The
Committee consisted of the following
Members:
Brown,
Lyn
(West Ham) (Lab)
Cairns,
David
(Inverclyde)
(Lab)
Dunne,
Mr. Philip
(Ludlow)
(Con)
Engel,
Natascha
(North-East Derbyshire)
(Lab)
Ennis,
Jeff
(Barnsley, East and Mexborough)
(Lab)
Follett,
Barbara
(Parliamentary Under-Secretary of State for Communities and
Local
Government)Goldsworthy,
Julia
(Falmouth and Camborne)
(LD)
Greening,
Justine
(Putney)
(Con)
Gummer,
Mr. John
(Suffolk, Coastal)
(Con)
Ingram,
Mr. Adam
(East Kilbride, Strathaven and Lesmahagow)
(Lab)
Laxton,
Mr. Bob
(Derby, North)
(Lab)
Leigh,
Mr. Edward
(Gainsborough)
(Con)
Moffatt,
Laura
(Crawley)
(Lab)
Purchase,
Mr. Ken
(Wolverhampton, North-East)
(Lab/Co-op)
Rogerson,
Dan
(North Cornwall)
(LD)
Yeo,
Mr. Tim
(South Suffolk)
(Con)
Anne-Marie Griffiths,
Committee Clerk
attended
the Committee
Fourth
Delegated Legislation
Committee
Tuesday 8
December
2009
[Robert
Key in the
Chair]
Non-Domestic
Rating (Deferred Payments) (England) Regulations
2009
10.30
am
The
Parliamentary Under-Secretary of State for Communities and Local
Government (Barbara Follett): I beg to move,
That the
Committee has considered the Non-Domestic Rating (Deferred Payments)
(England) Regulations 2009 (S.I. 2009, No. 1597).
It is a
pleasure to serve under your chairmanship, Mr. Key, on such
a beautiful day. I am grateful for the chance to address issues raised
by the regulations, which are dated 30 June 2009 and were laid before
the House on 6
July.
I
would like to begin by putting the regulations in context. We all know
that we are facing a challenging economic time in this country and in
the rest of the world. We also know that, during this time, businesses
need support, which the Government have acted to provide. The
regulations should be seen as part of that package of support as they
provide targeted help that ratepayers need with the increases in their
2009-10 business rates
bills.
It
might also help if I provide some background as to why the Government
have brought forward the regulations. As with many other rates and
thresholds, business rates are increased each April to take account of
inflation as measured by the retail prices index in the preceding
September. This has been a consistent and generally accepted approach
since the introduction of national business rates in 1990. However, in
September 2008, the RPI stood at 5 per cent., which was much higher
than the March 2009 RPI of minus 0.4 per cent. As a result, ratepayers
faced a significant increase in their bills from 1 April
2009.
Some
ratepayers bills also increased due to the end of the 2005
transitional relief scheme, which was designed to phase in increases
from the previous revaluation. The transition period for the 2005
revaluation lasted, unusually, for four years instead of fiveit
ended in 2008-09whereas previous transitional periods had gone
the full five-year term. The rationale for the shortened period was to
ensure that ratepayers paid their correct bill during the life of the
2005 rating list. However, the correction resulted in higher rates
bills in 2009-10 for those coming out of
transition.
That
issue was of much concern to business, particularly in the changed
economic climate. In recognition of those factors, the Chancellor
announced on 31 March that the Government would enable businesses to
defer the payment of a proportion of the increase in their 2009-10
business rates bills and allow them to pay of some that in 2010-11 and
in 2011-12. The scheme is about providing practical help for businesses
when they need it most.
The amount
that ratepayers can defer is 3 per cent. of their total 2009-10
billsthe equivalent of 60 per cent. of the increases that they
were facingand 60 per cent. of any increase caused by the
ending of the transitional relief scheme for the 2005 revaluation
period. The effect is to provide ratepayers with the opportunity to
smooth out some of the ups and downs in the profile of business rates
payments over a three-year period. The scheme therefore offers
businesses the chance to pay a lower increase in 2009-10, and to make
up the payments in the following two
years.
