HC Deb 31 January 1996 vol 270 cc975-80 1.30 pm
Mr. Patrick Nicholls (Teignbridge)

I draw the attention of the House to the entry in the Register of Members' Interests which shows that I am an unpaid adviser to the British Shops and Stores Association.

I want this short debate to explore the status of charity shops, particularly as far as their business rate status is concerned. I had some difficulty in finding a title for the debate that would apply solely to one Minister, because the position of shops generally, and charity shops in particular, on business rates is part of a wider picture—the fate of town centres, and the pressure which traders feel they are under. It is not simply a matter of business rates—although, to be fair, that is regarded by most traders as the most significant matter—but also the effect on their business prospects of out-of-town shopping centres, parking restrictions and the like.

In many town centres, traditional trading communities are finding it increasingly hard to trade in a way which is traditional and conventional, while enabling them to be able to offer service to the public. There is no doubt from the representations that I have received that some traders—I would have to say, most traders—believe that the status of charity shops has a part to play as well.

Perhaps it should not be necessary—but, in this day and age, I am afraid it is—to emphasise exactly what one is not doing, as well as what one is doing. Let me make it abundantly clear, however, that I am not launching an attack on charities or charity shops. I am not saying that their role in society is anything but good. I want to emphasise that I am not attacking charities, which have a unique place in British life. There are a whole range of fiscal measures in terms of income tax, corporation tax and VAT that make it abundantly clear that charities have—and, I dare say, will always have—a unique position in our national life.

That is recognised not only by the Government, but by people up and down the land. One only has to see the amount of work that is given freely and voluntarily by members of the public to charities to know that, in a uniquely British way, charities play a part in our national life that is wholly for the good. Therefore, in no sense are my remarks to be taken, or deliberately misconstrued, as an attack on charity shops.

What concerns the traders who have made representations to me is more fundamental than that—they are concerned that measures designed specifically to help charities, particularly in relation to business rates, are being used to help organisations that are, in all but name, fellow traders.

The position in law is straightforward enough. Section 64(10) of the Local Government Finance Act 1988 requires a charity shop to fulfil two conditions to be exempt from business rates. It must be wholly or mainly used for the sale of goods donated to a charity, and the proceeds of the sale of the goods, any deduction of expenses, must be applied for the purpose of a charity.

Despite having made an immodest living interpreting the law in the past, I do not know what that means. One understands what "wholly" donated means, but what does "mainly" donated mean? Does it mean that 51 per cent. of the produce in a shop is sufficient, or 80 per cent? I suspect that that ambiguity lies at the heart of the current problems.

If a charity—let us call it Charity Ltd.—has a number of shops in a national context, it is possible that the charity as a whole may purchase only a tiny number of goods directly for sale. But if the goods are found in one particular shop, it may well mean that the trader next door finds that he is trading in commodities against someone who is in a totally different position.

This is not an isolated problem. It has not been raised with me on only one occasion—it is a matter of great concern locally. The matter has been discussed in the past by Teignbridge district council and Newton Abbott town council, while it has been raised with me by the chambers of commerce from Teignmouth and Newton Abbott. I dare say that that can be replicated up and down the country.

If one goes to Newton Abbott, within a few minutes of walking around the town centre one sees shops representing some of the great charities in the land—the Red Cross, the National Society for the Prevention of Cruelty to Children, Rowcroft hospice, Cancer and Leukaemia in Childhood, Imperial Cancer Research, the British Heart Foundation, the Royal Society for the Prevention of Cruelty to Animals and Barnardo's.

In Teignmouth in my constituency, one sees charities such as Yugoslavian Refugees, Oxfam, the People's Dispensary for Sick Animals, Rowcroft hospice, the YMCA, the Children's Society, Holiday Services for the Disabled and the RNLI. The idea that we are talking about one or two shops is a mistake.

The difficulty is that one must rely to an extent on anecdote, and I must rely on the information that traders have given me. I am told that, if one goes into some charity shops, one does not see the traditional bric-a-brac or second-hand goods. One is looking, to all intents and purposes, at premises selling new goods. One shopfitter recently told me that the best contract he had had all year was from a charity shop. He said that he wished "other local traders", as he put it, were able to give him such good work, but they were unable to do so.

One might think that some charity shops are buying in the majority of goods to be sold on in a way that directly competes with businesses next door that simply do not have the advantage of having at least 80 per cent. relief on rates, with the potential to applying for a further 20 per cent. relief from the local authority.

What can be done? I suspect that part of the problem depends on the meaning of "wholly or mainly". In a letter in September 1994, my hon. Friend the Minister of State said: The meaning of 'wholly or mainly' is determined by the local authority. That is like defining the functions of an archdeacon by saying that an archdeacon performs archdiaconal functions—it is true, but I am not sure how greatly it helps.

