§ 7.20 p.m.
§ Lord Trefgarne rose to move, That the draft order laid before the House on 6th December be approved [3rd Report from the Joint Committee].
§ The noble Lord said: My Lords, I beg to move.
§ Your Lordships are familiar with the background to the MMC's investigation, its findings and its recommendations. These were debated by your Lordships on 16th June and the Government were able to take account of views expressed when reaching the decisions announced by my noble friend Lord Young on 10th July. I do not intend therefore to trouble your Lordships by going over old ground.
§ The subject of the Motion is the tied estate order which applies only to the national brewers and which contains all the measures that the Government intend to implement in respect of them. The term "national brewer" for this purpose means any brewer with 2,000 or more on-licensed premises or any group of companies with brewing interests which between them have more than 2,000 such premises.
§ The aim of the order is to open up the national brewers' large tied estates to competition from a wider range of drinks and suppliers. Agreements that tie an outlet to supplies from a particular brewer can in some circumstances be beneficial. The MMC recognised that they allow small brewers a secure market for their products. However, used to too great an extent, ties restrict market access by others and can be used to bolster a dominant market position. The approach embodied in this order is to limit the strength of ties when made by brewers who have substantial market power.
§ There are in essence three groups of provisions in the order. First, the order requires brewers or groups with more than 2,000 pubs to release a proportion of their estates from ties altogether. Half of the excess over 2,000 must be released. Thus a brewer with 6,000 pubs will be able to tie 4,000 and must release 2,000 from ties.
§ The second provision concerns the so-called guest beer. National brewers must allow their tied tenants and loan tied licensees to serve at least one draught cask-conditioned beer from another source.
§ Finally, the order requires national brewers to release ties on low alcohol beer and non-beer drinks. By non-beer drinks we mean products such as soft drinks ciders, wines and spirits. In addition, and following consultations, the Government have drafted this order to ensure that the tenant has as far as possible a genuine and unfettered choice of supplier for both the guest beer and the other drinks released from ties.
§ Brewers have until 1st May 1990 to implement the provisions concerning the guest beer and ties to other drinks. The release of part of their estate from ties altogether will require a substantial amount of reorganisation within their property portfolios and the Government thought it right to allow the brewers until 1st January 1992 to achieve this.
§ I would now like to say something about the background and the process of consultation that led 75 to the drafting of the order. The measures announced by the Government on 10th July were themselves the outcome of a wide-ranging debate about the MMC's report and its recommendations. I know that some noble Lords were concerned about the very principle of intervention in a successful industry. But governments in free market economies have always recognised that they need to reserve the power to intervene where the market is not operating properly. The MMC report provided evidence of market failures in the supply of beer, and the response the department received from the public at large after the MMC report was published suggested that the MMC's analysis struck a chord with many tipplers as well as with publicans.
§ The order was published for public comment on 22nd August. A substantial number of comments were received and a revised draft circulated for comment on 31st October. Because of the complexity of the order and the drafting changes that had been made to take account of earlier representations, the Government felt it right to allow a further opportunity for parties to see whether any drafting problems remained. The order in its present form incorporates changes made as a result of that process.
§ I have dwelt on this process because I know that some have suggested that we should have allowed more time for consultation and public debate. It is now almost nine months since the MMC report was published, and I hope it is clear from what I have said that the Government have been at pains to conduct the widest consultation at every stage.
§ During this process we heard arguments that the measures being proposed would bear too harshly on the national brewers and the department received many suggestions for ways in which the burdens of complying with the order could be reduced. On the other hand the department also heard from those who felt that the order did not go far enough in addressing the consumer's interests and should be tougher. The Government have tried to strike a balance between the interests of the consumer in greater choice and more open competition and the need to minimise the burden on the industry. This balance will not satisfy everyone. But I hope your Lordships will agree that a fair balance has nonetheless been struck.
§ We believe that this order will have a substantial effect on the market. It will open up large parts of the national brewers' estates to competition from other products. It will encourage small brewers who will have access to a larger market; provide sharper competition in low alcohol products and soft drinks; and contribute to the stimulation of an independent wholesale sector. It will be good for the consumer and good for the long-term health of the industry. I commend it to your Lordships.
§ Moved, That the draft order laid before the House on 6th December be approved [3rd Report from the Joint Committee] —(Lord Trefgarne.)
