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11.48 am
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr. Sadiq Khan): The good news is that I do not intend to make a three-hour speech. I know that that will please you, Mr. Deputy Speaker, and the House.
I thank the hon. Member for Mid-Worcestershire (Peter Luff) for bringing this important subject before the House. I smirked when I saw the Tellers in this morning’s Division give the impression that they did not know what they were doing. The comment has been made that there should be a handbook on how to conduct a private Member’s Bill. If only there were. One rule that I apply when considering such Bills is to ask who is promoting the Bill, whether he knows about the topic and whether the Bill is intended to address a public interest. The hon. Gentleman is charming and persuasive, he knows what he is talking about and he is trying to address serious problems that some of the most vulnerable people in our constituencies are facing. Whatever criteria one has for considering whether to support a private Member’s Bill, he does pretty well on them.
We are living through a time of great economic upheaval and uncertainty, global in its origin but local in its impact on businesses and communities across Britain. The fair comment was made in the debate that if only more parliamentarians had experience of small
business, the legislation and regulations that we make might be better, or there might be less such legislation. I speak as somebody who has personal experience of involvement in a small business. It did not quite have 250 employees, like that of the hon. Member for Northampton, South (Mr. Binley), but grew from having 12 to having more than 50. I know that the challenges that small businesses face in dealing with the bank manager or accountant, with human resources and with cash flow are huge, and I recognise the extent of those challenges at this difficult time.
The Government are very sympathetic to the aims behind the Bill. In our discussions with the hon. Member for Mid-Worcestershire, his passion about the ends of the Bill and his lack of obsession with the means have been noteworthy. I hope that he recognises that we appreciate that approach, given what I will suggest towards the end of my speech.
In a time of economic uncertainty, we are keen to find ways to support businesses, and especially smaller businesses, through the downturn. However, it is important not to let the urgency of the current situation blind us to the bigger picture of supporting the business community en masse. I know that we all want rapid solutions to the problems that we face at this time, but it is important for us to deliver a package of options that is well thought out. Of course the Government are seeking ways to help businesses, and the Bill has certainly presented us with food for thought.
Mike Penning: While the Government are pondering the matter and being thoughtful, businesses are going bust every single day of the week. Can we not have an announcement today that the measures in the Bill will be taken up? It could go through Committee in one day and we could soon be back for Report and Third Reading, and we could save thousands and thousands of jobs while instead the Government are still thinking about the matter. Surely the logical position is to move forward now.
Mr. Khan: If the hon. Gentleman, who is a friend, is a mind reader, he has misread mine. He does not know what I am going to say. I will let him intervene again towards the end of my contribution if he wishes to do so.
Mr. Evans: I have a simple question. Wales introduced this measure in April 2007. What is the problem with England introducing it in April 2009?
Mr. Khan: I was going to come on to the hon. Gentleman’s point about Wales in about three minutes. I wish first to deal with the contribution of the hon. Member for Mid-Worcestershire, who made a cracking speech. His analysis of the problems facing small businesses was spot on. He talked about the practical assistance that can be given and accepted that the Bill represents a small part of a bigger package that is required. He has never claimed that it is a panacea for all the challenges that face small businesses, and that temperate and sober approach is important. This one measure will not by itself end those challenges, but it can be part of a package to help small businesses.
The hon. Member for Somerton and Frome (Mr. Heath), who is a sponsor of the Bill, explained that he had stepped aside when he found that the hon. Member for Mid-Worcestershire was introducing it. He made a number of comments. He will accept that many of them were outside the scope of the Bill, but I believe that he was seeking to highlight the challenges facing small businesses, whether on cash flow or credit. He talked about his party’s policy on council tax as well as business rates. He said that business rates will be going up by more than inflation. He knows that the rates are capped by retail price index inflation each year, but I appreciate his point about catch-up, delay and the problems that small businesses experience in that regard.