The
necessary regulations to implement the scheme came into force on 31
July 2009. We provided funding for billing authorities to write to all
1.7 million non-domestic rate payers to offer them the opportunity to
defer and, at the same time, to promote small business rate relief.
Ratepayers who wish to defer have just to complete and return a simple
application form to their local authority.
At the time,
there were calls for the Government to freeze business rates. However,
freezing rates would have provided untargeted support at a time when we
felt that targeted support would be more efficacious. That approach
would also have been costly and taken time, because it would have
required primary legislation and, as you know Mr. Key, with
the best will in the world, the mills of Parliament grind
slow.
In addition,
the Governments commitment to the annual RPI cap means that
there has been no real-terms increase in business rates since 1990. The
good news is that the RPI for September 2009 is negativeminus
1.4 per centso that will also have a downward
pressure on 2010-11 bills. We believe that the business rates deferral
scheme, as set out in the regulations, gives businesses the flexibility
they need to manage their payments in the current economic climate. In
particular, it allows them to manage their vital cash flows.
With your
permission, Mr. Key, I would like to say a few words about
revaluation, because it is an esoteric process that is understood by
youas you previously held my postand perhaps the
Opposition Front Benchers, but not many others. I stress that, contrary
to some reports, the Government will not collect a penny of extra
revenue as a result of the 2010 revaluation. Regular revaluations
ensure that the rate that each business pays is fair and reflects
changes in the relative value of properties over time. Indeed, the
majority of business rate bills1 million in totalwill
fall next year as a result of the revaluation. For the minority who
have to pay more, the Government are putting a £2 billion relief
scheme in place, which will limit and phase in increases. Overall, as
result of revaluation and the relief arrangements, 1 million business
properties will see an average decrease of £770 in their bills
in
2010-11.
I
would like to clarify a point about revaluation. It is a mistake to
believe that the high property market of 1 April 2008, on
which the property values for 2010 revaluation were measured,
automatically translate into higher rate bills. That is not the case
because there are other features in the bills. First, there is the
rateable value of the property, and then there is a formula and a
multiplier. The formula resets the multiplier to reflect the overall
change in rateable value and to ensure that no more is raised in
revenue from the revaluation than the overall envelope.
The
Government have introduced small business rates relief. We recognise
that business rates can have a disproportionate impact on smaller
businesses, which
was why we introduced the small business rate relief scheme in 2005. The
scheme enables small businesses to obtain up to 50 per cent. relief on
their business rates bills, provided that they meet certain criteria.
The amount of relief granted has been increasing since the scheme was
first introduced, from £202 million in 2005-06 to £298
million in 2008-09. After allowing for the increase in the non-domestic
multiplier, that represents a real terms increase in the relief of 34
per cent. Local authority estimates from 2006I am afraid that
they are the latest available set of estimatesindicate that
392,000 properties were receiving small business rate
relief.
We want to
make it as easy as possible for small businesses to access the relief
and have taken a number of steps to achieve that. First, in 2007, we
simplified the application process by removing the requirement for
ratepayers to apply annually. Secondly, earlier this year we removed
the restriction requiring properties to be on the rating list on 1
April in the given year in order to qualify for the relief. Thirdly, on
18 September this year, we announced that we would remove the
requirement to reapply at revaluation. That, we hope, will considerably
reduce the administrative burden on both small businesses and local
authorities. The Government will continue to promote the scheme
vigorously in co-operation with the Department for Business, Innovation
and Skills, the Local Government Association and the Federation of
Small
Businesses.
In
conclusion, the Government understand that businesses large and small
are facing a tough time in the current economic climate. That is why we
have introduced a range of measures to help them survive the recession
and come into recovery in a stronger shape. The business rates deferral
scheme is part of that package. It is designed to help ratepayers with
the increases in their 2009-10 bills, and I am glad to say that that is
what it
does.
