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28 Jan 2009 : Column 121WH—continued
The time for payment is unprecedented for rates liabilities and business taxes. If a viable business has difficulty paying a bill for other business taxes, Her
Majesty’s Revenue and Customs can spread payments over a number of months, but we have now offered eight years to businesses facing this business rates problem. That is far from normal in the business tax system, let alone the business rates system.
Derek Wyatt: Does the Minister understand that if the money must be paid back over eight years, many businesses will give up on the ports and move, sometimes offshore? I accept that is an unintended consequence. They will not pay the rates, because it will be cheaper to rent outside the area.
John Healey: Each company will make a different decision in light of the situation. Some might take the step mentioned by my hon. Friend.
I reject completely some of the comments made by the hon. Member for Preseli Pembrokeshire (Mr. Crabb). I accept that serious concerns have been expressed, and that some companies have been clear and vociferous in raising them, but the response to the Chancellor’s announcement has not been uniform. I recognise that the impact on some companies will be severe, but equally some companies are already paying in full their business rates bills and backdated liabilities.
Shona McIsaac: Will the Minister give way?
John Healey: Let me finish my point first. After my hon. Friend’s intervention, I must press on, however. If hon. Members wish to raise further points, I shall be happy to hear from them in another debate or in writing.
First, some businesses are already paying the bills. Secondly, some are talking to their local authority—their billing authority—about setting up a schedule of payments and, thirdly, some are taking advantage of the fast-track system that we have established to deal with any challenges or questions about the system the VOA has put in place. So far, some 70 companies are pursuing that route.
Shona McIsaac: The Minister says that the reaction has not been universal around the country. That is because in some ports the companies are not renting from Associated British Ports and thus have been paying the cumulo over the years. If he and his officials examine the variety of ports around the country, he will find that is why there are such differences.
John Healey: Let me be clear. I was not talking about different ports, but the businesses within ports—across the country in some places—all of which have been listed separately as liable for paying business rates with a big backdated liability, and some of them are settling them.
Many hon. Members and some commentators have criticised the VOA for backdating the effect of the ports review to the beginning of the list on 1 April 2005, but that is not its decision. The date of the change is governed by legislation. If the property existed before April 2005, by law, the rates must be backdated to the beginning of that list period. In that way, the system tries to ensure that all rateable property pays its fair amount of rates from the point when the property should be rated, and with all businesses being treated equally.
May I say to my hon. Friend the Member for Great Grimsby that although we have discussed port occupiers in this debate, they are not alone in having backdated liabilities as a result of the VOA keeping the ratings list accurate? Some 777 new assessments conducted in a similar way to the ports review were added to the list during the past year, creating liabilities at this point of at least 33 months. In the current financial year, up to the end of October, more than 1,600 new assessments, including most of the port occupiers, were added to the list in the same way. Backdating in such a way is a feature not just of the 2005 ratings list period, but of the 2000 ratings list period. In the last year of that period, more than 3,000 new assessments—new companies—were listed for the first time with backdated liabilities. In other words, it is an established feature of the ratings system and the ratings list period, for this period, the last period and the one before. It is also a situation faced by companies other than the ones we have discussed this afternoon—other than those in ports affected by the ports review. When the Chancellor announced the provision in the pre-Budget report, it was not just for the ports companies, but for all the companies facing pressures from the current economic climate.
John Healey: My hon. Friend introduced the debate, he led the debate and he secured the debate, so I give way.
Mr. Mitchell: My right hon. Friend obviously thinks that the companies will crumble, but they will not. How many of the 777 companies, or the 1,600 companies, which have paid the retrospective bill were paying rates through the cumulo system via the port owner?
John Healey: If my hon. Friend will let me, I will reach that point. In fact, let me deal with it now. I am anxious to deal with the various arguments about the use of prescription and formula, and waiving the tax liability.
I have confirmed that the rateable value for some port operators has reduced by a total of £44 million as a result of the ports review. That comes at the same time as 577 businesses in ports in England and 80 in Wales are listed as liable for the first time. Many port occupiers say that their contractual arrangements with the port operator contain a fee, either explicit or implicit, to cover the business rates. My hon. Friend the Member for Cleethorpes described that as a commercial agreement in which they pay their business rates through the port operator. If that is the case, clearly they need to take it up as a contractual matter with the port operators.
I have not seen clear evidence of how the contracts work. If hon. Members feel that it would be helpful, the Under-Secretary of State for Transport, my hon. Friend the Member for Poplar and Canning Town (Jim Fitzpatrick), and I will sit down and discuss the matter with the port operators—particularly those who have seen a significant drop in their rateable value as a result of the ports review. It is clearly in the interests of commercial port operators to ensure that their facilities in the port are used. They must have some interest in the health of the businesses that operate within their ports.
If they fold, the port operator will be left with empty premises, no fee income and, as owners, a liability to empty property rates.
