The
Committee consisted of the following
Members:
Chairman:
Mr.
Christopher Chope
Campbell,
Mr. Ronnie
(Blyth Valley)
(Lab)
Cawsey,
Mr. Ian
(Brigg and Goole)
(Lab)
Goldsworthy,
Julia
(Falmouth and Camborne)
(LD)
Healey,
John
(Minister for Local
Government)
Hurd,
Mr. Nick
(Ruislip-Northwood)
(Con)
Jackson,
Mr. Stewart
(Peterborough)
(Con)
Keeble,
Ms Sally
(Northampton, North)
(Lab)
McDonnell,
Dr. Alasdair
(Belfast, South)
(SDLP)
Milburn,
Mr. Alan
(Darlington)
(Lab)
Mole,
Chris
(Ipswich)
(Lab)
Öpik,
Lembit
(Montgomeryshire)
(LD)
Osborne,
Sandra
(Ayr, Carrick and Cumnock)
(Lab)
Soulsby,
Sir Peter
(Leicester, South)
(Lab)
Walter,
Mr. Robert
(North Dorset)
(Con)
Watts,
Mr. Dave
(Lord Commissioner of Her Majesty's
Treasury)
Wilson,
Mr. Rob
(Reading, East)
(Con)
Yeo,
Mr. Tim
(South Suffolk)
(Con)
Keith Neary, Committee
Clerk
attended the
Committee
Sixth
Delegated Legislation
Committee
Wednesday 26
March
2008
[Mr.
Christopher Chope
in the
Chair]
Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008
2.30
pm
The
Minister for Local Government (John Healey):
I beg to
move,
That the
Committee has considered the Non-Domestic Rating (Unoccupied Property)
(England) Regulations 2008 (S.I. 2008, No.
386).
I am delighted
to move the motion, but I have been caught a little
unawares, as I was not entirely sure about the order of speaking this
afternoon. The regulations are part of a package of reforms that are
derived principally from the Rating (Empty Properties) Act 2007. The
purpose of the package is to provide landowners with a stronger
incentive to re-let, redevelop or sell empty, non-domestic buildings,
thereby reducing the need for new development on greenfield sites and
increasing access to existing premises for business. That will help to
reduce rents and to increase the UKs competitiveness. The
reforms follow the recommendations in the reports of Kate Barker, who
looked at this issue closely, and Sir Michael Lyons, after his inquiry
into local government almost a year ago.
The
regulations revoke and replace the Non-Domestic Rating (Unoccupied
Property) Regulations 1989, and specify which empty properties are
liable to pay non-domestic rates. The regulations and the wider reforms
to empty property rates come into force on 1 April. The wider changes
raise the liability of owners to 100 per cent. of the occupied rate for
empty commercial properties, but they also introduce a new zero rate
for empty property that is owned by charities and community amateur
sports clubs. They also give the Government the power to reduce empty
property rates back to 50 per cent. if they decide to do so. Having
that power in the regulations obviates the need for future recourse to
primary
legislation.
The basic
policy purpose behind the changes was announced in last years
Budget. In any table of the most expensive office markets and
industrial premises, the UKs towns and cities have some of the
highest rents. To some extent, that might be a sign that companies,
internationally, recognise the attractiveness of the UK as a location,
but it is also an indication, particularly when one looks at the
varying pattern of rents, that our business rental property market is
far from operating as it should. A system and structure of empty
property reliefs that dates back to the 1970s and early 1980s, when
rental values and prices as well as demand for property were falling,
not growing, simply is not fit for the business needs and
competitiveness requirements of our economy today. It cannot be right
in the current economic climate that, after 10 years
of
strong growth and rising rental and house prices, empty property
receives a subsidy of as much as £1.3 billion a year, paid by
other taxpayers, so that it remains
empty.
