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Of course, the Government need sufficient resources so that they can equalise the situation, on the basis of resources and need, between councils with different abilities to raise money and differing needs. The estimate
is that the Government need to control about 30 per cent. of the money spent at local level to do that, not the 75 per cent. of money that they control now. Transferring business rates would actually give local authorities the right to raise about 50 per cent. of their own resources directly, and that would be a significant change, which I would commend. I know that the Lyons report looked at that, but did not recommend it. The report did recommend the supplementary business rate, and the Government have introduced that in principle, although they have not gone as far as Lyons wanted. I know that the Government are also looking at measures such as the community infrastructure levy, which will provide some powers at local level to raise the additional resources for councils to spend.
There is a fundamental problem, however: not merely with the gearing of council services, because local authorities raise so little of the total money that they spend at local level—only a quarter—but with the disconnect between development, the costs that it brings and the extra resources that are provided for an area. This country differs from many others in the EU, such as Germany, which has a much bigger incentive to look positively at development because the benefits of the taxes generated by it come back to the community in which it takes place. That is a big issue that needs addressing.
My right hon. Friend dealt adequately with the other issues. Yes, 5 per cent. inflation looks like a large increase, but there is the possibility next year of a minus 3 per cent. figure for the retail prices index, which shows that the linkage is right. Over the years, businesses have had a good deal. Since the council tax was introduced, the amount that it contributes to local authority resources has risen from 21 to 26 per cent. At the same time, the amount contributed by the business rate has fallen from 28 to 20 per cent. Over the long term, council services, even with efficiency savings, are always likely to need more money spent on them year on year than RPI, because wages at local council level are likely to go up faster than RPI. If the business rate is held down at RPI, it is likely to contribute a smaller and smaller amount towards the payment of council services. That is why, over time, businesses have not done too badly.
Sir Nicholas Winterton (Macclesfield) (Con): Will the hon. Gentleman give way?
Mr. Betts: I am sorry, but I have not got time to give way. I normally would, but I had only five minutes and have only one minute to go.
Revaluation is just another red herring. The hon. Member for Putney (Justine Greening) simply does not understand. Revaluation is not a way of raising in total additional money for Government or anyone else. It is simply a way of ensuring that, in light of current circumstances, the amount that is going to be raised is properly raised and spread between the various businesses in the country. That is all that it does. Once a Government fall behind with revaluation, postpone it and put it off, that simply means that the next time they do it, the dislocation is even greater. I have to say to the Government that that is exactly the problem that we now have with council tax revaluation. It has been postponed and postponed, and we have got ourselves in a real mess. The system of property tax will have credibility only
when it is based on current values, not on historical values that people simply do not understand.
I have tried to keep to the five-minute limit and to deal with some of the important points in this debate, but I think that the Opposition missed a big opportunity. Their commitment to localism is obviously very thin indeed.
9.15 pm
Mr. Brian Binley (Northampton, South) (Con): May I welcome the Minister for Regional Economic Development and Co-ordination to her position tonight? It is good to see her here. I was hoping that we might hear from her about a change of Government direction regarding the issue on which I want to spend my time this evening: automatic rate relief for small business. The Minister disappointed me enormously, but there is still time. She is new to the job and therefore prepared, I hope, to listen to argument. If so, I hope that by the end of this evening the Government will change their mind. Let us see.
The Minister will know that I was a sponsor of the Bill on this matter promoted by my hon. Friend the Member for Mid-Worcestershire (Peter Luff). Indeed, the Government seemed to support the main thrust of the Bill on Second Reading. We were very optimistic. The then Minister, the right hon. Member for Tooting (Mr. Khan), said that although he was not privy to what his
“right hon. Friend the Chancellor may put in the Budget report...I do know that robust consideration is being given to what is the best method of support for businesses, and the private Member’s Bill of the hon. Member for Mid-Worcestershire has, no doubt, driven the matter even further up the agenda.”
“I must emphasise that we have not ruled this out as an option for the future...Clearly, Government should support the aims put forward today by the hon. Gentleman with the support of the FSB”,
the Federation of Small Businesses. He concluded:
“Between them, they have come up with a proposal in which there may well be merit.”—[ Official Report, 6 March 2009; Vol. 488, c. 1144-45.]
Those were the remarks made by the then Minister in the last debate we had on this subject.
We had every reason to be hopeful that that Minister would therefore urge the Chancellor to put automatic payment of rate relief to small businesses in the Budget. We listened to the Budget with great dismay, and heard not a word—not a mention. After all those fine words, after all that encouragement and after all those intimations that the Government might well accept the Bill—on the basis of which my hon. Friend the Member for Mid-Worcestershire withdrew the Bill on Second Reading, and did not push it any further because he was so encouraged—sadly, they did not act. We found that very disappointing.
