Rating and VaFluation

HC Deb 14 December 1994 vol 251 cc948-84 4.39 pm

The Parliamentary Under-Secretary of State for the Environment (Mr. Robert B. Jones)

I beg to move, That the draft Non-Domestic Rating (Chargeable Amounts) Regulations 1994, which were laid before this House on 12th December, be approved.

Madam Speaker

With this it will be convenient to discuss motions 2 to 7 on the Order Paper.

Mr. Jones

These seven orders and regulations make important provisions for the implementation of the 1995 revaluation of non-domestic property, which takes effect next April. Five of the orders prescribe the rateable values of the large network industries—the railways, electricity and water industries, British Gas and certain docks and harbours. Without those, the industries concerned would not have up-to-date values next year. A sixth order revokes the 1989 rateable values orders for the telecommunications industry and British Waterways. Those industries will have their rateable values for next year determined in the same way as most other businesses.

Probably the most important instrument for the majority of businesses, however, is the Non-Domestic Rating (Chargeable Amounts) Regulations. Those regulations contain measures to phase in the effects of the revaluation for those ratepayers who would otherwise be confronted by significant changes in their rate bills next year.

As announced by my right hon. Friends the Secretaries of State for the Environment and for Wales on 29 November, the effect of those regulations will be to limit rate increases for small businesses next year to no more than 17.5 per cent. after allowing for inflation. For property with a new rateable value of £10,000 or more—or £15,000 or more in London—increases will be limited to a maximum of 10 per cent. after allowing for inflation. For small properties consisting of both business and living accommodation, the corresponding limit will be 5 per cent. Those limits will continue to apply throughout the period until the next revaluation in the year 2000.

Regular revaluations are essential to ensure that businesses pay their fair share of the cost of local government. Revaluations do not affect the overall yield from business rates. Even if the national total of rateable value increases, we are required under the statutes to set the poundage—that is the amount per pound of rateable value that ratepayers must pay—so as to keep total rate bills broadly constant after allowing for inflation and the possible effects of successful appeals.

As it happens, the 1995 revaluation will hardly change total rateable values in England, and we have announced a poundage of 43.2p for this country for next year—the same as for this year after allowing for inflation. In Wales, total rateable value is set to increase, so we have proposed a reduction in the poundage from 44.8p to 39p next year to compensate.

However, it is inevitable that the revaluation will change the rateable values of individual properties in line with changes in the property market during the five years since the previous revaluation. The rates bill of many individual businesses will therefore alter, with some businesses confronted by rate increases, some benefiting from reductions and others experiencing little or no change.

For the 1995 revaluation, the swings in bills are likely to be more marked than might have been expected, for two reasons. First, the 1990 revaluation was based on market rental values for property as at April 1988. In most parts of the country, rentals were still on the rise then, and they continued to increase for a while. In some regions, especially the north and the midlands, values then levelled off; in others, they fell back as recession started to bite. By April 1993—the base date for the 1995 revaluation—property values had hit rock bottom in central London but were barely past their peak in other areas. As a result, and as a broad generalisation, there has been a reversal of fortunes between ratepayers in the north and south: ratepayers who benefited from the 1990 revaluation are likely to do less well next year, and those who found themselves worse off in 1990 are likely to do much better.

The second reason for large potential changes in bills is that some ratepayers continue to benefit from the transitional arrangements introduced to cushion the effects of the 1990 revaluation, so their bills this year continue to be somewhat less than what they would have been, had the 1990 changes come through in full. Without a further transitional scheme, some of those ratepayers would be confronted by a stiff increase next year, irrespective of the revaluation. Although the revaluation will mitigate the increase for some ratepayers, for others it may add to it.

The Government do not think it right that businesses should have to absorb large increases in their costs overnight—they need time to adjust. That is why we have put before the House the regulations to phase in the changes. We estimate that nearly 1 million smaller properties and nearly 350,000 larger properties in England and Wales will benefit from relief. More than one third of the beneficiaries will be shops, and 156,000 offices and 320,000 warehouses and factories will also benefit.

Mr. Tim Smith (Beaconsfield)

How many of the businesses that will benefit from transitional arrangements will be ones that were already enjoying some transitional relief following the 1990 revaluation?

Mr. Jones

If I may, I shall come to that when I sum up, because I do not have the figure immediately available. I undertake to inquire into that and I hope to reply to my hon. Friend later.

The cost of protecting businesses against large rate increases must fall somewhere. About 170,000 properties will have reduced bills as a result of revaluation, and many of those will have benefited from relief under the 1990 transitional arrangements. We feel it right, therefore, that they should meet much of the cost of funding the new arrangements. The regulations therefore include provision to limit rate reductions so that, as under the 1990 transitional scheme, a contribution towards the cost of the relief will be required only from those who will make savings from the revaluation.

For next year, rate reduction will be limited to a maximum of 10 per cent. for small businesses and 5 per cent. for larger ones, after allowing for inflation. We envisage that similar limits will be required in the following year. Reductions should then start to come through much faster, as many ratepayers who have been phased upwards will have then reached their full new bills and will no longer require relief. The regulations make provision for reductions of 20 per cent. for small businesses and 15 per cent. for large businesses for 1997–98, and 35 per cent. for small businesses and 30 per cent. for large businesses for 1998–99 and 1999–2000. As the revaluation is not yet complete and the effect of appeals cannot be known with accuracy, those estimates are inevitably provisional, which is another reason why I cannot answer my hon. Friend's question at the moment. We therefore propose to review the estimates before the start of each year.

For the next year, the 5 per cent. and 10 per cent. limits on reductions will not meet the full cost of the relief for business facing increases. That is why, as my right hon. and learned Friend the Chancellor of the Exchequer announced in his Budget statement on 29 November, the Government have also pledged a generous Exchequer contribution towards the cost. In England and Wales, the contribution will total £525 million for next year. As we promised in debates on the Non-Domestic Rating Act 1994 earlier this year, that contribution will be added to the non-domestic rating pool so that no billing authority is any worse off as a result of the shortfall in rates yield.

Right hon. and hon. Members may have seen some recent press reports, as I have, notably in the London Evening Standard, suggesting that, notwithstanding the Exchequer support that we have announced, London will be robbed of hundreds of millions of pounds as a result of those measures.

It is perfectly true that inner-London ratepayers, taken together, will make a substantial net contribution to the cost of the scheme, but I fear that memories are short. In 1990, the boot was on the other foot; many businesses in central London received transitional protection, which was paid for by ratepayers elsewhere. Besides, this is not a simple issue of London versus the rest, because every region will have a mixture of losers and gainers. About half the ratepayers in inner London, most of which will be small businesses, will actually receive help from the scheme. A good many fewer inner-London ratepayers will be required to pay an additional contribution, and two thirds of the contributors will not be in inner London at all.

I must also emphasise that local authorities in London will not receive a penny less out of rates as a result of our scheme, because rate revenue is pooled nationally, and every authority area receives the same amount per head of population.

The regulations governing the transition are complex. That is the result of the need to deal fairly with a number of different types of case that can arise. In essence, however, the arrangements will work similarly in all cases.

The new rates bill, known in the regulations as the notional chargeable amount, will be compared with a notional bill—the base liability—for the current year, taking account of the existing transitional arrangements where necessary. If the change from one year to the next is more than the limit—known as the "appropriate fraction"—allows, ratepayers will pay the limited amount, subject to any other reliefs that may be available.

Properties newly constructed after 1 April 1995 will not attract the phasing arrangements, but properties created by division or merger of existing properties will do so. In addition, we have made special provision to apply the downward phasing provisions to properties wholly or mainly reconstructed from existing properties. We do not think it right that ratepayers who are helping to meet the cost of the phasing arrangements should be able to escape their obligations simply by undertaking refurbishment or other reconstruction works.

The phasing provisions will apply to the large network industries in broadly the same way as for most other businesses. That brings me to the six rateable value orders before the House. Prescription of rateable values for those industries is necessary because assessment by local valuation officers in England and Wales is impractical. In some cases, it is because the property is of a highly specialised kind which presents complex valuation problems. In others, it is because the property is so extensive that the time and other resources needed to value it conventionally have simply not been available.

Rateable values in Great Britain for conventionally assessed property have changed little as a result of the revaluation. We have, therefore, based the new values for most of the centrally assessed industries on their 1994–95 values, adjusted for any changes in the property they occupy. There are exceptions, such as the railway networks, where the industry has undergone profound changes since the last revaluation and we have undertaken a fresh valuation.

The orders also contain provisions to recalculate rateable values for those industries annually, to take account of changes in the amount of property they occupy. They appear as formulae in each of the orders and provide a proxy for the changes which ratepayers who occupy conventionally assessed property would expect to see reflected in changes to their rating assessment. In addition, the water undertakers order contains a method for determining rateable values when water companies merge.

It is less than satisfactory that we still have to set rateable values for certain industries in this way and I am therefore pleased to announce that, from next April, some industries whose rateable values were previously prescribed by order will have their values assessed by the Valuation office agency in the normal way. They include British Waterways, British Telecommunications and Mercury Communications, for which there is a separate order repealing the earlier provision. The Tyne and Wear metro and the docklands light railway will also be conventionally assessed and will no longer appear in the railways order and the amendments to the 1989 docks and harbours order ensure that ports with relevant incomes of between £50,000 and £1 million will also be conventionally assessed next year.

It is our intention that the prescription of values for most of the remaining industries will end in the year 2000. We have already drawn up timetables for gathering the information we need to determine the values for some industries and discussions on others are to start early in the new year.

I commend these somewhat technical orders to the House.

4.51 pm

Mr. Tony Lloyd (Stretford)

The Minister may have read the orders as he reads routine technical orders that pass through the House on a regular basis at 1 o'clock in the morning, but if he considers them to be trivial matters, he has no understanding whatsoever of the anger of business men and women which will be expressed and will find its way to his desk.

Mr. Gary Streeter (Plymouth, Sutton)

Will the hon. Gentleman give way?

Mr. Lloyd

If the hon. Gentleman will forgive me, he should at least let me get into my speech. I understand where he comes from, however, and I will certainly give way to him in a moment.

In the north of England and the west midlands, where the business rate revaluation means that people will pay much higher rates this year, there will a colossal amount of anger. The same frustration will emerge from people in London, who thought that the revaluation would offer some relief.

Mr. Robert B. Jones

I certainly did not say that it was a trivial matter; it is a technical matter and I described it as such. I was referring to orders other than the one relating to industry and commerce. It is precisely because it is such a sensitive matter for property owners throughout the country that we have given great thought to the protection scheme which we have introduced. I hope that we have produced a scheme that, if it is not totally welcomed by people facing increases and decreases, will at least seem to them to have recognised their real fears.

Mr. Lloyd

The Minister had better look again at precisely what the schemes offer. They do not provide the same protection that existed in the past or that industry and business are seeking. The Minister needs to understand how desperately affected some businesses will be and how deeply they will resent what is happening.

Mr. Streeter

In view of what the hon. Gentleman said about anger, I wonder why, with the exception of one hon. Member, the Labour Benches are completely empty. Is that how Labour Members represent their constituents when big issues are involved?

