HC Deb 28 January 1983 vol 35 cc1215-22

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Berry.]

2.42 pm
Mr. John Heddle (Lichfield and Tamworth)

I am most grateful to you, Mr. Deputy Speaker, for giving me the opportunity this afternoon to raise the subject of the rating of empty industrial buildings in the west midlands. I also pay tribute to my hon. Friend the Under-Secretary of State for arranging his diary to be here today rather than with his constituents, whom he nurses most assiduously, as he nurses his responsibilities in the Department with great vigour and understanding, especially of the views of industrialists and ratepayers in my constituency and in the west midlands as a whole. I am grateful to have the support of my hon. Friend and parliamentary neighbour the Member for Aldridge-Brownhills (Mr. Shepherd).

The House has always been sympathetic to the plight of industry in the depths of a recession. I remind my hon. Friend the Under-Secretary of State that, in 1929, when Great Britain was going through the depths of a world recession similar to that of today, the House introduced the Local Government Act 1929, which put forward the concept of industrial derating. My hon. Friend will remind the House that the element of industrial derating introduced in that Act was 75 per cent., and that in 1958 that threshold was reduced to 50 per cent. Just before your entry into the House, Mr. Deputy Speaker, the House passed the Rating and Valuation Act 1961, which abolished the threshold to which I have just referred and the concept of industrial derating completely. I need not remind the House that the world recession that started in 1929 was well and truly played out, perhaps coincidentally—I leave the House to judge that—during the great Conservative Administration that lasted for 13 years and that expired temporarily in 1964.

In 1967 the House again introduced an Act relating to the re-rating of industrial premises which happened to be vacant for a while. Provisions for the rating of empty property were included in the Local Government Act 1966 and in the General Rate Act 1967, subsequently amended by the Local Government Act 1974. Section 17 of the 1967 Act enabled a rating authority to pass a resolution to rate unoccupied property. It also had the power to rescind that decision later if it so wished. It seems that many councils passed such resolutions.

Under the Local Government Act 1974 a local authority had a good deal of flexibility, in that different classes of property could be rated differently or property in only one part of a local authority's area need be rated at all. Only "relevant" properties, as defined by schedule 1 to the 1967 Act, were liable to rates when unoccupied. However, "relevant" properties seems to cover a multitude of things. The Act defines it as any hereditament consisting of, or part of, a house, shop, office, factory, mill or other building whatsoever, together with any garden, yard, court, or other land ordinarily used or intended for use for the purposes of the building or part". An empty property must have been empty for more than three months under current legislation before it becomes liable for rates, or for more than six months if it was a newly erected property.

My right hon. Friend the Secretary of State for the Environment introduced into the Committee stage of the Local Government, Planning and Land Act in 1980 the concept that rating of empty property should be reduced from the heretofore penal level, which was introduced into the 1967 Act, of 100 per cent. to 50 per cent. That was certainly a step in the right direction. That proposal, welcomed throughout the length and breadth of the west midlands and beyond, and certainly welcomed by industrial and commercial ratepayers, was enshrined in the Rating Surcharge (Suspension) Order 1980 and the Unoccupied Property Rate (Variation of Current Ceiling) Order 1980.

On 25 June 1981—I doubt whether the House will remember this small teardrop in its history—I introduced under the ten minutes rule a Bill entitled the Rating (Business Premises Relief) Bill. The House gave the Bill permission for a Second Reading but, for reasons that I have not yet managed to fathom, sufficient parliamentary time was not allotted to enable that Bill to proceed to Committee.

I remind the House of two points that I made in the presentation of that Bill. I said: This Bill therefore seeks to complement the aims of my right hon. Friend to impose a limit over which no local authority could levy rates on the commercial and industrial ratepayer. It also imposes upon rating authorities the inability to levy rates on vacant business premises. Notwithstanding the fact that the Government, rightly, in the Local Government, Planning and Land Act 1980, reduced that limit from 100 per cent. to 50 per cent., it is the view of my hon. Friends"— the proposers of my Bill— and myself that this right should be abolished. Empty factories make no profits for the owners. They simply involve the owners in the cost of upkeep. They do not provide the owners with value for money. The local authority provides the owners of these premises with no services. This provision would remove the threat of a repetition of what happened in South Yorkshire recently where owners, frustrated because they were unable to afford void rates, were driven to start demolishing good quality factory premises. The owner of those premises told me on that occasion: If a businessman's rates bill goes up by one-third and then, because of the recession, business is down by one-third, rates become an intolerable and crippling burden".—[Official Report, 24 June 1981; Vol. 7, c. 249.] My motion today relates specifically to the west midlands, but it is perhaps a convenient coincidence that the quotation that I have just read to the House related to the comments of a Yorkshire business man and my hon. Friend who will be replying, as I said earlier, nurses most assiduously a Yorkshire constituency and will be personally conversant with the problems.