Julia
Goldsworthy (Falmouth and Camborne) (LD): The Minister
talks about the cost of commercial property in the UK. I note from the
statistical release of 26 September from the
Department for Communities and Local Government that London accounts
for 26 per cent. of the contribution to the national pool of domestic
rates. Can he give some indication of whether London also dominates in
benefiting the most from the current empty premises relief, or are the
reliefs actually spent in other
areas?
John
Healey:
The reliefs are widespread, and in many towns and
cities outside London, there are empty propertiesindustrial,
office and retailwhich attract empty property relief after a
certain period, thereby reducing the market incentive to re-let, reuse
or redevelop them. If the incentives to bring them back into use are
not strong, particularly for industrial land and land that has already
been built on, what could be potential brownfield sites for
redevelopment and reuse might not be as available as they should be,
and that increases the demand for and pressure on greenfield sites for
future
development.
The
reforms to empty property rates should be seen as a tool to encourage
the owners of empty properties to bring them back into use and to keep
them in active use. Sir Peter Hall
stated:
There
are voids all over local shopping centres. As long as theyre
getting rate relief, in a rising market, owners are happy to sit it
out, waiting for a better offer. But these changes could rapidly change
their calculations. Theyll be willing to let units for less
than top
whack.
We
consulted widely last year on whether to include specific provisions to
deal with the potential for avoidance of the new regulations and
provisions after 1 April. We took the judgment that the risk of such
activity was relatively low. However, I have ensured that plans are in
place actively to monitor the impact of the reforms. We will do so
working closely with the Local Government Association, the Institute of
Revenues Rating and Valuation and the Valuation Office Agency. If
evidence comes to light from that monitoring to indicate that avoidance
activity is taking place, we will not hesitate to use the powers in the
2007 Act to make anti-avoidance
regulations.
Mr.
Stewart Jackson (Peterborough) (Con): I have two
questions. First, the Ministers predecessor, who is
now the Minister for the Environment, promised a
review of avoidance and deliberate destruction or damage of property. I
would be interested in the Ministers comments on those remarks.
Perhaps I am prejudging
them.
Secondly, the
Minister prays in aid the Barker review, which was published in
December 2006, and the March 2007 Lyons report. In respect of
consultation, have not the Government been rather precipitate in
putting a Bill through both Houses, getting Royal Assent for it and
laying these regulations less than two years after both of those
important reports? There has not been time to assess the impact as
indicated by the reports.
John
Healey:
On the contrary, there was debate about the work
that Barker undertook before and after she published her report, and
the report prepared by Sir Michael Lyons involved detailed work,
consultation and the gathering of evidence over a significant period.
It is hard to make the case that last years Act and these
regulations are somehow precipitate when this has been a live issue of
policy examination and debate for several
years.
It cannot be
common sense to continue to pay owners to leave their properties empty,
to be subsidised by taxpayers elsewhere, when UK office rents are among
the highest in the world and clearly a hindrance to UK competitiveness.
That is certainly the view of the Federation of Small Businesses.
Neither can it be beneficial, as a result, to have to find more land on
which to build commercial property or, indeed, housing when existing
land that has been used or developed previously could be put to that
use. In summary, the reforms will deliver important economic, social
and environmental benefits, and I hope that the Committee will give
them due
consideration.
2.40
pm
Mr.
Jackson:
It is a pleasure to serve under your
chairmanship for the first time, Mr. Chope. However, this is
not the first time that I have crossed swords with the Minister. I
think that the last time was over the fire serviceno, it was
over neighbourhood funding. My memory let me down there. I was
privileged to take part in the Second Reading of the 2007 Act, although
it would not be appropriate to rehearse the robust arguments used in
that debateI would run the risk of being ruled out of order if
I sought to do so.
The
Conservatives agree with the spirit of the Governments
intentions, but it is appropriate to ask some probing questions before
the Committee dividesif, indeed, it does divideso I
hope that the Minister can answer some key questions that arise from
the regulations. Page 6 of the explanatory memorandum states that the
increased administration costs of dealing with the increased number
appeals, resulting from the higher burden on empty properties that were
previously exempted, have not been estimated. Does the Minister not
want, or is he unable, to establish those costs? Does he have any idea
of the likely number of appeals that local authorities can expect to
receive?
