Justine Greening (Putney) (Con): I beg to move,

It is a pleasure to serve under your chairmanship, Mr. Pope.

The measure came into force on 15 October, so we are debating regulations that are already in operation and that were implemented under the Business Rate Supplements Act 2009. The Act gives councils the power to levy a supplement of up to 2p in the pound, in addition to the national business rate multiplier, on properties above a certain rateable value threshold. The statutory instrument sets that threshold at a previously stated amount of £50,000. During the Act’s passage through Parliament, many of my colleagues raised a number of objections and concerns about the threshold level and about the Act more generally. I wish to reiterate those objections today and raise a number of further concerns about the order.

An impact assessment has not been made in relation to the order. Indeed, the explanatory note appended to the order states:

Surely Ministers cannot be serious. The regulations confirm the powers of councils to levy a business rate supplement, and the clue for Ministers lies in the word “business”. Such a supplement will potentially add to the bills of thousands of businesses across the country. For the explanatory note to state that no impact assessment has been made as there will be no impact on the private or voluntary sectors is demonstrably wrong. In fact, a 2p in the pound supplement equates to a 5 per cent. tax rise on next year’s multipliers for the companies affected. I do not think that the Minister thinks that that tax rise will go unnoticed by businesses and that it will have no effect. Whatever the debate might be about the value-for-money aspect of the investment that the rise may be funding, it will be noticed by businesses and they will feel its effect.

My colleagues and I have debated business rate supplements and business rates in general with Ministers on numerous occasions. Time and again, the impact of business rates changes on companies—certainly over the past year—has been made clear. Above-inflation rises have added 5 per cent. to the bills of companies in the middle of a recession; the ending of transitional relief in this past year has hit 100,000 small businesses with a £100 million bill; the dramatic and drastic tightening of empty property relief has forced companies to pay full rates after just three months of their properties being unoccupied, which has led to many being demolished; and now the upcoming 2010 revaluation will see bills for some rateable properties shoot up by more than 200 per cent. All those Government measures have hit many companies hard, and the prospect of supplementary business rates threatens to do the same. How can the Minister possibly justify the lack of an impact assessment for the regulations?

The explanatory memorandum admits that smaller businesses tend to be

The Minister might say that a £50,000 rateable value threshold is intended to exempt smaller businesses, but some will still be caught by the order, particularly in London. Ministers have argued that the minimum £50,000 limit will mean that the majority of businesses will be exempt form the supplement. Indeed, the explanatory memorandum claims that 90 per cent. of businesses in England will be exempt. That figure was cited by the then Minister for Local Government, the right hon. Member for Wentworth (John Healey), on Third Reading of the Business Rate Supplements Bill in March. On small businesses, he said that

I believe that he was referring to the national picture, but will the Minister clarify the point more precisely? Within London, many companies have rateable values that, as she will understand, are far above those in the rest of the country, even though those businesses are often quite small. Their rateable value is simply due to the fact that they are in an expensive part of the country, namely the nation’s capital. During consideration of Lords amendments in June, the Minister’s predecessor, the hon. Member for Portsmouth, North (Sarah McCarthy-Fry), remarked of the £50,000 threshold:

Within London, this measure will have an impact, and I ask the Minister to confirm to the Committee her assessment of the proportion of properties in London that will now be subject to the business rate supplement.

Additionally, will the Minister clarify the impact of the upcoming 2010 revaluation? My understanding is that the £50,000 rateable value limit is based on a 2005 ratings list. I am sure that the Minister knows that the 2010 revaluation has seen rateable values across the board rise relatively dramatically, and total rateable value is set to increase by just under 20 per cent. from April next year. Many companies that would have been underneath the £50,000 rateable value threshold for the 2005 valuation will not be under it when next year’s revaluation is pushed ahead, as it seems that Ministers propose to do. Will the Minister tell us specifically how many properties in London will be affected as things stand today? Nationally, how many properties that are under the £50,000 threshold at the moment will be brought above it by the 2005 valuation?

I will briefly set out a few other concerns. First, the business rate supplement is ultimately a one-sided tax raising power. The 2009 Act gives councils the power to raise business rate supplements, but we believe that they should have been given the power to levy a discount, not just a rise. That would give councils the ability to tailor local solutions to local business problems, and to use tools to promote local economic development as they see best, rather than as Ministers see best.