Mr. Lloyd

That point is too trivial for comment. I am happen to debate the issues, but I should point out that only three or four Conservative Back Benchers are representing the party that claims to represent small businesses. No doubt they are present to support a Minister who is sticking the knife into small and large businesses. The hon. Gentleman can do a little better than that and I look forward to hearing his remarks.

Let us examine the background to the business rates system. I refer the House to a speech by the then Secretary of State for the Environment, Nicholas Ridley, on 16 December 1987. He told the House: The…function of the unified business rate is to remove the arbitrary variations in the amounts businesses pay at present. What can be more arbitrary than the position in Yorkshire and Humberside, for example, where the business rates, which on average went down in the last revaluation by 21 per cent. on 1988 prices, will now increase office costs by 56 per cent? If that is not arbitrary, I am not quite sure what the word means. Even by the then Secretary of State's definition, the scheme simply has not delivered the goods to business.

Mr. Tim Smith

Is it not a fact that, before the unified business rate was introduced, local authorities fixed the business rate and there were arbitrary variations, whereas now the Government fix the maximum increase in the UBR by the retail prices index? Is that not a considerable improvement?

Mr. Lloyd

The hon. Gentleman does not understand the scheme. Although in normal circumstances the Government fix the maximum up to the level of the RPI, next year the bills that come thudding on to businesses in my constituency will include a massive increase way over the RPI.

Let us look at different regions as that appears to be the nitty-gritty of the debate. The worst affected region is the west midlands, where there were decreases in rateable values in 1990 of about 25 per cent. That was very welcome at the time, but the then Secretary of State, Nicholas Ridley, said: Together with the effect of the revaluation…these proposals will reduce rates by some £700 million in the north and midlands. The unified business rate alone will reduce rate by £380 million in inner city programme areas. Those reductions will give a major boost to employment in the areas of greatest unemployment and, at the same time, reduce the pressure for development in the south-east."—[Official Report, 16 December 1987; Vol. 124, c. 1121.] If, at that time, the reductions were designed by the then Secretary of State to provide relief to hard-pressed businesses in the north and the west midlands on the ground that they would create employment, let me tell Conservative Members that businesses in my constituency and in the west midlands are not so robust that they can calculate their costs on the basis of arbitrary rate increases that they will face next year. If the measures were introduced some seven years ago to create employment, let me tell the Minister and his hon. Friends, who seem to like the present scheme, that the Government had better take on board the destruction of jobs and businesses that will be caused by these rate increases.

We moved from a system of local control, where local businesses were consulted in order to assist. The new system is massively more arbitrary; the swings and variations are much greater than anything seen on a year-by-year basis, when local government had control of the local business rate in negotiation with local businesses.

Mr. Oliver Heald (Hertfordshire, North)

Is the hon. Gentleman saying that he is against the revaluation? That is what happened under Labour before. The Labour Government refused to revalue year after year and we reached the point where rateable values bore no relationship to market values. The difficulties that we experienced with the introduction of the UBR were a direct result of that. Is he saying that he would cop out, as the previous Labour Government did year after year?

Mr. Lloyd

Once again, the hon. Gentleman has a fairly deficient memory and a poor understanding of the situation. The 1988 revaluation was some nine years into the 10 years of a Conservative Government. The charge of holding back on this matter must be applied to that Conservative Government.

What it is more important—if the hon. Member for Hertfordshire, North (Mr. Heald), muttering away as he does, would have the courtesy to listen for a moment—is that we recognise that when we are talking about a locally determined system, variations within rateable values are nothing like as serious as those in a national system.

The introduction of the national non-domestic rating system—the unified national business rate—caused the major problems with the variation in valuation. That was why at the time there were colossal swings and so much pain and anger in inner London, for example, which saw its non-domestic rates bill shoot up by some 39 per cent. In the capital, some 45 per cent. of businesses are still waiting to see the full impact of the revaluation of 1990. Because of the present revaluation, that full impact will never occur. Businesses will be grateful for that small mercy, but they will not be grateful for the fact that the Minister is limiting their capacity to benefit from a revaluation.

One of the concerns expressed by businesses, particularly in inner London, is that the present revaluation, having lurched from a 40 per cent. upgrading last time around to a 40 per cent. downgrading of business costs in London, means that the charge of arbitrariness cannot be avoided by the Minister. What is much more important is that it means that any idea that businesses in London can plan long term for the vagaries of this system is simply ridiculous. Businesses like stability. That is the point that most business people make to Members of Parliament. They like to be able to predict what will take place. There is no ability to predict when there are such wild variations.

I hope that the Minister will take my next point seriously. The whole basis of the revaluation that took place in 1990 has been called into question. Those who represent businesses in inner London have put the point to me that they detect a pattern whereby, increasingly, appeals against valuation have not been successfully challenged by the Valuation Office. That in itself shows that the whole valuation process was wrong in the first place; that is borne out by the wild swing in the national revaluation this time around.

The Minister must accept that, if there is no confidence in the basis of the system, businesses will not be confident that the system is either fair or reasonable. The House must recognise that, since the introduction of the scheme, the Government have been caught in an almighty mess. They are caught in a situation in which their initial commitments and promises have regularly been broken.

Let us remember, for example, the promises that were made by various Secretaries of State. We were told in 1987, when the system was first introduced, that the system would be self-financing. We were told that there would be no cost to the Exchequer. From 1987 to 1992, the Government's official line was that the winners would have to pay for the losers, to allow for transition—that the pain would be spread among different businesses. That applied until 1992, when the Government were under such tremendous pressure. It could be a coincidence that a general election was on the way at that time. Businesses complained mightily in parts of the country like the south-east, where the pressure was enormous.

We were told that the transitional arrangements were set in stone when they were introduced in 1990, when the Minister's predecessors stood before Parliament, as he has done today, and said that this would carry through over the next five years; yet, only a couple of years into the scheme, Ministers were coming back to the House grovelling with an apology. That is a bit of an illusion, as it is rare for Ministers to come into the House with anything other than their usual arrogance and insulting ways. They should have grovelled with an apology to the industries and companies that suffered so badly when the Government recognised that it was necessary to limit the increase in business rates to the zero per cent. which then applied, in the middle of the recession that they had brought about.

Instead of a no-cost self-financing scheme being introduced, the Government spent £1.4 billion of taxpayers' money propping up their scheme between 1992 and the present financial year. Although the Minister did not quote the figure, we know that, next year, £505 million will be used to effect the transition over that time. Let me say, just in case Conservative Members think that I am going to argue against that move, that I welcome the fact that the Government recognised the stupidity of their scheme and had to do something practical to ensure that we did not see the demise of businesses throughout the country, particularly in the south-east and in inner London.

The whole point is that, now we have come to the present revaluation, once again the Minister is in an almighty mess. We know that the kind of promises that were made—that the rate increases would be kept down—have not been effective. When the then Chancellor said in his Budget statement in 1992 that, throughout the 1980s, business rates had increased in real terms on a nationwide basis by some 37 per cent.—and used that as justification for the present scheme—he was not aware that this year alone there would be increases that would swamp that 37 per cent. and that, over the period of the present revaluation, many of the small businesses which the Minister said he would protect would be protected only to the extent of 7.5 per cent. over the next two years. That in itself is a guaranteed increase of 15 per cent. over and above the RPI increase. Then the lid will begin to come off.

As we go around the different parts of the country, we will see that the real increase—not a notional increase, not one protected by inflation—for business and commerce, whether for small or large firms, will be significantly greater. Once the protection is off, the full impact will be felt.

Mr. Robert B. Jones

The hon. Gentleman seems to have confused the particular with the general, because the fact is that the income being raised from the non-domestic rate will go up in line with inflation. Of course, some individual businesses will face increases, which, in turn, will reflect the valuations put on properties, which are largely based on current rental evidence. That has been the principle of a rating system ever since it was introduced. I cannot see why the hon. Gentleman thinks that, just because some individuals will face increases, and some will face decreases, industry and commerce in general will be penalised. As I have said, they will simply face increases in line with inflation.

Mr. Lloyd

That is probably the most ludicrous retort that I have ever had to answer in the House. It is the Minister who is confusing the general with the particular. Does he want to come with me and visit a business—for example, a company in the north-west of England that owns an office whose rateable value has gone up by 51 per cent., which is the average figure for the north-west—and say, "Don't worry about it. You'll be happy to know that, on average, the business rate for industry and commerce is zero. The fact that you will have to find half as much again should not detain you at all"?

If the Minister really wants to come and talk to people like that, he may find that in general he is right but in particular those business people will be extremely angry with a Minister who is stupid enough to give that kind of excuse. Does the hon. Gentleman wish to intervene again to argue that point, as it is very important?

Mr. Jones

The hon. Gentleman's argument now seems to be that nobody should face any change in rateable value when revaluations take place and that, somehow or other, we should go on as before. That, in effect, was what the previous Labour Government said by not updating valuations. Businesses in areas where the desirability of property goes down will never take advantage of that, and businesses in areas where property is more sought after and where, therefore, rental values are on the increase, will in effect pay less than their fair share. That is not a fair system. The hon. Gentleman could argue for a totally different approach to the contribution that business makes to local government—I should be interested to hear his views on that—but, as long as we have a rateable value system, there must be revaluations to make it fair.

Mr. Lloyd

I have already told the Minister that if he were to tell the businesses that will face the incredibly arbitrary changes that this is all okay because, on average there is no increase or because it is simply a technical fix which is in the nature of the rating system, he would find that they are angry.

I was talking to a small shopkeeper the other day who was telling me how difficult it is nowadays for somebody trying to run a general shop. If the figures that apply in my region are typical, he will face a real-terms rate increase of 31 per cent. over the next five years. He will be cushioned next year so that the increase is only 7.5 per cent. in real terms and he will be cushioned the following year so that it is only another 7.5 per cent. in real terms. Thereafter, he will be less cushioned and he will reach the full 31 per cent. increase.

If the Minister knows anything about small businesses, he will know that they always complain about the disproportionate impact of rates, relative to other costs. I can assure the Minister that my small shopkeeper friend will be extremely angry about the position in which he finds himself because his is already a marginal business. It is beset on all sides. The landlord wants to put up the rent, the suppliers want to put up costs and the recession is still having an effect on the incomes of people in the area in which he trades. For a small business an increase of 30 per cent. plus is not a small cost. That business man will be entitled to say that the Government are extremely unfair to him as an individual trader and, more generally, to small businesses.

The Federation of Small Businesses has said that it is disappointed that the revaluation winners are required to contribute to the payment of relief to the losers. It also said—the Minister should take this on board—that the transitional relief scheme, which is now operating for a second five-year period, totally undermines the credibility of the uniform business rate. The Minister must address that. The original transitional system had not worked its way through before we moved on to the next revaluation and the next transitional scheme. Such a system is neither stable nor credible. The Forum of Private Business, which writes to hon. Members regularly, makes a similar point. It is concerned about the impact of the business rate on small firms in particular. It says that it is a proportionately higher cost than that borne by large businesses. It advocates a profit-based scheme, which has its demerits. The Minister seems to be oblivious to the doubts and concerns about the present system. He must accept the real concerns that businesses are expressing.

