friend the Chancellor has made a huge contribution to growth in the UK economy and to moving it into a state fit to compete with the best in the 21st century. He has provided research and development tax credits, a boost to science budgets and lower rates of corporation tax—which of course have to be taken into account when considering the proportion of revenue raised
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from business rates, because corporation tax has come down, and come down again this year. In addition, there are new investment allowances for all firms. Those are all parts of an economy that can also deliver a minimum wage, expanded support for child care and greater protection for the elderly and most vulnerable in society.

There is one league table that we are not willing to sit atop—the ranking of rents paid by firms to locate in our towns and cities. High rents might be a sign of companies recognising the attractiveness of locating in the UK, and to some extent a marker of how successful we are, but in a global economy they are not the measure of success we want, nor something we can afford in the long term. Let me reiterate: we are not saying that high rents are a result of landlords deliberately playing the market. We recognise the value and importance that property investment and property developers play in our economy.

Nevertheless, we have been presented with recommendations from the Barker report—Kate Barker is one of the country’s top economists—and from Sir Michael Lyons, the leading expert on local government finance and incentives, both of which pointed to what my hon. Friends at the Treasury would call the supply side advantages of reducing tax relief for empty property, so as the Chancellor made clear to the House on Budget day, we are introducing the Bill both to answer criticisms that supply is distorted by the current relief and the different treatment of types of property, and to provide new opportunities for start-up and expanding firms.

However, we are not insensitive to the possibility that conditions can change, which should not be seen by the hon. Member for Surrey Heath as a weak link or an admission that we are heading for recession. That would be unfair and ridiculous, but of course I know that he would not say such a thing. I pick up The Times every day to see what he has written. I enjoyed his column about “Big Brother”, and strongly agreed with him; I was grateful that he did not write about the Bill—although not as grateful as his readers will have been.

Unlike the last time such a policy was considered, I am not suggesting to the House that the rate of tax be set in stone so that it is impossible to respond to changing situations. That is why we took the approach in the Bill—the point came out during our debate on the first group of amendments. Similarly, we know that leaseholders holding unwanted property are an important group for special consideration; hence our agreement to consult on how best to introduce in the tax system recognition for payments made by companies to rid themselves of onerous leases. Nor are we attempting to remove the returns from property that many investors enjoy; a Government with a track record of introducing real estate investment trusts, providing a framework for parallel treatment of property held by authorised investment funds and maintaining the stable growth in the economy that is the basis of strong demand for property could not fairly be accused of that.

I hope, therefore, that our willingness to look at the issue in the round and to be flexible in our legislation, as well as the package of measures and ongoing consultations, will serve as proof to the House that this really is a measure to expedite change for the better,
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and that we will continue to provide help where it is most needed. This is a short Bill, but it will deliver important economic, social and environmental results so I hope that Members on both sides of the House will wish it speed. I commend it to the House.

5.13 pm

Michael Gove: It is a pleasure to take part in the Third Reading debate, as it was to take part in the Ways and Means debate, Second Reading and Committee stage. It has been a particular pleasure because of the calm, courteous, always amusing, helpful, thoughtful, lucid and authoritative contributions of the Minister for Local Government.

I am moved to compliment the Minister on his choice of newspaper. I did not know that he was a reader of The T imes, and I am grateful that he enjoys that newspaper, as we all do. However, I must commiserate with him on the conclusion of the paper’s leading article on the question of who should be deputy leader of the Labour party, and in due course Deputy Prime Minister. The Times plumped for the right hon. Member for Salford (Hazel Blears) as deputy leader of the Labour party.

Mr. Eric Martlew (Carlisle) (Lab): On a point of order—

Mr. Deputy Speaker (Sir Michael Lord): Order. I know that the hon. Member for Surrey Heath (Michael Gove) has been led slightly astray by the Minister, but we are on Third Reading of the Bill, and the debate should be about the Bill’s contents.

Michael Gove: I am grateful for that guidance, Sir Michael. I was simply directed by the knowledge that the Minister has been playing a part as campaign manager for one of the candidates in the deputy leadership race. There is another campaign manager for another candidate in the Chamber at the moment—whose interest in the Bill I am grateful to see at this stage.

