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When I spoke at a business breakfast in my constituency the other day, an entrepreneur said to me “Do you realise that in order to take advantage of some of these Government credit schemes, people have to sign a form without knowing what the costs will be?” What sort of business plan involves signing up to credit when you cannot possibly know what the cost to your business will be? Since the country as a whole—the taxpayer—has put finance into the banks, there is surely an overwhelming
argument for the banks to provide the service that we expect from them as a utility. It is not up to them to decide that they will swallow the taxpayer’s money without providing that service.
Peter Luff: I do not wish to protract debate on this particular issue, as we might be ruled out of order, but I shall be delighted to return to it on Monday during a debate initiated by my Committee. I hope to see the hon. Gentleman and one or two of his colleagues there so that we can discuss the issue at greater length, because what he is saying is absolutely true.
Mr. Heath: I am very glad that we shall be able to discuss these matters in more depth on Monday, rather than now, when we are supposed to be talking about business rates. What I was hoping to do today, however, was explain the context in which small businesses face an indifferent future, and are therefore in need of rate relief.
It is not hard to identify major defects in the overall concept of the business rate, which in my opinion needs to be fundamentally reformed. It needs to become a better and more progressive system than at present. It is a long-held and cherished view of my party that the rating of site values produces a better outcome than the current system of property rating, but let us set that aside for the moment.
Another problem is the fact that the business rate is a nationalised tax, although it used to be decided by local authorities. Many years ago, when I was leader of Somerset council, we used to set both the domestic and the business rate. Before we set the business rate, we would have detailed discussions with the business community about what was happening in the local economy, and the extent to which they saw investment in key areas of infrastructure as a priority for the council. Having engaged in those discussions, we would set the rate in the certain knowledge that the money that was collected would be spent in the local community. That is a key factor. Now, however, the business rate is collected and distributed by means of a national formula. There is no direct connection between what is collected from an area and what is paid into it to support local infrastructure and economic development, which I think is a major defect in the system.
Another problem is the ratchet effect: the rate goes up inexorably each year, with little regard paid to local economic circumstances. I hesitate to suggest that that would not be a problem if the business rate were still controlled by local authorities, because the council tax also tends to go up inexorably throughout the country. As we all know, that is the case because although the council tax appears to be under the control of local authorities, the biggest single element is the decision of central Government. In any event, many businesses find it very irksome to face bills that are substantially bigger each year, often having increased by more than the rate of inflation, because it forces them to devote a larger proportion of their profit margins to the payment of business rates.
The hon. Member for Mid-Worcestershire made another good point about revaluation—the spectre that hovers over not just business rates but domestic council tax. In the case of council tax, revaluation has been put off repeatedly because it will be so horribly difficult. In many
parts of the country, including my own, property values have soared while incomes have not, and the same will apply in the business community: the profitability of businesses bears very little relation to the property values in a particular area. Throughout southern Britain—especially in the west country, but I think it will apply in the south-east and the south and west midlands as well—we are likely to see substantial increases in rateable values at the point of revaluation. That will cause difficulties for businesses of all sizes, but particularly small businesses.
Against that background, we have what I consider to have been the valuable introduction of small business rate relief in 2005. I congratulate the Government on recognising some of the difficulties and introducing a measure to help some of those who were finding it hardest to cope. However, as the hon. Gentleman pointed out, the problem is that very few businesses—only half those that are eligible—claim the relief to which they are entitled. There are a million possible reasons for that. Perhaps, as he suggested, the system is seen as complicated. People tend to take a rather fatalistic view of these matters: on reading that they may be eligible for relief, they may instantly assume that they will not receive it. They may have to be persuaded to take up an eligibility to which they are entitled. The same applies to benefits for individuals; there are very low take-up rates when receipt of those benefits is not automatic.
There are many difficulties in being a small business person overwhelmed with bureaucratic requirements. It is hard enough for such people to do all the paperwork that is directly associated with their businesses without having to do what the Government want them to do as well. I am afraid that things tend to be put in a big pile in a corner of the office and labelled “Too difficult; will have to wait”, with the intention that they may be dealt with some time late in the evening when the person involved might just be able to get around to seeing what they are all about. Sadly, that is one of the reasons why it can almost be guaranteed that, when we have meetings with business people, those who turn up will be a few junior representatives of large businesses and some solicitors, accountants and other professionals, while there will be very few people who are actually trading, because they cannot afford the time to leave their businesses to attend a meeting, even if it will be helpful and give them valuable and necessary advice.
