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Lord Bates: I am grateful for the Minister’s reply. I am obviously disappointed that the businesses which are exempt this year will not be exempt next year but, nevertheless, I accept the explanation that has been given. I beg leave to withdraw the amendment.
Clause 14 : Chargeable amount: supplementary
48A: Clause 14, page 11, line 5, at end insert—
“(8A) No later than five years after the date on which this section comes into force and, after then, at intervals no shorter than five years, the Secretary of State shall publish a report following a review carried out by him of the upper limit of the multipliers set out in subsections (6) and (7).
(8B) When carrying out a review under subsection (8A), the Secretary of State shall consult—
(a) levying authorities;
(b) such representatives of local government as appear to him to be appropriate; and
(c) such organisations representing businesses as he thinks fit.
(8C) If, in a report published under subsection (8A), the Secretary of State concludes that the upper limit of a multiplier should be varied, he may by regulations amend subsections (6) and (7) by varying the upper limit.”
Lord Best: I shall speak also to Amendment 66A. At Second Reading, I declared my interest as president of the Local Government Association and I raised the question of the limit on business rate supplements which local authorities would be permitted to levy. This limit is currently clearly specified in the Bill at 2p in the pound. This is half of the limit of 4p in the pound which was recommended by Sir Michael Lyons in his independent review of these matters in March 2007. The amendments accept the Bill’s 2p limit at this time, rather than pushing for the Lyons recommendation. All the LGA is seeking is a requirement on the Secretary of State to consult at five-yearly intervals on whether the limit is still appropriate, with the opportunity, if it is not appropriate, to change the limit. This would mean that primary legislation would not be needed if any change was desired.
Local authorities work closely with their local businesses and understand and share concerns about placing excessive burdens on business during the current recession. The noble Lord, Lord Tope, noted that some people might fear that councils are sitting waiting to levy the maximum supplements as soon as they can. In reality, a recent survey by the Chief Economic Development Officers’ Society did not find a single local authority that is planning to use the power to apply an additional supplement during the recession.
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Amendment 48A specifically provides for consultation with local authorities and the business sector. If, following this consultation exercise, the Secretary of State concludes that the upper limit should be varied, then it could be changed by regulation. Changes in the limit would still require an affirmative resolution, so there are further safeguards.
The amendment gives the power to vary the limit, which means it could be reduced as well as increased. I would not pretend that in sunnier economic times in the future local authorities might not seek to make the case for setting a higher limit that would provide extra revenues that could make a real difference; after all, the current limit restricts any extra revenue to a maximum of less than 5 per cent of the total business rate. But the Secretary of State could use the provision to reduce the limit, and I hope that provides comfort to any noble Lords who are nervous about these amendments. I beg to move.
Lord Jenkin of Roding: There is merit in this proposal. I am a vice-president of the Local Government Association; I am not sure that I have declared that interest before. However, it gives me an opportunity to repeat what I said last week: we will need before Report to look at a more general amendment to the Bill to give the Government a clear duty to review and the power to make changes by appropriate subordinate legislation rather than, as the noble Lord, Lord Best, has said, having to come back to primary legislation for changes.
Various items here have been suggested for review. However, after perhaps five years—I suggest that as a possibility—we really need the Government to come back and review the whole scheme. The amendment would require careful drafting so as not to give complete carte blanche to sweep it all away and start again through subordinate legislation. However, that seems a better way of proceeding than having a series of piecemeal reviews of different aspects of the BRS at different periods.
Lord Bates: I hesitate to disagree with my distinguished colleague and noble friend Lord Jenkin, and with the considerable expertise that the noble Lord, Lord Best, brings to these matters. However, I must. It follows through our general theme of concern about the burdens that are being placed upon the business community. The sum of 2p may seem inconsequential, but it is the equivalent of £750 million nationally—around 5 per cent of the total to be raised.
It is in the nature of these things that whatever the top level, people tend to claim up to the maximum in any walk of life. Therefore, to remove that barrier from 2p and to give the Secretary of State the power to vary the upper limit up to 4p is giving too much at this stage.