Page 6 also
states that the reduction of rents has not been monetised. Does the
Minister think that an increase in business rates will be offset by the
resulting decrease in rents? Will that be cost-neutral for businesses?
Furthermore, he talks about helping small businesses, but he will be
aware of the small companies tax rise announced in the March 2007
Budget and of the fact that the Federation of Small Businesses was keen
to ensure that small business, unable to use or sell empty properties
for legitimate commercial reasons, would not be punished by the new
rules and that exemptions would apply in such cases. Will he confirm
that there will be no such
exemptions?
Page 12 of
the explanatory memorandum states that the Government are in the
process of preparing a funding package to ensure that the one-off cost,
estimated at about £1.66 million for this financial year, to
local authorities of introducing the changes will be
funded. Will the Minister give us more details on how that will work? Is
it possible that the explanatory memorandum is wrong and that it will
cost local authorities more to implement the changes? If so, will the
Government assist them? Furthermore, on page 12, Ministers rightly
acknowledge that there is
a risk that the reforms to empty
property relief could lead to an increase in the dereliction of
buildings as some owners seek opportunities to avoid paying
rates.
How does he
intend to monitor that eventuality? Will local authorities have a
responsibility to report back
centrally?
With
the current economic downturn, it appears increasingly likely that some
owners of struggling businesses will deliberately vandalise empty
properties to avoid the tax liability, which happened before the empty
property rate relief was put in place. Does the Minister accept that
such an eventuality is more likely than when the 2007 Act was debated?
That eventuality might not have been properly considered. Ministers
have yet to produce an estimate of the proportion of vacant buildings
and brownfield land that is deliberately withheld from re-use or
development. Does he have any evidence of that
proportion?
There
were concerns that the reforms would harm the potential for
regeneration in some areas, and property experts in the industry were
concerned that the tax changes would cause harm. How confident is the
Minister that that will not happen? Indeed, if I can press him, how
many of the urban regeneration organisations throughout the country
were consulted, and how many were in favour or opposed to the
Governments changes?
Businesses
were already suffering due to the 2005 business rates revaluation,
which the then Chancellor of the Exchequernow the Prime
Ministerfiddled to raise more revenue. How can the Minister
justify a yet greater burden on the business community, especially
given the current economic downturn? Indeed, why did not Ministers
agree to our proposals, which were articulated in considering the
legislation, to make the changes revenue neutral? That may be a
rhetorical question.
Many people are concerned that
the changes will affect the net yield of British pension funds from
their property. Given the effect of the dividend tax credit withdrawals
and other issues, does the Minister agree that the last thing pension
funds need is another tax
raid?
2.46
pm
Julia
Goldsworthy:
I believe that this is the first time
that I, like the hon. Member for Peterborough, have
served under your chairmanship, Mr. Chope, but it is not the
first occasion on which I have been in this Committee Room with the
Minister, although previously in both our cases, we had on different
hats.
The regulations
formalise the empty properties relief changes that were first announced
in the 2007 Budget, following, as the Minister said, recommendations
from the Lyons and Barker reviews. The Lyons report,
however, called for a review; it did not make any specific
recommendation. We will see changes to eligibility, but in principle,
at the heart of all the legislationthe 2007 Act and the
regulationsis a perfectly sensible desire to encourage the more
efficient use of property. The question is whether the Act and the
regulations achieve it.
On the
exemptions, the hon. Member for Peterborough has already said that,
when the Act was under discussion in the House, there were other areas
of debate, including the implications for businesses that actively
sought to have their promises occupied, but for which other obstacles
were in the waywhether other planning regulations or simply
difficulties in occupying the premises in a difficult local market. It
is not clear whether that question has been addressed, so I should
appreciate the Ministers comments on whether he will keep the
issue under review and whether there are cases that involve those
difficulties.
