Local Government Finance Act 1988
(Non-Domestic Rating Multipliers) (England) Order 2014
The Committee consisted of the following Members:
† Birtwistle, Gordon (Burnley) (LD)
† Dakin, Nic (Scunthorpe) (Lab)
† Farrelly, Paul (Newcastle-under-Lyme) (Lab)
† Gauke, Mr David (Exchequer Secretary to the Treasury)
† Horwood, Martin (Cheltenham) (LD)
† Jackson, Glenda (Hampstead and Kilburn) (Lab)
Jowell, Dame Tessa (Dulwich and West Norwood) (Lab)
Lammy, Mr David (Tottenham) (Lab)
† McCartney, Karl (Lincoln) (Con)
† Mahmood, Shabana (Birmingham, Ladywood) (Lab)
† Mosley, Stephen (City of Chester) (Con)
† Nokes, Caroline (Romsey and Southampton North) (Con)
Qureshi, Yasmin (Bolton South East) (Lab)
† Rudd, Amber (Hastings and Rye) (Con)
† Shepherd, Sir Richard (Aldridge-Brownhills) (Con)
† Wharton, James (Stockton South) (Con)
† Whittaker, Craig (Calder Valley) (Con)
Wilson, Sammy (East Antrim) (DUP)
Liz Bolton, Committee Clerk
† attended the Committee
Seventh Delegated Legislation Committee
Wednesday 29 January 2014
[Mark Pritchard in the Chair]
Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2014
2.30 pm
The Exchequer Secretary to the Treasury (Mr David Gauke): I beg to move,
That the Committee has considered the Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2014 (S.I., 2014, No.2).
It is a pleasure to serve under your chairmanship yet again, Mr Pritchard, and to speak to the order, which will cap the annual inflationary increase in business rates at 2% for the coming financial year.
I shall describe the background before I talk about the order itself. The Government are committed to supporting business and take impacts on business costs seriously. Businesses have been calling for help with business rates, including by asking for a 2% cap. The Government have listened to their concerns, and have taken action to reduce bills to support growth and employment.
At the December autumn statement, my right hon. Friend the Chancellor of the Exchequer set out a £1 billion package of business rates measures, part of which was the announcement that the Government would cap the annual inflationary increase in business rates at 2% for the coming financial year. The decision will benefit businesses in 1.3 million properties across England in 2014-15 and will lead to a permanent reduction in business rates for all ratepayers.
Business rates are a devolved matter, so the 2% cap will apply only to businesses in England. However, the Exchequer will provide more than £40 million to the devolved authorities through Barnett consequentials. That will give Scotland, Northern Ireland and Wales the funding needed to cap business rates or to implement other business rates measures, which will ensure that businesses across the UK will benefit.
The order is the legislation necessary to allow the policy to go ahead. There are two business rates multipliers: the small business multiplier and the standard multiplier. Each year, the business rates multipliers are increased to reflect the previous September’s retail prices index figure using an equation set out in the Local Government Finance Act 1988. The business rates multipliers for 2014-15 were due to increase to reflect the September 2013 RPI figure of 3.2%. The order changes that by providing for new figures to be used to set the multipliers for the coming financial year meaning that, instead of using September’s RPI figure, the uprating will be based on a figure of 2%.
Stephen Mosley (City of Chester) (Con): I welcome the 2% cap. Does my hon. Friend know whether any previous Government introduced a cap that was lower than inflation?
Mr Gauke: My hon. Friend makes an interesting point. I am not aware that that has been done previously. Indeed, in the many years since the regime was introduced, business rates have gone up consistently with RPI, so this is a new step.
Our approach will mean that the small business multiplier will increase by 2%—from 46.2p to 47.1p. The standard multiplier is calculated from the small business multiplier, plus a supplement to cover the in-year costs of small business rate relief. The supplement for 2014-15 has been calculated at 1.1p, so the standard multiplier will go up from 47.1p to 48.2p.
As a consequence of the order, business rates will fall in real terms. Businesses in England will save £230 million in business rates compared with the situation under an RPI increase. Furthermore, the Exchequer has committed fully to reimburse local authorities for any loss of receipts to ensure that the measure has no negative impact on the provision of local services. The order anticipates the local government finance settlement, which will be laid before the House in due course.
The policy should not be looked at in isolation because it is part of the biggest package of business rate support in more than 20 years. The Government are granting more than £1 billion in business rates assistance over the coming financial year, including through support for the smallest businesses with the continuation of the doubling of small business rate relief; support for the retail sector and the high street through a £1,000 business rates discount for lower value pubs, shops and restaurants; and a reoccupation relief to get empty shops back into use. Our steps to improve business rates administration include a commitment to consider improvements to the efficiency, transparency and responsiveness of the business rates system in the longer term.