§ Lord Williams of Elvel
My Lords, the House will be grateful to the Minister for introducing the 76 Motion and the order. As he quite rightly points out, there has been a wide-ranging debate since the Monopolies and Mergers Commission published its report. The wide-ranging debate largely consisted of successive government cave-ins to the brewing interests. We are very disappointed that the Government did not adopt the recommendations of the body for which they are responsible—namely, the Monopolies and Mergers Commission. Nevertheless, that debate has taken place and I do not wish to go over the ground, however sorry I may be about the result.
Perhaps I may ask the noble Lord some questions about the order. First, what is the position of the Community's competition department on the tie? At the time of the Monopolies and Mergers Commission report it was stated that the directorate general responsible for competition was looking into the question of the tie and was due to report in the not too distant future. My understanding is that the matter is moving quite fast now. I should be grateful if the noble Lord could give us an estimate of when the Commission will make its final judgment about whether the tie as such is legal in terms of the Treaty of Rome.
Secondly, am I right in thinking that the exclusion of soft drinks from the tie simply puts into United Kingdom law the block exclusion that is already given to us by the Community? Is there anything extra in this measure that is not provided by the Community block exclusion? If that is the case, why do we have to have it included in the order in the first place? I could never quite understand when I was debating with the predecessor of the noble Lord at the Government Dispatch Box exactly why the block exclusion did not apply throughout the United Kingdom on soft drinks and why we needed United Kingdom legislation to make that effective.
Thirdly, am I right in thinking that this order extends the provisions that the noble Lord the Secretary of State announced before consultations took place on the order in two directions? First, am I right in saying that what is known as the Whitbread Umbrella —that is to say, groups of interconnected brewers; the Whitbread example is the clearest one —would be caught by this order, whereas in the original provisions that were set out by the Secretary of State of the day that was not the case? In the second respect, am I right in thinking that this order extends the possibility of providing a guest real ale in premises to the large brewers, whereas previously we had been led to believe that it was only the smaller regional brewers who would have that privilege? I should be grateful if the noble Lord could confirm whether I am right or wrong on those points. If I am right, I hope he will explain exactly what has led the Government to the conclusion to change the arrangements in those two respects.
Finally, will the order, taken together with the new primary legislation concerned with the landlord and tenant legislation, form the whole corpus of what we can expect as a result of the report of the Monopolies and Mergers Commission or will other orders and other legislation come before us? If other legislation is to come before us, when will that occur?
§ 7.32 p.m.
§ Lord Kimball
My Lords, it would be churlish of me not to start by thanking the Minister for some progress over the period of negotiations and consultations that has taken place on the order. However, in my opinion we are faced with a sad evening in this House on three major points where there has been further dicrimination putting constraints upon the major brewers of Great Britain who own more than 2,000 outlets, thus making it difficult for them to compete for the supply of the free trade.
In this order all tied trade is treated the same, regardless of whether it constitutes a tenant or a free trade outlet tied by a loan. For all such outlets a brewer with more than 2,000 outlets himself must allow a cask conditioned beer to enter his public house. As my noble friend has said, he also has to free from a tie cider, wines, spirits, soft drinks, low-alcohol beers and alcohol-free beers. I should have thought there was a strong argument for allowing the major brewers to have every opportunity that we can give them to continue the important work they are doing in the development of alcohol-free beers and low-alcohol beers. It seems a pity that the tie will be removed in this area. These low-alcohol and alcohol-free beers are extremely expensive to produce. They involve an additional extra process, but they are a product that most people in this country want to be able to appreciate. Their quality is improving annually but there is still a lot to be done.
I shall now discuss what I regard as another unfair matter and that is the position in Scotland. In Scotland the majority of the licensed trade is undertaken in free houses. The brewers own very few outlets. However, a brewer with more than 2,000 outlets in the United Kingdom is placed at a competitive disadvantage in competing for the free trade in Scotland. Scottish and Newcastle Breweries is strong in Scotland but it is a fairly minor brewery, with fewer than 2,000 outlets. It will be able to tie for all beer, soft drinks, low-alcohol beer, non-alcohol beer, wines and spirits in all its outlets in Scotland, whereas a major brewer in England with more than 2,000 outlets will be constrained in its ability to tie. It will find itself in a weaker position in Scotland. This is an uneven playing field in which to take on the other brewers in a highly competitive business. Certainly in the case of Scotland this is a clear distortion of a free market by a Conservative Government. That is why I say this is a sad evening.