We were also concerned that there was no mandatory ballot regarding the supplement. The Lyons inquiry was clear that any introduction of a business rate supplement should be accompanied by the right degree of local democracy for those ratepayers who will be affected by it. Although councils are obliged to consult local businesses before introducing the supplement, there is nothing to stop them ignoring the views of business and imposing a supplement, whatever the local feeling. Let me reiterate the point made by Opposition Members and business groups that a mandatory ballot needs to take place whenever a supplement is proposed—as was the case with business investment provisions—and not only in cases when the supplement will fund more than one third of a project.

Finally, many businesses face challenges because of the recession, and if the business rate supplement passes through and they face further business rate rises without getting a vote, there is a risk that a hugely unfair burden will be placed on them when they can least afford it. They will have no chance to say whether they believe that the money that will come out of that settlement will be invested in value-for-money opportunities that will help them. While this secondary legislation remains so unbalanced, we wanted to take the opportunity to raise our concerns, and I look forward to hearing the Minister’s response.

Dan Rogerson (North Cornwall) (LD): It is a pleasure to serve under your chairmanship for the first time, Mr. Pope, as we continue our consideration of business rates that we began this morning when we discussed regulations to allow the deferral of payment of the current business rate in the coming years. The subject was also raised twice today during questions on the Floor of the House, so business rates have certainly been aired thoroughly today.

The hon. Member for Putney referred to a few issues connected to business rates and pressure on business. I will pick up briefly on the issue of empty properties, to which she rightly drew attention. That has been an issue in the centre of my constituency in Bodmin, where a garage has moved to the outside of the town and the garage owner has levelled the old property to avoid paying business rates. That has left a fairly unsightly site in the middle of town. That was not the intention behind the Government’s measure, but the inflexibility of what was on offer, combined with the current economic conditions, meant that it would inevitably lead to such issues.

I am sure that you were about to call me to order, Mr. Pope, so let me return to the supplement, which will add to those issues. My party did not oppose the concept of a BRS. We are supportive of it when there is local support and when businesses, local authorities and other players in the area feel that it can make an important contribution to significant local infrastructure. We were disappointed that the need for a ballot in all cases was not included in the Business Rate Supplements Act 2009, and that calls into question our support for the process as it is currently laid out.

With regard to the £50,000 threshold, I tabled an amendment during the passage of the Bill that became the 2009 Act that would have put that threshold in the legislation. I am always concerned when Bills are passed that do not contain enough detail for people to judge how they will truly affect their businesses or for elected representatives to assess the true scope of the effect they will have on those businesses. For example, the important community infrastructure levy was introduced in the Planning Act 2008, but the legislation left the matter open for further debate and that was brought in through secondary legislation. That creates a problem. We sought to have the £50,000 threshold in the Business Rate Supplements Bill so that people would know exactly what they were dealing with as the measure went through Parliament. We were not successful, so we are discussing the threshold today.

According to investigations, the £50,000 limit seems to exempt the vast majority of smaller businesses, while allowing the yield of revenue that will allow projects funded by the BRS to go ahead, so it strikes a balance. I was interested by the comments made by the hon. Member for Putney about London. I agree that there are different issues to do with property value in London. However, I am sure that her party colleague, the Mayor of London, will be concerned if she is questioning the ability of the BRS system to come in because it is a crucial element in the funding of Crossrail, which he is keen to pursue. My party also supports that project. There would be an problem if we started tinkering with the mechanism that will deliver that important project, which could have got under way many years ago.

The £50,000 limit is a round figure. There will inevitably be winners and losers wherever the threshold is drawn. Although my party would have preferred the BRS to be subject to a mandatory vote in all circumstances, if we are to proceed with it, there must be a threshold that protects the majority of smaller businesses. I think that this threshold will achieve that. I wait to hear what the Minister has to say in response to the issues raised, particularly those points about London that were made by the hon. Member for Putney.