May I interject here an important point that we in this House often forget when we are considering the recession? When we discuss safeguards, safety nets and support, very few of us ever think about the self-employed. They are facing extreme difficulties at present, but they are somehow off the radar all together. It is as if they just do not exist, but very often they are the entrepreneurs and wealth creators whom we ought to be helping as far as we can.
There are many reasons why businesses might not claim under the current system, but what is the answer to that? The hon. Member for Mid-Worcestershire mentioned one of them: local authorities could be much more aggressive in marketing the availability of relief. The trouble with that, however, is that it is expensive and it involves using money for a purpose that ought to be unnecessary and taking it away from more valuable
uses. Therefore, although this could be done—some local authorities are a lot better than others at doing it, and some are, frankly, useless, no matter how many times they are exhorted to do it—I am not sure that it is right in principle to spend a large sum of money on marketing a relief when there is the alternative mechanism that the hon. Gentleman is proposing, which will do the job much better.
Mr. Evans: The proposal of my hon. Friend the Member for Mid-Worcestershire (Peter Luff) is clearly the easiest way of proceeding. The owner is on local authorities to ensure that businesses comply with all sorts of rules and regulations, and they have an army of people with clipboards who visit businesses regularly. In carrying out those visits, those people have the opportunity to say to these businesses, “By the way, have you applied for rate relief, for which you are eligible?” Is it not amazing, however, that they never seem to do that? They are very keen to pursue all the other things that are costs on businesses, but they seem to forget assisting businesses in such ways.
Mr. Heath: The hon. Gentleman is right, and it has long been a complaint that many such people feel the need to inspect for a variety of reasons— although it is most unfair of me to use the phrase “feel the need” in this context, as it is this place that tells them they must feel the need by imposing duties on them. Nevertheless, they all come at different times and make different recommendations, and many people who run small businesses wonder who will knock on the door next and tell them that they must spend a few thousand pounds on doing something they do not feel is necessary.
To use the cliché, let me say that a one-stop-shop approach would be much more effective in ensuring that businesses are complying with all the necessary and proper regulations, such as those that apply to the consumer, to trading standards and to fire safety—I sometimes have quarrels with fire safety officers over some of the requirements they make, however—and perhaps more effective in removing some unnecessary regulations. It would be best if a single inspection gave a bill of health and, as part of that, businesses were asked, “And by the way, can we just check you’re getting everything you should be getting?” That would be so much better for businesses; it would ensure that they had certainty in what they were doing and would be a real help. I fear that as yet we are a long way from that position, however, at both local and national Government level.
The hon. Member for mid-Worcestershire also addressed one of the potential criticisms: the scope for overpayment under the automatic approach. I was going to intervene on him, but then he covered the point I was about to make: the key to this matter is self-certification. It is an obvious solution, and it would be easy for businesses to do: on receipt of the rate relief, they would have merely to certify that they complied with the conditions, and if they made a false declaration, they would be committing an offence. That is the way to do it; it does not involve a great amount of bureaucracy, and most business people ought to be able to answer the simple question whether they have another business premises that they ought to be declaring. If they have another premises, further
calculations will have to made, but if they do not, the relief should be made. That is a very simple way of dealing with the problem.
Peter Luff: It would be discourteous of me not to thank the hon. Gentleman for his support for the Bill, and also for the excellent speech he is making. It may interest him to know that this was the issue on which the support of the Institute of Directors hung. When I explained the mechanism I had in mind, the response was, “That would be excellent—not bureaucratic, but very straightforward and simple. We will therefore support your Bill.” So the business community thinks exactly as he does in this regard.
Mr. Heath: I am gratified by that, and I thank the hon. Gentleman for his kind words. This proposal is simple common sense, and it becomes more than simple common sense in the context of the sort of recession we are facing at present, when it becomes an urgent necessity. The fact that similar arrangements are in place in Wales underlines the fact that we will be short-changing businesses in England if we are unable to follow suit.