Even more nonsensical is the concept of a guest cask conditioned beer for free trade outlets tied by brewers with over 2,000 outlets. Under the order dealing with loan ties, licensed premises and wholesale premises, free trade outlets will be free of any tie within the next three months. To forbid them to enter into a voluntary supply arrangement for all their beer with a major brewing company is an unwarranted interference in the workings of the free market.
I think it is fair to say that, even if this order is some improvement on what was originally suggested, it still maintains the confusion that seems to exist 78 in the mind of the department. The department does not seem to understand the situation as it relates to property ties. The department has muddled those ties up with the loan ties. Those are two entirely different things. What is the logical reason why free trade should not be open to unrestricted and unregulated competition? What convincing argument have we had in our main debate here and in the excellent presentation of the weak case this evening by my noble friend that brewers with more than 2,000 outlets should be restricted in their ability to compete? The Government are interfering in a flagrant manner in a free and highly competitive market. In that market they are unfairly restricting the biggest and most successful companies.
§ 7.37 p.m.
§ Lord Trefgarne
My Lords, in rising in front of the serried ranks of my supporters, I wish to thank both noble Lords for their contributions to this debate. I shall take the contributions in their reverse order. I shall deal first with the points raised by my noble friend Lord Kimball who asked about the position in Scotland. I believe I am right in saying that he suggested that the much larger brewers operating in Scotland who had substantial estates elsewhere might be at a disadvantage. I suspect that the issue boils down to one of competition in loan ties, for I find that in Scotland only 18 per cent. of fully on-licensed premises are brewer owned compared with 69 per cent. in England and Wales. But clearly a brewer such as Bass will not be able to offer loan ties which are exclusive to its products, whereas Scottish and Newcastle, for example, will be able to do so if it reduces its estate below 2,000 premises. However, I understand that at present the Scottish and Newcastle estate is a little larger than that. However, I do not accept that that makes the order unfair or discriminatory.
It is open to any brewer to reduce his estate below 2,000 premises and avoid the restrictions on the strength of the tie. Brewers who are already very large will be under greater restraints than others. However, this is a function of dealing with the monopoly situation. The essence of dealing with monopolies is that the largest players in the market have to live with restrictions so that others may compete on more equal terms.
Turning now to the other point raised by my noble friend, particularly relating to the question of property versus loan ties, the order applies the same restrictions to ties arising from property as it does to loan ties. In both cases such ties entered into by the national brewers must allow the person tied to buy a guest cask-conditioned beer from outside the tie. They may also only cover beer; they may not extend to low alcohol beers, soft drinks, cider, wines or spirits. There is no muddle here. The provisions are common to both. Indeed they need to be since otherwise brewers could easily get round the restrictions on the property tie by entering into loan ties. Clearly it would be anomalous to allow stronger ties in loan agreements than were allowed through ownership.
I turn now to the points raised by the noble Lord, Lord Williams. The first concerns the position of the 79 European Community on tying matters generally. I understand that the Commission's review is still in progress and I cannot anticipate either when the review will be completed or its conclusion. That matter is quite outside the Government's control, as the noble Lord will appreciate. We look forward with interest to receiving the Community's view in due course.
Secondly, the noble Lord asked about the exclusion of soft drinks and whether the new arrangements enshrine an existing European Community exemption. The order goes further than the European Community provisions. Soft drink ties must be abolished altogether by national brewers. The European Community allows such ties for five years provided the brewer matches the best terms. Clearly we go further than the European Community has provided for.
Thirdly, the noble Lord asked whether we should catch Whitbread now even though we did not do so before. The companies in the Whitbread group will be affected by the order in the sense that their pubs will count towards Whitbread's limit. However, that has always been the position.
Fourthly, the noble Lord asked whether the order extended guest beer to national brewers. A supplier of guest beer can be any brewer, national as well as regional, but that has always been the position. The decision will be for the licensee himself to make.
Fifthly, the noble Lord asked whether this was the sum total of the measures that we propose to bring forward. Orders may be brought forward to cover the information to be provided by national brewers to the Director General of Fair Trading. If necessary an interim order may be made to protect the position of tenants until the Landlord and Tenant (Licensed Premises) Bill receives Royal Assent.