Mr. Tim Smith

The implication of what the hon. Gentleman is saying is that either he is against having a revaluation next year or he is in favour of never having a revaluation. What is the Labour party's policy on that?

Mr. Lloyd

As is sometimes said, all will be revealed shortly. I believe that the hon. Gentleman supported the legislation that introduced this system. It is important to examine the defects of the system adequately. We must recognise the frustration and anger felt by business people about a Government whose language seems to be friendly to business while demonstrating the most peculiar form of embrace—a poisoned cuddle. Some businesses that find themselves moving towards the bank manager, or even the bankruptcy courts, may feel that the Government have given them rather more than a cuddle.

Mr. Jim Lester (Broxtowe)

I used to be the chairman of the finance committee of Nottinghamshire county council and we were responsible for setting the business rate for our local community. I can remember that there was less anger when we were in charge than when the Labour party was in charge and the anger in those days was a jolly sight stronger. If the hon. Gentleman looks back at the debates on rates in the House between 1974 and 1979, he will see that there was a great deal more anger and concern than are expressed today.

Mr. Lloyd

It would be churlish of me to remind the hon. Gentleman that, during that period of the Labour Government, a great deal of local government was controlled by the Conservative party. If the hon. Gentleman feels that Conservative local authorities did a bad job, he may have an interesting point that I shall try to absorb.

The simple truth is that there is a great deal of anger. The present system lurches from five-year period to five-year period and not from year to year. In the east midlands, in which the constituency of the hon. Member for Broxtowe (Mr. Lester) is located, businesses saw a 15 per cent. reduction in rateable values in 1990 with the introduction of the 1988 revaluation. Those businesses will be less than enamoured of the support of the hon. Member for Broxtowe for this measure when they find that their bills are increasing by 20 per cent. That will be the real-terms effect of the revaluation on the east midlands.

I am sure that there will be winners and losers. The Minister has tried to explain that, on average, everybody will be happy. I can assure the hon. Member for Broxtowe that the losers in his constituency will be less than enamoured of him or the Minister if he really believes that a 20 per cent. plus rates increase will do their businesses any good.

Let us look round the country at the different valuations. I hope that the Minister will accept the figures, because they have been drawn from parliamentary answers provided by his colleagues. The west midlands is the worst affected region. Across all businesses, the revaluation will increase rateable values by 34 per cent. That is a large increase, but even that manages to disguise the impact on some businesses. For example, office rateable values in the west midlands will increase by 54 per cent. Commercial activity such as that is necessary in areas such as Birmingham, which, like many cities outside the south-east, is trying to move from the traditional manufacturing base to a much stronger commercial base. Such a revaluation will do great damage.

Warehousing has become a feature in traditional manufacturing areas where, sadly, it has replaced traditional manufacturing industries. Warehousing revaluation has meant that there will be a 49 per cent. increase in rateable values. That is a massive increase for an industry that is labour non-intensive and relatively property intensive. It will increase warehousing costs disproportionately.

The same thing will happen with factories. The west midlands is still famous, even now, for its manufacturing base, but the revaluation will mean a 40 per cent. increase in the cost for factories.

As I have already said, the overall increase in the east midlands will be about 20 per cent. Ironically, at 20 per cent., businesses there get off relatively lightly. The hon. Member for Broxtowe will be able to tell businesses in his constituency that things are not so bad because they are worse a few miles down the road in the west midlands. I am sure that those who will be paying an extra 20 per cent. will say that they are truly grateful.

The northern region is still suffering heavily from de-industrialisation. The overall increase there will be about 24 per cent. That will not be welcome. In my region, the north-west, the increase will be 32 per cent. That disguises individual variations. A city such as Manchester is increasingly seeing investment in office-based activity and that has become important to the local economy. However, office rateable values will increase by 51 per cent.

In Yorkshire and Humberside—I say this for your benefit, Mr. Deputy Speaker—there will be an overall increase of 26 per cent., which disguises some of the sectoral increases which are much greater. The Minister talked about transitional relief, but every one of those regions faces serious and real increases in industrial costs.

In inner London, the position is reversed. Office valuations there have shot down by 59 per cent. With that decrease in industrial costs, one would have thought that, in considering the massive unemployment in London, the possibility existed of more employment of that sort being located in the capital city. That will not take place for some years because of the transitional relief package, which gives transitional relief only in one direction. It will bring transitional misery for people in inner London, who will not receive the benefit of the revaluation that they thought might give them relief.

Mr. Robert B. Jones

The hon. Gentleman has ruled out increases for anyone that is angry and has problems. He wants people who will benefit from revaluation to gain immediately. The logic of his position, therefore, is that there must be a substantially greater contribution from the Exchequer. I ask him to put on record precisely how he would find the extra contribution. Would he raise VAT or income tax to cover it? Since the matter relates to business, would he raise corporation tax or something like that? Might we even return to that hoary old Labour chestnut—a selective employment tax? If the hon. Gentleman is moving down that road, it is up to him to tell us where he would get the money from.

Mr. Lloyd

It is not up to me and I shall explain why. It may have escaped the Minister's attention that my party is not the party of government. The Government faced the same problem in relation to revaluation in the early 1990s. It is up to them to tell us why, having told us that there was no more money, all of a sudden they produced £1.5 billion out of a hat to pay for the scheme. It is not up to the Opposition to find the money in the Chancellor of the Exchequer's bag. It is up to the Government to set out a scheme that is affordable and consistent. They did not do so from 1990 until now and they will not do so in the future. That is the reality of the position.

Mr. Jones

Since the hon. Gentleman is being transparently dishonest in failing to deal with the question of where the money would come from, will I at least receive an answer to the question whether the Labour party would fund any such scheme out of Exchequer money—wherever it may come from—and whether Labour would not fund it in the way in which the Government propose in the orders?

Mr. Lloyd

That is a good try on the Minister's part, but unfortunately it is not good enough. This is the Government's scheme. The present unified business rate system was introduced by the Government. The problems have been brought about because of the Government's incompetence. The Minister must deal with that incompetence. He cannot get away with asking other people to drag his chestnuts out of the fire. His Government are loading the costs on to industry. They are not able to tell businesses in inner London why they will not benefit from a revaluation that works in their favour. That view is not unique to me. I think that it is the position, for example, of the Confederation of British Industry, which says that protection should go to the losers and that the winners should not pay for the whole thing.

Mr. Andrew Mitchell (Lords Commissioner to the Treasury)

This is a filibuster.

Mr. Lloyd

In time-honoured Tory Whip fashion, the hon. Gentleman said that my speech was a filibuster. He plays little role in the Chamber nowadays and I understand that he is out of practice in such matters, but Conservative Members have been engaged, unusually for hon. Members, in something of a dialogue on an issue that obviously concerns them. I should not want him to dismiss their comments in the way that he does and as if they have no value, because they have played an important part in a debate that is of concern, perhaps not to him as a Member of Parliament but certainly to businesses in his constituency. When their rates go up next year, they will be worried that he thinks that this is such a trivial matter. He might want to write to his local chamber of commerce to explain his view on the matter.

Conservative Members asked, "What is wrong with the present system?" I shall tell them what is fundamentally wrong with it. When the Government chose to nationalise the business rate, they made a fundamental mistake. They broke the link for local business. When the scheme was introduced, Mr. Nicholas Ridley, a former hon. Friend of the Minister, said: Under the present system half of local revenue is raised from businesses which are defenceless against exploitation by authorities".—[Official Report, 16 December 1987; Vol. 124, c. 1115.] The problem is that the scheme does not defend businesses from exploitation by central Government. That is the nub of the matter. Central Government have been a much worse custodian of the business rate than local authorities were before. That is why we must have a return to some sort of local control of business rates, so that local businesses can negotiate with local authorities, which are served by people who are closer to them and who will listen to them. That at least is what we must begin to do.

As of now, it is up to the Government to recognise the real misery that will be imposed on individual businesses and to begin to deal with the problems that will be the subject of Conservative Members' letters in their postbags from about next February, when the bills begin to go out. The Government must recognise that the transitional scheme is inadequate and will not deal with the problems that will be caused.

I have concentrated the bulk of my remarks on the transitional relief scheme because, in many ways, it is the subject of the most important of the measures that lie before the House. The Minister referred, however, to the six other orders and I want to press him on the formula funding system. Will he tell us what the likely rates of increase in valuation will be in practice for industries in forthcoming years? We have a good idea of what the increase rate will be for companies that operate outside formula funding and in the ordinary rating valuation system.

We need to have a comparison with industries that find themselves in this slightly anomalous situation. Although I welcome the fact that the Minister has repeated the Government's assurance that they intend to move to a rating valuation system for the bulk of those industries, I should like to press him on why it is necessary to let that process run through to the year 2000, which is a long way off. Given that negotiations have been under way for some time, I should have thought that it would be possible to consider ways of speeding up that process. It is in everyone's interest to ensure that there is no discrepancy or favouritism and that industries are not disfavoured by the system. I should be grateful if he would spell out the reasons why it has to take until the year 2000.

The Minister did not mention railways as one of the candidates to be brought within the rating valuation family. Full privatisation is still the Government's policy. With the break-up of railway companies, why will the railways still operate under a formula funding mechanism after the year 2000? Why cannot we begin to move the railway system on to the same basis as other industries?

At every point, the Government have established principles by which business rates would operate. At every point, those principles have been rendered null and void when circumstances have changed and when the Government have come under pressure. The Government will come under tremendous pressure next spring and thereafter when businesses realise the full consequences of what is taking place. I warn the Minister that, unless he can give answers that are better than those that he has given today, businesses up and down this land will believe that the Government have done serious damage both to the employment base and to the industrial and commercial base.

5.28 pm

Mr. Peter Brooke (City of London and Westminster, South)

I do not share many things with the hon. Member for Stretford (Mr. Lloyd) apart from possession of an MBA degree. On the principle that we MBAs must stick together, I hung on his lips and did not intervene, even during his most controversial propositions. I shall content myself by saying that even if his speech was not meant to be a filibuster— perhaps to cover the emptiness of the Opposition Benches behind him— I look forward greatly to the occasion when he is really trying and is speaking to produce a filibuster.

My constituency interest lies primarily in the Non-Domestic Rating (Chargeable Amounts) Regulations 1994, which my hon. Friend the Minister identified as the main pabulum for the debate. The working population of my constituency exceeds the national average per constituency by a factor of 17. In the W1 postal district, there are as many businesses as residential households. Therefore, in my constituency we have had a disproportionate interest in the Government's consultation on transitional arrangements.

The draft order is an inspissated rather than a pellucid document. In the intellectual challenge that it sets the reader, it has an echo of those Christmas puzzles of one's youth, which used to start, "Mr. Black, Mr. Brown, Mr. Green and Mr. White live in houses that are, but not necessarily respectively, black, brown, green and white." Of course, their interest was domestic rather than non-domestic. I do not complain about the inspissation. It is in the nature of the proposed legislation and not a function of perverseness or mischief by the Department of the Environment.

Nor am I here to register a complaint that London has been ruthlessly robbed, pillaged or despoiled. I appreciate that the Government have consistency on their side in pursuing the transitional arrangements of 1990, especially in the form improved by amendment in the past five years in respect of properties that have changed hands.