The £1 billion business rates package builds on the £11 billion a year of cuts that the Government have announced for business since 2010. This year, the Government will also introduce a £2,000 employment allowance through which businesses may reduce their national insurance contributions bill each year. Up to 1.25 million businesses will benefit, with nearly 500,000 of them taken out of paying employer NICs altogether. Furthermore, the Government have slashed the main rate of corporation tax, which is set to fall from its 2010 rate by eight percentage points—to 20%—by April 2015, reducing the burden on business by around £7 billion a year by 2016.
The order will cap the annual inflation increase in business rates in April 2014 at 2%, reducing business costs for all ratepayers, saving business £230 million and helping to revitalise the economy. The order is good for business and part of our long-term economic plan, so I commend it to the Committee.
2.36 pm
Shabana Mahmood (Birmingham, Ladywood) (Lab): It is a pleasure to serve under your chairmanship, Mr Pritchard. As the Minister said, the order gives legislative effect to the announcement made in the autumn statement on capping the inflationary increase in business rates at 2%—they were due to rise by 3.2%.
Despite the order, the Government are not going far enough to support all small businesses, many of which pay more in business rates than they do in rent. As the Minister knows, since September last year, we have been calling for a cut and then a freeze in business rates for all properties with an annual rental value of less than £50,000. Under our proposals, the cut followed by the freeze in business rates would be paid for by reversing the additional cut in the main rate of corporation tax from 21% to 20% in 2015. Larger businesses have seen their taxes cut by more than £10 billion. It is right that the UK should have a competitive corporation tax rate, but not going ahead with the planned corporation tax cut from 21% to 20%, and instead using that money to prioritise smaller businesses, would provide meaningful help to a sector that is rightly described as the engine of our economy.
Mr Gauke: I am grateful to the hon. Lady for setting out her party’s policy. She has been clear that that policy applies in the next Parliament. If the Labour party was in office now, would it introduce its business rates package, funded by a 1p increase in corporation tax?
Shabana Mahmood: The Minister is right that our proposal is a manifesto commitment for the next Labour Government. The Minister is in government, so if he wishes to bring forward a proposal along the lines of our policy today, we will certainly consider it. We have called for a cut and a freeze, and the way in which we would pay for our policy looks ahead to the next Parliament.
We believe that the Government could and should do more to help businesses now. Business rates will still go up as a result of the order, and the Government’s commitment falls short of Labour’s alternative proposal. There is a clear difference between our policy and that of the Government, but we recognise that a capped 2% increase in business rates is better than the 3.2% rise that would otherwise have happened, so we will not vote against the order.
2.39 pm
Paul Farrelly (Newcastle-under-Lyme) (Lab): It was remarkable that the Minister claimed in his litany—or liturgy—that a business rate rise will save businesses money. That is clearly not the case.
I note from the explanatory memorandum that no consultation was undertaken with businesses before the order was placed before us. A cap of 2% rather than a rise of 3.2% is clearly welcome in current times, but if the Minister had bothered to consult, he would have found that local businesses, especially small businesses, are crying out for not only a freeze, but a cut. The green shoots of growth that we see in London and the south-east are not much in evidence in constituencies such as mine and that of the hon. Member for City of Chester, where small businesses and high streets continue to suffer. Further public sector cuts are hitting people in areas such as Newcastle and Staffordshire hard in the pocket, so they cannot spend money in local shops and businesses.
In the future—certainly until 2015—will the Minister commit to asking local businesses and councils what they think before any future rises in business rates? The centralised business rate regime is not a great example of localism in practice.
2.41 pm
Mr Gauke: Obviously I am pleased that Labour Members will not oppose the order, but there was something grudging, and even churlish, about their responses. As my hon. Friend the Member for City of Chester rightly pointed out, business rates have increased in line with RPI for many years. The Labour party did little to deal with them. The small business rate relief extension was due to come to an end under their plans, but we have consistently extended it. When Labour Members say, “Oh, isn’t it terrible that business rates are going up at all,” even though it is by less than under the RPI formula that determined how much they went up by for many years, which was left untouched by the Labour party, they are being less than generous
Labour Members did not exactly dwell on how they would fund any measure to counteract an increase in business rates. The hon. Member for Birmingham, Ladywood touched on the fact that Labour would increase corporation tax by 1p, but that would be the first increase in the rate of corporation tax that this country has seen arguably since the 1970s, when there was a restructuring, but in reality since 1968. What sort of signal is that for the Labour party to send internationally at the very time when it has been setting out policies in other areas that would not attract jobs and investment to the UK?
