HC Deb 26 January 1990 vol 165 cc1243-50

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

2.32 pm
Mr. Roger Gale (Thanet, North)

I am grateful for the opportunity of raising a matter that is of special concern to my constituents and to those of my hon. Friend the Member for Thanet, South (Mr. Aitken), who hopes to catch your eye, Mr. Deputy Speaker, during this short debate.

First, I should say how pleased we both are to see my hon. Friend the Under-Secretary of State for the Environment, the hon. Member for Southampton, Itchen (Mr. Chope), in his place. We are aware that he is imminently expecting an addition to his family and I am certain that there are places that he would much rather be this afternoon than in the House. My hon. Friend the Member for Thanet, South joins me in wishing both him and his wife very well.

I shall refer specifically to the towns of Margate and Herne Bay in north-east Kent, and my hon. Friend for Thanet, South will refer to Ramsgate and Sandwich and other areas of concern in north-east Kent. North-east Kent still has the highest unemployment in the south-east. The special circumstances of that area of England led my right hon. Friend the Prime Minister to set up the Thanet working group in 1987. The report by the group led to a series of measures that were instigated by the Government, and they are now beginning to take effect. Those measures include considerable investment in infrastructure, including the commitment of more than £57 million of Government money for the improvement of the Thanet way, the main road into the area, and the development of Kent international airport. We are looking forward to the development of a business park adjacent to Manston airport. All those measures are vital and are having an effect.

Unemployment in the area is falling. It is still 10.3 per cent. overall, and male unemployment is at a wholly unacceptable level of 14.6 per cent. Recovery in the area is fragile. Between October and December 1988 there was a small fall of 37 in the unemployment figures, which was against the trend for that time of the year when seasonable unemployment rises. Sadly, in the same period last year, the figure rose by 214, conforming with the seasonal trend. That is worrying. It would be tragic if the Government's hard work and commitment are to be put at risk.

Against that backdrop, I raise a matter of special concern— the effects of the uniform business rate on small shopkeepers and small hotels and guest houses in north-east Kent. Small shops in the area face an enormous threat from out-of-town trading, and I suspect that my hon. Friend the Member for Thanet, South will refer to a specific instance. The high streets are beginning to consist more of estate agents, banks and building societies than traditional traders. No doubt, my hon. Friend will say that all high streets throughout the country face that threat.

Sadly, north-east Kent cannot yet be regarded in economic terms as part of the glorious south-east. The Government suggest an average rateable value of eight times the 1973 figure. In Ashford, which is regarded as the hot spot of the south-east because of the effects of the Channel tunnel, the figure is 8.27 times the 1973 valuation. In Thanet, the valuation has risen by 10 times, and in Canterbury city it has risen by 12 times. The Canterbury city area includes the seaside town of Herne Bay, which is in my constituency, and is not in any way commensurate with Canterbury itself. The Conservative local authority in Canterbury has recently invested considerable sums of money in pedestrianising a shopping precinct, and that work is just beginning to show dividends in terms of growth in business. With great respect to my hon. Friend the Minister, that suggests that now is not the time to impose a greater burden upon small businesses that are just beginning to recover.

The effects of the uniform business rate in Thanet are potentially more alarming. I give the House two instances. The first concerns a family furnishing company in Northdown road, Cliftonville, where the rateable value has increased from £5,000 to £55,000. Five professional assessments suggest that, on a very sunny day, the figure might be more realistically set at £25,000 and that, within the current economic climate, it is more probably £20,000. The second example concerns a business at Westgate on Sea, again in my constituency, which was doing extremely well and was set to expand. Because of that, the proprietor purchased the property next door. The valuation of that empty property has risen by 300 per cent. The owner now intends to demolish the additional property and, as a result, no more new jobs will be created. That is not a hypothetical instance—the decision has been taken.

In north-east Kent rateable values represent about 50 per cent. of profits. That must be set against 40 per cent. or less in most of the rest of the country. In short, less profitable businesses in north-east Kent will subsidise more profitable businesses elsewhere.

Many small hotels and guest houses in my constituency have been striving to invest in new facilities and upgrade their facilities to provide what the modern holidaymaker wants. Inevitably, many of those little companies are family businesses. They consist of husbands and wives and sons and daughters working together to run the small seaside family guest house that many people like and admire. They also enjoy an eight-week summer season, but that is not reflected in the apportionment between the domestic rates—the community charge that will be paid by four people in a family—and the business use of premises for only a few weeks of the year.

Only last week I attended a meeting of the Surrey road hoteliers in Cliftonville and formed the distinct impression that many businesses would prefer to switch to 52-week of the year bed-and-breakfast, board and lodging, social benefit claimant work rather than pursuing the traditional seaside holiday trade. If that happened it would further erode the tourist base and hasten a downward spiral of the tourist trade in the area.