I hope that I have dealt with all the points raised by noble Lords and that your Lordships feel that the order should be agreed to.
§ On Question, Motion agreed to.
§ British Waterways Board (Rateable Values) Order 1989
§ Railways (Rateable Values) Order 1989
§ Water Undertakers (Rateable Values) Order 1989
§ Electricity Generators (Rateable Values) Order 1989
§ Docks and Harbours (Rateable Values) Order 1989
§ Telecommunications Industry (Rateable Values) Order 1989
§ British Gas plc (Rateable Values) Order 198980
§ Electricity Supply Industry (Rateable Values) Order 1989
§ Non-Domestic Rating (Transitional Period) (Appropriate Fraction) Order 1989
§ 7.43 p.m.
§ The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh) rose to move, That the draft orders laid before the House on 7th December be approved [3rd Report from the Joint Committee].
§ The noble Lord said: My Lords, with the leave of the House I wish to move that the nine orders standing in my name on the Order Paper be agreed to en bloc.
§ These orders are a part of the substantial corpus of subordinate legislation under the Local Government Finance Act 1988 which is necessary to implement the new system of business rating that takes effect on 1st April next year. The Non-Domestic Rating (Transitional Period) (Appropriate Fraction) Order provides a key part of the transitional scheme under which the effect of the new uniform business rate and the non-domestic valuation are to be phased in. The remaining eight orders all fix new rateable values for the so-called formula rated industries.
§ Under the uniform business rate locally fixed poundages will be replaced by a national poundage set in 1990–91 by the Secretary of State and updated in subsequent years by no more than the increase in the RPI. My right honourable friend hopes soon to be able to announce the poundage for 1990–91 but he has already given a provisional figure of 36. He will be aiming to raise from business broadly the same aggregate amount of rates in the first year of the new system as in the last year of the old. The UBR will remove the distortions caused by widely varying local poundages and rescue businesses from 15 years of average rate rises above the rate of inflation.
§ A revaluation of non-domestic property has also been carried out —the first since 1973. I hardly need say that if rates are to be retained for business property we must have up-to-date values, otherwise the old distortions will continue.
§ The average business will pay the same in rates in real terms under the new system as under the old but there will be a wide dispersion around the average. Businesses in the North and Midlands, especially in manufacturing, will tend to do well, while those in the South, particularly in retailing, will tend to face higher bills. The effects will be phased in for businesses facing the biggest increases over at least five years. The protection will, however, need to be paid for and we decided that the fairest way to do this was to phase in reductions in bills also. In that way the overall yield from business rates will remain the same, avoiding the need for a large subsidy from the taxpayer.
§ The retailing industry in particular has complained about the potential increase in its rate burden but that is entirely attributable to the revaluation, and the new rateable values in turn 81 merely reflect current patterns of retail rents. Retailers will of course benefit from the transitional protection written into the 1988 Act. I shall not deal further with that point here because of course the order we are debating tonight deals with those facing lower bills, not those facing increased bills.
§ The main framework of the transition was inserted into the 1988 Act by the Local Government and Housing Act 1989 and was debated by your Lordships' House only a few weeks ago. Broadly it provides that no rate bill will rise by more than 20 per cent. a year in real terms in the transitional period. For small properties the figure is 15 per cent. The appropriate fraction order in effect fixes the equivalent figures for properties attracting rate reductions. The order provides a formula for calculating maximum rate reductions in each year of the transition. Its effect is to place a limit on reduction in bills in 1990–91 of 10.5 per cent. in real terms for properties with a new rateable value of £15,000 or more in London and £10,000 or more elsewhere and 15.5 per cent. for properties with values below those thresholds. For 1991–92 the equivalent figures are 13 per cent. and 18 per cent.
§ Those figures, which are higher than we had previously thought likely, have been set using the latest information available about the revaluation so as to comply with the obligation in the 1988 Act that the transition must so far as practicable have a neutral effect on total rate revenue. They are higher in the second year partly because of the expected effect of appeals but also because the amount of protection for losers —which is confined to existing occupiers —will reduce over time as businesses move premises. We shall fix the figures for years after 1991–92 later when we have better information about, for instance, the effect of appeals.