10.42
am
Justine
Greening (Putney) (Con): It is a pleasure to serve on a
Committee under your chairmanship, Mr.
Key.
We
will not vote against the regulations, but we feel that this Committee
gives us an important opportunity to assess the business rates deferral
schemes effectiveness. As the Minister set out, the regulations
are of national relevance. They were meant to help businesses cope with
the increases in the business rates bills that they face this year,
which is due to not only the 5 per cent. rate rise, which is way above
inflation, but the ending of transitional
relief.
Our
concern is that this scheme has been introduced in a very cack-handed
way. I shall give a brief overview of the points that I plan to raise.
First, it has taken until December to have a debate about a scheme that
was introduced in the summer, which we think represents an unreasonable
delay. Secondly, it is worth talking briefly about why the scheme had
to come in and the struggles that many small businesses face. Thirdly,
I want to talk about the implementation of the scheme and ask why the
regulations were not brought in far earlier to help businesses that so
badly needed them. Ministers must have been well aware months in
advance of the pressures that businesses would face from increased
business rates bills in April 2008. It is important to discuss how
effectively the deferral scheme is working on the
ground
and how much its implementation is costing councils and the taxpayer. I
was interested to hear a few comments from the Minister about its
effectiveness. I submitted a freedom of information request to find out
the take-up of the scheme that councils were seeing, and I will set out
for the Committee how effective it has been from their
perspective.
This debate
is long overdue. The regulations, which allow companies to defer
business rates bills over the next two years, have been in place since
Julyfive months ago. The regulations are subject to the
negative procedure, so we have not had a chance to debate how the
scheme is working. Even though it was introduced as an emergency
measure before the summer recess, it has taken until well after we came
back following the summer for us to have a chance to ask the Minister
questions about the schemes effectiveness. Will she at least
tell us why it has taken so long for us to have the opportunity to
debate what is happening to the small companies that need the
scheme?
Returning
to the origins of the scheme, in the run-up to the 2005 revaluation, as
the Minister said, the Government held a consultation on the proposed
transitional relief scheme to phase in changes to business rates bills.
In a departure from the practice for previous revaluations, Ministers
decided to have a transitional relief scheme that ran over four years
instead of five. The Governments logic then was
that
there
are considerable benefits in having a scheme where, for the final year,
all ratepayers are paying their true liability. For these reasons the
Government does not favour a five year
scheme.
The
Minister has broadly made that point.
Unfortunately,
when some companies are on constant transitional payments and are then
suddenly made to pay their full liability, that can lead to huge rises
in those companies rates bills. The consultation at the time
admitted that
when the rate
bill is calculated for the beginning of the next scheme (next five-year
period) it has to take into account the previous scheme. This has
applied across all the previous
transition
relief
schemes
and has meant that some properties have never paid their true rate
liability since the introduction of the NNDR system in
1990.
Sure
enough, when transitional relief came to an end in April this year,
what did we see? Some 100,000 businessesmainly small
companiesfaced a bill increase of £100
million. That is an average of £1,000 added to the bills of
generally small businesses in the heart of a recession that even
Ministers now accept is the worst since records began.
Did Ministers
not realise that transitional relief was going to end suddenly?
Alternatively, did they know about it, but were incompetent by not
thinking that they should bring forward a scheme to help badly affected
businesses earlier? We did not get a scheme until after companies were
paying the years business rates bills. Even in 2005, the
consultation on transitional relief said:
There
are some groups representing ratepayers who expect significant rises in
their rate bills and who are pressing for a five-year
scheme,
so
all the evidence was there.
The British
Chambers of Commerce had flagged up its concerns by
saying:
Staggering
the cost is still an increase and it will be complex. Businesses will
still be hit at a time when they have restricted cash-flow and
growth...We have said that its not an exaggeration to say
that some companies could go bust under the strain of the increase in
rates and the ending of transitional rate
relief.
