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The Deputy Chairman of Committees (Lord Colwyn): My Lords, perhaps I may start with the usual procedural statement. I remind noble Lords that, in the case of each statutory instrument and legislative reform order, the Motion before the Committee will be that the Committee do consider the instrument or order in question. I should perhaps make it clear that the Motions to approve the statutory instruments and legislative reform orders will be moved in the Chamber in the usual way.
That the Grand Committee do report to the House that it has considered the Non-Domestic Rating (Chargeable Amounts) (England) Regulations 2009
The Parliamentary Under-Secretary of State, Department for Communities and Local Government & Department for Work and Pensions (Lord McKenzie of Luton): My Lords, I am grateful for this opportunity to explain how these regulations are going to help 467,000 business properties with their rate bills over the next five years through the transitional relief scheme.
First, I should begin by explaining a little about the rating system and revaluations as this provides important context for the regulations. The system of business rates is a stable and important part of how we pay for local government in England. Rates have existed in one form or another for more than 400 years but the current system of national non-domestic rating was introduced in 1990. Since then, central government have set the multiplier which is used to calculate rate bills and, between revaluations, that multiplier has not increased by more than inflation. This has provided welcome and valuable certainty for business. The 1990 reforms also introduced a statutory requirement to have regular revaluations of rateable values every five years. Regular revaluations update rateable values, which are based on rental values, to ensure that everyone pays their fair contribution and no more.
The process of revaluation is done independently of government by the Valuation Office Agency, which uses experienced and professional valuation staff.
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However, the rateable value is only one part of the rates bill. The amount payable also depends on the rating multiplier and any reliefs, including the transitional relief which we are discussing today. Despite what we may hear, it is not the case that the high property market at 1 April 2008, on which rateable values are based, will lead to higher rate bills. The rules we have in place ensure that not a penny extra is raised in revenue for the Government from the revaluation. To achieve this, the rating multiplier has been reduced for 2010-11 by 15 per cent, taking it to its lowest level for 17 years.
We are aware that some ratepayers struggle with their rates bills. That is why we have introduced relief schemes such as the small business rate relief scheme, which provides up to 50 per cent relief, and this transitional relief scheme. But these schemes also add complexity to the rates bills. To ensure ratepayers understand how these different types of relief affect their rates bills, my department has worked with the Valuation Office and Business Link to produce a business rates calculator on the Business Link website. This business rates calculator is one of the most popular applications on the Business Link website and to date has received something like 100,000 visits. Measures such as this are ensuring that ratepayers have an accurate understanding of their rates bills for next year.
As I said, revaluations do not raise a penny extra for the Government and more than 1 million business properties-60 per cent of all business properties-will see an average decrease next year due to the revaluation of £770 before inflation. The revaluation will provide a welcome and timely boost to sectors such as industry, which will see rates bills fall by 3 per cent, and regions such as the east Midlands where 84 per cent of business properties will see their rates bills fall as a result of the revaluation. The regulations we are discussing today provide a transitional relief scheme to help the minority of ratepayers who are facing increases. This £2 billion relief scheme will ensure that, after adjusting for negative inflation, no small property will face an increase due to the revaluation of more than 3.5 per cent in 2010-11, or 11 per cent for larger properties. This relief will help 467,000 business properties with their rates bills next year. We have adopted this relief scheme after a consultation exercise in the summer which provided more information than ever before about the revaluation. Our chosen scheme secured widespread support. Sixty per cent of respondents agreed that we should provide relief over the full five years of the rating list rather than the four years adopted for the previous revaluation in 2005. Sixty-eight per cent supported the proposed caps on increases for small properties, including the
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Transitional relief works by placing annual caps on the changes in rate bills. Those caps are contained in Regulation 8 of the draft regulations. For instance, the caps on increases for small properties over the five years, before inflation, are 5 per cent, 7.5 per cent, 10 per cent and then 15 per cent in each of year 4 and year 5. So, if a small property is seeing a rise in its bill of 15 per cent before inflation due to revaluation, its bill would be capped at a 5 per cent increase in the first year and a further 7.5 per cent increase in the second year. By the third year, it will have reached its full bill. Other rate reliefs, such as small business rate relief or rural rate relief, are applied after the transitional relief is calculated.