We are certainly supportive of the review of the scheme’s progress. A radical new tool is being proposed. We have our misgivings about it outside London, but it is none the less appropriate to seek its review. As well as the Local Government Association having argued for it, business organisations such as the CBI have made representations that we should seek to retain the current 2p level—indeed, not even 2p. The point is
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Timing is also critically important. Certainly, economic forecasts point to our being in a period of sustained economic difficulty for some three to four years. Therefore, the idea that this power of flexibility could be introduced by the Secretary of State just as businesses are emerging from that would be regarded by us as unhelpful.
Finally, one of the things that we have always been suspicious of, with the reduction of local authority business growth initiative funding from about £1 billion to £250 million or something of that order, is that this is not additionality, but we are seeing the already hard-pressed business community being asked to supplement a gap in funding.
Baroness Hamwee: We support the amendment. The noble Lord, Lord Best, will not be surprised because I have made the same points at different stages. It is a Bill for the long term. If local authorities are to be trusted in the way in which we have been discussing, they should be trusted to this greater extent. It seems a little perverse to put—I was about to say a legislative block, but it is not in legislation; it would require another primary legislative building block to extend the scope of the BRS.
Baroness Andrews: That was a helpful debate to tease out some of the arguments around the amendment. I understand that it wants to make provision for the Secretary of State to vary the upper limit through regulations and make it possible to increase or decrease the level of the supplement depending on the state of the economy. I can see that that has some attractions, but I have an argument against it.
In an earlier debate, I set out the provisions in the Bill and the way in which they need to balance safeguards with the ability to raise useful sums of cash. The 2p limit guarantees businesses the maximum BRS that they might be expected to pay. Examples of the kinds of revenues that can be raised are set out in paragraph 3.4 of the White Paper. The noble Baroness, Lady Hamwee, mentioned the long term, and indeed, Crossrail is an example of a long-term project. We know that such major construction projects will take years to complete. The amendment raises the possibility that the maximum rate could be changed and, by implication, increased, which introduces a significant level of uncertainty for business and the levying authority.
I hear what the noble Baroness says, but certainty is important in constructing sustainable partnerships. Under the Bill as drafted businesses can be sure of the maximum BRS bill that they may be expected to pay. The amendment would reduce that certainty. Yes, it would be there for the next five years, but what about the following five years or the five years after that? Levying authorities need clarity on how scenarios would be handled. It is possible that transition arrangements will have to be made, but that all adds to levels of uncertainty that we do not need in the system.
I say to the noble Lord, Lord Best, that when it comes to reducing the 2p rate, as the noble Lord, Lord Bates, pointed out, we have allowed scope within the
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Baroness Hamwee: Can the Minister tell us whether there is any difference conceptually or philosophically between the uncertainty that she ascribes to this amendment and the uncertainty that all businesses outside London currently feel as they do not know whether they will be subject to a 2p rate once the Bill is passed?
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Baroness Andrews: Each BRS as it comes along will have to subscribe to the Act—as I hope it will then be. An authority will be able to make its own decisions on what it needs and how its partnerships will function on that basis.
Lord Best: I make two general points in defence of the amendments. They are about giving local authorities greater freedom to be the place shapers for their area; they are about the politically consensual move towards decentralisation, devolution and localisation; they are about the opportunity that local authorities might have in the future to do more without central government dictating exactly how they are funded. That is the philosophical base to the amendments. It is also worth pointing out that, increasingly, local authorities are acting as partners with local businesses. That sense of mutual mistrust which existed in the past is evaporating, I am pleased to say, in many areas. Protecting local business from local government is perhaps no longer the priority that it might have been years ago. However, with the strength of the alliance that is opposed to the amendment, I fear that I must withdraw it.
48B: Clause 15, page 11, line 19, leave out from “BRS” to end of line 20 and insert “shall apply in relation to BRS reliefs that are no less favourable to ratepayers than the most favourable reliefs applied by the relevant billing or levying authorities”
Baroness Hamwee: Clause 15(1) states that a levying authority can apply,
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My amendment seeks to pin down the question of reliefs. It did not occur to me until reading the clause that different reliefs might be applied to BRS from those applicable to NNDR in the same area. I do not suppose that my drafting is particularly good, but I am seeking to understand whether it is expected that the BRS will be fully in line with the NNDR and the reliefs that apply and, if so, whether it is required. I beg to move.