I ask my hon. Friend the Minister to consider a different composite hereditament—the shopkeeper who lives in a flat over his shop. I am indebted to the district valuation office, which has been most helpful. It suggested that some thought might be given to the possibility of an imbalance between the charges for the domesic properly and those for the shop or business premises below. It would appear that the apportionment in 1973 might have become out of kilter. Those family businesses, where the shopkeeper lives over the shop, provide a community service and we need to encourage them.

I do not expect my hon. Friend the Minister to answer all my questions today. I wish to make a half a dozen or so points that I hope he will consider. Were the social circumstances in north-east Kent taken into consideration—as the former Secretary of State, my right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), said they would be—when the Bill was debated a couple of years ago? Will the increases in the area be limited to a Government average, as suggested, of 8 per cent.? Will my hon. Friend review the operation of rating systems as they affect seasonal hotels, and especially guest houses? Will he review the approach to composite hereditaments and consider, in the case of small shops occupied by the shopkeeper and his family, waiving the first community charge as a reflection of the potential imbalance between the commercial and the domestic properties? Will he consider extending the phasing-in period for small businesses, further to mitigate the potential inflationary effect?

In particular, will my hon. Friend consider retirement relief and the extension of the carry-over or transitional period so that small shopkeepers seeking to retire can sell their businesses in the knowledge that the incoming business person will benefit from the same transitional relief? I should be happy if that transitional provision were confined to cases where the existing business is continued in the same form. Will my hon. Friend consider raising the qualification threshold for small businesses from a rateable value of £10,000 to £15,000, which would embrace many more in north-east Kent?

I reiterate my support for the principle of a uniform business rate. Its intent—a fairer national cutting of the business rate cake—is entirely proper. However, I do not believe that any part of that intent is to put small firms, which contribute to the economic recovery of north-east Kent, out of business. I think that my hon. Friend will agree with that.

2.43 pm
Mr. Jonathan Aitken (Thanet, South)

I am most grateful to my hon. Friend the Member for Thanet, North (Mr. Gale) for his courtesy and co-operation in giving me this opportunity to say a few words about the uniform business rate problems faced by my constituents, especially in the north-east Kent towns of Ramsgate, Broadstairs and Sandwich.

My first general point, and one on which I strongly concur with my hon. Friend, is that, whether we are talking about the level of rates, rents, wages or just about any of the usual economic indicators, the Thanet, South and North constituencies should not be simplistically classifid as part of the prosperous south-east. The Isle of Thanet and its nearby towns and villages comprise an area in which times are still quite hard for many small business men, especially those at the sharp end of commercial life who have to meet a payroll and keep the bank manager happy. Many now feel that the UBR could be the last straw that breaks the camel's back.

I do not want to claim that everything that is said about UBR by some of those who have been shaken by the valuations that they have received is necessarily correct; nor do I believe that there is an atmosphere of doom, gloom and poverty in the business community of north-east Kent—it would be an exaggeration to say that. There are a great many success stories and stories of good news in the area. There are, however, some difficulties with UBR, and it would be helpful to my hon. Friend the Minister if I sketched some of the economic scenery that surrounds the local UBR problem.

I should like to highlight the town of Ramsgate. In some ways, it is much more like a north-east town than a south-east town in economic terms. Ramsgate has the biggest Department of Social Security office in south-east England, with 16,000 claimants on its books. It has the highest concentration in south-east England of pensioners who are dependent only on the state pension for their income. It has an unemployment rate which, even after some welcome falls, still remains stubbornly well above 10 per cent. It has a road, rail and even pavement infrastructure which is crumbling into a state of advanced decay. We have suffered a number of worrying economic disappointments in recent weeks. These include the closure of the last of the nearby east Kent coal mines, 100 redundancies at the Astra fireworks and pyrotechnics factory and, above all, the shutting of the Marks and Spencer branch, the jewel in the crown of Ramsgate shopping centre.

All these factors have an impact on UBR. They affect the health of the local economy and the ability of small traders to pay the increases in their rates bills. Above all, they call into question the accuracy of some of the valuations that were made by the Inland Revenue valuation team in April 1988 as the basis of UBR.

I want to make a critical comment about that valuation date. Under the old legislation, which was last used in April 1973, Inland Revenue valuations were for the date on which rates were paid—in other words, in April 1973, rates were paid on a valuation for April 1973. By appealing or submitting an alternative proposal, one could get a later valuation date. The new legislation has created what is called the antecedent valuation date—a concept which did not exist under the old legislation. It means that, on 1 April 1990 the business man is asked to pay his rates on valuations made on 1 April 1988. This antecedent valuation date may be convenient for some civil servants, but in some cases it is unfair to ratepayers.