I have a few
other questions on which I should appreciate the Ministers
comments. Why are the recommendations being implemented ahead of a much
wider review of business rates? There is a discussion to be had about
what should happen to business rates. Should they be collected and
retained locally? In fact, if one proposes to make the changes, it
would make much more sense for the revenue to be kept locally,
so that businesses might be sure that it was kept in the local
community. Why are the regulations being pushed ahead of that review?
There are significant revenue implications for the Treasurysome
£950 million in the next financial year.
Why has the
time scale stated in the regulations been chosenthree months
for most commercial properties and six months at 100 per cent. relief
for industrial buildingswhen local government empty property
management orders kick in after six months? It would make sense for the
regulations to be consistent with one another, because the empty
property management orders cite six months as a reasonable period in
which to seek the occupation of premises. Why are we operating on a
different time scale?
Has the
Minister or his Department made any assessment of the differences
between small-scale commercial premises and larger, new developments? I
understand that the average void rate of larger-scale developments is 9
per cent., whereas I should imagine that developers or property owners
would expect a reasonable return of 6 to 7 per cent. What impact are
the measures likely to have on those returns? In addition, what impact
will they have on new developments where a risk is involved and the
development is completed ahead of 100 per cent. occupation of all the
premises? It may be years before the entire building is
occupied.
On the
revenue that will be raised from the measures, I would appreciate the
Ministers comments on his understanding of whom the additional
costs will impact on, because the issue is in part portrayed as being a
win-win situation for everyone. For example, extra money will be given
to the Treasury and the owners of property will benefit from more rent
and an increased take up, while the occupiers will benefit from lower
rents, which will be a downward pressure. However, somebody somewhere
along the line will have to pay. Does the Minister accept that, even if
the costs are not passed on in headline rents, they must ultimately be
passed on to the occupierwhether through more restrictive
arrangements, longer rental agreements or more costly break clauses? I
would appreciate the Ministers comments on that
subject.
Most importantly, the Minister
has not made clear what the differential impact of the measure will be
on different areas of the country and on different types of commercial
property. I shall refer again to the statistics provided in the
Department for Communities and Local Government release on 26 September
2007. That document gives a regional breakdown of the
contribution to the national non-domestic rate board during the last
financial year for which information is available and clearly
states:
London
accounts for 26 per cent. of the contribution to the national pool
while having only 15 per cent. of the
population.
So
London is making a disproportionately large contribution to the
domestic rate pool compared with its population. Does that read across
to the benefit that London currently has in terms of the empty premises
relief to the area? We do not have a regional breakdown of the empty
premises relief. Are there higher rents in places such as London, but
lower rates of empty property; or are there higher rents and higher
rates of empty property?
Clearly, the
market is not uniform across the United Kingdom, as there will be
different issues in different areas. In particular,
those living in rural areas have raised concerns about the impact that
the measure might have on them. Those in regeneration areas are
concerned that businesses will not want to take on the risk of
renovating or developing new areas if they cannot be guaranteed an
immediate uptake of those premises.
There are real concerns that
have not been addressed in our debates. I would
appreciate the Ministers comments on the geographical breakdown
of some of the reviews that will take place. He said that he will
monitor closely the impact that the changes have. I should like to see
a regional or even sub-regional indication of what is happening on the
ground, so that we can establish whether particular parts of the United
Kingdom suffer or experience disproportionate difficulties as a result
of these
changes.
Mr.
Jackson:
This will not be a difficult question for the
hon. Lady, but does she agree with her hon. Friend the hon. Member for
Twickenham (Dr. Cable) who made the point on Second Reading that these
regulations are in isolation of the situation where good owners of
rented property are often at the mercy of a slow planning application?
Therefore, irrespective of the fiscal situation, those people are often
constrained by how quickly their planning applications are heard. That
is not taken account of in the
regulations.
Julia
Goldsworthy:
The hon. Gentleman makes a good point that
was well made by my hon. Friend the Member for Twickenham (Dr.