Lord Bates: I rise to support the noble Baroness in her Amendment 48B but also to speak to amendments standing in my name and that of the noble Earl, Lord Cathcart. They are probing amendments which give us an opportunity to put some real concerns on record. The amendments deal with the sections of Clause 15 relating to the application of relief and would impose a requirement to grant relief for empty property in this category. In the 2007 Budget and without proper consultation, Gordon Brown peeled back the empty property rate relief for commercial and industrial premises. The rise in empty property tax raised an estimated £950 million net in extra tax in 2008-09. There was no offsetting reduction in the rates elsewhere. The tax changes came into effect in April 2008, just as the economic downturn was starting to bite.
The tax rise is particularly harmful in a recession, as firms are unable to rent out vacant properties due to a lack of demand in the economy. There are many cases of this up and down the country. It is axiomatic that a policy which may have seemed appropriate to the then Chancellor in the 2007 Budget is entirely inappropriate during the downturn. Last week, I walked around an office building in Darlington where every single unit used to be occupied. The business there was very good and well maintained, and the office space was available on a kind of flexible leasing basis. You used to be able to walk along all three corridors and find the place bustling with businesses. Now, in that same business building in Lingfield Point in Darlington, many units are completely empty. As a result, the owners are carrying the extraordinary additional burden of the empty property rate.
Although this does not apply in the case that I have just mentioned, and draconian as it may seem, many people are knocking down entire sheds, as they are known in the commercial property world, to avoid paying that rate. That is happening in much the same way as I suppose was the case when the window tax was levied and people started bricking up their windows. The fact that landlords take such draconian action indicates just how near to the bone many of them are with their business premises at this time. I think we need to put on the record just how dangerous the decision to abolish empty property rate relief was and the damage that it is doing. We have rehearsed some of these arguments before but I want to put them on the record. We talk about raising additional funds through the business rate supplement but this will be entirely additional.
In the previous debate, I referred to the fact that business growth initiative funding has been cut by almost £700 million. Here, we see empty property rates raising an extra £950 million. It seems very likely that here we are seeing already hard-pressed businesses
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In the 2008 Pre-Budget Report, the Government announced that they will increase the threshold to £15,000 for 2009-10 only; yet they are merely exempting some small firms from this tax for one year and continuing with the tax hikes in 2010-11. The reduction in revenue from the temporary threshold increase is only £185 million in 2009-10. This compares with a previous forecast of £900 million in 2009-10—hence, the net increase from the change in empty property rates is still an additional £715 million.
I think that the Government have recognised how disastrously poor the timing of the abolition of the empty property rate was, and they have taken steps, as best as they are able when they are running a £170 billion deficit, to try to recover some ground. However, it is too late for many businesses that have gone under and many landlords are taking the draconian steps that I mentioned earlier. The point of tabling this probing amendment was to provide an opportunity to put on the record that, when we introduce these charges, they impact on real businesses in a very real way. It cannot be assumed that boom and bust has been abolished because bust may be with us for some time. We hope not—we pray not—but it may well be. It is therefore absolutely right that we should be cogniscent of the impact, intended or otherwise, that such measures can have upon businesses in this country. I beg to move.
Baroness Andrews: These are two very important amendments and there have been two powerful arguments in explication. Amendment 48B seeks to ensure that the relief given for BRS is no less favourable than the relief given for the national business rate. We were certainly at pains to ensure that. In developing our proposals for BRS, we were particularly keen that the overall approach to BRS mirrored that for NDR. It is already provided for in Clause 13 and, to use the noble Baroness’s language, means that if a rate payer receives relief on their rates bill, that same level of relief will be applied when assessing liability to BRS. It is fully in line with NDR. I hope that reassures the noble Baroness on that point.