It would be asking too much of a local authority to carry out an audit on each and every shop that applies for an exemption from business rates. One runs into a problem right away—an authority may discover that a local shop selling a high proportion of bought-in goods is able to say that it is a part of a greater organisation, and the authority's considerations may not apply. It seems to me that it would be very difficult for a local authority to have to make such judgments.

The effect of this ambiguity should not be underestimated. If premises are in all but name local traders, we must consider what the effect can be if they do not have to pay the uniform business rate. They will be in a position to pay higher rents, but those directly competing against them do not have the benefit of not paying UBR. Therefore, circumstances would be conceivable in which local traders were simply priced out of the market.

The question that must be considered is, in a sense, even wider than that which the Minister will answer today. We live in a time when, for reasons to which I have referred, town centres are under unique pressure. Traders in those centres are also under pressure, and society must ask itself whether its intention is that we prefer one class of trader over another by giving one unique privileges.

It must be said that there is nothing wrong with trying to earn a living by selling goods in a town centre. There is nothing wrong with being a charity, either, but if one trader-uniquely-is in a better position than another, questions must be asked.

Lest anyone imagine that I have got it wrong, and that charities never see themselves in that light, I can do no better than quote that excellent publication the Mid-Devon Advertiser, which recently carried an article about charity shops. The main point of the article is not relevant to this debate, but it contains observations that are.

It explains that a certain charity shop was not reaching its targets, and quotes a voluntary worker—understandably, the staff are not paid—as saying: We took £94,000 since we opened in September '94…I'm sure other shops would like to do that. "Hear, hear", many might say. The article then quotes a man described as a chief executive of the charity's shops division as saying: The shop hasn't performed as well as it should have done …A target is set monthly". The man said that the shop was effectively a retail business, and had to set targets to reach each week. That says it all.

Mr. Sebastian Coe (Falmouth and Camborne)

I do not think that my hon. Friend has got it wrong. Two weekends ago, I walked the entire length of the main retail street in Redruth, in my constituency. The main issue that every retailer raised with me was having to trade shoulder to shoulder with charitable shops that had budgets that most Redruth traders could only dream of, and competing with central purchasing managers. Like my hon. Friend, I am not knocking charities.

Mr. Nicholls

My hon. Friend's intervention shows that the problem is not unique. It also reminds me to say that my hon. Friend the Member for South Hams (Mr. Steen), who wanted to attend the debate, was unable to do so because of a regional planning conference. He tells me that the position is similar in Totnes and Kingsbridge in his constituency.

What is to be done? Again, I emphasise that I am not attacking charities. It is important for me to make that point, because some people will try to misrepresent what I am saying. Nevertheless, if traders cannot compete with others who are traders in all but name, I feel that the Government should comment. The position is considered a local issue in at least three areas in the west country.

I should be interested to hear from my hon. Friend the Minister whether it would be possible to amend the law if such amendment proves necessary, even allowing for the constant pressure on legislative time; I should also like to know whether there is a judicial definition of "mainly" that is easy to understand. I suspect that the possibilities for litigation are legion.

It would also be useful to know more about the relationship between a local shop and the charity of which it is part, and to hear of any guidance that my hon. Friend can give. I suspect that charities themselves would welcome guidance. It must sometimes be hard for them to know precisely how the legislation applies to them. Some may be saying, "Perhaps we should take advantage of the position; other charities have. Where do we stand?"

I am not talking about traditional charities carrying on in the traditional charitable way, but I think that the current position must be addressed. If a man from Mars came here, he would see no difference between two traders, apart from the fact that one incurred expenses that were not incurred by the other.

1.44 pm
The Parliamentary Under-Secretary of State for the Environment (Sir Paul Beresford)

I am always glad of the opportunity to listen to Conservative Members from the south-west, but I feel that they tend to gang up. When they have a cause, they pull together and fight for their constituents in a way that is seen in no other country. Dealing with their concerns can be a bit like facing the All Blacks.

As my hon. Friend the Member for Teignbridge (Mr. Nicholls) said, we recognise the good work done by charities, and realise that charity shops are an important source of funds for many of them. My hon. Friend, however, is worried about the possible effect on local businesses. He acknowledged the special role of charities. They are given relief from many of the taxes that commercial businesses pay, including rates, and in many cases that is right and proper; but I think it worth touching on some recent history.

Rate relief for charities predates the non-domestic rating system. Rate relief of 50 per cent. was mandatory for property wholly or mainly used for charitable purposes under the provisions of the General Rate Act 1967. Rate relief for charity shops is not a recent innovation; it has existed for some time. Specific legislation was introduced to provide rate relief for charity shops in the Rating (Charity Shops) Act 1976. Those provisions were carried through to the new system in the Local Government Finance Act 1988.