§ Turning to formula rating, the eight draft orders before your Lordships prescribe either the rateable values of certain public utilities or the rules to be used in reaching those values. The orders mostly apply to utilities which have in the past had their rateable values prescribed in statutory instruments. In parallel with the general 1990 revaluation of all non-domestic property we have conducted a review of the undertakings rated in this way with a view to reaching new assessments or rules for assessment which will be effective from 1st April 1990.
§ The practice of formula rating certain industries started in the 1950s to overcome various technical problems associated with the assessment by conventional means of public utility undertakings. Those problems stemmed partly from case law on valuation methods and partly from the difficulties of apportioning an aggregate rateable value for the whole industry between rating districts. For the 1990 revaluation, we propose to continue the prescription of values in the following industries: water service companies and statutory water companies, the electricity supply industry, British Gas, British Telecom, the British Waterways Board, statutory docks and harbours, and also various railway operators, namely, the British Railways Board, London Underground, the Docklands Light Railway and Tyne & Wear Metro. Finally, to avoid distorting the taxation position of industries competing 82 directly in the same field, we shall for the first time be prescribing the assessments of Mercury Communications and of free-standing electricity generating stations.
§ In setting rateable values for those industries we have sought to reach the level of assessment that might have been made by conventional means. Where the necessary information exists we have adopted a method similar to the contractors' basis of valuation, which looks at the net cost of building or replacing a property and converts it to an annual sum by applying the decapitalisation rate. For the electricity, water, gas and telecommunications industries we have been able to use their net current cost accounts, suitably adjusted, to derive a rateable value in this way. For independent generators and the statutory water companies we have derived rateable values respectively from those of the electricity supply industry and the water service companies.
§ In the case of the canals, ports and railways industries no current cost accounts information is available. We have set those rateable values by reference to that percentage of turnover which we believe represents a fair assessment of other similar types of industry whose values have been set on a conventional basis.
§ The order setting values for the electricity supply industry is at this stage not complete. We do not as yet know precisely how the assets associated with nuclear power stations will be separated out from those of the National Power Company and we shall make the necessary order for the two new companies early next year. Their combined values are likely to reflect the total value of £598.6 million proposed in our recent consultation paper.
§ It is a well established practice in formula-rated industries to make an annual revision of the rateable value in the light of some global measure of changes in their use of property. Each order provides this annual review for its industry using a measure of occupation of property appropriate to its particular case. The orders introduce some major swings in rateable values which we believe are fully justified and when appropriate there will be transitional arrangements.
§ While I am convinced that the proposals are fair and reasonable and in line with what the 1990 revaluation will show, I do not believe this to be an ideal means of assessment. I believe that most industries currently assessed on this basis share that view. We therefore intend so far as is practicable to return all hereditaments whose values are currently prescribed in this way to conventional assessment for the next revaluation.
§ The assessments and provisions contained in the orders have been worked out as a result of extensive discussions with the industries involved, with the Valuation Office and with the local authority associations; they have also been the subject of public consultation. I believe that they represent fair and reasonable assesments for these industries. I hope that the House will support the orders. I beg to move.
§ Moved, That the draft orders laid before the House on 7th December be approved [3rd Report from the Joint Committee. —(Lord Hesketh.)83
§ 7.56 p.m.
§ Lord Graham of Edmonton
My Lords, I am grateful to the Minister for taking the care that he has in setting out the arguments in support of the orders. As he knows, it is the ninth order on the list about which I wish to speak.
The Minister said a great deal. Quite frankly, even if one understands the subject and the Minister speaks slowly —he did not speak fast —it would be difficult to assimilate the arguments, consequences and justification for even more changes on a subsequent revaluation. Many people outside the House will read with care what he said.
The Minister dealt with the matters with which we need to deal but he also ranged sufficiently widely to convince me that I am in order to set the orders in a slightly wider context. As he rightly said, we must deal not only with the direct effect of the order in which I am interested and with the marginal benefits of the latest announcement of the½ per cent. increase. He knows that we are dealing not only with the unified business rate; we are also dealing with the impending effect of the catastrophic —I would say horrendous —revaluations of certain hereditaments.