I recall that the Business Rate Supplements Bill allowed a local authority bringing in a BRS to move the threshold upwards to exempt more companies, but I do not know whether that provision made it into the final Act. If a local authority that was considering imposing a BRS wanted to be even more cautious by raising the threshold to exempt even more businesses, could it do so, or would further secondary legislation, such as the regulations before us, be required? I look forward to hearing what the Minister says in answer to that particular point. However, as I say, although the provisions should, in our opinion, be subject to a mandatory vote, they will at least achieve some degree of local ability to deliver important infrastructure schemes that have perhaps been waiting for too long.

The Parliamentary Under-Secretary of State for Communities and Local Government (Barbara Follett): It is a real pleasure to serve under your chairmanship, Mr. Pope—I think that this is the first time I have done so. I welcome the opportunity to debate the regulations, particularly as I think that this and all business rates regulation could do with a little more examination. This is a very technical area in which mistakes or misapprehensions can easily arise.

The regulations stem from a recent Act that provides a new discretionary tool for local authorities to promote economic development in their area. It provides a new power for upper-tier unitary district authorities and, in London, the Greater London authority to levy a supplement on business rates and to retain those funds to support additional projects aimed at promoting economic development in the local area. Anyone who has been a Member of Parliament will have heard their local council or authority asking for this particular facility. Most of them—I cannot think of any that have not—have welcomed the measure with open arms.

The background to the Business Rate Supplements Act 2009 is the Lyons inquiry and the sub-national review, both of which noted that decisions on funding infrastructure and other projects to support local economic development, such as Crossrail, should be made at the local or sub-regional level. The Lyons inquiry proposed business rate supplements as a way of funding new projects. That proposal was developed by the Government, and we set out our intentions in “Business rate supplements: A White Paper” in October 2007. The Bill itself was introduced in the House in December 2008 and gained Royal Assent on 2 July this year.

The 2009 Act also provides a full range of measures to protect businesses when a business rate supplement is levied. Let me run through those safeguards. First, funds raised through BRS must be spent only on projects that are aimed at promoting economic development. In addition, all levying authorities must set out their plans within an initial prospectus and consult all those who might be liable on those plans. With the prospectus, the levying authority must conduct a cross-benefit analysis of the project and explain its details, such as for how long and at what rate the BRS is intended to be levied.

Furthermore, in answer to the question asked by the hon. Member for Putney, if the amount the BRS will raise is in excess of a third of the total cost of the project that the BRS will support, there must be a ballot through which liable businesses are given a vote on the proposal for a BRS. In fact, a local authority could choose to have a ballot if it wanted to spend money, but it has an obligation to have one when more than a third of the total budget cost will be supported by the BRS. Finally, the Act sets a maximum level at which a supplement can be set, which is 2p per pound of rateable value. Each of those measures is set out in primary legislation and together they provide real safeguards for businesses.

Let me turn to the thresholds, which the hon. Member for North Cornwall mentioned. The regulations set out a minimum rateable value threshold below which a hereditament will be exempt from BRS of £50,000. Hon. Members will know that that is a White Paper commitment that the Government reasserted during the Bill’s passage through the House. We stated in the White Paper that we wanted to protect smaller businesses from paying the supplement while ensuring that the supplement was big enough to generate a meaningful yield—it is a bit of a balancing act.

To protect smaller businesses from a disproportionate burden, the White Paper set out our intention to provide a uniform threshold throughout England of £50,000. On 2007 data, that would exempt about 90 per cent. of business properties in England and about 83 per cent. in London from a possible business rate supplement. We believe that that is the right level at which to set a minimum threshold. It excludes the vast majority of businesses in London and the country, but allows the Greater London authority and other local authorities that might be considering levying a BRS to raise significant sums to make a real difference to the local economy.

If the threshold were increased nationally, it would further reduce the possible number of those liable to pay BRS, but it would also reduce the possible yield to such an extent that it would render the BRS a broken tool for many local authorities throughout the country. No one wants businesses to be used as cash cows, but by removing the vast majority of firms from liability, by setting a maximum level of 2p per pound, and by ensuring that businesses have a real say through consultation and, when appropriate or agreed, a ballot, businesses can be assured that they will have a strong voice in new proposals. In reply to the hon. Member for North Cornwall, the threshold may be raised, but putting that in the Bill would have caused more problems and made that more difficult.