Where the result of consistency on the one hand and inspissation on the other cross over is in whether the modest relief granted in London is the most generous that could have been achieved, especially when fuelled in 1995 by a direct Treasury subvention, which was not mirrored in the 1990 arrangements, even though one occurred willy-nilly in later years because of changes to the scheme.

The argument for transitional arrangements is that they should soften extremities of change, and notably increases. What should not be lost sight of, however, was that in 1990 we were coming to our first revaluation for 17 years and to a new system of calculating non-domestic rates. The effect was therefore likely to be sharp in significant areas—I use "areas" geographically. In London, we were unlucky that the process coincided precisely with a recession. There were, however, other concomitants to the change in procedure.

If I temporarily disregard the City of London element in my constituency as being sui generis, as indeed the legislation has itself allowed, though my later remarks apply to it as elsewhere, prior to 1990, under borough determination, the rates in Westminster were lower than in Camden, an authority to which I choose to refer for its adjacence and because I once served within it as a councillor. As a result, rents were lower in Camden because Camden had to compete with Westminster for office or retail accommodation. Therefore, the combination of rents and rates needed to be the same, or about the same.

The logic of 1990—I use the date as a proxy for the change—was that, if rates were harmonised on a national basis, rents would follow the new level of rates. As Westminster's rates rose, its rents would fall, and vice versa in Camden. That prospect, in the recession, offered some comfort and relief in Westminster, but the very effect of transitional arrangements in smoothing the sharpnesses was also necessarily to delay the rearrangement of the market to reflect what I have just described. There is an equal hazard that the repetition of the transitional arrangements now will likewise delay the return of recovery in London, which is widely acknowledged to have been very hard hit during the period of recession. That is the more serious as the otherwise admirable absence of inflation in the housing market still leaves the south-east's consumer enthusiasm much tempered by the continuance of negative equity in domestic properties.

Moreover, just as the climate in the Chamber determines the political argument throughout the country, so the feelgood factor in the nation will remain diluted as long as London's prosperity is muted. My right hon. Friends on the Treasury Bench have an interest in not delaying the feelgood factor spreading for too long. My hon. Friend the Minister will know that currently in London we have properties where rates exceed rents; that cannot make even medium-term economic sense.

Although, as I have made clear, I do not quarrel with the concept of transitional arrangements, I have queries about their application. My right hon. Friend the Secretary of State for the Environment was good enough to write us all a letter in which he sought to set our minds at rest on a problem that I had not posed. I do not blame him for concentrating on his own agenda and setting it out and not making his letter comprehensive, but at the end of the exercise I am left with no clear arithmetical picture of how the calculations were prepared to produce the particular conclusions that they did.

My right hon. Friend the Secretary of State for the Environment will know, not least because he has some departmental responsibility for the property industry, of the dire economic and employment straits of great swathes of the industry today. He may disclaim their calculations on the grounds of bias or self-interest, though I imagine he would be pleased to see the infrastructure of the industry returning to health. He will know, however, of the scale of the research that the industry undertook during the autumn and early winter on the subject that we are now discussing. Its postulated calculations are that the Government could have gone to a 15 per cent. rate reduction in real terms rather than one of 5 per cent.—admittedly, for larger properties—in the improvement in London next year.

All that I am asking of my hon. Friend the Minister—it is too complicated a subject to be dealt with on the Floor of the House—is that in correspondence and in measured time he might lift the veil a little on the calculations of the Department of the Environment to let us know why they have been significantly more pessimistic than those of the industry, which has the advantage—I acknowledge self-interest—of being closer to the real market than some of those who advise the Government.

Mr. Robert B. Jones

We shall be happy to share our thinking and knowledge. In so doing, I hope that I can convince my right hon. Friend of the rightness of the conclusion at which we arrived.

Mr. Brooke

I am grateful for that harbinger of correspondence.

The changes that had to be made after 1990—I am referring to changes of detail, not to the results of the beneficence of my right hon. and learned Friend the Chancellor of the Exchequer—revealed that even in the best ordered of Governments the market can still teach some lessons. That is what I am seeking to say this evening.

As we are a thin House and I am not likely to rob any hon. Member of the opportunity of a speech by adding one further thought, I shall allow myself the self-indulgence of a general remark about the legislation under which the orders apply. When the Government, by introducing legislation, cut the link between businesses and their immediate local authorities, they seemed to rob local authorities, too, of their interest in those businesses. In my constituency, the Corporation of the City of London has long taken a profound interest in the welfare of its business constituents, for understandable reasons. I am delighted that, despite the direct link being cut, Westminster city council has within the past five years recognised the holistic nature of a community and is deliberately renewing its links with the business community in a most constructive way, which in turn has been welcomed by the business community.

Given the exceptional constituency employment figures that I quoted at the beginning of my speech, the dual thrust by the two local authorities within my constituency is good news for the economy at the heart of the nation. I hope that in subsequent debate, which my hon. Friend has promised me, he can reinforce the progress that has been made by the instruments at his disposal.

One of the incidental contributions that the Government can make in these matters is to speed up the pace of dealing with valuation appeals. I know that the valuation service is not the responsibility of the Department of the Environment, but I know too how much frustration has been caused in my constituency—admittedly it is densely populated in business terms—by the historic delay in hearing appeals over the past five years.

5.38 pm

Mr. David Rendel (Newbury)

It is good to have the chance to follow what was in some respects an apt demolition job on the way in which transitional relief will be used next year. I was delighted to hear that demolition from a Conservative Member.

Interestingly, some of the Minister's remarks and some of those made by the hon. Member for Stretford (Mr. Lloyd) have some merit. If we are to have a uniform business rate system, there must be the chance for revaluation, and for revaluation to have a real effect on the level of rate payments by individual businesses. The management of the UBR system so far, however, has meant large—in some cases unbearable—rate increases for some businesses.

When the system was introduced, I understood—as I think most business men did—that the whole idea was to introduce fairness: a level playing field for businesses throughout the country. I thought that the intention was not to allow individual councils to place burdens on businesses in their areas. Sadly, however, that level playing field has not been created, and we are now seeing the farce that the UBR has brought about.

The Government were forced to introduce a transitional relief system to overcome the burden of extra rate increases in parts of the country where valuations themselves showed large increases. That has caused the whole system to break down: far from being given a level playing field, businesses that have been the beneficiaries of transitional relief for the entire initial five-year period can be said to have been playing downhill all that time, with a following wind.

Those businesses received the amount of transitional relief that they received because they had suffered the biggest—in many cases, quite unrealistic—valuation increases towards the end of the 1980s. As I said earlier this year in a debate on the Non-Domestic Rating Bill, that has led to an absurdity: some businesses have experienced real-terms rate increases this year, only to find that, because of a lower valuation, the rates will return to a more reasonable level next year.

Mr. Tim Smith

I understand why the hon. Gentleman describes that position as absurd, but is it not an automatic consequence of regular revaluations? If he does not like regular revaluations, what alternative would he suggest?

Mr. Rendel

The alternative is clearly some sort of site value system, which we have proposed all along.

Mr. Heald

Will the hon. Gentleman give way?

Mr. Rendel

May I answer the previous question first? Obviously, revaluations must take place; the problem is caused by the big and rapid jumps in value caused by the extended intervals between revaluations.

Mr. Heald

The problem with the site value system is that it makes no distinction between premises such as office blocks, which have a high usage rate in terms of occupation of the land, and "low-occupation" enterprises such as garages. It is thus grossly inequitable.

Mr. Rendel

That is not true. It depends what planning agreement has been made. Whatever agreement has been made, however, the site value system will lead to the best and most efficient use of the site: that is why it is a good system for business.

Mr. Streeter

Would transitional arrangements operate under the site value system?

Mr. Rendel

If a move from the system that the Government now run happened all in one go, such arrangements would clearly have to operate— [Interruption.] The hon. Gentleman is now speaking from a sedentary position. Does he want me to give way again?

Mr. Streeter

I thank the hon. Gentleman for giving way to me, following my sedentary intervention. He has spent the first few minutes of his speech criticising transitional arrangements; what would be different about his proposed transitional arrangements?

Mr. Rendel

I am afraid that the hon. Gentleman has not been listening very carefully. I have not been criticising transitional arrangements as such; I have been disputing the need to make the amounts so large and to continue the arrangements for so long. The original point of the UBR was to introduce a level playing field across the country, but it has not worked. It is the UBR system, rather than the transitional arrangements, that I am criticising.

Unfortunately, the Government have now chosen to introduce a phasing system for businesses whose valuations have decreased. I consider that totally unfair. I understand the need to introduce a transitional system where there have been large increases; there would otherwise be a serious risk that many businesses would go under. They cannot be expected to take account of very large increases all in one year. It does not seem fair, however, that the system should be paid for by businesses whose valuations have decreased.

The original understanding, five years ago, was that the system would be self-financing—that, as far as possible, the phasing in of the decreases should pay for the phasing in of the increases. This year, no such suggestion is being made. Because of the £505 million that the Government are putting in, no real attempt is being made to make the entire system pay for itself. If no such excuse is left to the Government, it seems extraordinarily unfair that businesses whose rates happened to be high last year should be forced to pay for transitional relief for those that would otherwise pay high rates this year. Just to help themselves balance their budget, the Government are in effect fining businesses next year because they had large rate bills last year. That cannot be fair, and the Government should not be proposing it.

5.45 pm

Mr. Oliver Heald (Hertfordshire, North)

I want to make two points. First, the revaluation and transitional measures are good for British business and amount to a fair contribution to local government expenditure. Secondly, they will be good for local business men in north Hertfordshire, particularly over the medium term. Some 170,000 businesses will experience benefits nationally and I hope that a considerable number will be in north Hertfordshire.

Before I develop those points, however, let me refer to what other hon. Members have said. The hon. Member for Stretford (Mr. Lloyd) began by saying that there was anger in the north of England—not just because of the revaluation and the increase in business rates, but because of the link with local councils that had been lost, and the loss of the special way in which they had been able to set business rates.

Mr. Tony Lloyd

It would have been better if the hon. Gentleman had listened to my speech. What I said was that there would be anger next year, when the business rate bills begin to drop through the letter boxes of businesses—not just in the north but in London.

Mr. Heald

I am grateful to the hon. Gentleman for clarifying that. He should have explained, but failed to do so, why there would be anger in the north when the change is being made following a revaluation that reflects property values, when transitional relief is available to help the businesses that are most in need and when the system is generally recognised to be fairer than the previous one.

The hon. Gentleman spoke of the link with local councils. He should recall what the position was like previously. Local authorities were not accountable to businesses for the way in which they spent the money that they had raised; many authorities used non-domestic rates to support increased spending at no political cost to themselves; and there were dramatic year-on-year increases at a couple of weeks' notice.

In the 1970s and 1980s, I campaigned in inner-city areas where business after business would say, "This is ludicrous: look at the rate that we are having to pay, compared with the rate paid in the suburbs." Those businesses would then move out. There was genuine anger, because the system was unjust. No one could say that of the present system, which is based on a proper valuation of premises, regularly updated, and on a poundage that is the same throughout the country.