Transitional relief must be self-financing, which means that relief for some payers must be funded from other ratepayers. We considered this carefully at the consultation stage, and 66 per cent of respondents agreed that we should fund the transitional relief by also placing a cap on annual reductions in bills, rather than by levying a supplement on all other ratepayers. Therefore, the regulations also provide that those seeing reductions due to the revaluation should have them capped to help pay for the relief. For example, the caps on reductions for large properties are minus 4.6 per cent, minus 6.7 per cent, minus 7 per cent, then minus 13 per cent in each of year 4 and year 5.
These regulations also have to cope with the various changes that can happen to a property during the five years of a rating list. For instance, the transitional relief scheme must have rules to decide what happens when a property splits or merges with another property, or where rateable value changes. These rules are sometimes complex, but they ensure that no ratepayer is treated unfairly. The rules are not new and both local authorities and other practitioners are well versed in their application.
To ensure that these regulations can be implemented in time for new bills on 1 April 2010, my department has worked closely with the Institute of Revenues Rating and Valuation and the Local Government Association, and we have maintained good working relationships with the software companies that support local government. As a result, we are very confident that accurate bills will be sent out on time for 1 April 2010. For the majority of business properties, the 2010 revaluation will provide a welcome boost in the current economic climate. As I said, more than 1 million business properties will see an average decrease next year due to the revaluation of £770 before inflation. The revaluation will help important sectors such as industry in regions such as the Midlands, which are vital to economic recovery.
The relief scheme before us will provide help for the minority facing increases. After allowing for the effect of negative inflation in September 2009, which will adjust bills for all of 2010-11, next year no large property will see an increase of more than 11 per cent due to the revaluation, while no small property will see an increase of more than 3.5 per cent due to it. The scheme has been widely supported at consultation and I therefore ask the Committee to join in that support today.
Earl Cathcart: My Lords, I thank the noble Lord, Lord McKenzie, for introducing these regulations and declare an interest, being involved in companies which pay non-domestic rates. Despite much criticism in this place and elsewhere, Ministers are pushing ahead with their planned 2010 rates revaluation. New bills will be issued to businesses in March 2010 for payment in April. Although I of course support the transitional arrangements, I am concerned that the Government have adopted a flawed approach to this. Of particular concern is the methodology that has been adopted. April 2008, which was right at the peak of the property boom, has been the time selected on which to base this revaluation snapshot. Certain sectors which were artificially buoyant in April 2008 will now have boom values effectively baked in to their rates bills for the next five years before the next revaluation. Additionally, many small shops could no longer be eligible for small business rate relief as a result, further increasing their bills. Businesses find themselves being forced to pay boom taxes in bust economic circumstances.
In 2007-08, the Government took in £17.4 billion. Next year, it will be £20.8 billion-a huge increase over the recession. Does the Minister really mean to tell us that all businesses will be able to pay and will not go bust in the mean time, and that those projections are accurate? I very much doubt that he can, as the Government have refused to conduct any impact assessment on the effect of the forthcoming 2010 revaluation to gauge its likely effect on businesses. That seems particularly irresponsible given the potentially destabilising economic impact of making changes to a £20.8 billion tax during a recession, changes which businesses could not reasonably have foreseen.
The consultation on the transitional relief scheme closed before the draft rateable values were published, preventing a considered assessment of the implications by respondents. In the previous 2005 revaluation, all details were published a full month before the consultation closed, enabling informed responses. Even if the figure of £20.8 billion is to be believed, we are told that the Government expect to distribute £21.5 billion back to local authorities in the form of grant. Where will the extra £700 million come from? The Government's figures are in a mess. There is already a £700 million black hole, which will increase as small businesses go bust.
The Government claim that the revaluation should be revenue-neutral. Some firms in some parts of the country may see a fall in rateable values and business rates, although that may be because of a lack of regeneration in those areas, but a significant proportion of firms-40 per cent, or about 700,000 businesses-will face large and destabilising rises during the worst recession on record. It is those 700,000 businesses which will be financing the rest, regardless of their profitability and of whether they are a going concern. We could do worse than consider the decision by the Executive in Northern Ireland to defer the 2010 revaluation to allow the localised effect of the recession to be taken into account. Noble Lords may wonder if the middle of a severe recession is the time to be rocking the boat in this way.