Initially, the Government proposed that the provisions from the earlier legislation be repeated in their entirety. They specified, as now, that to qualify for relief a charity shop had to be wholly or mainly used for the sale of goods donated—it is worth emphasising that—to the charity. If a shop met the criteria, 50 per cent. rate relief had to be given by local authorities: that was mandatory. The amount could be increased to as much as 100 per cent. if the authority saw fit. If it felt that the charity was particularly deserving of local support, it could top up the relief, but the extra cost would be borne by local ratepayers.

At the time of the passage of the 1988 Act, it was feared that the new rating system might impose an unacceptably high rates burden on charity shops, and interfere with their ability to raise funds. In response to enormous pressure, the House increased the mandatory element of the relief from 50 per cent. to 80 per cent. The cost of the mandatory part is borne by the non-domestic rating pool. If a billing authority decides to give discretionary relief, it can, as under the previous legislation, top up the relief to 100 per cent., but 75 per cent. will be borne by council tax payers; the remaining 25 per cent. will be borne by the pool.

My hon. Friend is concerned about competition with local traders. He spoke of the difficulties experienced by various shops and towns, and mentioned a number of causes. Let me keep to the point, however.

To qualify for relief, charity shops must sell donated goods. That generally seems to mean old clothes, old toys and second-hand ornaments, but—anticipating the fierce case put by my hon. Friend—I decided to visit some charity shops in my area, as did some officials in the Department. They had the impression that the shops that they visited would have accepted unwanted Christmas presents: indeed, there seemed to be a fair display of those on the premises. I was reminded of a Conservative association bring-and-buy stall, and beat a hasty retreat. I saw nothing that quite fitted the pattern suggested by my hon. Friend. I suspect that, in fact, the shops I visited contained genuinely donated goods.

My hon. Friend asked how many other representations I had received. I cannot give the precise figure, but I think that the number of letters I have had must amount to about 5 per cent. of the number we receive about rates in general. Ultimately, I do not feel that my hon. Friend's concern is justified to the extent that a change in the existing law is needed. Charity shops that wholly or mainly sell goods bought from wholesalers are not entitled to relief. If the charities choose to raise revenue through such means, they too must pay rates on the shops, just like their neighbours.

I am sure that shops that sell donated goods rely on the good will and generosity of members of the public, as my hon. Friend pointed out, both in the donation of goods and as a means of donating to the charity. I am also sure that people who donate their old clothes, books and unwanted Christmas presents to a worthy cause want the money raised from the sale to go to those causes.

As I think my hon. Friend will accept, the issue pivots on the action of the local authority, not on a blunderbuss, across-the-board treatment by central Government through legislation or direction. There is a horses-for-courses arrangement, in which the local authority has the ability and the expertise, and can visit each premises and judge for itself.

The phrase is not simply "mainly", but "wholly or mainly". References to premises used "wholly or mainly" for certain purposes are found throughout rating law, and the definition of "wholly or mainly" will depend largely on the circumstances of the case involved. There is a body of case law on the meaning of wholly or mainly for charitable purposes", which may shed light on the issue. If my hon. Friend wishes, I will write to him with some examples.

Mr. Nicholls

indicated assent.

Sir Paul Beresford

I see that he would be interested.

In the case of charity shops, in the first instance it is for each local authority to decide whether a shop meets the legal requirements to qualify for relief. The authority might want to consider a wide range of factors when deciding whether a charity shop is wholly or mainly selling donated goods. Local authorities are in the best position to see the local situation and to judge it. Indeed, most local authorities have been exercising judgment on charity shops sensibly for at least two decades.

There is a discretionary element, and again, it is right and proper that local authorities should use that when deciding which charities are deserving of local support. I understand that Teignbridge district council has decided that a blanket policy is to be avoided, which is right. It is approaching the element of local discretion in entirely the right way. Each case should be decided on its merits and on local circumstances, and each billing authority should decide whether the charity is worthy of additional relief. The authorities have a financial incentive to choose wisely. After all, they have to pick up three quarters of that extra funding if they decide to give the relief.

Proper consideration and implementation of the legislation, as it stands, and leaving the matter in the hands of the local authorities are the right way to proceed, but I will write to my hon. Friend with some additional bits and pieces to explain cases that we considered. I hope that, in areas of concern, he will apply pressure to the local authority to do what it is there to do.

It being eight minutes to Two o'clock, the Motion for the Adjournment of the House lapsed.

Sitting suspended, pursuant to Standing Order No. 10 (Wednesday sittings), till half-past Two o'clock.