The hon. Gentleman may recall that the average poundage was 258p. Labour councils in certain inner-city areas, however, had far higher poundages, and businesses in those areas suffered badly. There has been a huge improvement since the introduction of the uniform business rate.

It was a breath of fresh air to hear my hon. Friend the Member for Broxtowe (Mr. Lester), whose constituency is the home of the Bramley apple. Unfortunately, he is not in the Chamber now. He, too, experienced those days back in the 1970s and early 1980s, when local authorities were able to make such decisions. He spoke of the large increases that took place under a Labour authority, and the far better position that existed when it was Conservative controlled.

What the hon. Gentleman cannot explain away is the fact that if we do not have a system of regular revaluations and we allow what happened between 1973 and 1988 to continue we shall end up with a hopelessly distorted system, with very low rateable values. It is a cop-out to say that one would not tackle the problem of revaluing year on year.

I shall deal in a moment with what Labour suggests in place of that, but burying one's head in the sand, as happened in 1978—and, I confess, in the early years of the Conservative Government—is no solution. If one says, as the hon. Gentleman does, that the transitional relief should be phased in such a way that people could have the benefit of a revaluation immediately if there were a cut, but that an increase should be phased over a long period, one has to explain where the money would come from.

Mr. Robert B. Jones

I can put a figure on what would be required if there were no contribution from those who stand to benefit. Instead of the £500 million that comes from the Exchequer now, the contribution would have to be £1.8 billion.

Mr. Heald

That is a colossal sum, and we have riot had a clear exposition from the Labour Front-Bench spokesman of that party's pledge. If there is a spending pledge of £1.8 billion it is incumbent on the Labour party to explain where the money would come from.

Mr. Rendel

Can the hon. Gentleman or any of his colleagues tell us why it is fair that the £1.8 billion—or at least, the £1.3 billion that businesses are presumably putting in—should be paid only by businesses that happen to have suffered from high rates last year?

Mr. Heald

That is obvious when we consider what happened in 1990. Clearly at that stage there had to be a valuation that dealt with property values as they were, but during the recession it was right to have transitional arrangements that took into account the fact that business was in difficulty.

The hon. Gentleman will recall that in the 1992 Budget the package was £1.25 billion, and in 1993 it was £550 million; there will be further help this year. That was all necessary because the fact that businesses were in the middle of a recession and were having difficulties had to be reflected. However, if we compare that with what is happening now, with growth of 4 per cent. and unemployment falling, the picture is transformed. The Government must take account of that fact, as has been outlined.

Mr. Rendel

The hon. Gentleman has not answered my question. I asked why the particular businesses that happen to have suffered high rates last year must suffer this year, too. If the Government want there to be some transitional relief for those with increases, why do they not ask all businesses rather than only those that suffered last year?

Mr. Heald

Perhaps the hon. Gentleman was not listening to the earlier part of my speech in which I said that a sudden dramatic change in the level of business rates was to be avoided. Business finds that desperately difficult to deal with; that is why the uniform business rate was introduced in the first place.

If there is to be a system that smooths the transition year on year—the Government are committed to that, and it is right—we cannot say that we shall smooth upwards but not downwards. If we did we should have to explain where the £1.8 billion will come from—something that the Liberal party can never do.

Mr. Rendel

The hon. Gentleman has not answered my question.

Mr. Heald

It all reminds me of a former Labour Minister who last week, from the Back Benches, said, "£1.3 billion? Let's just wait and see if we need it." That is typical of the approach during the 1970s, and it is why this country got into the state—

Mr. Tony Lloyd

The hon. Gentleman was not in the House at the time, but he must know that when the Government found themselves in massive difficulties with the relief scheme in 1992 they had no difficulty finding £1.5 billion to bail themselves out following their incompetence over the scheme.

Mr. Heald

I am grateful to the hon. Gentleman for saying that, because my argument is that the Government explained where the money was coming from—something that Opposition Members cannot do. We have heard an example of exactly that.

When we consider the transitional relief it is important to remember that without the proposed scheme there would be difficulties in smoothing and effecting a proper transition. The hon. Member for Stretford said earlier that the scheme had not been helpful to business. But businesses in my constituency have been helped. About 350,000 larger properties have had help, and the new transitional arrangements will cover 156,000 offices and 320,000 warehouses. It is important to have such a scheme to help business over the period in question.

Now I shall start on my main argument. I had intended to start by dealing with the background, but perhaps I have already done so. In 1990 it was necessary to examine rateable values because they had fallen so low, and there was no real relationship between rateable values and market values. During the 1980s property values had risen in the south, and the year that was used, 1988—this was especially true of April 1988—was when rental levels were at their highest both in my constituency and across the rest of the south of England.

That was not true in the north, where many businesses gained as a result of the revaluation. When we revalue this year there should be a proper reflection of the changes, because since April 1988 commercial property values have fallen sharply. Business men in the south have adapted to the changed conditions, and in my constituency there are 1,000 small nursery companies that are beginning to see growth and are taking on labour; unemployment has fallen by 1,000 there in the past year.

The help that such businesses will receive from the revaluation is much needed. Opposition Members have not mentioned the effects in the south of England, not just in the inner cities but in other areas that are important and should also be considered, especially—as the Minister, who is also a Hertfordshire Member, says—Hertfordshire.

Hertfordshire has suffered defence cuts, which have been difficult for our industries. They have adapted, but now that there is a rising trend it is right that they should see the benefits of changing property values, and I am glad that they will. I have no objection to the fact that the changes are to be phased in, because the transition should be smooth.

In north Hertfordshire, as well as the 1,000 nursery companies other small businesses have had a lot of help. There is business link, the Hertfordshire Development Organisation and the KONVER funds from Europe; there are simplified arrangements and less bureaucracy; finally, there are Investors in People and BS5750. That combination of help from the Government, built on this year by a further package of £1.7 billion in the Budget, is helping those businesses out of recession.

The larger businesses in north Hertfordshire—such as Fermark, a most successful company; Irvin, the manufacturer of parachutes for the British Army; Victaulic, which had the first management buy-out; and Johnson Matthey, which has moved from precious metals into new operations, such as those involving catalytic converters and diesel catalytic converters, and which is at the forefront of technology—have all had to adapt to the high rateable values that resulted from the 1990 revaluation.

As those businesses have adapted to the new conditions so well, I can say that businesses in any area where property values have increased and where it is difficult to cope with that at first—although there are, of course, transitional arrangements—are capable of adapting, and I believe that they should. Opposition Members argue for a system that is unjust between the north and the south, and that seems wrong to me. If the Labour party has pretensions to be a party of the south of England it will have to do better than that. Businesses in Hertfordshire would expect to have a level playing field. I do not think that the hon. Member for Stretford can say that anything less than that is acceptable. So the businesses which have been expanding and exporting, when unemployment is falling and they are benefiting from the help that the Government have given them, will welcome the orders.

As I understand it, the Labour party is suggesting that we should scrap the uniform business rate and allow local councils to set their own poundages. If we did that, we would return to the situation that I witnessed in the inner cities in the 1970s and 1980s and which Labour Members, in their heart of hearts, know was wrong for business. It was all too easy to increase the business rate and then go to the local voters and pretend that that was in the interests of them and their employment, when it was completely against their interests to see their businesses forced out of the inner city and to see those jobs go. We do not want to return to that system. If we scrap the uniform business rate and return to the unlevel playing field and the scandalous way in which those matters were dealt with, we will pay a heavy price in our businesses in the inner cities. It will lay them waste as it did before and we should not be prepared to accept that.

The Liberal Democrats talk about site value rating. As I said earlier to the hon. Member for Newbury (Mr. Rendel), site value rating does not take account of the fact that a small business may occupy a large and valuable site, for example, a garage, and that it would be valued in exactly the same way as a large office block, which has far more money-making potential as a building. Are we to say that small businesses on valuable sites should be forced out of such areas?

Mr. Robert B. Jones

My hon. Friend is doing a marvellous demolition job on the hon. Member for Newbury's advocacy of a site value tax. My hon. Friend should remember that the hon. Gentleman's own party has already done such a job. On 22 September, at their party conference, delegates rejected an attempt to revive the Liberal Democrats' proposal for a site value rating system. So I am not sure whether the hon. Gentleman was even speaking for the Liberal Democrats on this occasion.

Mr. Heald

I am grateful to my hon. Friend because I noticed particularly that the hon. Gentleman said "some sort" of site value system. That struck me as not being very specific at all. I wondered if it had anything to do with the comments of Mr. Adrian Slade, who, of course, used to be the president of the Liberal party. He recently said about the idea that it was not sufficiently equitable…not based on the ability to pay…discriminate against small retailers, especially in prosperous areas". Is that really what the Liberal Democrats want to stand for?

Mrs. Angela Knight (Erewash)

Is my hon. Friend also aware that the system, according to the Institute of Revenues Rating and Valuation, has explicitly rejected site value rating? It also said that the system was completely unworkable.

Mr. Heald

I am not surprised. I am extremely grateful to my hon. Friend for pointing out that something which seemed obvious to myself and to other hon. Friends has been asserted and proved beyond doubt by such a worthy body. It is the expert. It has given its judgment; the former president of the Liberal party has given his. Really, the Liberals will have to go back to the drawing board.

Mr. Win Griffiths (Bridgend)

On a point of order, Mr. Deputy Speaker. Earlier this afternoon, in a public expenditure statement on Wales—

Mr. Tim Smith

It took an hour.

Mr. Griffiths

My point will become apparent. In that statement, the Secretary of State for Wales declared that he was presenting a budget for Wales. You know, Mr. Deputy Speaker, that when the Chancellor presents his Budget statement to the House, he also provides for right hon. and hon. Members a full list of accompanying documentation, including press releases issued to accompany the Budget statement. I have been to the Vote Office to try to get all that documentation, including the 14 press releases issued by the Welsh Office, but have been told that, although the Vote Office tried to secure them, the Welsh Office said that they would be put in the Library only and not made available to hon. Members in the Vote Office. I ask you, Mr. Deputy Speaker, to use your good offices to ensure that what is custom and practice for the Budget should become custom and practice for the Welsh Office budget, which the Secretary of State read out to us this afternoon.

Mr. Deputy Speaker (Mr. Michael Morris)

It is not for the Chair to decide what should become custom and practice between one Department of State and another. But I am quite sure that the Treasury spokesmen heard the point that the hon. Gentleman made. I am sure that there will be some reaction.

6.4 pm

Mr. Clive Betts (Sheffield, Attercliffe)

Ministers and other Conservative Members have presented the arrangements for the business rate as being a solution to a great many perceived problems, many of them imaginary from my experience. If they came to the House and admitted that there were difficulties and problems, which they were struggling to resolve, Labour Members may have a little more sympathy with their predicament. But when they try to explain that there are no difficulties or problems, that the new system is wonderful, that it has replaced a terrible system and that all they should get is congratulations, we have a right as Opposition Members to raise one or two matters and ask them to give some answers.