Cable). A related example involves some tenants who had undertaken a
rental agreement with a view to opening a bar in a town in my
constituency. They had been advised by the local authority that there
would be no problem in getting the planning permission necessary to
serve alcoholin fact, I think it was a licence. That process
was delayed and permission was ultimately refused. Those people were
locked into a tenancy agreement and had renovated the property so that
it could be opened as a pub but were then denied the licence to do so.
The process went on for longer than six months. They
found themselves in exactly the predicament described by my hon. Friend,
even though they acted in good faith at every stage of the process and
wanted to occupy the
premises.
A final
point in the context of the wider economy is that the proposals and the
reviews that prompted them were dreamed up when the market was much
more buoyant than it is now. We are in a period of great uncertainty at
present, and the outlook on the future is much less
optimistic. Will the Minister consider whether the proposals reinforce
any negative trend in the market and depress falling prices even
further? To restate the question asked by the hon. Member for
Peterborough, what knock-on impact does the Minister think the
regulations may have on areas of the wider economy such as pension
funds, which will also face
difficulties?
To
conclude, we sympathise with the honourable intentions behind the
proposals. The system is complex; it needs simplifying, and a much
wider review of non-domestic rates is needed. However, the regulations
are a very blunt instrument, and I should like from the Minister
reassurances that their impact will be kept under constant review. I
very much hope that he will also be able to reassure us that this will
be the beginning, not the end, of the much wider review of non-domestic
rates that is necessary if we are to be convinced that the proposals
are something more than a measure to make the sums in the 2007 Budget
of the then Chancellor, now the Prime Minister, add
up.
2.56
pm
John
Healey:
I welcome the general approach taken by both
Opposition spokespeople. The hon. Member for
Peterborough described himself as sympathetic to the purpose of the
changes. The hon. Member for Falmouth and Camborne described them as
sensible. Let me disentangle the rhetorical and political comments made
by the hon. Member for Peterborough and try to answer his specific
questions about the
regulations.
First, on
appeals, it is difficult to be certain ahead of time, but given that
the removal of the rate relief does not affect the
rateable value of the property, which is what appeals are about, it is
hard to understand why there would be additional grounds for appeal as
a result of the regulations and, therefore, why there should be any
increase in appeals. It is a reasonable question to ask, but the hon.
Gentleman need not be too concernedcertainly, I am
notabout a large increase in the number of appeals as a result
of the
regulations.
On
additional costs to local authorities, we anticipate a marginal
additional cost, confined mainly to the first year, of about
£1.5 million to £1.6 million in total. We will work with
the Local Government Association to determine a fair split of revenues
between local authorities in the event that that is
necessary.
On the
reduction of rents, we previously discussed in the context of the wider
debate and legislation the modelling done by Her Majestys
Revenue and Customs. HMRC calculated that, because of the added
incentive to re-let, reuse or bring property back into use more
rapidly, the measure could reduce the amount of property that is empty
at any given time by about 15 per cent. in those sectors that are
currently covered by empty property relief. We published in the impact
assessment of the Rating (Empty Properties) Bill an
estimate that suggested that the overall reduction in business rents
would be in the order of 0.25 to 0.5 per cent., or £80 to
£160 million.
The hon. Member for
Peterborough asked a series of questions about avoidance, deliberate
damage and vandalism. Candidly, at this point, assessing the risk of
those things in the context of the new provisions in the 2007 Act and
the regulations is a matter of judgment. Particularly, we must ask what
is the risk of deliberate damage, vandalism or other avoidance
activities to business property. The representative organisations and
property owners have consistently argued that the such risks are low
and unlikely. That view came through strongly in the
Governments consultation last year. I took the judgment that,
although we have the power under the 2007 Act to regulate for
anti-avoidance measures, it was sensible to defer such action and that
it would be better to monitor the implementation and the activity as a
result. As I explained in my opening remarks, we will do so closely
with the Institute of Revenues, Rating and Valuation,
the Local Government Association and the Valuation Office
Agency.