We have designed the Bill so that the provision applies to those ratepayers in receipt of small business rate relief, charity or CASC relief, rural rate relief, discretionary rate relief or hardship relief. Those ratepayers will receive the same percentage reduction in their BRS bill as they receive from their rates bill. For example, if a registered community amateur sports club—I am sorry the noble Lord, Lord Moynihan, is not in his place because I would like to see his face light up when I say this—is receiving 80 per cent mandatory relief from business rates, the club will similarly be entitled to an 80 per cent reduction in its BRS liability. I hope that will be helpful on the record.
On Amendments 49 and 50, I listened hard to what the noble Lord said about the significance and impact of empty properties and empty shops, particularly on the young, and I quite understand the case that he is making. We should certainly do all that we can to support businesses during the current recession. I shall
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The reasons which led us to make the changes we did are still right in principle. It is right to charge rates when properties stand empty. It increases incentives and energy to re-let and reuse and it avoids subsidising owners of empty properties. The noble Lord will be disappointed, but a blanket exemption from BRS for empty properties is overly prescriptive. We need to ensure that we are consistent in the freedoms and flexibilities that we are offering local authorities.
Lord Bates: The Minister said that the idea of empty property relief was to get owners of properties to re-let the properties rather than let them stand empty. Surely she would acknowledge that in the present economic climate that is not an option. The idea that it is not applicable for businesses with a rateable value of over £50,000 does not stand if the test is the ability to re-let. I am sure the owner of Lingfield Point in Darlington would love to have no empty properties whatever within his facility, but he just cannot help it. These businesses are stopping trading or going into receivership and therefore the rules designed in 2007 simply do not apply in the current environment, nor probably for the foreseeable future.
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Baroness Andrews: I certainly accept the point that it is difficult in the current climate; I have no argument against that. That is why for this financial year those properties with a rateable value of less than £15,000 will be exempt. That is why it captures so much. The noble Lord is right that these concerns are very difficult at the moment.
I may be able to reassure him, because the current draft of the Bill leaves it to the levying authorities to determine whether liability for BRS should extend to the empty properties in an area. They have that discretion. That will be part of the negotiation that is possible between the levying authorities and local businesses. It is very much appropriate, not least in the areas that the noble Lord is so familiar with and has been describing, that the decision should be made at local level. The right approach will depend on the specific nature of the project and the local area. The local authority can, if it so wishes, exempt empty properties. The safeguards in the Bill apply equally both to occupied and unoccupied properties. Both will benefit from the £50,000 threshold. Both will benefit from the 2p upper limit. I would have thought that it would be possible—I will have to check this—to have a different rate for empty properties.
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If a levying authority wants to levy its BRS on the owners of empty properties, they will certainly have to be consulted in the same way, and if it goes above a third of the total cost they would be entitled to vote. Crucially, just as we have mirrored the reliefs of BRS alongside NDR, we are trying to establish consistency wherever we can, and this approach mirrors our approach to NDR. Rates are now paid on occupied and empty properties, but we are leaving it to the discretion of levying authorities to decide in this case whether to exempt owners of empty properties.
I hope on that basis there will be some comfort for the noble Lord in relation to his amendment.
Baroness Hamwee: I do not know whether the noble Lord wants to come back on his amendment before I respond.
Baroness Hamwee: I am still a little puzzled. I understand that the reliefs are captured by the formulae in Clause 13, but then why is Clause 15(1) necessary? It says that a levying authority may apply such reliefs as it thinks appropriate. Does that mean that it could apply greater reliefs than those which will already have been taken into account in reaching the cash amount under Clause 13? Does it mean that it can make up its own local reliefs? I remain a little puzzled. Can the noble Baroness help?
Baroness Andrews: As I understand it, that allows local authorities to move the threshold above £50,000 and allows the BRS, for example, to be levied at less than 2p. Those reliefs are being referred to in that—
Baroness Hamwee: With respect to the Minister and her officials, who have just given her that bit of prompting, that is not a relief. That is the basis for calculating the BRS threshold. Perhaps I just have to contain my puzzlement, but I wonder whether I might discuss this with the Minister after today.
Baroness Andrews: I am happy to do so. I am sure the language is sufficiently flexible for it to be appropriate. I take the point that the noble Baroness is making, and I am happy to discuss.
Baroness Hamwee: In that case, I beg leave to withdraw the amendment.
Amendments 49 to 50 not moved.
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