As well as hearing from the Minister for Local Government, we have been fortunate to have the case for the Bill made by the Financial Secretary and the Economic Secretary. As I remarked in Committee, their presence in our earlier deliberations—and the presence of the Financial Secretary now—is welcome, but revealing. In a way, we have seen the hand of the puppeteer. We have seen the real moving spirit behind the legislation, in the presence of Treasury Ministers.

It has been our contention throughout that the Bill is not about the right way to incentivise the use of commercial property; it is about providing the Chancellor of the Exchequer with roughly an extra £1 billion a year to dispose of. The presence of Treasury Ministers is a powerful piece of evidence to underline that case, but there is also the fact that when we asked for evidence from the Government to prove that there are individuals who are deliberately and wilfully keeping property vacant, that evidence was never produced. For all the vaunted eloquence of Treasury Ministers and Ministers from the Department for Communities and Local Government, we lack
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evidence that the Bill is required or will change the behaviour of people in the commercial property sector in a beneficial way.

When we were discussing the last amendment in Committee, the Minister said that the Government did not wish to subsidise buildings to lie empty. It is a view shared across the House that wherever possible, buildings should be put to effective use, but we profoundly differ from the Government over the contention that the Bill would ensure that land and buildings were used more effectively. Although we were treated to a number of ingenious, entertaining and informative arguments at each stage of the Bill’s progress, we were denied any proof—certainly any proof that would convince anyone with a knowledge of the commercial property sector—that the Bill would ensure that property was better used.

It was striking that, as the Bill made its way through the House, people outside the House who have an interest made their view known in a powerful way. On Second Reading, the Minister sought to convince us that because the Federation of Small Businesses—

Mr. Woolas: And the Evening Standard.

Michael Gove: And the Evening Standard. The Minister sought to convince us that because the FSB had supported a change in the legislation we should accept what he was trying to bring about. However, on Second Reading we heard from my hon. Friends that the case made by the Federation of Small Businesses was much more nuanced than the Minister might have led us to believe.

Even if the Federation of Small Businesses might appear to be a supportive, if equivocal, witness on the Government’s behalf, the weight of its testimony was overborne by the weight of testimony from other organisations, which were critical of what the Government sought to put forward. The Royal Institution of Chartered Surveyors, the Confederation of British Industry, the British Property Federation and the British Retail Consortium all felt sufficiently moved to argue outside the House that what Ministers were advancing was directly contrary to the commercial interests not just of their members but of the country. However, Ministers did not address their arguments head on, or accept that the competitiveness and flexibility of the commercial property market would be hit by the measure. Because they failed to acknowledge that, I have to say that—however eloquently they defended their position—the case was not made.

I suspect that the question “Why do properties lie empty?” is at the heart of the Department for Communities and Local Government’s aim in bringing forward the legislation; it is certainly at the heart of what the Minister claimed was its aim. On Second Reading, Opposition Members brought forward a compelling narrative that explained why vacancies and voids occurred. Vacancies and voids are a natural consequence of a healthy market; we made the point that in the commercial property sector they sometimes last between 12 and 24 months, as one business winds down and a new business is put in place. We said that the legislation, which will end relief after three months, takes no account of the pace and tempo of operations in the commercial property sector.
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Furthermore, in debate on the Ways and Means resolution, on Second Reading and in Committee we pointed out that the real reason why properties lie empty and unused when they could be put to good commercial use derives from the planning system.

In our previous deliberations, I remember my hon. Friends the Members for Salisbury (Robert Key), for St. Albans (Anne Main), for Ludlow (Mr. Dunne) and for Bromley and Chislehurst (Robert Neill) pointing out a variety of examples, taken from their constituency casebook or furnished to them by interested parties, of cases in which commercial concerns wished to see their properties filled, but were prevented from filling them by the operation of the planning system.

When we discussed the Bill in Committee, we put it to the Minister that he should seek to amend the legislation to take account of the weaknesses in the planning system. We said that he should, at the very least, furnish us with evidence that the planning White Paper and the legislation consequent on it would deal with those problems. Regrettably, he once again disappointed us. He certainly showed—I am grateful for his sensitivity in acknowledging it—that he was aware that our case was not ill-founded, frivolous, or made in a spirit of partisan wrecking. He acknowledged that all the points that we made were genuine and rooted in the experience of our constituents or commercial organisations with genuine expertise. He acknowledged that, and we thank him for it, but he did not provide any measure of intellectual relief, as it were; he did not show how the changes that the Government would make to the planning system would ensure that property was used in the most effective way.