The hon.
Gentleman also asked specifically about how any increase in dereliction
would be monitored. How we work at the moment will give him an
indication how we should be able to do that. At the moment, the removal
of a property from the list of properties that are liable for rates
requires an appeal to the VOA. In other words, the VOA is able to, and
will, monitor such appeals and report on examples when it considers
that a change in rateable value might be due to deliberate damage. That
is part of the monitoring system that we have put in
place.
The hon. Member
for Falmouth and Camborne was concerned about the operation of markets
and the pattern of relief payment, and in both an intervention and her
speech, she cited Londons contribution to the business rates
pool. Frankly, the contribution is higher, because commercial activity
is more extensive and greater in London, which therefore makes a
greater proportional contribution. The top 10 local authorities by
proportion of the commercial property base that is emptythe
most reliable and recent figures are for 2004-05include some of
the fastest-growing local and regional economies, curiously. It
includes Slough, Ealing, Birmingham and Manchester. It also includes
areas of low demand, such as Wolverhampton, Sandwell and Brent. That is
further evidence, and an implication, that we have a system and a
market that are not working well. The reforms are designed to improve
it.
Mr.
Jackson:
I hear what the Minister says about the perverse
incentive to allow dereliction and to damage property. I am pressing
the point because the Minister for the Environment, for whom I have a
great deal of respect, was not at his most robust in his argument in
the debate in the House. He said words to the effect thatwe can
see the actual wording in column 451 of the
Official Report for
7 June 2007although there would be consultation on measures to
prevent deliberate dereliction, he said that such activity was unlikely
because economic circumstances were different from those of the 1970s.
That is probably not the most cast-iron and robust analysis of the
situation. What is the Ministers
view?
John
Healey:
I believe that I just described my view. I was
fortunate enough to follow my hon. Friend the Minister for the
Environment as Minister for Local Government, so I conducted, completed
and drew the conclusions from the consultation. The judgment was not
based on a comparison with the 1970s, but on responses to the
consultation. We judged that the likely risk of deliberate
avoidance through dereliction, damage or vandalism to properties was
low and that it did not justify introducing regulations to prevent it
at this point. That is the position. We will keep a close eye on the
situation, with the agencies that I mentioned, with which we are
discussing the matter. If there is such evidence, we shall not hesitate
to use our powers under the Act.
Julia
Goldsworthy:
The Minister said that the areas with a high
number of empty commercial properties are variedsome are high
rent and high demand areas, and some are low demand areas. I can
understand how the regulations would encourage higher occupancy in high
rent areas, but not how they would incentivise people in low demand
areas. Will they not simply further depress demand in such
areas?
John
Healey:
I was citing high occupancy. If there is an
incentive to drop the rental priceour modelling suggests that
the regulations will bring that aboutit
would be likely to bring back into use commercial
property more rapidly, make the rental costs for
businesses lower and business expansion or activity more viable.
Businesses right across the board are likely to benefit from lower
business rents, which is why the Federation of Small Businesses is
quite keen on the measures that we
propose.
The
main question asked by the hon. Member for Falmouth and Camborne was
whether we would monitor the impact of the changes, to which the answer
is yes. Will we monitor activity that may lead to avoidance? The short
answer to that is yes, we will. The hon. Lady would expect me to say
that. We will ensure that we monitor both the general impact and any
specific perverse consequence that may require us to take further
action.
As I said in
my opening remarks, the reforms enable us to change the rate relief, if
future circumstances require it, to a limit of 50 per cent. On that
basis, I hope that members of the Committee will be content to allow
the regulations to go forward. I thank you for your chairmanship of our
proceedings this afternoon, Mr. Chope, and hon. Members for
their
contributions.
Question
put and agreed
to.
Resolved,
That
the Committee has considered the Non-Domestic Rating (Unoccupied
Property) (England) Regulations 2008 (S.I., 2008,
No.386).
Committee
rose at seven minutes past Three
oclock.