No provision was made in the Budget and no proposal has appeared since then. I do not need to go into the reasons why small businesses are in the plight that they are, other than to say that cash is king—I keep on saying that. Small businesses are fighting on every front to remain viable, and the payment of rates represents the third largest payment to a given area of budgetary control that small businesses have to pay out. That is
the truth of the matter. They need the cash. How much cash? They need £1,200, but it would mean a great deal to the many hundreds of thousands of very small businesses up and down the country if that could be given automatically.
Why is not given automatically? Simply, it depends on how the local authority treats the issue. Businesses benefit when they are in local authorities that take an interest in the matter and advertise the availability of rate relief, but those elsewhere do not get the chance to claim. [ Interruption. ] I see the Minister turning up her rather pretty nose—I am sorry, Mr. Deputy Speaker, I hope that that was not too personal—so I shall give her some figures by way of explanation.
In Essex, only 27.1 per cent. of businesses in the Thurrock unitary authority claim small business rate relief, whereas the figure in Tendring district council is 72.7 per cent. That is a massive difference between councils that are very close geographically, and it is due to the fact that one makes an effort and the other does not. It is very simple: 52 per cent. of small businesses across the country do not claim the relief to which they would be entitled if they knew about it.
So why should the relief be given automatically? The Minister said that that did not happen because it was too difficult to put into effect—what nonsense! It has been put into effect in Wales with no problems whatsoever, and local authority treasurers have told me that they would rather the relief was a right than to have to get people to apply for it. With respect to the Minister, her response was nonsense.
I therefore urge the right hon. Lady—in the nicest possible way, as I was rather rude to her earlier—to look at the matter again. Making the relief automatic would save money for local authorities, and it could allow very small businesses still to be here this time next year. That is their objective.
9.21 pm
Mr. Geoffrey Robinson (Coventry, North-West) (Lab): I suggest that there is probably a lot of support for what the hon. Member for Northampton, South (Mr. Binley) has just said and that making the relief automatic would help in several ways. However, time is brief and I want to put to Ministers a specific proposal for saving some money for small companies in the city of Coventry at this difficult time.
Coventry’s Business Improvement District company has been referred to already today. It is full of good intentions, but unfortunately it has proved to be inadequate and delinquent in its duties. Electoral reform is much in the air at present, and all forms of voting are subject to review, so I put it to my right hon. Friend the Minister for Regional Economic Development and Co-ordination that she could have another look at the requisite level of approval from small companies that these BID projects need. The one in Coventry was passed with just 18 per cent. of the companies being taxed actually voting in favour, and that is a very low figure indeed.
A lot of false promises and representations were made by the BID company that have simply not been met—in respect of security and CCTV cameras, and of broadband, to which the Government and all businesses are very committed. The provision of broadband is running over a year late already, while the CCTV system—
which was promised with back-up policemen and all that sort of thing—covers only a small percentage of the premises that are paying for it.
The local authority supports the BID project, but it has been mooted that some rebate would be in order. This is a terrible time for small companies in the city of Coventry, and the payments are still strongly resisted, as I shall describe in a moment. I put it to my right hon. Friend the Minister that both a rebate and a deferral could be used to gear the payments, and that that would be absolutely in order and very necessary.
The extra tax, of course, is levied on charities, but supermarkets and leisure centres are exempt. That makes no sense at all. The charities affected include the British Heart Foundation and Coventry’s Ring and Ride project, both of which are being made to pay the tax. I think that the bailiffs are being sent in to the 140 companies that are unable to pay, so the full force and rigour of the law are being brought to bear for no better purpose that I can see than to expose the inadequacies of the BID company.
In addition, rates are being levied on small companies to fund CV One, which is a Coventry city council initiative—a very admirable initiative, I am sure—to boost the image of Coventry. In many respects, the city suffers from a relatively poor image, despite its many advantages. A select group of companies has been picked out for the privilege of paying £400,000 a year, when the whole of Coventry is meant to benefit from the initiative.
I ask my right hon. Friend the Minister and the Government please to get in touch with the BID company. I beg her to ask the company to answer my questions, which it refuses to do with an arrogance that one cannot believe. Please may we push through a deferral—that is very much at the heart of the Government’s rates proposals—and a rebate to the companies in question?
9.25 pm
Mike Penning (Hemel Hempstead) (Con): I ask the new Minister for Regional Economic Development and Co-ordination to listen carefully to the points that I will make. In an intervention, I tried to raise a serious issue that has a massive effect on the business community in my constituency. It has to do with empty property rates, which have changed so that the exemption from them drops after six months. It is absolutely ludicrous, if not immoral, that businesses that have no choice—none at all—but to be outside their premises should be caught by the rates on empty properties. In my constituency, the main reason for that happening was the Buncefield disaster that took place in November 2005.
Lord Newton, who did the best that he could in the inquiry undertaken on behalf of the Government and the Health and Safety Executive, said in his conclusions that there needed to be a special economic status for places such as Hemel Hempstead, which was badly damaged by a disaster that was not its fault. Through no fault of their own, businesses were literally blown out of their premises. Some of the businesses have actually demolished their premises—levelled them off—so that no business rates are due. The sites are lying fallow. Nothing will be built on them until after the civil case
before the High Court is heard, and until the criminal prosecution has taken place. I will not talk about that, because those matters are sub judice.
