§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Wells.]
2.32 pm§ Mr. Peter Temple-Morris (Leominster)I very much welcome the chance to raise on behalf of my constituents the subject of business rates in Leominster. I should say at the outset that I welcome the presence on the Front Bench of my hon. Friend the Parliamentary Under-Secretary of State for the Environment, whom I last encountered in relation to domestic heating, when his contributions were most constructive. I trust that my hon. Friend will show the same spirit when he comes to reply to the present debate.
For the purposes of the debate—I shall try to make this point succinctly—I accept the system of the uniform business rate as it is. I must, however, declare an interest in that I spoke against the introduction of the rate, I voted against it and I remain against it now. There are two grounds for my opposition to the uniform business rate as a system, although I accept it for the purpose of proceeding practically with the debate.
First, I believe in the freedom of local government to tax in any local system of taxation. The present system is neither fish nor fowl, neither local freedom nor an effective central Government grant. Secondly—this is relevant to the present situation—any tax should relate as far as possible to the ability of any person or concern to pay it.
That brings me to the relevant points of background. When we came to reform the business and domestic rating systems, there was considerable delay. It took us from 1979 to 1985 to decide what to do about local government taxation. You will remember, Mr. Deputy Speaker, that the cry of the time was "Abolish the rates." But when we tried to go beyond the abolition to decide what on earth we were going to do by way of a new system, there was considerable difference and discord within the Government, the party and the country. The result was that there was no revaluation of property, and in particular business property, from 1973 until the 1990 revaluation. At the same time the reform, post-1985, came as a breathless rush. Half the reform—indeed, the major part—which dealt with the domestic system, as represented by the community charge, was rapidly discredited and is no more. We still have the other half—business rates—for better or for worse.
That brings me to the 1990 revaluation. Because of some of the facts that I have already mentioned, that gave vent to very large rises. The delay was an obvious cause. Also, the new system produced a north to south drift. The position was exacerbated by the recession for my constituents and for many others in the south and west. That led to another element of the problem, although it is a more welcome element—the concession of transitional arrangements in the 1992 Budget and in the two 1993 Budgets. The result was that when we reached the 1995 revaluation, many businesses were still not making the full payment under the 1990 revaluation. It is self-evident in what I am saying that the system is perpetually struggling gallantly, but sometimes in vain, to catch up with itself.
670 On the matter of the 1995 revaluation, I want to cite a few references—in note form—from the helpful letter that my hon. Friend the Minister with responsibility for local government sent to colleagues. He said that under the 1995 revaluation there was little change in the total rateable value for businesses in England. He said that the effect on individual properties could be significant. He also said that the rentals of shops and offices in London and the south had been more depressed by the recession than those elsewhere. He then said that all that meant a shift in the rates burden from the south to the north.
What about us? What about the rural west midlands? What about many other areas that do not get the great boom that is claimed for the south of England? I speak for many of my hon. Friends in the border counties, the rural counties of the west midlands and the border marches. My constituency covers about 800 square miles and has two and a half sets of traffic lights. There are a large number of small rural businesses and many shopkeepers and traders in a number of market towns. It is such people, among others, who represent the bedrock of support for the Government my hon. Friend the Minister and I serve.
I know that my hon. Friend and his Department are concerned about the increasing menace to the traditions of the small trader from out-of-town supermarkets and, indeed, the whole cult of mechanised, motorised shopping—the large general stores, supermarkets, do-it-yourself stores, and so on. The result of all that is that many businesses, especially local shops, have gone out of business. Empty shops abound, as is all too frequently seen in our various market towns. The new shops that should usually replace them are not materialising. In many cases, would-be business men cannot afford to pay the full business rate that setting up a business would entail. What is more, they would find it difficult to compete with those who, ironically, are receiving the transitional relief that we have been good enough to grant them. That is seen as an unfair advantage, and the result is that when a shop closes it does not open again.
That leads me to some examples of the 1995 revaluation in my constituency. I have been given complete district figures by South Herefordshire district council. Overall, the rateable value increased by 26 per cent. Perhaps even more serious, the rateable value for factories and small workshops in rural areas increased by 36 per cent. I have four district councils, in whole or in part, in my constituency. In the Leominster district council region, the position is about the same.
I have received a petition from the Leominster chamber of trade. The rateable values of many shops included in that petition have increased by 50 per cent. The approaches that I have had from Bromyard show that those values have increased by more than 50 per cent. in many cases. One business in the border and market town of Kington came to see me in a somewhat irate condition. Its rateable value is up by 73 per cent.
In the village of Shobdon in Leominster district, there is a prime example. In 1990, a business there was assessed at a rateable value of £44,000. It appealed, but there was then considerable delay until just before the 1995 revaluation, when the rateable value was reduced to £25,000. However, in 1995 it then went back up to more than £40,000, and there will no doubt be another appeal. We could do without that kind of yo-yo situation.