In Great Britain today rates are the biggest single burden on trade and industry. Business will have to find more than £6 billion in the coming year to meet demands that will soon start flooding in from town and county halls. Everywhere that I go in the west midlands business men tell me that rates are putting enormous pressure upon them, upon their company budgets and inevitably therefore upon their employees' job security.

I quote the chairman and chief executive of Duport, a major employer in the west midlands, who says: We have had two substantial cases where we have taken the roofs off empty premises involving over 800,000 square feet of floor space. We did not want to make the move, but it has saved us over £200,000 in rates on property which was not producing a penny in income. One of the premises was only a few hundred yards from the district authority boundary, and over that border no rates are charged on empty properties. Mr. John Owen, group managing director of Rubery Owen Holdings, a major public company in the west midlands, had this to say: We have taken the roofs off or are in the process of demolishing about half a million square feet of factory space and one of the chief motivating factors was the void rating system. We must have saved ourselves about £300,000 a year on our rates bill by the move.

Mr. Richard Shepherd (Aldridge-Brownhills)

I appreciate my hon. Friend's giving me the opportunity to ask him a question in what is a most significant debate for the west midlands.

Rubery Owen operates within the metropolitan borough in which I am one of the Members of Parliament. One great concern is the variability of the application of the void rating rule. Walsall, for instance, because of its circumstances, whether prudently or otherwise, rates void buildings. That fact has contributed considerably to the dereliction of the area and the fall in employment. Investment is not directed into boroughs that are in the unhappy habit of rating empty and derelict buildings.

Could my hon. Friend give us an idea of whether he believes that void rating should be supported by Government grant to make up the deficit to local authorities such as Walsall, or whether he sees such local action as a direct result of the imprudence of those local authorities? Could he give us a more general view as to how business men can respond where they are not represented on local authorities?

Mr. Heddle

I am grateful to my hon. Friend for that intervention and for the way in which he has expressed to the House the views of the many business men in his constituency who are faced with rapacious demands from a local authority that does not exercise the commercial prudence or financial rectitude that the House seeks to impose on nationalised industries—a matter to which the House has been directing its attention a moment or two ago. Perhaps my hon. Friend will bear with me, because I have comments to make on how I believe that the House can impose its will on local authorities, although I take into account the point that he makes, that if local authorities are denied the right to raise revenue through rates on empty premises, there has to be an adjustment perhaps of the rate support grant system. The Minister may wish to refer to that matter in his reply.

Duport industries and Rubery Owen are not the only companies involved. BL and Plessey Telecommunications, companies which are household names, have been forced not only to remove roofs to render their premises uninhabitable and therefore unratable. They have demolished—they have razed the premises to the ground. Voluntary vandalism is imposed upon them because local authorities—not all, but some—do not understand the pressures on industry and commerce today.

Why should industrial commercial ratepayers, the owners of empty premises, pay rates to local authorities? They have no vote, no voice, no say and no sanction over how a council spends its money. The premises produce for them not one penny of production or profit. They receive no services for the empty premises.

It pains me to have to tell the House that on Monday 7 February, at the invitation of the owners, the London Life Association—probably the most responsible and oldest insurance company in the City—has asked me to take a pick axe and to remove the roofs from 60,000 sq ft of factory space in Wolverhampton simply to avoid the payment of £23,000 a year in rates on premises that the firm has been unable to let because of the recession.

Lichfield district council does not charge rates on empty premises, nor, I am happy to say, does the Tamworth council, which has travelled down the road to Damascus although it is Labour-controlled. Recently the Birmingham city council changed from being Labour to Conservative-controlled. Last week it announced not only that it would reduce rates by 12 per cent. in the next financial year, guarantee to maintain services and improve some of them, but that it would not levy rates on empty industrial premises.

Most business ratepayers recognise that local services have to be paid for and are willing to take a fair share of the cost. If we are to reverse the economic decline business must regain its lost competitiveness and thereby create faster growth and improved prospects for employment. The first step in achieving the upturn is to reduce costs. All companies have been doing that, some successfully, but in every case painfully, since the beginning of the recession.

