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It was a reasonable enough proposition back in 2003 for the Government to decide to move to normal rating practice for the businesses in the ports and to move away from the cumulo. We could have debated the matter separately, but it is not the main issue. To achieve that change, the VOA was tasked with drawing up an up-to-date rating list, and that is where the catalogue of errors starts. The prescription system had in fact been extended to 2005. The VOA has a statutory duty to maintain accurate rating lists and that was due to come
into force on 1 April 2006. Of course, today is a particularly important day for us to be discussing the issue of rating because it is the quarter day—many people are filing and so the rate bills are dropping on their doormats.
The practical effect of the VOA was, frankly, woefully negligent and inadequate. It did not start the preparatory work until after the due date in 2006. It managed somehow to inform the owners and operators of the ports but not generally the businesses that they would be rated separately and that, in effect, they were to be rated as separate hereditaments and rating units rather than under the cumulo system. So, although many of the big boys—the operators—knew of the change, the small and medium-sized businesses did not. They were not kept adequately informed. The VOA accepts that, in what I suspect is almost as mealy mouthed an apology as when Pontius Pilate said in another place that he might have got it wrong. In a limited fashion, the agency accepts that there was inadequate communication, which puts it mildly. There was no communication at all and there was gross negligence on the part of the VOA.
Mr. Robert Syms (Poole) (Con): This does not only affect large companies. Some quite small companies in the ports, such as those providing catering services and so on, are having their viability threatened by something that has come as a great surprise to them.
Robert Neill: My hon. Friend is absolutely right. As the businesses were given no notification, they were not able to plan for the increase in rates in the way that they ordinarily would. In the course of last year, those businesses were suddenly told—two years after the event—not only that they would be subject to a significant increase in rates, but that those increases in rates would be backdated to 2005. That is why businesses in ports across the country are experiencing enormous increases in their rates, in both real terms and cash terms.
Julia Goldsworthy (Falmouth and Camborne) (LD): Does the hon. Gentleman agree that is was a double insult to those businesses when they found out not only that they were landed with a rates bill that they had not expected, but that it would be retrospectively applied? It was a double insult and not just a bolt out of the blue.
Robert Neill: The hon. Lady is absolutely right. I know that we make common cause on this issue. A number of Labour Members have raised exactly the same point.
A number of parliamentary answers have disclosed that the way in which the Government subsequently handled the issue does them no credit. The initial fault lay with the VOA, but the Government have failed to do anything to rectify it. We have a retrospective increase in taxation about which there was no communication, no consultation, no impact assessment, no assessment of the likely revenue to be raised and no assessment of the impact on the wider economy. There was no quantifying of the revenue or the economic impact, which was a clear breach of the Treasury’s guidelines on the imposition of retrospective taxation. This is not just a complete foul-up in practical terms; it is thoroughly wrong in principle— [ Interruption. ] I am glad to see that the right hon. Member for Birkenhead (Mr. Field) is following me so far.
Mr. Frank Field: How are you going to vote?
Robert Neill: I see that the right hon. Gentleman, who likes to hear a tale unfold, is following me closely. I am sure that he is getting the drift.
We are now finding that businesses are being hit by massive and unsustainable bills. It is worth giving a few examples. TTS Shipping Ltd. is a small firm, but well organised—a viable company under any normal circumstances. It pays its way; it is important to stress that in this context. It pays corporation tax, national insurance contributions and PAYE of £425,000 to £860,000 a year. These are not fly-by-night people—they are honest businesses paying their way and doing their bit. In 2007, TTS found that it had a retained profit of £40,000. It has now been saddled with a backdated liability for rates of more than £1 million, which it will not be able to pay—it is as simple as that.
This regulation affects big people too; I am always interested in treating the big and the small equally, as hon. Members will appreciate. DFDS Tor Line, one of the major multinationals operating in the UK, has a backdated rates demand of £9.9 million. Even for a major operation, that is a lot of money. Its increase in annual liability is £3 million. Its managing director has written to indicate that, as a result, his main board is considering relocating the business outside the UK. That is very significant. The major international players, particularly on the Baltic and North sea routes, have the option, when transporting cars and other goods, to offload in Amsterdam or Rotterdam and then bring the goods on via road instead of shipping them in direct, so that British competitiveness in the ports is damaged.
My final example is Freshney Cargo Services. Its bill has gone from £48,000 to more than £850,000—massively more than its best-year-ever profit. Its retrospective liability is £24 million, for which it could never possibly plan. There is no way that these business can meet the unintended consequences of this foul-up by the VOA.
Mr. Ian Cawsey (Brigg and Goole) (Lab): The hon. Gentleman has said a lot about the retrospective element that is being applied to these companies. Does he accept, and want to place on the record, the fact that none of those companies is saying that they do not accept that they must pay business rates and will not do so in future—that this is entirely about retrospection, and we cannot tell them to go back three years when they cannot go back to their customers and ask for the money?
Robert Neill: The hon. Gentleman is absolutely right; he makes a powerful point. I know that he has taken an interest in this issue, and I hope to heavens that the Minister listens to him. It is not reasonable for companies to have to expect to go back in that way.