My hon. Friend the Member for Stretford (Mr. Lloyd), the Labour party Front-Bench spokesman, highlighted a number of problems and said that he felt that when the rates bills drop on the doorsteps of businesses next year, there will be a great deal of anger, confusion and concern about why this system, which is supposed to solve the problems of business, has created so many problems. Businesses will be faced with rate bills that will have risen far higher than the rate of inflation. While the Government pretend that a recovery is going on throughout the country, businesses are still struggling, their margins are still thin, and they are still looking to retain their employees. If they are faced with large rates increases, it will create problems for them.

Revaluations are never popular. Labour Members do not pretend that they are, nor that a change of Government would make them popular. We accept that revaluations have to occur from time to time and that there have to be transitional arrangements to see them through. But we are asking Ministers to recognise that the revaluations this time have led to some very large increases. The Yorkshire and Humberside average rate increase, I am told, for all businesses is 26 per cent. Obviously, when businesses see those figures, they start to be concerned about the impact not only in the first year, but in the second and third years as transitional arrangements wear off. The increase for factories is 23 per cent.; for warehouses, it is 32 per cent. Those are very large increases.

Conservative Members tell us to consider the problems in the south and to look at the difficulties that businesses in the south are facing. They say that it is fair to have a relative readjustment between businesses in the south and in the north. Labour Members accept that because of the Government's economic policies, businesses in the south are struggling and have struggled in the past few years. Since businesses in the south are going through a far worse time than they may have done in the recession of the early 1980s, as compared with businesses in the north, let us not pretend that many businesses in the constituencies of myself and my hon. Friends here today have not also suffered considerably. Such revaluations, therefore, are worrying, alarming and concerning.

We want Ministers to recognise that they have problems with a system which is supposed to clarify and sort out all difficulties and be a new, improved system which everyone should welcome. Increases in rates, which will come out next year, will be well above inflation for many firms and those same companies will be seeing forecasts of rates above inflation for future years. The transitional scheme is complicated by the fact that it is a transitional scheme on top of a transitional scheme. In other words, it is not simple and easy to understand. I readily accept that Ministers have difficulties. They have large increases on the one hand and on the other their transitional scheme is overlapping a previous scheme, causing complications and difficulties. If Ministers would at least accept that the scheme that they set up contains problems and difficulties, it would be worth hearing from them.

I also want to respond to what Conservative Members have said about why the scheme was introduced in the first place, why we will need to retain it and what was so awful about the previous arrangements. Again, that is not my experience. Most of the perceived problems that I recall came in the early 1980s, when there were some very large increases in business rates in some authorities.

At that time, it was not that authorities under Labour control were maliciously against business in their areas and were trying to increase business rates in order to gain money to go on a spending spree. Central Government were reducing grants to those authorities by large amounts. In response, those authorities increased their rate to compensate and to maintain the services which the people in their communities put them into office to preserve. It was very simple.

I was a member of an authority in Sheffield which did precisely that. We had some large rate increases in the early 1980s. The authority went to the electorate and asked, "Do you agree that that was the right thing to do in response to the Government's actions?" The response was decisive. The Conservative party lost seats in Sheffield because of that action. Conservative Members forget that, when we had alternative arrangements and business rates that were set at local level, there was a direct connection with the electoral process because business rates were directly linked to domestic rates. We could not put up one without the other. A local authority which increased business rates at that time had to increase domestic rates, and it had to do so by a slightly higher percentage.

Mr. Tim Smith

Is not it the case that, in many areas, more than 50 per cent. of voters paid no domestic rates and had no interest in how much money was raised?

Mr. Betts

I do not think so. It certainly was not true in Sheffield. There certainly was a system of benefits on rates, but that did not mean that more than 50 per cent. of my constituents—I was a local councillor at the time—paid no rates at all and had no incentive in the rate levels in the city. They had a very strong incentive, of course, in the services that were provided. The democratic link, therefore, was absolutely clear. As I was explaining, the increase in domestic rates was higher because of the existence of domestic rate relief, which meant that for any increase in pence in rates there was a higher percentage increase in domestic rates.

Conservative Members think that we had to have the new system in the 1980s because manufacturing industry was shutting down all over the north of the country after Labour authorities had put up rates. That is nonsense. The evidence at the time showed no link between the number of firms closing or the increase in unemployment and what was happening to rates. That information was made available in the Library at that time.

The city council examined the balance sheets and accounts of some major companies in Sheffield. The rates bills of major engineering and steel companies were less than 2 per cent. of their costs, even in the most extreme cases. They were and still are suffering from high energy costs, particularly electricity costs. That was a far greater burden on those industries. It was a far greater problem for them in terms of maintaining their viability and continuing in a major recession in the early 1980s than the impact of the business rates.

We were told that we would have a new system which removed all the problems. I do not think that businesses in Sheffield believe that the convoluted orders are a better, simpler system for them. When rates were set at local level, businesses could go to the town hall to consult. We believe in consultation. In Sheffield, we certainly consulted local businesses long before the Government made it mandatory at national level. It is a two-way matter. Local business has the right to be consulted, but it has the right also to contribute to the community in which it is based. The very existence of industry creates costs for the local community. It is right that there should be a link between them. The business rate should not be set at national level in the way that the orders will force central Government to do.

Some of the difficulties of the early 1980s were forced upon local councils. Central Government produced the national rating system. Local authorities put up rates in response to the actions of central Government. Out of some of the difficulties that arose in my city and in many others, there were initial conflicts between business and local authorities, but, at the same time, they brought about a more harmonious working relationship between authorities and a belief that there were common interests between authorities and local businesses.

Partnership initiatives were developed in many Labour-controlled authorities. Central Government are now trying to claim credit for the development of partnership initiatives, whereas it was the Government's policy to be against them. Local authorities entered partnership initiatives, despite the fact that businesses were paying rates to the local council and sometimes having arguments about it.

Conservative Members constantly challenge Opposition Members to state what Labour policy is or will be. We made our policy absolutely clear before the previous election. I am sure that we will restate it before the next election. We believe that there should be a link between businesses and their community. We believe that businesses should pay a rate to their community. The business rate should not be set nationally by central Government and then distributed on a per capita basis.

A per capita distribution of the business rate is nonsense. It does not relate to anything. It does not relate to the number of businesses in an area, to the needs of an area or to the resources of an area. It simply relates to the number of people who happen to live there. That is not fair or equitable. It certainly has nothing to do with local businesses or how much they contribute to or cost the local community. Labour party policy is right. We should recreate the linkage between local business and its community.

The nonsense is that when everything is centralised, of course there will be complicated formulae. Many businesses—it is interesting that the Confederation of British Industry has made similar comments—would prefer a system whereby rates were set at local level and businesses could consult local authorities and relate what they do to the local community to which they make a contribution through the rates.

At present, there is no direct incentive for local authorities to encourage business in their areas. Many do that, and I commend them for it, but would not it be better if local authorities that are determined to assist business and attract business to their areas had an incentive to do so, and if the rates that were gained from the creation and development of business in their areas actually brought some benefit to local communities in terms of rates paid to local exchequers for local councils to use for the benefit of their local communities? I should have thought that Conservative Members would have preferred such incentives to be created for local authorities, rather than the arbitrary national arrangement in which local authorities are completely removed from the process.

Mr. Robert B. Jones

I am sorry to interrupt the hon. Gentleman, because he is making a rather better fist of putting forward Labour policy than did his Front-Bench colleague, the hon. Member for Stretford (Mr. Lloyd), although I do not agree with everything that he says. Surely the hon. Gentleman must address the issue that industry and commerce are not uniformly spread over the country; there are areas in which there is relatively little and areas in which there is much successful and enterprising business. Therefore, there would have to be a redistribution system, which immediately weakens the hon. Gentleman's argument. That is why we ended up in such a position, apart from all the other points on the deterrence of business from locating in certain areas.

Mr. Betts

I thank the Minister. I recognise that point. The Labour party addressed it in its manifesto for the previous election. Of course there must be a resources element in Government grant. That is accepted; it occurred before rates were nationalised by the Government; it must exist. However, that does not mean that we must have a resources element that completely removes incentives for local authorities to help to develop business in their areas. We can have an incentive element to enable the process to be meaningful.

Another problem which Conservative Members should address, because it is the most significant problem created by setting up the national business rate system, is the small amount that local authorities now raise on their own account and which they are able to determine. Roughly speaking—it varies from authority to authority according to how much authorities receive from national Government in grant as a percentage of their budgets—about half the money comes from central Government, or perhaps slightly less than half in terms of the revenue support grant. About a third of the money comes from the rating system, and a sixth comes from the council tax.

That is very worrying because it creates a difficult gearing problem. Some authorities now collect less than 10 per cent. of the money that they spend. That creates a divorce between the democratic process of people being elected, spending decisions, and the taxation to pay for that spending. I think that the Government should be very worried because it has undermined and undervalued the local democratic process. In elections people vote for services and for taxes which have to be paid in order to finance service provision. If the average local authority decides to increase its expenditure by 1 per cent., it will face a taxation increase of 6 per cent— the figure is even higher for some authorities.

That creates a substantial imbalance, and that gearing problem can be addressed only by giving local authorities more power to raise finance at the local level. To facilitate that, we must abolish the complicated and convoluted nationalised business rate system. If the rate is returned to local authorities, the amount of money collected from business will be tied to that which is collected from the rest of the population, so local authorities cannot simply raise business rates without raising rates for local voters.

Let us kill the myth that it is wrong to return business rates to local authorities because business rate payers do not vote in local elections. At present, business rates are set nationally by central Government and business rate payers do not have an extra vote in national elections. They have the same number of votes at national and local elections as the rest of the electorate, and that is how it should be.

I do not think that the Government should bring forward orders which permit Parliament to determine local matters. If we give local matters back to local government we will have a much better system.

6.20 pm

Mr. Tim Smith (Beaconsfield)

The hon. Member for Sheffield, Attercliffe (Mr. Betts) seems to have learnt nothing from recent experience. In 1975, Anthony Crosland said, "The party is over." He meant that the consensus between central and local government had broken down and something had to be done about it. It is beyond belief that we are being asked to return revenue-raising powers to irresponsible local authorities.

Businesses do not like paying taxes. The Government levy three substantial taxes on businesses: social security contributions on their employment costs, corporation tax on their profits and business rates on their properties. We should be very wary of any proposals which will lead to an increase in taxation for businesses.

Businesses create jobs and the money to spend on Government services. Businesses do not have votes and they are not able to influence local authorities. There may have been consultation between local authorities and businesses in the past, but in the end local authorities could simply ignore what businesses said. Corporation tax and social security contributions are levied at national rates— no one suggests that those rates should vary from one area to another. I think that the reforms introduced in 1990 were entirely correct, and I fully support the uniform business rate.

The hon. Gentleman suggested that the Government do not recognise the difficulties in that sector. The transitional arrangements are a recognition of the problems associated with the introduction of the new system. If there had been no problems, we could have moved straight to the new system.

However, we were not able to do that because revaluations had not taken place for 17 years. As a result of that fundamental difficulty, there were large revaluations in the south and substantial devaluations in the north of England. We should have regular revaluations, but I do not think that Opposition Members can run away from the consequence of that, which is that some businesses will pay more while others will pay less.