Gordon Birtwistle (Burnley) (LD): I am surprised that Labour Members do not celebrate the fact that hundreds of thousands of small businesses get small business rate relief. Lots of small industrial units in my constituency that make parts for the aerospace and manufacturing industries pay no business rates at all due to that relief. How many businesses throughout the country are eligible for such relief? Will the Minister confirm that it will carry on until at least the next general election?
Mr Gauke: My hon. Friend is right to highlight what we have done on small business rate relief. Under the plans we inherited, the extension of that relief was due to come to an end, but we were willing to extend it. If I remember rightly, about 400,000 businesses benefit from the extension. I know that he has a close link with businesses in his constituency—he is a strong champion for business in Burnley—so he will recognise what we have done. It is also worth pointing out what we have done in addition to putting in place the 2% increase, such as applying small business rate relief to make it easier for small businesses that want to open new premises to do so. Such practical steps are already helping businesses.
This business rate support package, which is the biggest that we have ever seen, is further evidence that the Government are taking measures to help businesses. Although we heard an announcement at the Labour party conference on doing something about business rates, the policy would be paid for with yet another tax on bigger businesses, which demonstrates Labour’s anti-business approach.
The order will benefit many businesses, with the relief going to 1.3 million properties. This important measure will benefit big and small businesses and, in particular, retail businesses. Smaller retailers will benefit from the rebate, and the combined effect of the Government’s action for retail premises is in fact a reduction in business rates.
For properties valued at less than £50,000, the combination of the cap, small business rate relief and the £1,000 discount is considerable. For example, a café with a rateable value of £10,000 could see a reduction of up to 30% in its business rates. When what the Government are doing on business rates is put in the context of our measures on the employment allowance, national insurance contributions—remember that Labour was going to put the jobs tax up—and corporation tax, including with a reduction in the rate for smaller businesses from 22% to 20%, we have a proud record. The order is part of that, and I am proud to commend it the Committee.
Sir Richard Shepherd (Aldridge-Brownhills) (Con): On a point of order, Mr Pritchard. How does one get to speak in this Committee? I apologise for being a few minutes late, but I would like the opportunity to make a few comments on the measure. Am I not allowed?
The Chair: The hon. Gentleman knows the procedures of the House very well. I did not see him indicate that he wished to speak. However, at the discretion of the Minister and the shadow Minister, and with the Committee’s permission, given his long service—notwithstanding his late arrival, which could have been due to many legitimate reasons—I call Sir Richard Shepherd.
2.49 pm
Sir Richard Shepherd: I thank you, Mr Pritchard, and other members of the Committee—they are extremely generous. I apologise for being a few minutes late, but the House of Lords would not let me get here from one direction, so I had to walk the other way. As Members can tell, I have a revolutionary spirit about me at the moment.
I know that I have been in the House too long, but I ought to remind the Committee that the Local Government Finance Act was introduced by a Conservative Government at the end of the 1980s, at which time money resolutions were still debatable. I did not get called to speak on that occasion, so I am particularly grateful for the chance to do so today.
As the Front Benchers were preparing to dissolve and go their own way after the main debate, I stood up and said, “But what about the money resolution?” We have, of course, done away with debating money resolutions, because that is highly inconvenient and stops us going to our beds at the appropriate time, or for whatever reason. The outcome was that the Front Benchers had to reassemble because we could have a debate on the money resolution, which at that time ran to 90 minutes. It is all very well having a discussion about Bills, but unless one knows what their cost will be, how can one come to a conclusion about them? Of course, that was a highly inconvenient thing to say at 10.30 pm, because everyone wanted to go home to bed.
The Chief Whip was outraged, and I was summoned to see him. He said, “What the”—whatever it is—“are you doing?” I said, “I wanted to speak to the money resolution.” He said, “But we agreed that there would not be a debate on the money resolution,” which is the usual business between the Whips, of course. I said,
“But I wasn’t party to that agreement. I didn’t know that you had done a deal with the other side.” I had stood up and said, “I think this is an important issue,” and clearly the Chief Whip agreed, given that he had wanted to see me immediately. I pointed out to him that I was following the processes of the House, no less, in that there could be a 90-minute debate, if my memory is correct, on a money resolution after the main debate on a Bill.I was well aware at the time that the then Government were not entirely aware of what they were doing with this major structural tax change. When our party had discussed the matter in opposition, we decided that we were going to reform the uniform business rate. Under the uniform business rate, new builds, for example, are assessed at their current rateable value, so a rate figure is ascribed on the basis of the rent. In boom years—we have been through some big boom years—the other axis that makes things difficult is the pressure of the commercial market, which raises rents. The Minister will be familiar with upward-only rent reviews which, whether they are competitive or commercially suitable, suit insurance businesses and investment companies because they guarantee an ever-increasing revenue.