The hon. Member for Ribble Valley (Mr. Evans) told us about his experiences as a small business man and the challenges that he faces. In his short speech, he spoke about accountants’ advice, underlining that most small businesses are a labour of love and that people are often small business men because it is in their blood. He said that sometimes an accountant will advise a small business person to give up what they are doing and work in Tesco. I hope that he does not take that advice. The House would be poorer for his filling shelves in Tesco, even though he might be better remunerated.
The hon. Gentleman made the important point that we must not assume that one size fits all. He mentioned the impact on pubs, which is important. He emphasised that we need to say, loud and clear, to small business people that the rate relief is not a windfall but something to which they are entitled, but often do not claim. We acknowledge that, as does the hon. Member for Mid-Worcestershire.
Notwithstanding the personalities involved, all of whom, on their day, can play knockabout politics, the debate has been conducted temperately and calmly. Hon. Members have not tried to use the opportunity to have a pop at one another—and I think that the hon. Member for Mid-Worcestershire wanted the debate to be conducted in that spirit. I will not, therefore, rebut the points that individual Members have made, but clarify matters where I can.
In that context, it is worth clarifying the important point that the hon. Member for Ribble Valley made about Wales, where it is true that a different system operates. However, the scheme in Wales is also different in that businesses do not fund it and it is available to multiple occupiers under a lower threshold. Although the hon. Gentleman is right that the semi-automated system was introduced in Wales on 1 April 2007, the onus is on local authorities, which must be satisfied that the businesses meet the qualifying criteria before giving them the relief. It is generally available to businesses regardless of the number of properties that they occupy within the threshold, which is much lower than in England. The Scottish system is also different, and the direction of travel in Scotland is the other way. There are, therefore, different solutions in different parts of the country. It is not simply a case of replicating what happens in Wales.
I call the hon. Member for Northampton, South a friend because we served together on the Committee that considered the business rate supplement. He is a sponsor of the Bill and he talked about his personal experience of founding two companies employing more than 250 people and his current role as a non-executive
director. He gave one example of his confidence and experience having enabled him to speak to the bank manager last September, whereas other small business people, who may be more timid and—to be frank—less savage, may not do so and consequently lose out and get a less favourable deal. We are taking steps to help with cash flow and I can write to him about them, if he would like me to do so. I will not go on about them this morning, if he will forgive me.
The centrepiece of the contribution of the hon. Member for Hemel Hempstead (Mike Penning) was about removing bureaucracy and regulation. Clearly, that is crucial. I endorse the view that Parliament should be formed of more small business people partly because they recognise that need, and also know about the problems involved with the box in the corner of the office or the table continually stacked with forms to fill in. We all know from our constituencies that small businesses experience such problems.
The hon. Gentleman made an important point about rural constituencies—and, in his case, the collateral damage that the Buncefield fire caused small businesses, notwithstanding the recession.
Mike Penning: I am sorry if I misled the Under-Secretary, who has obviously not visited my constituency, but Buncefield is not in a rural part but smack bang in the middle of my town.
Mr. Khan: The hon. Gentleman pointed out that small businesses in rural parts of the country are also suffering. He argued persuasively about the special circumstances in his constituency, whether the challenges posed by the empty property rate relief after the fire, or the shared premises that have been serviced and the problems with small business rate relief and business rates generally. As for those points, he can be in no doubt that the Treasury will be reading this debate in Hansard. I will ensure that they are flagged up and that he is given a response.
The hon. Gentleman’s further point, which caused me some concern, was about the impact of bailiffs, particularly in relation to business rates. I will look into that. If he speaks to me after this debate behind the Speaker’s Chair or writes to me with examples, I will undertake to look into that issue, which is an additional challenge. I also take on board his sense of urgency, which I will address later.
I am not sure whether the hon. Member for Bromley and Chislehurst (Robert Neill) was talking about a battalion of small troops or a small battalion of troops, but there is a difference. He talked about the challenges facing the retail sector, as well as the postcode lottery around the country and the role of local authorities. I will not fall into the trap—although it would enable me to speak for much longer—of talking about other issues, whether quantitative easing or revaluation, but we are alive to the other issues facing small businesses.