For example, in the west midlands, manufacturers face a 40 per cent. increase in the rateable value of their properties. There is only one reason for that: rents in the area have increased by the same amount. Rents on manufacturing properties have increased in the past five years because demand for manufacturing capacity in the west midlands has risen also. That is good news for the west midlands.

Manufacturing in the west midlands is booming. British exports increased by 14 per cent. last year, and businesses are facing substantial revaluations. Many businesses will have paid rent increases of 40 per cent. over the past five years. They have coped with those increases by driving down other costs, increasing productivity and becoming more competitive. That is good news.

When we discussed these matters five or seven years ago, people talked about the north-south divide— there was then a substantial divide— but no one talks about that divide today. We have seen substantial change in the past five years. The last recession hit the south far harder than the 1981–82 recession and, as a consequence, property values in the south have fallen. It is inevitable that rateable values will fall also and that businesses will benefit as a result.

Opposition Members refuse to face up to what that means. They do not want businesses to have to pay any more rates; they do not accept any increases. Yet they tell us that those businesses which will benefit should receive the whole of the benefit in 1995. That is simply not realistic— it would cost a great deal of money.

The largest Budget item designed to help business is the £525 million which the Treasury is making available for transitional arrangements. How much would the proposals advanced by the Opposition parties cost? I am sure that it would be many hundreds of millions of pounds more. It would also mean living with a permanent distortion in the system.

In the past few years, it has been difficult to arrive at a genuinely national system with national rateable values and national rate poundage. That is what we are now moving towards, and we can achieve it only if there is some yearly movement in real terms both for those who will have to pay more and for those who will benefit. The Government's approach is an entirely sensible one.

Mr. Streeter

Did my hon. Friend notice that the speeches of Labour and Liberal Members were indistinguishable on one important aspect? They supported phasing when business rates were increasing, but, as my hon. Friend has said, they were not in favour of phasing when business rates were falling. They failed to recognise that that would leave a shortfall for the Government to pick up, and they certainly failed to say where the money would come from.

Mr. Smith

My hon. Friend is entirely correct: the Opposition parties always fail to say where the money will come from.

Mr. Bendel

Will the hon. Gentleman give way?

Mr. Smith

I wish to reply to my hon. Friend. I believe that a party which aspires to Government should answer some of those questions. It is totally irresponsible not to face them. Perhaps the hon. Member for Newbury will answer the question.

Mr. Bendel

I wish to reply to the previous intervention. It is not true to say that I was at one with the Labour spokesman in not knowing where the money would come from. I made a quite different point. I said that if transitional relief is to be provided to those businesses whose rates will increase, it is unfair that all the money should come only from businesses which have had high rate increases in the past. It should come from all businesses— not just from those which have paid high rates in the past.

Mr. Smith

I am grateful to the hon. Gentleman for that obfuscation. I am not sure that I fully understood what he said; perhaps the Minister can clarify Liberal policy.

Mr. Robert B. Jones

I can tell my hon. Friend precisely what the hon. Member for Newbury means. He argues that the people who will gain under the present system should become losers and that those who are losers should become even bigger losers, in order to ensure that the money comes from the business sector as a whole. Presumably the hon. Gentleman accepts the capping of those who are most adversely affected, as that can be the only consequence of what he is arguing.

Mr. Smith

I am sure that my hon. Friend is entirely right. The hon. Member for Newbury (Mr. Rendel) said that some businesses which had benefited from transitional arrangements had been playing downhill for the past five years. I think that he was talking about businesses whose rates bills have increased year in, year out.

One of the difficulties is the 17-year gap between 1973 and 1990. I understand the point made by my right hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) that there is a close relationship between rent levels and rate levels in a particular area, and that substantial increases or reductions in rates will have a knock-on effect on rent levels in that area. The Government are trying to reach equilibrium between the two matters. They will achieve that, although it will take place over a period of time.

I am sure that the approach which the Government are adopting is the right one. It is taking time, as it is bound to, but we cannot have a situation in which there is no movement. There must be, and there will be, some movement. We are seeing not just a simple reversal of the north-south divide, because even in the south and in London we will find—as my hon. Friends have said—that some properties will have an increase in their rateable value, while the majority will have a reduction. That is an inevitable consequence of a revaluation, and one which we must face.

We cannot simply kick all the problems under the carpet. We must face up to them in a realistic way and enable businesses to plan by letting them know exactly what their future increases will be. I very much support the orders, which I think provide a sensible balance.

6.31 pm

Mr. Gary Streeter (Plymouth, Sutton)

It is a pleasure to follow my hon. Friend the Member for Beaconsfield (Mr. Smith) who injected a refreshing note of realism and wisdom into the debate. I am pleased to take part in a debate on what may be considered by some to be a dry measure. In fact, the issue of business rates is vital and touches real businesses, large and small, which are the life-blood of the UK. My hon. Friend said that businesses generate jobs, an idea which the Opposition fail to understand.

I wondered whether there were any businesses in which property did not play an important part. For most businesses, the places in which they do their business are an important part of their overheads. My mind wandered to a company based near my constituency called the Ugborough hot air ballooning company, whose main activity takes place off the ground. Then, it occurred to me that the balloons must take off and land somewhere, so the business rate is critical even for that company.

The crux of the orders today is that we are revaluing business properties in 1995 with a sensible transitional relief package, which means that those businesses which can afford to pay more of the burden of the business rate will share that burden. It is a tax that is closely linked to the ability to pay, and it is greatly to be welcomed.

After the introduction of the uniform business rate in 1990, there was great relief in Plymouth because the local left-wing council was no longer able to set local business rates. If it were able to do so, the council would certainly be driving many local businesses into the ground with its desire to spend and spend, irrespective of the damage caused to those who must pay the bills.

Business people in Plymouth had a narrow escape following the introduction of the UBR, which was greatly to be welcomed. The prospect of local authorities setting business rates will strike terror into the hearts of many business people. Opposition Members do not seem to understand the connection between businesses and jobs. They say that they want jobs to be created, yet they continue to clobber businesses without making the link between the two.

I want to talk about the impact the orders will have in the west country. In a number of sectors, the review which will take place in 1995 will have a significant result for local businesses. A number of local industries, such as agriculture, tourism and defence, have declined for the past five years, for a myriad different reasons. The properties from which businesses in those industries are operated should be revalued to reflect their current value and the return which businesses can make from them.

I ask my hon. Friend the Minister to reflect upon a number of cases in Devon and Cornwall where businesses are suffering particularly badly. The first sector to which I draw my hon. Friend's attention is residential nursing homes. I hope that the sector will greatly benefit from the revaluation which will take place in 1995. My hon. Friend may know that residential nursing homes in Devon are suffering particularly from the implementation of the care in the community proposals by the Liberal-run Devon county council. The council is failing miserably to comply with its requirement to ensure that 85 per cent. of its allocations are made in the private sector, and prefers instead to place people in local authority homes. In many cases, those local authority homes are far more expensive for the ratepayers of Devon.

There is a case in my constituency where the local authority home costs £400 per week, per person, and yet better care can be bought by the local authority in the private sector for less than £200 a week. The local authority home is more expensive for the local authority, and the policy is causing havoc and misery among residential home owners in my constituency. I hope that the issues will be taken into account when the revaluation of the business rate takes place in 1995.

I hope that my hon. Friend the Minister can go better than that, and that he will intervene to try to stop the Liberal-run Devon county council so flagrantly flouting the Government's rules. In fact, I call for an inquiry on that important aspect. Many owners of residential nursing homes have contacted me, and I speak for them when I say that it is important that the value of their homes is reflected in the revaluation of the business rates, as a result of the iniquitous policy carried out by the Liberals on Devon county council. It is a scandal that must be stopped.

Secondly, like all retailers, retailers in the centre of Plymouth have suffered from the recession in the past few years. Retailers in Plymouth have suffered more than most, because the Labour-led Plymouth city council is conducting a parking charges policy in the centre of Plymouth which one can only describe as punitive. The charges are driving people out of town, and causing businesses in the city centre to suffer. I hope that that factor will be taken into account when the properties are revalued in 1995.

It would be greatly welcomed if the revaluation could throw a lifeline to retailers in Plymouth and reflect the reduction in the value of their property as a result of the punitive and outrageous policies being pursued by the Labour-controlled Plymouth city council. I welcome the measure as, in one sense, it gives the Government the ability to redress some of the scandalous political practices in my part of the country.

Some sectors are doing extremely well, and it is right and proper that that should be reflected in the amount of business rate which they pay. Out-of-town shopping in Devon and Cornwall is doing exceedingly well, and many of the sheds in which those activities take place are increasing in value and are now much sought after. That is the sort of property which can now afford to pay more in business rates. That is a reflection of how the new policy is placing the burden of business rates where it can be afforded.

As many of my hon. Friends have said, manufacturing industry is doing well. Plymouth has many outstanding manufacturing industries and companies, which are doing exceedingly well, particularly in exports. I visit those firms regularly and I have learnt from them that their order books have never been fuller and that they have never done as well as they have in the past 12 months. They are particularly delighted that they export a range of products to many countries throughout Europe and the Pacific rim. That is incredibly encouraging news. It is quite right that that business success, created by the Government's economic policies, should be reflected in the value of those companies' properties and factories and in their business rates.

Mr. Rendel

Does the hon. Gentleman not understand that the revaluation is based on the value of a property as at 1 April 1993, so what is currently happening has no effect?

Mr. Streeter

I am delighted to report to the hon. Gentleman that companies in Plymouth have been experiencing success since the beginning of 1993. Those companies have enjoyed sustained growth for two years. That is jolly good news for them. It is a pity that Opposition Members continue to rejoice in bad news; they just do not like good news.

I am delighted that the revaluation date will reflect the growth that has been experienced by companies in Plymouth during the past two years. It is encouraging to note that, as a result of that growth, jobs have been created and unemployment in my constituency is falling month after month. I welcome the fact that the revaluation exercise will reflect those improved circumstances.

The transitional arrangements, which are a triumph for common sense and wisdom, are also welcome. I congratulate the Minister on introducing them. It was extremely interesting to note, once again, that when Opposition Members pretended to be representing the party that wants to govern Britain, they could not explain how they would fund their spending pledges. They want to do away with phasing as it applies to those businesses where the rate is set to go down. That would undoubtedly create a shortfall which the Government would have to pick up. Can they explain where that money would come from? They cannot. Once again, we were offered pie-in-the-sky politics. The Opposition offer us spending pledges, but they have no understanding of how those pledges would be funded. That is typical of the politics that we have now come to expect from the Opposition.

Mr. Heald

Does my hon. Friend agree that one of the problems with not addressing where the money would come from is that one is led into the trap into which the Labour party was led the last time it was in Government? That Government constantly buried their head in the sand and borrowed more money because they were not prepared to take the tough decisions needed in the interests of the country.

Mr. Streeter

My hon. Friend is absolutely right: all Labour Governments have borrowed themselves out of existence. Let us hope that the days of the late 1970s, when a Chancellor had to go cap in hand to the IMF for yet another loan, are for ever behind us. My hon. Friend is right to say that the answer lies in taking tough decisions.

I welcome the transitional arrangements, which are fair. It is important for all businesses to be able to plan and to know what the maximum increase in their rates bill will be in the next few years. Most financial directors will welcome that useful aid to planning.