It
was pretty obvious to many stakeholders in the business community that
there was a problem, and the Conservatives raised concerns in March and
June.
The impact
assessment clearly says that companies that are already unable to pay
in instalments will not be able to take advantage of the
schemethey have not been able to do so. The irony is, of
course, that many companies that forfeited the right to pay by
instalments were those worst hit by rising rates bills. They were the
ones that fell into arrears due to the rises and, as a result, were
unable to continue paying by instalments. Why were those companies
excluded en masse when many would have been in the very group that I
presume the Minister wanted to help?
I would like
to raise other points about the impact assessment briefly. It has the
perverse aspect that it mentions the fact that some companies will go
bust before they ever get a chance to pay off their deferred business
rates. The impact assessment costs the bad debt at between £20
million and £80 million. Perversely, that is included as a
benefit, as if the fact that businesses will avoid paying between
£20 million and £80 million, as estimated by Ministers,
in business rates because they have gone bust is a benefit. It is not a
benefit; it is a cost of failure. The fact is that they will have gone
bust because of swingeing business rates rises that they simply could
not afford, so calling it a benefit is perverse in the
extreme.
I
turn now to the actual workings of the scheme. The regulations were
implemented just before the summer recess at a time when many council
staff who would be implementing the new process were going on holiday.
The time that it took to introduce the scheme meant that many companies
could not take advantage of it until October. We received feedback from
local councilsperhaps the Minister will confirm what
discussions she has hadsuggesting that changing the software
was a challenge. The results of our freedom of information requests
show that many councils were still testing the software system even
during the autumn. One respondent stated that they had major problems
implementing the new system, and many told us that not all applications
had been dealt withthat was in October. Some respondents had
not even managed to get the scheme up and running at the time that they
responded to
us.
There
were clearly problems with the introduction of the scheme, with the
result that many companies were unable to take advantage of it.
Moreover, councils were themselves incurring costs, which I understand
will be reimbursed by the Government. Will the Minister outline what
she expects the schemes cost to the taxpayer to be? The impact
assessment states that it will be £5.8 million. Will
she update us on whether that is still the Governments estimate
of the schemes
cost?
The
impact assessment estimated that 90 per cent. of all ratepayers would
take up the option to defer 3 per cent. of their business rates bills
and 60 per cent. of the amount of transitional relief their properties
received in
2008-09. The worst-case assessment of the take-up rate was 50 per cent.
However, the reality, according to the councils that have responded to
us, is that an average of just 7 per cent. of companies have taken up
the scheme to defer their business rate liability. I am sure that a
large reason for that is that the scheme was introduced way too late
and that companies were already paying high bills by the time it became
available to help them. Given that the impact assessment estimated that
the scheme would help 90 per cent. of companies when in fact it has
helped only around 7 per cent., does the Minister view the scheme as a
failure?
What
is the Governments assessment of the take-up rate? The results
of my freedom of information request suggest that it is around 7 per
cent., but what is the Ministers assessment? If she has not
made an assessment, why not, given that I have been able to make one as
an Opposition spokeswoman? Which sectors does she think are taking
advantage of the deferral
scheme?
The
explanatory memorandum states that Ministers are considering methods of
assessing the schemes effectiveness. What are those methods and
what does that mean in practice? Is the Minister talking to councils?
What have they told
her?
How
much business rate liability is actually being deferred? The impact
assessment mentioned a potential £730 millionsplit, I
think, between £670 million on the inflationary rise and
£60 million on the transitional relief scheme
liabilitybeing deferred. How much do Ministers now estimate is
being
deferred?