I do not believe that extra costs to Government are involved. The self-rectifying procedures already in place apply a small disbenefit to large businesses, but that is not proportionate to the benefit they get from their large premises, as under the current system large premises are not rated anything like proportionately with small business premises. This issue is not desperately difficult to overcome. In any case, the Government should have a contingency plan for 100 per cent. take-up, because if they do not plan for such take-up, they are being dishonest to the people to whom they are offering the relief. I therefore presume that they do have such a plan. Furthermore, set against whatever small disbenefits there may be to either Government or large business, there is the massive public benefit of keeping small businesses in existence and trading over the next six months to a year when things will be so difficult, we will lose so many enterprises and our towns and villages will suffer the scars of the recession in a way we have not seen for, if not quite a generation, a long period.
It is absolutely essential that any assistance that can easily be offered is put in place. I hope that the Minister will be able to say today either that he completely supports the Bill or that he will take immediate action to implement the proposal that forms its basis in order to bring it into effect. He cannot simply say, “Yes, it’s a good idea and when we have had a consultation period, followed by a Green Paper, followed by a White Paper, followed by a review in a couple of years’ time, we will get round to it.” That will not be good enough, because businesses are suffering now and need help now, and what is proposed is a real way in which we can provide that help. I commend the hon. Gentleman for his perspicacity and eloquence in introducing this Bill today.
10.39 am
Mr. Nigel Evans (Ribble Valley) (Con):
First, I should declare an interest. As the owner of a small retail business in Wales, I clearly will not benefit if this Bill is enacted, because, as has been stated, its provisions already apply in Wales. That proves yet again that where Wales leads, others will follow. In rugby, apart from last Friday, and in various other areas— [Interruption.] —Wales
has led the way. [Interruption.] There are a lot of sedentary interventions, Mr. Deputy Speaker, which are putting me off. [Interruption.]
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. If the hon. Gentleman needs my help, he has only to let me know.
Mr. Evans: We needed the Deputy Speaker’s help last Friday, Mr. Deputy Speaker. Anyway, we will put all that to one side. The fact is that this measure was introduced in Wales in April 2007 and is working and giving assistance to a number of small businesses there.
The hon. Member for Somerton and Frome (Mr. Heath) mentioned that experience in running small businesses is useful in this place from time to time, and I absolutely agree. The Industry and Parliament Trust does a great job in giving Members of Parliament who have no basis in business some knowledge of how business works, but it does that, in the main, with big business. That is useful, but it might also be useful—I do not know how such a scheme would work—if it got a number of small businesses to co-operate, perhaps through the auspices of the Federation of Small Businesses. Then perhaps MPs who do not own a small business could secure placements with the FSB and be placed in small businesses, so that they can find out about the costs and burdens that some are facing.
Mike Penning (Hemel Hempstead) (Con): My hon. Friend has raised a very important point, but the only way that small businesses could do that is to form—I think that he was alluding to this—a consortium; otherwise, the burden on them would be onerous. However, I completely agree that if we really want to understand what is happening in the business market, we must not talk just to blue chip companies; we must speak to the small companies that are at the forefront in dealing with this recession.
Mr. Evans: My hon. Friend is absolutely right. The vast majority of businesses in this country are small to medium-sized enterprises, and in many cases they could not take somebody on for 20-odd days, simply because they do not have the people to cope with that, but perhaps they could take on MP an for one day. An MP could, for example, be placed with 20 small businesses in a year, which would give them a fantastic grounding in the problems that small business people face.
Mr. Binley: My hon. Friend raises an important point about the involvement of small business with Government in a wider sense. It was noticeable that, just some six months ago, only the CBI represented British business in a European matter regarding the Temporary and Agency Workers (Equal Treatment) Bill. That area needs to be widened by Government, too, to ensure that the small business voice is heard much more sensibly and clearly in this place.
Mr. Evans:
I totally agree with my hon. Friend. We are in a deep recession and workers are being laid off left, right and centre. When Woolworths closed, everybody knew about it because it was headline news. When small businesses close, it is not headline news as such, because we might be talking about a self-employed person or one or two people being made unemployed. However, if
we multiply that by the number of small businesses throughout the country, we are talking about thousands of people being made unemployed or redundant every week. So when it is all added up, not only are small businesses crucially important to the economic vitality of this country, but the burdens being placed on them are also very heavy indeed. We must look at how we can lift the burdens—for all businesses. We are competing with countries near and far, and we must see what we can do to help our businesses compete and survive. Lifting the burden of paperwork is one way.