Hon. Members will be aware of some of the things that have already been done to assist businesses, but I would like to remind the House of a few of the important steps that have been taken recently. The 2008 pre-Budget report announced a credible package of measures to provide an immediate benefit to businesses, including a cut in the main rate of VAT to 15 per cent. and a
deferral in the increase in the small companies rate of corporation tax—£21 billion of real help for businesses, a lot of them small businesses.
To further help companies struggling to access finance for working capital and investment, on 14 January—just over six weeks ago—my right hon. Friend Lord Mandelson launched in the other place a support package that consists of loan guarantees and a new equity fund. The hon. Member for Bromley and Chislehurst, speaking from the Opposition Front Bench, pointed out that that had not reached the streets yet and that our constituents were not seeing the benefits. I accept that. We need to ensure that the process is speeded up, so that the benefits are received sooner rather than later.
As the hon. Gentleman said, the package comprises the enterprise finance guarantee scheme, which will provide £1 billion of guarantees to support up to £1.3 billion of bank lending to smaller firms with an annual turnover of up to £25 million that are looking for loans of up to £1 million for a period of up to 10 years. There is also the working capital scheme. Small firms do not apply for the scheme; instead, banks will bring to the Government portfolios of their existing and new lending, which the Government will guarantee. The scheme will therefore not be visible to small firms, but it will help to maintain existing lending and increase the availability of additional lending.
The capital for enterprise scheme is a new £75 million fund to help viable small businesses with high levels of existing debt to raise longer-term finance. Professional fund managers will assist in that regard. On regional loans and the postcode lottery, if a business has not been able to secure funding from its bank using the enterprise finance guarantee, it may be eligible for a loan from its local regional development agency.
Robert Neill: I appreciate the constructive approach that we are both endeavouring to adopt. I am also most grateful for the Minister’s recognition of the need to get the funds under the various programmes that he has outlined to the businesses on the front line, so to speak. However, can he help us any more, either today or elsewhere, on the time frame within which that is likely to be achieved?
Mr. Khan: Of course I can help: it will be done as soon as possible. I feel the frustration—we would like an exact date too—but the hon. Gentleman knows the challenges. When we give a date and it is missed, people stand up at Prime Minister’s questions and make cheap points about it. We are trying to do things as soon as we can, but if I have a firm date, I will send him a note, so that he can pass it on to his constituents and others.
Robert Neill: I am grateful to the Minister, but I do hope that he accepts the sense of urgency if nothing else.
Mr. Khan:
As hon. Members will be aware, we have also recently taken steps to alter the small business rate relief, which was introduced in 2005, so that applications can be made even if the ratepayer takes up occupation of a newly occupied property mid-year. From 2009-10, the statutory requirement that a property should be on the rating list on 1 April in order to be eligible for small business rate relief in that year is
being removed. The 1 April restriction was recognised as unnecessarily preventing local authorities and businesses from utilising the SBRR from the date on which a business first occupied a property. The removal of that restriction will allow more flexibility for small businesses and local authorities.
Mr. Chope: I am grateful to the Minister for setting out the help that the Government say they have been giving to small businesses. Does he accept, however, that if a small business is thinking about whether to renew or extend a lease, or to take out a fresh lease on premises, it needs to have a perspective of more than one or two years? It needs to be able to think in terms of five or seven years, which are normal lengths for a lease. It therefore needs some certainty about Government policy relating to the revaluation, and to know whether it is likely to be penalised by the 2008 rateable value. The Government have given no guarantee that the relief scheme will continue when the revaluation takes place from 2010. Those are important considerations for any business thinking now about whether it wishes to continue in its present premises or invest in new ones. I think that the Minister accepts that we cannot have short-termism, and that there is a need for certainty in the medium term. Will he give medium-term certainty to those small businesses?