I ask the Minister to agree that rating empty premises goes against the principle that rates are a tax on beneficial occupation. I ask him to agree that the cost of services provided by local authorities to empty business premises is relatively small and certainly does not equate with a 50 per cent. levy.

Business premises, particularly industrial property, are difficult to let or sell during the depths of a recession. Business costs must be reduced if Great Britain Ltd. is to become competitive in world markets again.

Amendments to primary legislation cannot be proposed in an Adjournment debate. I accept that and I therefore ask my hon. Friend to agree that my proposal to abolish councils' discretion, for the reasons that I have explained, do not require primary legislation. Under the powers given to my hon. Friend by the House, he can amend the General Rate Act 1967 by instrument.

I urge my hon. Friend to visit the midlands. If his diary permits, I urge him to accompany me to Wolverhampton on 7 February to see for himself the acts of voluntary vandalism into which business men are being forced to avoid the rapacious demands of spendthrift Labour-controlled councils, which care not a jot for company cash flow, but who should share with the Government the view—endorsed by all responsible authorities and institutions—that high rates cause high unemployment.

2.58 pm
The Under-Secretary of State for the Environment (Mr. Giles Shaw)

I congratulate my hon. Friend the Member for Lichfield and Tamworth (Mr. Heddle) on continuing to discuss matters on the Adjournment which affect rates and other local government services. He has done that assiduously in the last few months. Department of the Environment Ministers are aware of his sustained efforts and, in our charitable way, we respect him totally.

The prime point of this debate is that there are provisions for a 50 per cent. ceiling for rates on redundant premises, but they are discretionary. In many cases, local authorities have been increasing the rate burden on industry, whether it be industry occupying full premises on which average rates are levied or on industries that, through recession, have found themselves with empty industrial property.

We must recognise first—I know that my hon. Friend does—that in terms of rating policy, local authorities must pursue the guidelines that are set to reduce rates, to try to improve their services and make them more efficient so that the burden does not fall on the portion of ratepayers who are unrepresented—the industrial and commercial sector—or on those who are least able to pay during a period of protracted economic recession. The Government's guidelines on the rate support grant settlements are designed to preserve the central fabric of our economic management. If local authorities wilfully exceed their targets and levy excessive rates, further economic decline and substantial increases in local unemployment will follow.

That is the type of background against which rating issues must be debated. My hon. Friend has generously set aside some of the lessons that can be drawn from the activities of spendthrift local authorities and concentrated on the mechanism and what should be done about it. Rates are one of the major costs that face business in the west midlands, west Yorkshire and elsewhere. There is no doubt that they are getting more severe. My hon. Friend has painted a vivid picture of the problem in the west midlands and the action that has been taken by some industrialists to reduce the incidence of rating.

I shall now deal with what can be done about empty property rates. In view of the complexity of the provisions, I shall sketch in the background. My hon. Friend and I broadly agree about the fabric of the legislative framework. Property that is unoccupied for up to three months—up to six months in the case of new properties—enjoys exemption from rates. Thereafter, local authorities have a discretion to levy rates. Those powers were given to them shortly before all existing rating legislation was consolidated by the General Rate Act 1967. To use it, a rating authority must make an appropriate resolution to rate any or all classes of empty property in all or any part of its area, at any level up to the limit as specified in the legislation. Therefore, there is not an individual exemption. The decision must be a total one in the rating authority's area.

The aim is to give local authorities a means of discouraging owners from keeping property empty for purely speculative purposes. My hon. Friend will remember that that was considered to be a major social practice at the time. Until 1974, the ceiling up to which empty property rates could be levied was 50 per cent. of the amount that would be payable if the property was occupied. In 1974, however, to curb property speculation further, the ceiling was raised to 100 per cent. of the occupied rate. In addition, a mandatory progressive surcharge was introduced for commercial buildings, empty or occupied, which were not used for the purpose for which they had been constructed. At the same time local authorities were given the power to reduce or remit empty property rates in individual cases on grounds of hardship.

As soon as this Government took office, my right hon. Friend the Secretary of State for Defence, then the Secretary of State for the Environment, investigated the rating of both empty domestic and non-domestic property in the light of the many changes in climate in the property market. All interested bodies, including representatives of industry and the local authority associations, were involved in the investigation. It showed that the level of speculation that had prompted the introduction of maximum powers to rate empty property was largely a thing of the past. Indeed, the problems of the recession were being exacerbated for industry by the requirement to pay, in some cases, substantial amounts of rates on nonproductive units that could not be sold.