Let us consider what has happened in the intervening two years. The macro-economic indicators have gone the wrong way. Interest rates are up from 8 per cent. to 13 per cent. Inflation is up from 5 per cent. to 7.7 per cent. Wage and utility costs are up as well. Similarly, the local micro-economic indicators are going the wrong way. That Marks and Spencer closure in the high street of Ramsgate was a bombshell, because all rents in the shopping area around the Ramsgate central district are decreasing. At least 15 shop properties are empty, and shopping activity in the town is likely to move to the out-of-town shopping centres. How does one explain to a property owner in the middle of Ramsgage that he should be valued for his uniform business rate on 1988 rents and valuations, when everyone knows that in the area affected by that Marks and Spencer closure those valuations will have decreased by 1990? That is a manifest unjustice. My understanding of the legislation is that, even on appeal, the 1988 valuations will stand, and that social and economic factors will not be taken into account by appeals tribunals.

There is perhaps one loophole on which I would seek the guidance of my hon. Friend the Minister. Section 121 of the Local Government and Finance Act 1988 states that, when determining an appeal or alternative proposal, any physical aspect of the locality shall be taken into account at the date of the appeal or proposal. That section could be important to the shops and businesses around the area affected by the Marks and Spencer closure.

I appeal to my hon. Friend to take an interest in the interpretation of section 121. I have observed that the notes and guidance regulations on appeals have not been issued to the valuation officers, so could my hon. Friend please look sympathetically on the interpretation of section 121? In an area that has been blighted by physical change—it could be the closure of a steel works, but in the case of Ramsgate it is the closure of the biggest department store—I believe that rents, rates and the calculations based upon them should be downgraded by an appeals tribunal.

There are problems outside the area of Ramsgate's central shopping district, and they are highlighted by the anxieties of a small jeweller in Broadstairs high street—D. J. Pearce. His rates are up by 270 per cent. As a realistic business man, he appreciates the Government's phasing-in arrangements and knows that he will have to pay no more than an annual increase of 15 per cent. plus the rate of inflation, which means a pretty painful 23 per cent. Hopefully, it will be less if the rate of inflation eases.

In 1996, Mr. Pearce and others in a similar position will face what the Americans call a "double whammy". He will have to pay an increase in his 1990 valuation, plus the effects of the 1995 revaulation, and that could be a painful blow. Many small business men fear the double whammy—and that raises the question, should we not elongate the phasing-in period? In my view, there should be a seven year phasing-in period for the introduction of the uniform business rate, and I appeal to the Under-Secretary to consider that suggestion.

Finally, I recognise that the root of the problem is that the Labour Government funked a rate revaluation in 1978, which was then overdue, and we are now facing the results of 10 years of neglect. In the long run, the uniform business rate is probably a much fairer method of charging business rates and I think that the Government's transitional arrangements are a helpful cushioning step. The Government deserve some credit for grasping the nettle of revaluation—which is politically unpopular—and implementing it with some sensitivity.

Today I am arguing for greater flexibility in introducing the uniform business rate, particularly in north-east Kent. We need a longer phasing-in period of seven, not five, years, and a more flexible appeals system to allow tribunals to take into account changing circumstances since the valuation date of 1 April 1988. Above all, we must be sympathetic and flexible towards the small business community so that UBR is not seen as the last straw that breaks the back of small business.

2.52 pm
The Parliamentary Under-Secretary of State for the Environment (Mr. Christopher Chope)

At the outset, may I say to my hon. Friend the Member for Thanet, North (Mr. Gale), how much I appreciate his kind remarks at the beginning of his speech. I shall certainly pass on his best wishes to my wife. When we knew that this important Adjournment debate was taking place today we agreed that we should make domestic arrangements so that I could be here to participate, and so it has turned out.

I also congratulate my hon. Friends on their welcome endorsement of the principles behind the new business rate and the generous recognition that, if businesses in general are to benefit from the certainty and stability which the new system will provide, increases for some businesses are inevitable.

My hon. Friends both referred to the substantial help that the Government have given to facilitate the economic regeneration of north-east Kent and I am grateful for that. I am sure that there is no intention behind the changes in the rating system to jeopardise that economic regeneration.

It is right that the long-overdue redistribution of the rates burden between business sectors and areas should take place as soon as possible, but I assure my hon. Friends that the total amount which businesses will be expected to pay in 1990-91 will be essentially the same in real terms as that paid in 1989-90 across the country as a whole.

Nevertheless, I can understand my hon. Friends' concern that business ratepayers in north-east Kent should not suffer excessively as a result of the introduction of the new system, and I hope that I can reassure them on this point. There is no question of the new rateable values of properties in north-east Kent having been based, as they fear, on the rental values of property in other more prosperous parts of the country, or even of the county.