Mr. Khan: The hon. Gentleman will understand that I am not going to deliver the Chancellor’s Budget today. I recognise that small businesses want certainty and clarity, and we will seek to do as much as we can. There is an irony, of course, in that we were the party and the Government who were criticised for having five-year and 10-year plans, yet we are now being asked to have them. We will try to provide the certainty required, as that is one of the factors that small businesses will consider when deciding whether to renew or extend a lease; there are others. That is why experts must be available locally to give businesses the advice that they require, rather than mandarins or politicians in Whitehall.
My right hon. Friend the Minister for Local Government and I had a useful meeting with the hon. Member for Mid-Worcestershire and his associates two weeks ago. I should like to thank the hon. Gentleman again for that constructive meeting, at which he and the Federation of Small Businesses, which is supporting his Bill, said that the small business rate relief system was a good one, and that they were seeking to make the present system automatic. The question that we are asking today is whether to automate.
I should like to set out in more detail what the present small business rate relief system does and how it works, because it is important to understand its logistics when considering the Bill. As we understood the challenges that small businesses face, and because we knew that rates placed a disproportionate burden on them, we introduced the small business rate relief scheme in 2005. The scheme is targeted—I emphasise that word—at small businesses that meet a number of criteria, including that of occupying a single property in England. The system is different in Wales and Scotland. During the valuation cycle for business rates, a business seeking to obtain small business rate relief is required to make a
declaration on a pro forma, stating that it meets the criteria, before being granted the relief. We have recently amended legislation to make this process easier for businesses; I shall elaborate on that point in a moment.
The scheme was introduced in 2005, and addresses the disproportionate burden that business rates place on small businesses, compared with larger concerns. Relief is available at 50 per cent. to eligible properties, up to £5,000 rateable value, with relief decreasing at the rate of about 1 per cent. per £100 of rateable value up to 0 per cent. at £10,000. It has a buffer zone for properties between £10,000 and £15,000—or £21,500 in London, for obvious reasons—that meet the small business rate relief eligibility criteria.
These ratepayers, after certifying that they meet the eligibility criteria, do not have to contribute to the cost of the scheme. The scheme is paid for by businesses not receiving the relief, through a supplement on their rate bills. For 2008-09, the supplement is 0.4p, as the hon. Member for Mid-Worcestershire said. It is worth pointing out, as this matter has been raised in the debate, that the number of properties reported by local authorities as claiming small business rate relief as at 31 December 2006 was 392,000. That is the latest published figure. The amount of relief given in 2005-06 was £202 million. In 2006-07, it was £237 million, and in 2007-08 it was £260 million.
The criteria, apart from the rateable value, are that ratepayers may occupy only one property in England, but other properties—this was referred to by the hon. Member for Mid-Worcestershire—with a rateable value under £2,200 can be disregarded in deciding whether the single-occupancy criteria has been met.
Mike Penning: We have heard how many businesses received the relief and how much money that was, but what percentage of the businesses entitled to the relief does that represent?
Mr. Khan: That is a very good question, and I will come to one of the challenges in answering it in a few moments. Variations around the country were referred to, and I will come to why the question is difficult to answer.
Properties with a rateable value under £2,200 can be disregarded, as I have said, but the rateable values of such properties are included in determining whether or not the threshold criterion has been met.
I turn to the application process, which is really what is being debated today. I have already set out my understanding that the aim of the Bill promoted by the hon. Member for Mid-Worcestershire is not to amend the current scheme, but to remove the application declaration process and for the relief to be granted automatically. Small business rate relief is not currently applied automatically, so ratepayers must apply to the relevant billing authority. The application form makes it clear that it is a criminal offence to make false declarations, which allows the local authority granting the relief to assess whether all the eligibility criteria have been met. Those ratepayers certifying through their application that they meet the given criteria then receive the relief. The application process reduces the risk of ratepayers receiving relief when they are not eligible.
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