The background to this is worth considering. Without proper consultation, as Chancellor, Gordon Brown slashed empty property rate relief for commercial and
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The Local Government Association has noted that four out of five councils have reported an increase in empty properties in town centres during the recession. Two-thirds of councils warned that these empty properties are having a significant impact on high streets.
Yesterday, when these orders were being debated in another place, my honourable friend Justine Greening pointed out the costly effects of the revaluation that make these transitional arrangements necessary. Petrol stations, for example, are likely to be hit with a 33 per cent increase, while the Association of Convenience Stores has pointed out cases where the hike will be more than 200 per cent. Cricket grounds in England and Wales will owe an extra £62,000 each and rugby league grounds can expect a rise in their business rates of 60 per cent. London Zoo will see a rate rise of 155 per cent, up from £260,000 a year to £660,000-a £400,000 hike.
The urban regeneration companies, established to promote regeneration, have warned Ministers that these tax rises have resulted in the prospect of a pre-emptive demolition to avoid the risk of payment and have a deterrent effect on the slow and painstaking business of assembling sites in multiple ownerships. They also talk of the detrimental effect on new speculative factory or office developments that are essential for securing new jobs in deprived areas. Such regeneration is already commercially risky; the prospect of rates payments on newly built but unlet spaces risks killing off private-sector interest altogether.
The effects of the revaluation are therefore potentially disastrous for many businesses. I and my colleagues in the Opposition have urged the Government to postpone the revaluation, and I do so again. If the Minister does not agree to do so, I have no choice but to back the transitional scheme. However, that scheme is not, as I have pointed out, without its flaws. These regulations have been ill thought out.
I will give a qualified welcome to the regulations. The transitional relief scheme is necessary because we are where we are. I am certain that the Government would not wish to be where they are. Hindsight is a wonderful thing. When this process started, I am sure that none of us would have wished to be in the depths of the recession that we are in now. But we are where we are. We all recognise the effects on businesses, some of which face a significant increase, even after transitional relief. This is a further unwelcome blow.
I shall say it again: I am a London borough councillor. That makes me responsible for paying the business rate as well. It is often forgotten that it is not just businesses that pay but those who run public buildings, those who are responsible for schools and so on. I suppose that I am responsible as a business ratepayer.
I wanted to say a few words about what I am going to call "the London effect". I am delighted to see that the noble Baroness, Lady Valentine, is here too; she will know far more about that than I do. I see that, before the transitional arrangements, London and the south-west are the only regions that face a huge increase in the valuation. The increase in London before transitional relief is 10 per cent. Because of that, much of the benefit of transitional relief will go to London as well, I recognise that, but can the Minister, or maybe the noble Baroness, tell us what the net effect on London will be? We need to add to that. On the same date-1 April next year-larger London businesses will, in addition, pay what has become known as the Crossrail supplement, the business rate supplement. I believe that I am right in saying that the transitional relief scheme does not apply to the Crossrail levy. I say again: this does not apply to just the large multiple retailers. Some 34 schools in my small London borough will be liable for the Crossrail supplement. No one thinks of them as large businesses. Many of them are relatively small schools, but they have a rateable value in excess of £50,000. Therefore, what someone once called a double whammy will come in on the same date: the revaluation-the greatest effects of which are in London-and the Crossrail supplement in London. I look forward to hearing more about that and anything that the Minister can tell us about its double effect.
In his helpful opening remarks, the Minister talked about good working relationships with the producers of the software. I am pleased to hear that; I have no reason whatever to doubt it, but I understand that there have, perhaps inevitably, been problems. Can the Minister give us an update on the exact position now? Do the local authorities have in place software packages that are tested, trialled and operating in order to implement the regulations and, if not, when will they have them? I know that that is not yet the case in my own authority, although it is expected in January.