I am here to speak about the position of the small corner shop and similar businesses that proliferate in cities all around the country. For new builds, the rent that is assessed becomes the basis on which the uniform business rate is charged. When my party had looked at these matters in opposition and we were against the uniform business rate, I spoke to the treasurer of the Walsall metropolitan borough council about it. The uniform business rate is a huge burden that increases year by year on small, new-build corner shops—it is as simple as that. With the upward-only rent reviews, the process is a double axe that grinds on small businesses.
I was the founder—this is in the Members’ register—40-odd years ago, of such a small business. I am well aware of the ups and downs of corner shop trading, and the importance to small local communities of getting their milk and groceries. This measure talks about small businesses. I have always thought of myself as a small business man. Much of the employment in small businesses is part time, so how does one measure what is a small business?
If I had a hole in the ground in the north of England, for instance, and could run a technology company—if I were even competent with a mobile phone—I could earn millions of pounds a year and afford big outgoings. However, if I am a small shopkeeper in a new build in central London, I will pay a multiple of what is paid in tax by the supposed small business that is highly lucrative and profitable. That is why I think the fairest business taxes are those on profit. I can tell the Minister that this measure gives no relief whatsoever to companies such as me.
Mr Gauke: The 2% cap on business rates increases applies to all premises for which business rates are paid.
Sir Richard Shepherd: But allied with most leases is the upward-only rent review. I know that the Chancellor has looked at that, but of course this is about the power of the City of London. I will be prepared to discuss this all afternoon if my hon. Friend wants to, but the fact is that the order does not amount to a row of pins for
many companies throughout the country. My fear about the balance of tax was why I rose all those years ago. I watched the House of Commons and an estate industry—builders and so on—that had no idea of the impact of what they were doing.Walsall could have lost £30 million if we had reconfigured as had been mooted before the election—long before the election, incidentally; we ran on the Floor of the House. There can be a situation in which what one does with one hand does not especially improve the position of those who trade. We now see huge numbers of empty shops throughout our country. The big boys can threaten their landlords by saying they are going into liquidation. That gives them a basis for negotiation, because if they go straight into liquidation, the landlord loses everything. The creation of this tax—I think it is now 51%, although the Minister will tell me what it is as a proportion of a new build’s first rent—has also created a big grinder on small businesses. It is not just small businesses, because big businesses are also complaining, but they have their exit route.
When I first read the measure, it was with delight, because I thought that it would deal substantively with what is happening to those small businesses round the corner on which many little communities in our country depend.
Paul Farrelly: I sentimentally count the hon. Gentleman as still in his heart representing my county of Staffordshire. He would have heard what I said to the Minister about the lack of consultation on the measure. Does the hon. Gentleman believe that the Minister should consult local businesses on not only business rate rises, but the nature of the uniform business rate and its centralisation?
Sir Richard Shepherd: I agree with that as a point of principle—one should always consult on such matters.
I hesitate to say this, because it seems controversial, but the Labour party holds a lot of blame in this. It suddenly had cash unknown to man that it could direct to projects and local authorities—all for good causes, and I do not knock that—but if more money was needed, where did it come from? The uniform business rate. That was why, when I went to see the finance officer of Walsall metropolitan borough council, he shook with fear and horror at the thought that a proposal could mean £30 million to Walsall. I guess that that was why there were evaluations of how the money could be
used—all within the efficacy of law, naturally—and it was effectively for central Government. Following the transfer, this became a Consolidated Fund tax with which the Government could do what they wanted, effectivelyThe crisis now is that there are failing shops and emptying high streets, but we are offering nothing to most of the retailers of Britain other than these defined and very small businesses. Now a small business on the corner-shop scale at which I operate may employ 180 people of whom 100 are part-time workers. They all count in this scheme. I am therefore not a small business and many like me are not small businesses, so we get no benefit from this. That is why I think that, before the last election, the Conservative party was interested in seeing what it could do. I understand the financial constraints on the Government. Everyone understands that giving a relief somewhere creates a possible problem for expenditure elsewhere.
I am from a very small business but it has survived for 40 years. Our total turnover is only £12 million, and 180 people are employed, part time and full time. There is no relief, and the total costs of where I am occupied, with leases and contractual agreements, reach more than £700,000 a year. That is my business. What is true for me is so much truer for those struggling corner shops. There is a loss to the creative energies of people who go out and risk their livelihood with their own money and their own purposes. They are bringing up families, as often as not. They need a better rationale, reason and outcome than we have now.
The Chair: May I say to my hon. Friend—the hon. Gentleman, while I am in the Chair—that I have been in the House for only nine years? I believe he entered the House 35 years ago, and he proves once again that it is worth listening to the wisdom and experience of senior Back Benchers on both sides of the House—I say that as perhaps the most junior Back Bencher in the room—so his speech was worth the wait.
That the Committee has considered the Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2014 (S.I., 2014, No.2).