Those findings presented clear grounds for reducing the severity of the empty property rating provisions, but we also had to consider the effect on local government finance. Abolition of empty property rates would have meant the sudden removal of a significant source of rate income. It would have led inevitably in some areas to an increase in the rate burden on other ratepayers, both domestic and non-domestic. The consequences of that would have been especially serious in areas suffering from a declining industrial base. There, the rate increases on the remaining firms would have reduced their competitiveness and, in some instances, put their very existence in jeopardy.

Nowhere was that more apparent than in the west Yorkshire wool textile belt where the steady decline of smaller companies—it was essentially a small company industry—left an enormous problem for local authorities in maintaining their income from the industrial ratepayer. Such decisions are serious for the rating authority, and balance is important. The rate increases on remaining firms would have reduced competitiveness and made it extremely difficult for them to survive for the better times that were surely ahead.

We also had to consider the provision of local services for empty premises. My hon. Friend suggested that they were not a sufficient argument to avoid dealing with the problem that he posed, but rates are a form of local property tax rather than a direct payment for services. However, empty property continues to benefit from the protection given by the police and fire services and, indirectly, from any local authority activities designed to combat or reduce vandalism. On balance, therefore, we decided that empty property rates should not be abolished outright. Instead, as my hon. Friend reminded the House, powers were taken in the Local Government, Planning and Land Act 1980 to enable the Secretary of State to vary by order both the ceilings on the amount of rates chargeable on empty, domestic or non-domestic properties and the initial grace period of three months to six months.

In addition, the 1980 Act suspended the provisions for the surcharge on unused commercial property. In view of the difficult economic situation faced by the business sector, my right hon. Friend the Secretary of State used those powers to reduce the ceiling on non-domestic property in general to 50 per cent. of the occupied rate with effect from 1 April 1981. As my hon. Friends the Members for Lichfield and Tamworth and Aldridge-Brownhills (Mr. Shepherd) will recognise, that made a valuable contribution to reducing the burden of rates on non-productive factories. I am sure that there was also a proportionate effect on the west midlands.

Since then the problems caused by the rating of empty property in areas such as the west midlands have considerably worsened. My hon. Friend has drawn attention to the lengths to which some firms may consider going to escape the burden imposed by the levying of rates, even at the maximum level, on 50 per cent. of their non-productive units.

I was much moved not only by the individual cases that my hon. Friend the Member for Lichfield and Tamworth quoted but by the fact that a substantial number of companies was now involved. Hitherto there have been one or two celebrated cases, but only a few.

While I do not wish to dispute the facts quoted by my hon. Friend, I understand that there is less evidence of firms rendering property incapable of occupation to avoid empty rates than the publicity given to that topic suggests. Nevertheless, the Government deplore the prospect of such action, however limited. That it should have to happen at all, even as part of an accelerated process of planned demolition, highlights the real difficulties faced by manufacturing industry at a time of recession.

My hon. Friend has called for the abolition of local authorities' powers to levy rates on empty property. The Government have received many representations supporting such a move and the introduction of other forms of relief for businesses, of which my hon. Friends will be aware. Those representations have come not only from individual firms and business organisations but from some other significant national bodies.

As I have said, local authorities are not required to levy empty property rates. There is a strong argument for leaving to authorities the discretion to take decisions about empty property rates in the light of the circumstances in their area. Many—about half—choose not to levy empty property rates at all. Of those that do, some use their wide discretionary powers to good effect; to benefit, for instance, newly constructed industrial buildings and properties in inner city areas.

In many of the areas where careful and intelligent consideration of the effect of empty rating and sensible uses of their discretion are most needed, local authorities display little sign of such flexibility.

Circumstances vary across the country. I believe that in some areas empty property rates have a place at a level tailored to suit the economic circumstances of the area. It is the local authority that must exercise such discretion. We do look for flexibility.

I assure my hon. Friend that the Government are very conscious of and concerned about the effects of indiscriminate rating. My right hon. Friend the Secretary of State was asked about this issue on Wednesday by my hon. Friend the Member for Chipping Barnet (Mr. Chapman). He assured the House that he was keeping the issue under close review. He also undertook to talk to my right hon. and learned Friend the Chancellor of the Exchequer on this and related matters. I know he has discussed it as recently as 20 December with the Confederation of British Industry.

I assure my hon. Friend that I have considerable sympathy with the points that he and my hon. Friend the Member for Aldridge-Brownhills have made in this debate. The issues are clear and the Government must pay close attention to them. We shall continue to examine these problems in discussion with our colleagues to see whether further changes are warranted.

Question put and agreed to.

Adjourned accordingly at ten minutes past Three o'clock.