The 2010 revaluation is based on rateable values at April 2008 and, therefore, as has been noted, reflects property values at the peak of the market. Given that boom has since given way to bust, these figures are a long way from current reality. London will see a 32 per cent increase in its overall rateable value. However, this is not a homogenous rise across London. In the run-up to 2008, the West End in particular experienced soaring rents and, therefore, will experience a huge hike in business rate bills. Many properties' rateable values will increase by up to 150 per cent. I should be
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The Government's proposed transitional arrangements will mean that the related business rate increases will be phased. However, under these arrangements they still propose that the business rates for properties with large increases in their rateable values will increase by 12.5 per cent-although I think the Minister suggested 11 per cent-which is thoroughly unhelpful, just at the time that we are all seeking slowly to climb our way back out of recession. Furthermore, 20,000 London properties will experience a 30 per cent increase over the next two years.
The Government could help these businesses and the fragile economic recovery by freezing business rates in 2010. I note that both the CBI and the British Retail Consortium, which represent businesses across the UK, recommend that there should be lower upward caps and that this should be funded by smaller decreases. That is an eminently sensible proposal.
Lord McKenzie of Luton: My Lords, I thank all noble Lords who have contributed to this debate. I think that we had a qualified welcome, a reluctant acceptance and a qualified comment on the proposals. A lot of questions were asked, each of which I shall try to answer.
The noble Earl, Lord Cathcart, asked about the timing of the consultation paper. I am aware of concerns that the consultation period for the transitional arrangements finished before actual rateable values were published at the end of September. However, we are required by statute to ensure that these regulations are in force by 1 January. Even on the timetable we follow, it was extremely difficult to secure this debate before the House rose. Therefore, extending the consultation period would not have allowed us sufficient time to make these regulations, and that could have meant that billing authorities and their software providers did not have sufficient time to calculate rates bills before next April. Ultimately, this could have meant that ratepayers would not have received the transitional relief they need and deserve. Nevertheless, we released information on the revaluation at a regional and sectoral level in the summer-more information than has ever been released previously at that time in the revaluation cycle. We believe that this allowed ratepayers to respond to our consultation exercise.
The noble Earl referred to these being exceptional times and asked about help for the 700,000 businesses facing an increase. We are putting in place exceptional measures to help businesses with the revaluation. The transitional relief scheme provides more than £2 billion of relief to 467,000 ratepayers to cap and to phase in rises, and it extends this protection for longer-for five years instead of four. I reiterate that no small property will see more than a 5 per cent increase next year, before inflation, because of the revaluation benefiting 366,000 small properties which, on average, will receive £1,000 per property over the five years. After inflation-the difference between the figures we are talking about is because of negative inflation from the base-the maximum
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We have given a range of other support measures to businesses: we have deferred tax payments, there is an additional £1.3 billion of lending for small and medium-sized businesses and a working capital guarantee for businesses. There is assistance for the automotive industry, health checks for businesses to help them ride out the downturn and prompt payment codes. There is a great deal of support quite apart from these transitional relief provisions.
The noble Earl said that local government settlements show that the Government are increasing revenue from the revaluation. That is absolutely not the case. The distributable amount shown in the local government settlement is not the amount of business rates collected from business in any one year but the amount estimated to be available for redistribution to local authorities as part of formula grant. A change in the distributable amount has no effect on the rates bills paid by businesses. Over the five years of the new revaluation list, the revaluation does not raise any extra money. I stress that. Initially we would have collected 1.5 per cent more in 2010-11, but this would then be reduced in later years because of assumed appeals that arise in the system. Once all appeals have been settled, we would expect the amount collected in respect of 2010-11 to be less than that in 2009-10.
The noble Earl referred to the extent to which rates have gone up since 2005. While revaluations do not raise any extra revenue for the Government, the total amount paid in business rates can vary for other reasons. In particular, inflation can increase the multiplier and therefore the rates' yield, and the RPI inflation between 2005 and recent times is generally between 3 per cent and 4 per cent. Furthermore, physical growth in the tax base-by which we mean extensions and new properties-will also increase the total paid in rates. These factors will contribute to the increase in rates paid since the 2005 revaluation. However, for those properties whose rateable value has not changed since 2005, the ratepayers know that their rates bill before reliefs will not change beyond inflation.
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