Another issue raised was the new rating list following the 2010 revaluation and increased revenue from business rates. The effect of that goes wider than simply London and the BRS. I want to stress, as I did during this morning’s Committee, that the Government do not collect extra revenue from business rates. The majority of business rate liabilities—60 per cent.—will fall next year as a result of revaluation, and for the minority that will have to pay more, the Government are putting in place a £2 billion relief scheme. Overall, revaluation and our £2 billion transitional relief scheme will result in 1 million business properties seeing an average decrease of £770 in their 2010-11 rates liabilities. Our transitional scheme includes limits, and no business property should see increases due to revaluation of more than 11 per cent., and increases will be capped at just 3.5 per cent. for small properties.

To clarify that, if the cap is at 5 per cent. and inflation is subtracted, the figure comes down to 3.5 per cent. for smaller business. With a 12.5 per cent. cap for larger businesses, if inflation is subtracted, it comes down to 11 per cent. As I did in the Chamber this afternoon, I urge hon. Members who are concerned about the headline figures that they see on rates bills to access the websites of Business Link or the Valuation Office Agency and use their calculator, because it is comforting to see the adjustments arising from the cap and the relief.

As I said this morning, it is a mistake to believe that the high property market of 1 April 2008, on which property values for the 2010 revaluation were measured, automatically translates into higher bills. Because of the formula that resets the multiplier to reflect the overall change in rateable value to ensure that no more revenue is raised from the revaluation, bills will not rise as much as would be expected. Indeed, in some areas they will fall. This year, the multiplier has been set at its lowest level for 17 years, which is obviously because of the disparity between the two figures.

BRS is a local tool. Given regional variations, £50,000 is the right threshold to provide sufficient protection for businesses while ensuring that levying authorities can raise meaningful sums. Anyone who has spoken to their local constituency officers and local authority officers will know that there is a need for infrastructure money in the regions and local areas. Any further exemptions are something that can and should be decided locally.

Levying authorities such as the GLA have the power to increase the threshold if they feel that is appropriate. That is a key feature of the 2009 Act; it gives the power back to the local level. At that level, people are accountable to their local residents. For example, in addition to being able to increase the threshold, levying authorities could decide to increase the provision of existing reliefs in relation to charities, for example.

Charity relief for non-domestic business rates liability automatically carries across to BRS. However, if that relief is 80 per cent., the levying authority may choose to increase it to 100 per cent. of BRS. It is right that we allow such decisions to be taken at a local level where knowledge of local conditions is obviously better, rather than having them dictated by central Government, so the 2009 Act substantially gives back power to that level. The regulation sets a minimum safeguard because businesses must have some safeguards if great power is being given locally.

In conclusion, the regulations must stand. Without the measure, BRS could not be levied, which would place in jeopardy the first known BRS project going forward, namely the London Crossrail project. That project has support from Opposition Front Benchers and the Conservative Mayor, and it will be funded through a BRS from April 2010. Any increase to the minimum threshold of £50,000 would render BRS useless outside London. We must set the minimum threshold at a level that takes account of regional variations, while giving the GLA the discretion to increase the threshold if that is right for its local area.

There is life outside London. As we all know, economic development does not stop at the M25. To ensure that their long-term economic development is supported, other areas of the country might consider levying a BRS, and they should be afforded the real opportunities for local action that the 2009 Act provides.

Justine Greening: I am grateful to the Minister for her comments. She has obviously tried to answer some of the concerns that I raised. Indeed, she mentioned Crossrail, but the issue is to ensure that the legislation works for all potential investment projects, not just one. That is the ultimate test, and it is one of the reasons why we are concerned. Obviously, our concerns about local democracy for business ratepayers who are affected still stands.

The regulations are subject to the negative procedure. We are unable to vote against the regulations per se, but nevertheless what we can do—and would like to do—is to divide the Committee to reflect our dissatisfaction with the underlying problems with the Government’s business rate supplements proposal.

The Committee divided: Ayes 10, Noes 3.

Borrow, Mr. David S.

Brown, Lyn

Browne, rh Des

Engel, Natascha

Follett, Barbara

Hesford, Stephen

Hill, rh Keith

Keeble, Ms Sally

Rogerson, Dan

Vis, Dr. Rudi

Dunne, Mr. Philip

Greening, Justine

Kawczynski, Daniel