671 My hon. Friend the Minister will be aware of the examples that I have given of businesses and, in particular, of shops. We have a separate mode of assessment for public houses and garages, based on a turnover link. The increases are extraordinary, if not excruciating. They do not take account of those businesses' profits—only the turnover is taken into consideration. I have two specific examples, both involving beautiful inns where I hold my constituency surgeries. My hon. Friend will know how lovely the region is. The Government Whip on duty is already nodding his head, so I appreciate his enthusiasm for the cause of the Leominster constituency.
The rateable value of the Crown Inn, Woolhope in 1994–95 was £6,500, with £1,780, after transitional relief, payable by way of business rate. In 1995–96, that has gone up from £6,500 to £31,300. The full amount that will be payable is £13,521. Few businesses can afford such increases. In 1994–95, the Red Lion Inn in Stiffords Bridge, Cradley near the Worcestershire border had a rateable value £6,500. In 1995–96, it went up to £27,250. The question I put to my hon. Friend is why—what is the justification for that? Can it be described as a fair system of taxation and the best way to encourage the survival of businesses?
I shall make six substantive points. First, I accept the system, as I have said, for better or for worse, but I urge that, in accepting it and in carrying it out, we should make it as fair as possible. Surely my hon. Friend would accept that criterion. Secondly, the system in my constituency and in the region is working unfairly—I hope I have said enough to demonstrate that.
Thirdly, the combination of the five-year revaluations, together with the recent recession and the prolongation of transitional relief, which is compounding that unfairness, are worsening the position. How do we get out of that position? What progress can be made? Fourthly, new shops and small businesses will not arrive in anything like the numbers needed to replace those that are going out of business. I stress their unfair competitive advantage vis-a-vis those who are on continuing transitional relief. Clearly, I would not deny that transitional relief, but anyone considering occupying an empty shop faces unfair competition and the situation, sadly, is getting worse.
My fifth point relates to the appeal procedure. I know that the Department is concerned that it has been very slow. There is an urgent need to expedite the process. Some businesses have not even caught up between revaluations. If we go on as we are, many of those who have to appeal again will still be awaiting the outcome of the previous revaluation or, as in the Shobdon example that I cited, will just have received it when that for the year 2000 comes due. Goodness knows what that will yield, based as it will be on the 1995 revaluation with which we are all desperately trying to catch up.
My sixth point relates to the valuation procedure and the system itself. I appreciate that the 1995 revaluation is based on rental values in April 1993, which was the tail end of the recession. At that time, rental values were worse, if anything, but there are still to be increases. It is claimed that, by some miracle, London and the south does better for that very reason, but we, too, suffered from the recession but have to meet almost incredible increases. We now face revaluation in the year 2000, possibly without even having caught up.
672 Last hut not least, I wish to make a straightforward political point, and I am sure that my hon. Friend the Minister will appreciate why I do so. In these perhaps not easy political times, we are still hanging on—often narrowly—to the title "the party of small business". As I have said, in many respects, small businesses are the bedrock of our support. I say quite simply that we are letting them down and in too many instances we are kicking our long-standing supporters in the teeth. If we do not help them, we shall be held to electoral account.
§ The Parliamentary Under-Secretary of State for the Environment (Mr. Robert B. Jones)My hon. Friend the Member for Leominster (Mr. Temple-Morris) has given me an opportunity to explain the background to the non-domestic rating revaluation which takes effect on 1 April. I must also explain to him who is responsible for what. Naturally, my hon. Friend is concerned for businesses in his area, but I hope that I can persuade him that the Government, too, have the interests of businesses at heart. That is why we introduced the national non-domestic rating system in 1990. My hon. Friend has in the past opposed the scheme, although I note that he has this afternoon confirmed his acceptance of it as it stands.
It has been almost five years since the abolition of locally set rates, and it would be easy to forget the regimes under which many businesses were forced to trade. I remind the House of those times. During the 1980s, under the system then supported by my hon. Friend, rates rose by, on average, 37 per cent. above inflation. That was because many councils—I should be the first to concede that this does not apply to all—chose to spend more, knowing that local businesses would pick up the bill.
We now have one poundage for England which cannot increase each year faster than the rate of inflation. I assure the House that businesses have not forgotten the old rates system. They value the commitment that the uniform business rate offers them. Now, if authorities want to spend, the cost falls where it should—on the council tax payer.
Rateable values in 1990 were based on the market for rented property in 1988—the first revaluation since 1973, as my hon. Friend said. Another commitment that we made then was to update rateable values every five years. That time has now come. The 1995 revaluation will come into force on 1 April, based on the market for rented property in 1993. The revaluation has been performed by local valuation officers—an independent role given to them by the House and one in which neither I nor any of my right hon. and hon. Friends can intervene.
Ratepayers have now been notified of their new rateable values and, as in 1990, there will be winners and losers. I know that some are surprised at the change in their value. These values are, however, determined by local valuation officers. They are highly experienced and have evidence of actual rents collected—indeed, from ratepayers themselves. But this evidence needs careful interpretation and other adjustments so that it represents fairly the rent that a hypothetical tenant would have been prepared to pay in a new letting in 1993. It is quite possible that, for example, these rents will, in some cases, have been granted alongside incentives, such as lump sum payments or a period when no rent is payable. That is 673 why the valuation officer also collects details of these incentives so that headline rents can be adjusted accordingly.