Finally,
bad debt is a concern. Because of the challenges that many companies
face in paying their business rates liability, even Ministers accept
that some will defer to improve their cash flow, but a number will
still go bust over the next two years, before they are able to pay the
deferred amount. Ministers assess that deferred liability would become
bad debt for approximately one in 20 companiesabout
5 per cent. Both the impact assessment and the explanatory memorandum
state that councils will not have to find that shortfall in their own
budgets. However, there is a clear caveat, which is the statement that
they will be expected to show that they have made efforts to
collect.
Will the
Minister tell us a little bit more about how she will assess whether
councils have diligently gone through the process of collection and
outline the challenge that they will face? If they are pressing
companies that are on the brink of bankruptcy to pay business rates, is
there not a danger that we have self-defeating scheme in which local
councils are forced to go out and press for business rates deferred
liabilities to be paid up in full, and thereby put those businesses out
of business? Nobody wants to see
that.
We
welcome the scheme but it should have been brought in months earlier.
It was too little too late. In hindsight, it has cost the taxpayer
when, with better foresight by Ministers, that money could have been
better spent helping companies directly. I hope that the Minister will
answer my questions and perhaps tell us whether she agrees that the
scheme has been too little too
late?
10.56
am
Dan
Rogerson (North Cornwall) (LD): It is indeed a delight to
serve under your chairmanship again, Mr. Keythe last
occasion was our works outing to Exeter in the summer as part of the
new regional arrangements.
We have heard
from the Minister and the hon. Member for Putney that this scheme is
welcome and should, if implemented properly, offer some help to
business. Let us be under no illusion about how tough things are for
businesses at the moment, particularly small businesses, as the
Minister rightly said.
I recently
went to talk to Mr. Jim Sloan at St. Austell Brewery. The
brewery is not in my constituency but in that of my hon. Friend the
Member for Truro and St. Austell (Matthew Taylor), and it
has a lot of pubs throughout Cornwall and into Devon. Many pressures
are already bearing down on that industry, which plays a vital role in
our local communities in urban settings, and particularly in rural
settings. It is very concerned about revaluation and I may return to
that later. There are concerns that the way in which the business rates
system operates certainly does not help it to provide a service in
those communities and to offer
employment.
As
the hon. Member for Putney said, the scheme, however welcome it is in
concept, is late, which undermines its ability to help businesses in
need. There were opportunities for the Government to do something about
this. They could see that the end of the transitional relief period was
going to have a significant impact on businesses at a crucial time. As
the financial situation became apparent and huge shocks were running
through the economy, something could have been brought forward much
earlier to help businesses that were to be affected, such as during
proceedings on the Business Rate Supplements Act 2009. I greatly
enjoyed my time on that legislations Public Bill Committee, in
which we considered the business rate supplement as a tool for local
authorities. There have been examples of Bills becoming interesting
hybrids when important and urgent legislation has been tacked on to
other measures, so perhaps something could have been pushed through
using that mechanism. There were also other routes that the Government
could have
taken.
I
appreciate that to make the scheme work, not only do local authorities
have to feel confident that they can implement it, but software
providers have to make sure that the kit can cope with delivering the
scheme. If that is important, it is the sort of thing that should be
resourced and supported so that a scheme may be introduced in a timely
fashion.
Essentially,
businesses are being asked to gamble that they will be better off in
the future. As the hon. Member for Putney said, they might well not
bethey might be worse off as trading conditions are difficult
to predict. If the scheme is designed to help businesses, they have to
consider seriously whether they would be better off by deferring the
costs. When they are faced with the revaluation that the Minister
referred to, when she slightly widened her consideration of the
business rates issues, they will not feel very confident about their
abilities.
Let me return
to the pub sector and the business rates increases that some licensed
premises are facing. Although I appreciate that the Minister said that
the final sum depends on a number of factors, they are looking at 30,
40, 50 or 60 per cent. increases in valuation. The opening up of
another premise nearby will immediately impact on the business plan,
but the business rates set-up does not cater for thatit cannot
be flexible enough. Those premises have potentially great increases
ahead, and the prospect of taking advantage of the scheme is a
gamble.