The big question being asked today is, “Hold on—all this cash is being made available, yet half the businesses are not claiming it. Why not?” The hon. Member for Somerton and Frome intimated that in some cases, people think, “Hello—it is free money. This cannot be right. And if I do apply for it, I will not get it because there are too many hoops to pass through and hurdles to cross. Why should I bother filling in a form when I am not going to get the money?” There is some truth in all that.
Peter Luff: My hon. Friend is touching on a very important point; indeed, I nearly intervened on the hon. Member for Somerton and Frome (Mr. Heath) about it. I have with me a selection of forms from local authorities that are trying very hard to make things easy for small businesses, such as an online form from Winchester city council. However, they are still pretty intimidating. There are four pages, and pages of notes, and as was said, far too many businesses would put them on the “too difficult” pile, to be dealt with at a later date.
Mr. Evans: That is right, and I suspect that a lot of small businesses have their favourite table for such things, which has to be reinforced from time to time because of the weight of paper. People put such questionnaires there and when they have a bit of time, they will have a look at them. All it takes is one difficult question that people cannot answer off the top of their head, and the form is then put on the table. It is followed by another, and then another, and people never get round to dealing with them.
Also, a lot of small business people tend to work all the hours that exist. They get up at 6 or 7 in the morning and work through till 10 at night. When are they going to find the idle time to sit down and start filling in forms? They just do not have the time, so if they do not need to fill them in, they are not going to do so. As I said, just one difficult question—for example, “What is the square footage of your premises?”—is enough to make people say, “I’ll leave it for another day”, and it never gets done. It is almost as if we have devised a scheme that, although it will assist businesses, we do not want people to apply for. Indeed, that is exactly what is happening—half of businesses simply are not applying for it because they have not got the time, or they think that they will not get the money.
As has already been spelt out, the business rates are a huge burden on a lot of businesses. If we could assist them with that, we would not just be giving respite care or some extra profit to small businesses; we are talking about the difference between some of them surviving and some of them not surviving at this difficult time. I have mentioned the bank charges for businesses that
have loans. The interest that some banks are charging seems to bear no relationship to the historically low interest rates that we all heard about just the other day. In addition, there are accountant fees and utility bills, which have already been mentioned.
The refuse issue is a famous one. I remember that when I first started working in business, we paid business rates and the collection of the rubbish was part of that. Then, all of a sudden, we started receiving another bill—for the collection of the rubbish, which was, we thought, already covered by the business rates. Did the fact that we were now paying a separate bill for the rubbish mean that the business rates went down? No—not a chance. Not only did the business rates continue to rise relentlessly, but so did the bill for refuse collection. There are a number of other such bills, the water rates being one.
Mike Penning: It is important that people listening to this debate understand how business rates are collected, and that they do not blame their local authority for the size of the business rate. The Government set the business rate; the local authority is the debt collector on behalf of central Government.
Mr. Evans: The fact is that most small businesses do not have the faintest idea about the difference between the domestic rate and the business rate, who collects it, who benefits from it and where it all goes. All that they know is that they have to write a cheque for it or set up a direct debit from their bank account. That is the problem. They are not particularly bothered about how it is spent or where it goes; all that they know is where it comes from.
Peter Luff: I am sorry to intervene again on my hon. Friend, who is making an excellent speech. He has reminded me of a very interesting anecdote. I think that it was Anthony Hilton who, in his own column in the Evening Standard a couple of weeks ago, blamed local authorities for rising business rates. It was an extraordinary statement from someone of that seniority. There is a lot of misunderstanding of the rates system and it would be good to get it sorted out.
Mr. Evans: Absolutely. A survey by the Local Government Association estimated that 870,000 firms were eligible for relief but only half were getting it, so we are talking about almost a million businesses out there that could be getting this relief and are not. We must work out a system to ensure that that relief gets through to them. We know that there are a lot of benefits that people are eligible for, but which they do not take up. There are a lot of means-tested benefits for which people have to apply, but they do not do so. I suspect that the Government have a formula: whenever they make a benefit available to anybody, they probably work out the percentage of people who are not going to claim it. If it were not for that percentage of people, any such benefit would be a lot more costly for the Government and they might not make it available—that is a real problem. In this case, the cost-neutral aspect of the Bill makes it all the more attractive.
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