The law requires Inland Revenue revaluation officers to assess the rateable value of a property on the basis of the rent at which that property might reasonably be expected to be let from year to year. The valuation officer must look at the rental value of each property in the condition in which he finds it and, of course, at the location in which it is situated. A general principle does not, therefore, apply to the whole of the Canterbury district. Each property within each town in the district has to be examined by the valuation officer. It certainly does not mean that properties in one area can be assessed on rental values elsewhere. If that were to happen, valuation officers would not be doing their job properly, and ratepayers would have good grounds for appeal.

I shall give my hon. Friends one or two examples, which I hope will help to allay their concerns. As they would expect, prime shop rents in Margate and Ramsgate are between one third and one half of those in Canterbury. I can assure them that that is reflected in the rateable value assessments of the properties concerned. I remind my hon. Friends that there will also be gainers from the new system in north-east Kent. In Ramsgate, for example, the Duraplug factory's rate bill is set to fall from around £34,500 in 1989-90 to just under £24,750 before transition. The Argyle centre's rate bill will fall from around £19,750 in 1989-90 to about £12,354 before transition.

My hon. Friends may be glad to have information about average rateable values in the new lists. In Ashford, the average rateable values in the new lists are £12,814. In Canterbury they are £16,583. In Thanet, they are much less than that—only £9,464. I hope that my hon. Friend's will concede that the differences in rental values are reflected in the new lists.

My hon. Friend the Member for Thanet, North referred to Ashford as the "hot spot" of the south-east. That was also true in 1973, when the previous Channel tunnel scheme was under construction. Ashford starts from a high base, going back to 1973. Since then, the major employer in that town, British Rail Engineering Limited, has closed. Ashford, therefore, has had its problems during that period.

My hon. Friends are also particularly concerned about the plight of business ratepayers who, in their words, "live over the shop"—whether they be guest house proprietors or business people living over their shops in the high street. They will be required to pay both business rates and one or more personal community charges in respect of their occupation of the same property, but that is no different from the position of business ratepayers who do not live on the premises. They, too, will pay both rates and community charge. People living over the shop will have the same entitlement to both community charge transitional relief and protection under the business rates transitional arrangements as anyone else who runs a business and whose place of residence is elsewhere.

The valuation of such properties will reflect only the rental value of the business use. No value will be determined in respect of the part that is used as living accommodation. Phasing arrangements will apply to protect ratepayers from large increases. It is worth emphasising that the base point for calculating the transitional arrangements for the business rate will be only that part of the mixed hereditament on which business rates are paid at the moment. The total bill on a mixed hereditament will not be the base point; it will be lower than that. The new base point will be only that element of the rates that is attributable to business use.

Finally, I intend to deal briefly with the cessation of transitional protection when the occupier of a property changes and with the possibility of extending the transitional period. As for the continuation of protection when there is a change of occupier, I am afraid that I can offer my hon. Friends no prospect of any change that they seek. The purpose of the transitional arrangements is to protect existing occupiers. We want to get the transition over as quickly as possible, consistent with that objective, in order to allow the benefits of the new system to come through. The new occupiers do not need protection as they know what the liabilities are when they take on a property, and to allow new occupiers of existing property to continue to receive protection would be unfair to occupiers of property constructed after 1 April 1990 who will not be eligible for transition.

I can offer my hon. Friends better news about the extension of the transitional period. My hon. Friend the Member for Thanet, South (Mr. Aitken) referred to Mr. Pearce and his jeweller's shop and what he described as the "double whammy". We have not said that there will be no transitional arrangements beyond 1995.

The Government have powers under the Local Government Finance Act 1988 to introduce a further transitional scheme after 1994-95 to ensure that businesses which have not reached their new rate bills then are not faced with a substantial unphased increase, I understand that businesses would find it reassuring if we were to give a commitment now to use those powers and explain how we would use them. It is difficult to judge at this stage what sort of transitional scheme will be needed after the 1995 revaluation, because it is impossible to predict what will happen to rent levels over the next five years. Many businesses facing large rate increases now will find that market rents for the type of property that they occupy will fall relative to rents for other types of property, and that will come through in the 1995 revaluation. So some of the peaks that we are now experiencing may never be reached. That is why we thought it best to delay a decision on a further transitional period until nearer 1995. We are certainly cognisant of the problems of the double whammy and I hope that that will be some consolation to my hon. Friend's constituents.

My hon. Friend the Member for Thanet, South made some more detailed points about the system of valuation and appeals. I do not have time to deal with them now, but I shall certainly write to him and to my hon. Friend the Member for Thanet, North covering those points and some of the other matters that I have not had time to deal with today.

Question put and agreed to.

Adjourned accordingly at one minute past Three o'clock.