I agree with
the hon. Member for Putney in that my party feels that while the
measure could help, the timing could have been far better. It was
indicated to the Government that some such scheme would be necessary,
and a simpler method would have been to extend the transitional period
to five years, rather than ending it after four. Although I understand
that the Government would want businesses to pay the rate at which they
were assessed for at least one of those years, there have been
unfortunate consequences as a result of trying to achieve that neatness
for one year, as other problems have emerged. With a little more
foresight, perhaps the Government could have acted earlier to extend
that transitional period, which would have overcome the problems in
another
way.
The
Minister also referred to small business rate relief. She is absolutely
right that that scheme is crucial and has a big effect on
businesses viability and ability to develop and prosper. I am
pleased that the Government have addressed the anomaly of businesses
that are set up during the financial year not being able to qualify for
relief until the start of the next financial year. Many small
businesses fail early on in their existence, and we need to get them
through that first period of trading, so the Minister was right to
highlight that
issue.
I
shall take this opportunity to point out another little anomaly, which
has an impact in my constituency. People who own second homes register
them as letting businesses without actually advertising or letting them
so that they can qualify for small business rates relief rather than
paying council tax at a 10 per cent. discounted rate. The Minister has
raised that matter in the past, and I hope that the Government continue
to look at those sorts of
issues.
In
summary, while my party welcomes the provision of any tools to small
businessesall businessesto enable them to trade through
the current difficulty, this scheme was perhaps too little too
late.
11.2
am
Mr.
Philip Dunne (Ludlow) (Con): I had not intended to
contribute to the debateI will not detain the Committee for
longbut the Minister chose to refer to the revaluation that
comes into force from April 2010, and I could not let the opportunity
go of inviting her to consider an aspect of that revaluation that is of
considerable concern to one segment of the business community: the
operators of filling stations, and in particular those that have
independent businesses that do not have the benefit of other sources of
revenue and profit to defray the
cost.
The
situation was brought to my attention by my local garage, which happens
to be in a remote rural area. It is the only filling station within an
eight-mile radius along the Welsh border with Herefordshire and
Shropshire, and it has just been presented with a rates increase of 450
per cent, to which I referred in my contribution to the Queens
Speech debate. That represents a bill of
£26,000 for a single-operator, single-site small business. When
the proprietor drew the matter to my attention, he said that, faced
with that increase, he was looking seriously at ceasing to sell fuel,
because it would not be economically worth while. The margins on fuel
sales are very tight, as I am sure the Minister knows. That prompted me
to make inquiries of the other filling stations in my constituency, of
which there are about 15.
I sent out a
brief survey last week, and the first responses came back this week.
The Minister will, I think, find them interesting. I thought that the
£26,000 figure was bad enough, but I received three responses
yesterday from similar filling stations, either in rural areas or on
the edges of the small market towns in my constituency, and the most
shocking increase was £63,000. That business currently pays
£42,000 in rates, and the proposed rates are £105,000.
The increase is 30 per cent. of the profit of the business. The
business employs 14 full-time and eight part-time staff, and
the proprietor indicates that he will have to cut staff as a direct
result of the
increase.
Another
station, which is faced with a 62 per cent. increasesome
£12,250intends to cease selling fuel if the increase
goes through, in addition to cutting staff. A third one, faced with a
£10,700 increase58 per cent.might have to cease
trading, let alone cut staff, because the proprietor does not expect to
make a profit at all if the increase goes
through.
I
ask the Minister to reconsider the revaluation methodology for filling
stations and to recognise the low margins that they make. If she is not
prepared to do so, she will be giving up officeif she is
unfortunate enough to do so following the next electionwith the
epithet of the Minister who hastened the demise of filling stations up
and down the country, the impact of which would be particularly keenly
felt in rural areas, where there are few
alternatives.
11.6
am