I turn to the question of waiving the liability. We are urged to set aside the liability to tax. None the less, the companies have now been assessed as liable for business rates, including for the period of back payments. We cannot now act as if we do not have the full facts or as if they do not have a liability that is now clearly established in law. Therefore, it is not straightforward or possible simply to undo what has been done, or to hold off until 2010 when the next ratings list comes into effect.
I am trying to avoid groundhog day, but let me return to prescription. Its only effect would be to alter the rating period for the port operator. Prescription and use of the formula allows that to be done. It is true that the Secretary of State still has the power to prescribe rules for establishing rateable values. In theory, she could use such powers to do so for individual businesses at ports, but it would not help them that much for three reasons: they would still be rated separately from the port—as they should be—and, in some instances, were before 1 April; the power is not retrospective; and, finally, they would still be faced with three years backdated liability immediately on top of the liability for this year.
On the question of backdated liabilities, the approach to business rates is no different from other business taxes. Ministers simply do not have the discretion or the power to waive or set aside tax liabilities when they have been legally established. Therefore, when a company is assessed as liable for corporation tax or national insurance payroll taxes, it is legally liable to pay by the set statutory date. That date can be nine months after the company’s end-of-accounting year. When there is difficulty, HMRC has the scope to negotiate a payment schedule, but it is a matter of months, and not years as we propose for the port companies payments scheme.
I will be quite blunt. In effect, my hon. Friend the Member for Great Grimsby is asking me to turn a blind eye to tax that port companies are legally liable to pay. Companies in other sectors are in a similar position—brought on to the rating list separately some time after the start. Although they may have to compete head to head with businesses based inside and outside ports, they have been paying business rates and carrying overheads over the period—in some cases, before. We do not do that with other taxes when companies are liable to pay them.
We do not have the power to waive tax liabilities, so these companies are asking us to change primary legislation to do so. In effect, they are asking Parliament to turn a blind eye to the tax that the companies are legally liable to pay. Even if the Government accepted that such a case should be put to Parliament, persuading Parliament to give such powers to Ministers sets a serious tax precedent. I say to the hon. Members for Bromley and Chislehurst (Robert Neill) and for Solihull (Lorely Burt) that I hope they have cleared their lines on the scheme because we do not do it for other business taxes. I regret to have to say to my hon. Friend the Member for Great Grimsby that it is therefore not something that we can do with business rates. None the less, we will do what we can to help both with the schedule of payments and the fast-track system that the VOA has put in place.
If there are other steps that hon. Members think we can take, particularly in relation to the port companies and the port operators, my hon. Friend the Under-Secretary of State for Transport and I are prepared to consider them, but the problem is not faced uniquely by the port operators even though the ports review has created that serious problem.
Economic Downturn
4 pm
Gordon Banks (Ochil and South Perthshire) (Lab): Much has been written and spoken about the UK economy in the past nine months or so. With every word uttered or written, we are told about the darkening depths to which our economy is plummeting. In my contribution, I will consider the economy as a whole and mention some examples of sectors that I feel represent my argument best. At this point, I should highlight my external activities as recorded in the Register of Members’ Interests.
The financial sector has been a great wealth provider for the UK over many years, and that wealth has trickled down to many parts of the economy, including the high street, but we now see the banking sector as the villain, not the hero. For many years, when businesses asked banks for finance, they were expected to meet the banks’ demands in order to secure capital investment. It is now clear that the rules that the banking industry expected UK businesses to follow were not rules to which the banks themselves were playing.
Now, because of financial mismanagement of astronomical proportions, it is not only the banking industry that is in crisis but every sector, potentially, of the UK economy. Millions of people throughout the UK were employed in the private housing sector and its supply sectors, building homes for a market that struggled to meet demands. House building companies were busy, suppliers were busy and the manufacturing industry was busy. Although I appreciate that house prices in some areas showed unsustainable growth, it was a strong market with strong skills and high employment levels. Now it is decimated and haemorrhaging jobs and money as though there were no tomorrow.
Barratt Homes is a company close to my heart, as I was once a chief buyer in Scotland. It has fallen from being a FTSE 100-listed company with a share price of about £11 to having a share price of about 70p, after dallying with values as low as 34p. Barratt and its competitors have virtually stopped production. It is important to understand that the industry has always built speculatively, not to order. Only by speculation can businesses provide continuous employment—it is little different from the car market, where mass production is not to order—but that speculation has stopped. The sector has lost jobs at an alarming rate, affecting the supply side, design and manufacture and road haulage, to name just a few industries.
How do we stimulate a sector such as house building? In the words of Mike Farley, chief executive of Persimmon Homes, it is all about mortgages. I would like to discuss two aspects of mortgages. The first is deposits, or, in sector-speak, loan to value. Not so long ago, the financial sector was offering mortgages of 100, 110 and 120 per cent. of the value of properties. Plainly, that was madness. Lest anyone think that I am absolving individuals from responsibility, I am not. Individuals who use such vehicles have a responsibility, but so does the financial sector. We did not ask the financial sector to create those products. It created them and offered them to individuals on the clear understanding that lenders were content
that individuals could afford them. Today, that madness has gone full circle. Most products now demand a high deposit of 20, 25 or 30 per cent. Why?