When talking about planning and the justification for the measure before us, the Minister prayed in aid Barker and Lyons. They were the two presiding deities in whose name the Bill was introduced—but again, one of the things that he failed to acknowledge throughout our debates was the fact that he had been quoting selectively from the Barker review and the Lyons report. The Barker review made it clear that when considering non-domestic rates, it was important to acknowledge that relief was a balancing mechanism; relief is there to ensure that when no commercial activity is taking place, no taxation penalty is exacted. There has been no reflection of Barker’s acknowledgment of that balancing mechanism either in the case that the Minister made or in the legislation.

As for Sir Michael Lyons, the Minister calls him perhaps the greatest expert on local government finance whom we know. I respectfully submit that when it comes to authorities on local government finance, my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer) and my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles)—and the right hon. Member for Greenwich and Woolwich (Mr. Raynsford), for that matter; I am happy to concede that point—are entitled to take their place alongside Sir Michael. Nevertheless, we both agree that Sir Michael Lyons is a pretty big cheese in the world of local government finance. Why is it, then, that the Government are prepared to take only the crumbs that they consider savoury, and push the rest to the side of the plate?

Sir Michael Lyons made it clear that changes to non-domestic rates should be taken in the round, should be introduced after consultation, and should not be made before 2010. As we have pointed out at
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every stage, the changes are piecemeal, and they are being introduced early, after inadequate consultation, simply so that we can ensure that the Treasury is satisfied with its yield.

The Minister mentioned his hon. Friends in the Treasury, which put me in mind of the television series “Our Friends in the North”, because the Opposition inferred that the legislation was introduced by friends in the north, who were the heavy mob. In the presence of the Financial Secretary by the Minister’s side, we see a representative of management who is here to ensure that the legislation delivers what it was meant to deliver: a tidy sum into the coffers—no questions asked, squire—to ensure that the big guy in No. 11 gets what he wants. It is for that reason that we find the legislation profoundly unsatisfactory. It has been introduced to balance the books, which an improvident Chancellor over the past 10 years has failed to balance in the nation’s interests.

5.26 pm

Dr. Cable: I should like to develop some of the comments that I made in the Ways and Means debate, which were consolidated by my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) on Second Reading.

Time sat rather heavily on us this afternoon. It was enlivened by some erudite shafts of wit from the hon. Member for Surrey Heath (Michael Gove) and some rather nice turns of phrase that we may hear again on “Newsnight Review”, but apart from that, it was rather heavy going. I want briefly to recap the basic arguments about the Bill, at the heart of which is a perfectly sensible proposition about providing an economic incentive to use property more efficiently. We have three basic reservations, which have been partly, but not entirely, alleviated. The first concerns the process, particularly the consultation; the second concerns the Government’s motives, particularly the revenue aspect; the third concerns unintended consequences and special problems arising from the fact that there is no such thing as a uniform property market, as that market is complex and variegated.

It is true, as the Government argue, that if we impose an economic penalty on unoccupied property, business has an incentive to use property more intensively and cut rents to fill it. The model is obviously sensible in a simple market framework, but the position is a little more complicated than that. I reread the Lyons report and what Barker had to say. It was interesting that Sir Michael Lyons quoted Stiglitz, one of the top global economists—I am not sure whether he is a Nobel laureate, but he has certainly been lined up for that prize—who tried to set out the basic economic arguments about empty property and taxation. He made the point that the property market is different from markets in apples and pears, or in cars, because entrepreneurs have to build property ahead of demand—that is the nature of the business—so a certain amount of spare capacity is built in. There is a risk associated with that, particularly if there is a risk of being penalised for creating excess capacity. The economic argument is that there is a good case for empty property taxation relief, because risk sharing is involved. Without that relief, investment would never take place. At issue, therefore, is not the principle but
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the period within which it is sensible to create empty property relief to encourage the healthy growth, as well as the balancing, of the property market.

The first of our three main concerns is about the process. It was clear from the Lyons report that Lyons himself envisaged a much longer period of consultation before his recommendation was put into legislation. The Government are consulting about exemptions, and they are consulting separately about particular problems with leases, which is welcome. That is welcome, but the fundamental point, which has been made several times by the hon. Member for Surrey Heath, is that when the results of those consultations bear fruit, they will take the form of secondary legislation, which will not be subject to the same extensive scrutiny as the Bill. The process is therefore not as satisfactory as it could be.