Of course, valuation officers are always willing to examine new evidence of the rental market. If my hon. Friend's constituents have evidence that suggests that their rateable values are wrong, they should contact the valuation officer at once. Indeed, I understand that he would welcome such a discussion. This is the course of action being followed by my hon. Friend the Member for Hereford (Mr. Shepherd), who is well versed in the system that we are debating.
From the beginning of next month, ratepayers will have the opportunity to make proposals to change their value. During the 1995 rating list, there will be no restrictions on when proposals can be made. In addition, we are introducing new procedures to ensure that disagreements will be passed to the valuation tribunal as appeals within three months, not six months as is the case at present. I know that some ratepayers experienced delays in settling appeals against the 1990 list. My hon. Friend referred to that this afternoon. The 1990 revaluation was the first for 17 years, so that is not surprising. We hope that the new procedures for making and settling appeals will speed the process for the next quinquennium.
The Government are committed to helping businesses with their rates liability and to assisting them to adapt to potential increases. That is why we have introduced the transitional scheme. My latest information suggests that the scheme will limit increases in bills in both Leominster and Malvern Hills to, on average, 8 per cent. in real terms.
I shall remind the House of what the arrangements do. The transitional scheme will ensure that no business will face an increase of more than 10 per cent. plus inflation in 1995–96. For small businesses occupying property with a rateable value of less than £10,000—or less than £15,000 in London—increases will be limited to 7.5 per cent. plus inflation. Special rules also give further relief to small properties with both business and living accommodation. Their increases will be limited to 5 per cent. plus inflation. This will provide extra help to many sub-post offices and village shops, as well as many other small shops.
My hon. Friend is also concerned that new businesses will not be entitled to the relief. I assure him that this will not generally be the case. Transitional relief will continue on a property even if there is a change of ratepayer. New businesses moving into a property that has transitional relief will receive that benefit. However, property that did not appear in the rating list at 31 March 1995 will not get relief.
More than 4,000 ratepayers in the Leominster and Malvern Hills districts and 1.25 million in England will benefit from the scheme. Part of the cost of the transitional arrangements will be met by the Exchequer and part by limiting rate reductions. Further assistance would have been very expensive. The extra cost would have placed too great a burden on the national taxpayer or other ratepayers.
The arrangements are complicated and some ratepayers—and some hon. Members—will not have fully understood the way in which they work. However, most of them will now have received their bills and will see 674 the genuine protection the scheme offers them. Equally, some will be disappointed that the reduction they were expecting has been delayed. However, most, if not all, of those ratepayers will have faced increases in 1990. Many will have benefited from the 1990 transitional arrangements which were funded by limits on reductions to other ratepayers' bills. Now it is their turn to contribute.
The limits on increases will continue to apply until the next revaluation in 2000. Rateable values will then be updated again, probably to reflect the market in 1998. Of course, many ratepayers will not be paying their full bill by that time. We will not penalise them for that. If market rents for their property then fall relative to rents for other types of property, their rateable values will also fall. As such, they may never reach the full rates bill on their 1995 rateable value.
I know that my hon. Friend is also concerned that the revaluation will affect caravan parks in his constituency. He is not alone. Caravan parks in England and Wales are facing large, often very large, increases in rateable values. That is because valuation officers have changed the basis from which they derive rateable values. However, as I have said, I cannot intervene in those assessments. There may have to be test cases. Like all ratepayers, caravan park owners will benefit from the transitional relief scheme and may therefore never reach their full bill.
Turning to more general points, my hon. Friend has said that rates do not reflect the ability to pay the bill. I think that that is an over-simplification. Rates reflect the rentals that properties command and businesses would not occupy property if they could not afford those rentals. So there must be a link of a kind between rates and overall business profitability. Of course, the rental value of property will not always reflect the profitability of a particular business, but rates are a tax on property rather than on individual businesses.
The transitional arrangements will target relief on smaller businesses by reference to the value of their property. Services have to be supplied by local authorities regardless of whether a business is in profit. I am sure that most businesses prefer the present system to the increase in corporation tax which would otherwise be required.
If, despite that, my hon. Friend would still prefer to end non-domestic rates, he should read the research commissioned by my Department on the impact of rates on businesses. The key finding is that rates are not, in most cases, a significant burden on businesses. In fact, for the majority of principal trading companies, rates accounted for no more than 2 per cent. of turnover. The figures tended to be higher for small businesses, particularly retailers, but we have recognised that by treating the lowest value properties more favourably in our transitional relief scheme.
The report also showed that the 1990 transitional arrangements had been a success in mitigating the impact of the 1990 revaluation. The 1995 scheme is even more generous to those facing increases and I am sure that it will be equally successful. I hope that this opportunity to comment on my hon. Friend's points will be helpful to him.
§ Question put and agreed to.
§ Adjourned accordingly at four minutes to Three o'clock.