I also welcome the fact that, under the orders, greater fairness is being shown to the south-west. We have often heard about firms in other parts of the country which have struggled greatly, but we in the south-west have taken our fair share of hits. We have borne our brunt of difficult times. I am pleased that relief will be offered to businesses in the south-west. That Government help will be welcomed by those businesses.

The revaluatino orders are a triumph for fairness and common sense. I welcome the fact that they will place the burden of the business rate on those who can best afford it. That will be offer a boost to the south-west, because it will give us the opportunity to make good some of the unfairnesses that have resulted from the implementation of policies pursued by the Liberals at county hall and by the Labour party at the city council in Plymouth. For those reasons, I welcome the orders.

6.44 pm

Mrs. Angela Knight (Erewash)

I want to make two points about the orders and how they affect my constituency, but first I should like to refer to the remarks of the hon. Member for Sheffield, Attercliffe (Mr. Betts).

As the House knows, the hon. Gentleman was leader of Sheffield city council. I, too, was a member of that council and for many years I worked in industry and business in the area. Today, he simply rewrote history. He said—I made a note of it—that business rates were merely perceived to be a problem in the city. They were a real problem for those who worked in companies—a real problem with which they to deal daily and weekly in their overheads. Because of the city council's involvement in setting the business rate for the community, businesses moved out of the city and went elsewhere, taking employment with them. People who lived in the city moved out to Derbyshire if they could. It was only the introduction of capping that resolved the domestic problem and the introduction of the uniform business rate that resolved the industrial one.

When parts of the city were being decimated, an enterprise zone was offered to Sheffield, but the hon. Member for Attercliffe and his colleagues on the council would not accept it. The very thing that would have helped industry in the city was rejected. It was only when the urban development corporation took an interest in the city—the hon. Gentleman opposed that too—that confidence in the business community began to be restored. That development, and the knowledge that the business rate was outside local political control, meant businesses started to come back to the city. A similar success story could be told elsewhere.

The hon. Member for Attercliffe advanced another argument that staggered me—I do not know how he had the nerve to make it. He blamed central Government grant reductions for the city's financial problems. Those problems were caused by the hon. Gentleman and his party, who bid for the world student games. They budgeted to spend £30 million on capital facilities and planned to make a profit from the games. They actually spent £150 million and lost money on the games. That has left the city strapped with a debt, which is being paid by every resident and paid, indirectly, by every business. That is the truth. That is why I say that the hon. Gentleman told a tale to the House—I know, because I was there.

I should like to see indirect local government involvement in industry in the community. I should like local government to make an area attractive by offering good road networks, reclaiming derelict industrial land, processing planning applications quickly and being known as a responsible spender that offers services at a reasonable price. That is the most attractive thing that local government can offer to industries and, therefore, to the local economy. Those who heard on the radio the explanation of the policy followed by Conservative-controlled Clitheroe council will know that the policy has resulted in that area having the lowest unemployment rate in the country.

Further changes to the uniform business rate are now proposed. The midlands, which I represent, benefited from the 1990 revaluation. I accept the points made so eloquently by my hon. Friend the Member for Beaconsfield (Mr. Smith) and touched on by my hon. Friend the Member for Plymouth, Sutton (Mr. Streeter) that one of the difficulties for many areas was caused by the considerable period of time between that 1990 revaluation and the previous one. Other areas, such as my own, however, benefited from the revaluation and that had a beneficial effect on companies, businesses and manufacturing and engineering industries—the very industries on which the midlands depends. In common with my hon. Friend the Member for Sutton, my constituency has also enjoyed a continuous reduction in the unemployment rate, month after month—in the past 12 months the unemployment figure has dropped by 1,400. One of those companies' concerns is that the next revaluation will not benefit them. Clearly, just as companies in the area benefited from the last revaluation, so they could easily find that, under the revaluation for next year, they will start to see increases. That is why I welcome the transitional arrangements.

Inevitably, all transitional arrangements are complicated, but they exist precisely to buffer the differences and problems that can result when rates are increased by a huge amount. I am surprised at the concerns that have been expressed about such arrangements because they will benefit companies in areas such as mine. Not one company has complained about transitional arrangements. They are what people need, not what they do not like.

The order before us is complicated. Often, the results of such arrangements do not come home to the business community until the day when their bills land on the desk. I hope that, rather than just leave it as it stands today with a general announcement, we can talk to those involved with the business community in chambers of commerce and trade throughout the country so that they realise in advance what their rates bill will be and companies do not discover what they will be 24 hours after the bill has been sent out.

Two specific business rate problems in my constituency concern the local authority. Action taken by the local authority has badly affected small businesses and traders and resulted in a large consequential loss of business. The first concerns the building of a relief road which isolated a popular pub and cut off a popular trading street called Market street. The public house was isolated not just for a day or a week but for three months, during which time people could hardly cross the road to reach it, let alone park in its car park or anywhere near it. To help matters, somebody dug a hole and cut off its gas and electricity and broke the drains. One can imagine the pub's consequential loss of trade, which ran to several thousand pounds and was more than the landlord could manage to cover.

Although the pub received a temporary business rate reduction as a consequence of those works, it nowhere near covered the loss of business. The chip shop, sewing shop, small bicycle shop and other small shops in Market street had the same problem. The cafe was particularly affected. They all applied for and received a business rate reduction because the street had been cut off from general traffic, but it simply did not cover the amount that they had lost through lack of trade. The small shops lost trade not just during those three months but for good because the entrance to the street was closed off. I hope that we can better recognise within our business rate system the consequential loss of business to companies because of local authority activity that is out of their control.

The second problem is similar and may be partially shared by my hon. Friend the Member for Sutton. Again, it arose in Ilkeston, where the first problem arose. This time, the local authority decided to pedestrianise the main shopping street, which is one of the steepest shopping streets in the country, so people must walk up it. The local authority has pedestrianised about half the street and work is still in progress. It is taking a long time and is extremely disruptive. In addition to the disruption, people are finding it difficult to reach the street. Having blocked off the bottom half, cars can get nowhere near it.

The local authority then decided to charge for car parking, which has resulted in a dramatic loss of business to many shops in the street. Even the bank told me that its custom was down by 20 per cent., and the last place to which one stops going is the money shop, because that is where one gets money out, not where one pays it in. Such disruption can have a dramatic effect on the turnover and business viability of many small businesses. Again, although those companies and small traders received a business rate reduction, it was massively insufficient to cover the loss in trade.

Three solutions are possible. The first is intervention by the Department of Transport in some of those local road projects. Secondly, a mandatory right of compensation could be built into the contract for such works. I know that those two matters are outside the remit of my hon. Friend the Minister, but the third solution would be to look at business rate reductions to help companies that find themselves in the position that I have described.

6.55 pm

Mr. Robert B. Jones

With the leave of the House, may I say that this has been an interesting debate? Although I thought that such a complex issue would not provoke such detailed and thoughtful speeches, hon. Members on both sides of the House will agree that we have heard some very interesting contributions, often from hon. Members with a great knowledge of local authorities or industry and commerce in their area.

First, I redeem the promise that I made to my hon. Friend the Member for Beaconsfield (Mr. Smith). Like the hon. Member for Sheffield, Attercliffe (Mr. Betts), I believe that where there are questions, there should be answers, even if they are imperfect. My hon. Friend asked how many businesses currently in transition will benefit from relief next year. Currently, 362,000 rate payers benefit, 294,000 of whom are small businesses and 68,000 large ones. I am afraid that statistics are not held centrally which would enable us to say how many of those will benefit next year, but as those rate payers are some way from their full 1990 bills it is likely that the majority of them will benefit next year.

Many detailed points have been made, but I shall address some of the points of principle first. The fundamental point is whether we should have business rates at all. Although the Labour party seems to be broadly in accord with the Government on that matter, a difference of opinion was expressed by a Liberal Democrat Member. The hon. Member for Newbury (Mr. Rendel) argued for site value taxation. I hope that I was able to clear up that point by reminding him, as he evidently had not had an opportunity to study his party policy, that that policy was defeated at the Liberal Democrat party conference, no doubt for the reasons that were ably put forward by my hon. Friend the Member for Hertfordshire, North (Mr. Heald) as well as by the professional bodies that he quoted.

The second issue of principle is whether, if we ate to have business rates, there should be revaluations. Although revaluations are periodic and therefore, in a sense, a snapshot, they are also a kaleidoscopic picture. Even within sectors such as shops, or geographical areas like London or the south-west, circumstances change. The desirability of a corner shop may decrease and the desirability of an out-of-town shopping centre may increase, or at some stage the opposite may occur. It is therefore necessary to re-examine from time to time the rents in those areas and therefore the rates, which automatically follow as night follows day. So no one can reasonably argue that revaluations should not take place from time to time.

Labour Members then argued about whether those taxes should be collected entirely and spent by local authorities. The answer is that the proof of the pudding is in the eating. We all know from the past that many Labour authorities simply held business rate payers to ransom using the old system. It is therefore important, if we believe in a one-nation approach, as I certainly do, to ensure that businesses are not held to ransom by their Labour-controlled local authorities. The hon. Member for Attercliffe accepted the case for a redistribution mechanism, even without a localised business rate.

The third question is, should we have a transitional system? I think that everyone has agreed with that, and I do not propose to discuss it further.

That leaves the terms. I want to discuss, in my final remarks, the proposals of the hon. Member for Attercliffe that the cost should fall on all business ratepayers, not on the beneficiaries. The consequence would be that some of those who stand to gain would be made losers and some of those who are losers would be made even greater losers. There is no sense in that. It appears to me, therefore, that the Government have got it right in expecting the biggest gainers to pay part of the cost, with the Exchequer paying more than £500 million as well.

It is because I think that we have got it right that I have pleasure in commending the orders to the House.

It being Seven o'clock, MR. DEPUTY SPEAKER put the Question, pursuant to Order [9 December]. Question put and agreed to. Resolved, That the draft Non-Domestic Rating (Chargeable Amounts) Regulations 1994, which were laid before this House on 12th December, be approved.—[Mr. Robert B. Jones.] Resolved, That the draft Water Undertakers (Rateable Values) Order 1994, a copy of which was laid before this House on 5th December, be approved.—[Mr. Robert B. Jones.] Resolved, That the draft Railways (Rateable Values) Order 1994, a copy of which was laid before this House on 5th December, be approved.— [Mr. Robert B. Jones.] Resolved, That the draft British Waterways Board and Telecommunications Industry (Rateable Values) Order 1994, a copy of which was laid before this House on 5th December, be approved.—[Mr. Robert B. Jones.] Resolved, That the draft Electricity Supply Industry (Rateable Values) Order 1994, a copy of which was laid before this House on 12th December, be approved.—[Mr. Robert B. Jones.] Resolved, That the draft Docks and Harbours (Rateable Values) (Amendment) Order 1994, a copy of which was laid before this House on 5th December, be approved.—[Mr. Robert B. Jones.] Resolved, That the draft British Gas plc (Rateable Values) Order 1994, a copy of which was laid before this House on 5th December, be approved.—[Mr. Robert B. Jones.]