Secondly, it is clear that the Bill is a revenue-raising measure. Ministers have turned that to their advantage as a debating point by saying to the Opposition parties, “Well, if you’re against the Bill, how would you raise the £950 million?” That is a fair debating point, as far as it goes, but it raises the obvious question about who pays that £950 million. I have never been clear who the Government think would pay it. They would argue that it is not paid by the tenants of commercial property, because they argue that rents will fall. When Ministers were challenged, from the Liberal Democrat Benches I think, about the potential impact on institutional investors who have extensive property portfolios, they said that those investors would not lose anything either, because there would be an increase in profits in the sector.

So how will the miracle happen whereby the Government acquire substantial revenues—£950 million, although admittedly those would be regressive as rents fall? Who will pay? No one, apparently. There is something odd about the logic. If the Government were a little more honest and accepted that there will be serious losers in the property sector, at least we would be clear about their thinking. The Government could argue that, to a degree, nobody is a loser if the whole system becomes much more efficient and the British economy becomes more efficient. That could indeed be the case, but I have not heard it explained what the Government’s objectives are.

We know from the helpful tables at the back of the Library research paper that the average level of voids is about 9 per cent. in England and Wales. Sophisticated property companies probably operate on a 6 to 7 per cent. basis. It would be interesting to know what the Government think the natural level of vacancy should be, and how realistic it is to expect that to be achieved. Unless the level falls, the property sector will pay more, and that will be paid by the owners, who are usually institutional investors, or by tenants, directly or indirectly. Somebody must pay.

The third set of issues relates to the exemptions and the special difficulties, which fall into two parts. The first was debated extensively today, and I will not review all the arguments, which were well made, about the problems associated with legal difficulties, planning and historical buildings. Those will have to be dealt with. The second set of issues, which has not been debated, involves the differences between different parts of the country. In the Ways and Means debate and on Second Reading we argued about the particular
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problems that were said to be likely to accrue in areas like Wales, where there have been many factory closures, and parts of west Yorkshire, which are subject to regeneration, and the difficulties that those areas have.

Regeneration often takes place in the industrial sector by advance building, with an expectation that property could remain empty for a considerable time. It relies very much on speculative building on industrial estates, so those areas could be penalised. One of the difficulties that I have in trying to understand what is going on is connected with the differences between different parts of the UK. Perhaps the Minister can explain. I am not trying to make a point. I am trying to understand what is going on. There are big differences between different local authority areas.

It was not surprising that the biggest area of unused property in Britain, let alone in London, is Hackney, because Hackney is an extremely problematic area with serious regeneration difficulties. There are some strange anomalies. My own borough, which is quite prosperous and is rapidly growing, has a vacancy rate of about 6 per cent. Next-door Hounslow, which is equally dynamic, has a vacancy rate of about 14 per cent. Manchester and Birmingham, which have problem areas, have very high vacancy rates. Newcastle, which has the same problems, has a very low one. Why these enormous discrepancies occur, and what the impact of the Bill will be on them, is not clear to me. The Government have expressed their willingness to be flexible—if, for example, there is a period of recession—but how flexible can they be in recognising the differences in different parts of the UK and in allowing regional exemptions? Many of those issues will be pursued in the other place, as there are clearly a lot of unresolved questions.

Question put and agreed to.

Bill accordingly read the Third time, and passed.

Mr. Peter Bone (Wellingborough) (Con): On a point of order, Mr. Deputy Speaker. I know how much Mr. Speaker deprecates ministerial statements being given to the media before they are made to this House. Yesterday, rather uniquely, the Home Secretary made a ministerial statement and admitted that he had briefed the press in advance, and in fact appeared in television studios. What can be done to ensure that in future, hon. Members are informed before the media?

Mr. Deputy Speaker: The hon. Gentleman is right: Mr. Speaker feels very strongly that any important ministerial statements should be made to this House before they are discussed elsewhere. It is, of course, down to Ministers to observe that rule. The hon. Gentleman has made his point, it is on the record, and I have no doubt that Mr. Speaker will take note of it.


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