Mr. Austin Mitchell (Great Grimsby) (Lab): The hon. Gentleman got the figure on backdated payments for Freshney Cargo Services wrong: it is not £24 million, but £3.2 million. The managing director, Mr. Andy Dixon, has asked me to ask the hon. Gentleman whether the Conservatives are going to vote against the measure.
Robert Neill:
We will try terribly hard to put the hon. Gentleman out of his misery. He is right—I left out the decimal point. I thought that it was £2.4 million, but it has gone up; now it is even more.
[Hon. Members: “How are you going to vote?”] The more hon. Members want to ask questions that I am not going to answer yet, the longer this will go on. How they exercise themselves is entirely a matter for them.
The genuinely serious question that arises is how to deal with this creation, which is certainly not the fault of the businesses that were unable to plan for it. This has been debated time and again. The hon. Member for Great Grimsby (Mr. Mitchell) secured a Westminster Hall debate, which was well attended and where the case against the Government was comprehensively put. We prayed against the motion to enable us to have a debate in the Commons. The matter was recently debated in the other place, where—owing to its procedure—a non-fatal motion of regret was passed by their lordships, giving them the opportunity to ventilate the inadequacy of the Government’s response to the situation. Their response—I am sure that the Minister will explain it to us patiently, as he has before—is to enable the liability to be spread over eight years. That is all well and good, but it does not solve the basic problem that still arises: the liability is still there and businesses will still have to pay a massive amount that they can ill afford. Moreover, because the liability accrues in one year, it will have to be carried on to their books as a liability in the first year, even though the payment is spread over a longer period.
Tim Loughton (East Worthing and Shoreham) (Con): My hon. Friend makes a powerful point, and many of us who have harbours and ports in our constituencies have heard it first hand. Is the timing of the measure not doubly insensitive? The port in my constituency has many businesses importing timber and building materials for the building industry, which has been particularly hard hit. Those businesses are being asked to take a hit at a bad time in the economic cycle, when their balance sheets are pretty shot to ribbons, and it will push them absolutely over the edge in some cases.
Robert Neill: My hon. Friend is absolutely right. Businesses are caught in an impossible dilemma. They cannot pay with the resources that they have, and with freight rates at an all-time low, their only recourse is to attempt to pass on costs elsewhere, which affects the other businesses that are in turn dependent on them. It is economic nonsense to embark on this course in the current economic situation.
Mr. John Redwood (Wokingham) (Con): Does my hon. Friend agree that this is an issue for the Minister, who now has the opportunity to move on the policy? Since the policy was ham-fistedly put together, the Government have converted to the view that they must do whatever it takes to sustain business through the recession. The regulations are quite incompatible with that policy.
Robert Neill:
My right hon. Friend goes absolutely to the point, as he invariably does on these matters. The regulations fly in complete contradiction to the Government’s policy, and one of the reasons why this debate is particularly timely is that it would enable the Government to do the same for the ports as they did for business rates increases yesterday, when the Chancellor said that he recognised that a 5 per cent. increase was unsustainable, and had to back off from that. Some
ports are suffering from a 200 or 300 per cent. increase. If 5 per cent. was too much and had to be abandoned, the regulations should be abandoned, too, and we are giving the Minister the opportunity to recant, even at this late stage.
I shall make a couple of points before I move on, because I know that other hon. Members want to speak. The Government had clear warning in advance about the issue of the liability being booked. In February, the Insolvency Service wrote to the Minister and said:
“The debt, like any other, would need to...be booked immediately. Depending on the company’s overall financial strength, it may not have the assets to cover this additional liability.”
That is a modest statement; that is the least of it. The letter continues:
“In such circumstances, the company would be balance sheet insolvent.”
Legally, if the company had a reasonable prospect of paying, it could continue to trade, but that balance-sheet insolvency, as anyone with even the most modest involvement with practical business would know, increases its cost of borrowing. It would make it much harder for the company to raise finance, and if it does, it would be more expensive to do so. That is a significant indirect burden, alongside the liability itself. It also makes a company far less robust if it experiences further commercial difficulties or reverses during the recession. It makes the likelihood of that company going under far greater.
The Select Committee on Treasury, which reviewed the matter in considerable detail, concluded that there was not just a likelihood but a probability that businesses will become insolvent in that regard, and it thought that there was a strong case—“clear evidence” was the phrase used—that it would lead to the circumstances we described.
Derek Twigg (Halton) (Lab): I am sure that the hon. Gentleman is trying to build up to a crescendo, but we have waited patiently for the answer to a simple question. Given that he has already said on record that the Opposition are opposed in principle to the Government’s position on matters that I have raised with the Minister, will he be voting against the regulations? And what is his party’s policy?