The premises of businesses that do not have the money, or whose insurance companies have not paid out, are sitting there, derelict. 3Com is a good example; its premises are in the middle of my constituency, right next to Buncefield, and they are completely derelict. The company is liable, believe it or not, for business rates. The disaster took place in 2005; we are now entering the summer of 2009 and it is not the companies’ fault that they cannot return to their premises. It is not the fault of my local authority, which has done a fantastic job in helping businesses to get back into some of the premises. It is the fault of some of the insurance companies, which were, frankly, slow or belligerent in paying out. However, the biggest problem is that we still have two huge court cases going on—one for compensation, and one a criminal prosecution. The businesses are stuck; they are in limbo; they cannot move back into their premises.
Obviously, some businesses are paying business rates, rent, and mortgages on new properties. The insurance companies have helped out with the new capital costs, but the businesses are liable to pay business rates on premises that are derelict, and they cannot move back into them. Some of them are not willing to move back into their premises simply because they have a duty of care to their employees, and they are not happy about moving back in until the Government have made decisions about the safety of premises that surround oil depots such as Buncefield—the recommendations are yet to be made—and until the two court cases are concluded.
Surely, in such a debate, the Minister could have said, when I intervened, that it was difficult to answer my question straight from the Dispatch Box. Instead of ignoring my intervention, she should have done me the courtesy of saying, “I will write to you about the matter; it is a very specific issue.” Instead, very unusually for the Minister—I have worked with her before—she completely ignored my intervention, which was on an issue that means a huge amount to my community and for business confidence in my constituency. Our enormous plight cannot be ignored. There is a recession going on, and there is a blight on my local business park. That is not our fault; it was the fault of the oil companies, from whom we are trying to get compensation. In the meantime, I would have thought that a little help from the Government would not have gone amiss.
9.29 pm
Dr. Alan Whitehead (Southampton, Test) (Lab): We are addressing a serious issue this evening—how businesses may get the best help possible through the recession, which has been sudden and in many instances relates to circumstances that changed rapidly last year. We should consider various types of help, a number of which have been mentioned. However, as hon. Members have pointed out, the Opposition chose to address not that wider issue, but the specific and narrow topic of business rates, which is one of the issues, but by no means the only aspect of support for businesses in a recession.
The motion, concentrating on the business rate, states that
“businesses have already been hit by five per cent. above inflation rises”.
If one chooses to make the focus of the debate so specific, it is essential to have some answers to the questions that arise from such statements so that the debate can be taken seriously. If one says that businesses have been hit by above-inflation increases, one presumably has to say that it would be a much better idea if businesses were not hit by above-inflation increases, in which case one must presumably refer to the original legislation on business rates passed by the then Conservative Government, which stated that a retail prices index indicator should be put in place to determine business rate increases each year.
The question then arises whether the solution is to change or abolish that legislation. Should there be no increases in business rates, or smaller increases? Both of those would require the original legislation to be changed. If one goes for no increases, one must answer a further question. Each year that formula raises about £1.3 billion in business rates, which goes towards the local government pot, so to speak. If that element is removed, one has to decide how the pot is to be replenished. Will the general taxpayer have to pay an additional grant towards the local government settlement, or if no one is to pay, will there be a cut of £1.3 billion in local government spending? One ought to be straight about that, if that is what is proposed.
I have attempted to find some answers, and not just for the purposes of the debate. I listened carefully to the presentation from the hon. Member for Putney (Justine Greening), but I got no answers from that at all. Indeed, there was obfuscation about the proposals. I read an impressive-looking document entitled “Control shift—returning power to local communities”, the Conservative policy on local government. It is a long document, 23 pages in 10-point type. In it there is not a word about business rate construction, how business rates might work in the future, whether the RPI formula would be adhered to or whether changes would be made to it.
There is not a word about revaluation or how it might be changed. Revaluation has taken place every five years since 1990 and each time transitional arrangements have been put in place. There is one line about discretionary power to levy business rate discounts, and the document states that that can be given to local authorities
“as long as they can fund them from other local income or avoided costs”—
that is, can they find the money from somewhere else, perhaps the council tax payer, or perhaps by cutting services? The document contains no answers.
If it is decided not to change the legislation, deferring business rate increases is a logical step to take. Next year’s RPI is likely to be negative, and businesses that know that will be able to decide whether they wish to smooth the increase out over a couple of years, take a greater discount now and a lesser discount later on, or go for no discount now and therefore receive a substantial decrease in their business rates for the following year. Businesses will make that logical move if they have the answers to the basic questions. If one does not know what is happening to the basic nature of business rates, and one appears to be unaware that the increase arrangements and transitional arrangements are enshrined in legislation and if one is unaware that revaluation is the basis on which one redistributes—and not increases—the pot, businesses will say other things. That is essentially what has happened tonight.
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