Lindsay Roy (Glenrothes) (Lab): Last week, in my constituency, I convened a meeting with construction industry representatives, representatives of all the major banks and representatives of the economic development department in the local council. Unfortunately, at that time, the bank representatives were not in a position to clarify the criteria by which new loans and guarantees through Government financial injection could be accessed.
Does my hon. Friend agree that at a time when Government are acting speedily to get the economy moving, the banks have been unduly slow to clarify their position? Does he also agree that the banks have gone from one extreme to another on mortgages, and that the restrictions are equally irresponsible at a time when we need movement in the housing market? In addition, does he agree that unnecessarily bureaucratic planning systems in some local authorities have acted as a further brake on development? These unprecedented economic times demand unprecedented changes. Speeding up the planning process would be a necessary catalyst for change.
Gordon Banks: I agree with everything that my hon. Friend said, not only on the mortgage industry, which we are discussing, but on planning issues, too, which are important to the sector.
Why has there been the change to such high demands on mortgage deposits? Could it be that the lenders really have the individuals’ best interests at heart and want to ensure that they can cope with repayments? I do not think so, because if those were the banks’ true concerns, they would help by passing on the full falls in interest rates which have been generated recently. I believe that they are protecting their own backs against projected falls in house values. However, the solution is simple: we must return to widely available 90 per cent. mortgages if we are to have any hope of saving the industry.
The Treasury’s recent support for lending will not deliver if it fails to move lenders towards that goal. The Royal Institution of Chartered Surveyors shows that new homebuyer inquiries are at their highest level since October 2006, yet mortgage approvals, despite a rise in December, are less than 50 per cent. of the figure for approvals in December 2007.
Shared equity schemes are valuable and have a role to play, but they depend on how the lender views the share. If a 20 per cent. state-funded or industry-funded shared equity scheme is available, it is no good the lender demanding a 25 per cent. deposit on the remaining 80 per cent.; it defeats the purpose. The industry itself has many shared equity schemes, and I am advised of one developer whose company held £1 million of shared equity. Obviously, there was a need to turn it into capital, but when the markets were approached, the best offer that he got was £400,000. Why? Because the markets said that it would be worth £1 million in 10 years’ time, but not today. The really sad thing is that he was thinking about taking it.
Moving to 90 per cent. mortgages will help the housing sector, but it cannot stop there. If someone buys a new car, what do they do? Nothing, other than put fuel in it
and drive it; but they did that with their old car. If they buy a new house, they spend additional money. Ask any high street retailer and they will tell you that a buoyant housing market—new and second-hand—fuels spending on the high street. New homeowners buy carpets, fixtures and fittings, curtains, white goods, furniture and so on. It is the one industry—of which I am aware—that directly feeds spending in other sectors.
Let me provide an interesting figure. In 2007, there were 357,800 first-time buyers, and Halifax has produced data suggesting that the cost of furnishing and equipping a new property is about £6,000, which equates to about £2.14 billion of high-street spend by first-time buyers alone. That, in my mind, is quite a fiscal stimulus, but I am not convinced that the Government have yet grasped it.
It is also relevant to discuss interest rates, because they affect mortgages and businesses. It is unacceptable that rate cuts have not been passed on; it is plainly and simply wrong. However, it is not holding back the markets as much as the issue of deposits.
What is the future for the wider economy? If the house building sector and its supply side cannot be returned to stable growth, I fear that we can kiss goodbye to zero-carbon homes in 2016. If that happens, we will be letting down our environmental ambitions and missing the opportunity to expand the sector into a greener future. The technology required to deliver the objective could be used worldwide, and we really could become market leaders, but not with lending as it is now.
More generally in the economy, businesses are being put under unacceptable pressure by the financial sector. In my constituency, businesses that have an overdraft facility at base rate plus 2 per cent. or plus 2.5 per cent. find that what is on offer for renewal is base rate plus 7.5 per cent., and that is when interest rates have plummeted. The Forum of Private Business has stated that 47 per cent. of its members who applied for funding in the last quarter of 2008 were either rejected outright or partially, and the Federation of Small Businesses, of which I am a member, says that about one third of its members are struggling to get affordable credit. That is all due to new criteria being introduced by the banks, many of which are in business today only because of taxpayers’ money. Such new criteria result in businesses being unable to afford the higher rates and going out of business, costing people jobs, the state money and—wait for it—the banks money, too.
Mr. Jim McGovern (Dundee, West) (Lab): I thank my hon. Friend for giving way, and I congratulate him on securing this important debate. He has touched on jobs; does he agree that there are serious implications not only for tradesmen and women who are currently employed in the construction industry, but for the future of apprenticeships? If the Government aspire to increase the number of apprenticeships, we will have to address those issues.
Gordon Banks: I agree wholeheartedly. Many people have learned their trade in the construction industry, and it is a sign of the times that the issue that is high on the agenda today is not that, but survival.
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