Robert Neill:
The hon. Gentleman has to hang on for only a little bit longer, because we are nearly there. I will tell him exactly what we propose because the Treasury Committee suggested a simple way forward. It said that we should retain the current valuations until the next revaluation in 2010. That would be a sensible way forward because it would enable the revaluation process, which businesses accept should take place, and which they accept will increase some liability for them, to be done with proper consultation and assessments so that they could plan their cash flow and future business plans. That would be the sensible, rational, joined-up way to do it, and we as a party have urged the Government to do that. The debate gives them an opportunity to do so, even though we do not oppose the eight-year payment period of itself. [Interruption.] I must say that I am surprised that hon. Members are surprised about that—all they had to do was read the speech of my noble Friend Earl Attlee in the other place. It is in Hansard—he made it clear that we are not opposed in principle to the eight-year period. However, for the reasons that I hope I have set out as clearly as I can, that period is not
adequate to relieve the dilemma in which businesses have been placed, first by the failures of the Valuation Office Agency, and secondly by the inadequacy of the Government’s response.
This is the last chance for the Government to announce in this House that they will do the same thing for port businesses that they have done before for others. We will not vote against the regulations, but we have vented clearly our views about them as we regard them as very important. That would scarcely be a surprise to the Minister if he had read what we said in the House of Lords. I suspect that he might have done, actually, but we wanted him to be able to listen to the argument unfold in a chronological fashion.
The debate will also give the many Members of all parties who are concerned about the impact of the regulations in their constituencies the chance to tell the Minister directly what is happening. I am afraid that many people, businesses and Members feel that they are meeting a blank wall when talking to the Government.
Mr. Austin Mitchell: In other words, the hon. Gentleman is telling us that we must wait for businesses on the docks to go insolvent and for jobs to be lost before the Opposition have the guts to do anything.
Robert Neill: With respect, I do not think that the Opposition can answer for the inadequacies of the response of the hon. Gentleman’s party’s Government. I know that he is ashamed of them, but there is no need for him to try to park the blame elsewhere—as he well knows, it lies entirely on the Treasury Bench. I remind him what the Opposition pledged to do in the Westminster Hall debate. We did not just urge the Government to adopt the Treasury Committee’s all-party recommendation, and advocate that as a policy. As the Minister well knows, we also indicated that if primary rather than secondary legislation were required for that purpose, as the Government contend, we would do everything necessary to facilitate the passage of that legislation. I happen to know that the Liberal Democrats take the same view, because they expressed it.
At this moment, the Local Democracy, Economic Development and Construction Bill is before the other House. It touches on the powers of local authorities to assist businesses in their area. We have asked why on earth the Government do not table an amendment to that Bill. There is also a Finance Bill coming up in which they will have the opportunity to deal with rating measures. As the hon. Member for Great Grimsby knows, it is not for us to control that. We have given the Government the best possible evidence that, if they wish to go down that route, we will do everything to assist them to assist businesses. With respect to him, I cannot say fairer than that. We are giving Ministers every possible opportunity, but I cannot make them see the reality of the situation. If they fail to do that, and if businesses go under, it will not be the hon. Gentleman’s fault, because he has raised the issue, but it will certainly not be the fault of Conservative Members, because we, too, have consistently raised it. It is the Government who will have failed and sold short the businesses in the docks.
5.33 pm
The Minister for Local Government (John Healey): I understand the concerns that have been raised and the pressure on the cash flows and margins of businesses that are affected by a backdated liability for business rates dating back to 2005. I also understand that some argue that we should go further than an unprecedented eight-year period in which to pay those backdated liabilities, but I want everyone to understand that voting down the regulations, which I laid before the House on 10 February, would leave the position of those businesses exactly as it was before we took action. In plain terms, let me give a warning: supporting the prayer that the Conservatives have tabled would mean that companies were legally liable to pay all the backdated business rates from now. It would also mean that councils were legally required to pursue and enforce those debts. That is at stake in the prayer that the hon. Member for Bromley and Chislehurst (Robert Neill) and his leader have tabled.
The debate has largely been about ports, but port businesses are not in a unique position. I therefore also want everyone to understand that the regulations that I tabled and the provision that the Government have made apply equally to businesses throughout England in all sectors and all areas, and not only to the ports-based businesses, which find themselves in the position of having significant and unexpected backdated business rates liabilities, incurred as a result of the Valuation Office Agency’s separately listing them and assessing them for the first time in this rating list period.
Mrs. Louise Ellman (Liverpool, Riverside) (Lab/Co-op): Does my right hon. Friend accept that the ports businesses are in an unacceptable position, which has been brought about by the action or inaction of the Valuation Office Agency, and that, although the Government’s proposals are necessary, they are not sufficient?
John Healey: I shall explain shortly why I believe that the ports businesses are in not a unique, but a special position. There are some unacceptable pressures, created not least by the ports review, but I want to tackle the argument that Conservative Members and the ports lobby make that, somehow, the tax liabilities, which were legally established, should be waived. That is important. In the last financial year up to only 31 October, at least 800 companies, including some of the businesses in ports, were eligible for the payments scheme. That scope will be removed from them all if the regulations do not remain in place.
Backdating ratings assessments is not new, but an established feature of the business rates system. It operated the list that we are considering not only from 2005 onwards, but from 2000 onwards and before that. In 2004-05 alone, in the previous ratings list period, more than 1,500 properties were put on the list for the first time, with significant backdated liabilities in precisely the same way as the ports, about which the hon. Member for Bromley and Chislehurst and my hon. Friends are rightly concerned.
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