I declare an interest as secretary of the all-party retail group which comprises Members on all sides in both Houses who have connections with retailers. I am also a director of the Enfield and St. Albans Co-operative Society. I do not have any special brief from those bodies or any special plea to make on their behalf, save to say that co-operative societies include 7,000 or 8,000 shops, some large, some small, some in the North and some in the South. Many of the national retailers may well have large units in the North, the Midlands and the South.
The Minister might argue that we are talking in terms of swings and roundabouts and that you win some and you lose some. The phrase that comes to my mind is that this is just the tip of an iceberg. The matter will run and run because there are many people outside the House, and many people of his political persuasion in another place, who will be made to learn fully and painfully over the next few months exactly what they voted for when they voted for the introduction of the poll tax and the unified business rate.
Perhaps I may quote from a gentleman who has our respect —Mr. John Banham of the CBI —who said only last week:When reality really dawns in a few weeks' time, there may well be half a million furious business people, either with severely disappointed expectations or facing a succession of real increases of 20 per cent. in their annual rates bills".He went on to say that the likely result would be a one point increase in the retail prices index, adding a further twist to the inflationary spiral.
Let us consider Mr. Banham's statement. I shall not make too much of the timing. The Minister was fair in saying that the last revaluation was in 1973. Another revaluation was due in 1978 when a Labour Government were in office. Eleven years have passed since then. I have been involved in all the arguments about how we can improve the present system, but the Government have grasped the nettle and 84 produced a scheme, the consequences of which we are now discussing.
One of the arguments deployed by the Minister and his colleagues—my noble friend Lord Dean who is on the Front Bench with me at this moment has engaged in those arguments as fully as I have over the last three or four years—was that it was unfair on local businesses to have to bear the burden of what were then called profligate local councils. We were told that the burden would be lifted and that they would be treated fairly, uniformly and in a businesslike way.
The Minister tells us that there is nothing final about this, but we are considering what his honourable friends have said is likely to be the figure of 36p. That is the extrapolated figure, based upon a current rate of 258p in the pound. I do not think that the Minister and his colleagues fully grasp the enormity of what that will mean to many businesses. The figure is 36p plus an allowance next year for the RPI. For every penny by which that 36p goes up, £1 billion will be added to the costs of retailers. That is absolutely catastrophic.
There are a number of ways in which those costs to retailers might be borne. The retailer who has his wits about him and sees that coming, as many have, will have made allowances in his plans. Many of them will decide that if their costs are to increase, they must be passed on to the consumer. After looking at their costs many of them will decide that they can absorb some of the costs but that extra imposte must ultimately be borne, as are all costs, by the consumer. Does the Minister appreciate that by acting in that way he is, as John Banham said, adding an extra twist to the inflationary burden?
The Minister was quite fair in saying that by and large industry will be better treated than retailing and that the North will be better treated than the South-East. I hold no brief to protect the South-East. According to my brief, the burden of the Government's imposition upon retailers is likely to be not only onerous —retailers will have to pay their fair share like everyone else —but punitive. For instance, let us look at the costs that have been borne in the past by businesses and at the new rateable value. The new rateable values have been assessed at 7.7 per cent. of what they are now. I am told that because of property values in some instances the rateable value will increase 20 times. When my informant gave me that information I said, "Stop! Are you telling me that someone who might now be liable for a rateable value of £100,000 will be faced with a rateable value of £2 million?" He said, "That is right".
Those words came from someone who deals in property and retailing. He knows the market. That increase will not only affect large businesses, it will have an impact on small businesses. The Minister and his colleagues have hit upon the figures of £10,000 and £15,000. In terms of property size, that represents rabbit hutches. They are tiny. The alleged benefit to come through this order is minuscule. The bulk of retailers will be very badly hit.
The Inland Revenue figures at the end of July 1989 showed that of 1.7 million businesses, 275,000 85 face increases of over 100 per cent., 249,000 face increases of between 50 per cent. and 100 per cent. and 443,000 face increases of up to 50 per cent. Confronted with those figures, what are the consequences? The Forum of Private Business, which is a reputable trade association, observed that as a consequence of the combination of both the unified business rate and the revaluation, 110,000 jobs could be lost as a result of the changes. Would the Minister and his colleagues care to comment on that calculation and accept that as a consequence of these changes there will be an enormous burden placed on the retailer?
The Minister could very well argue that in effect he is shifting the load from manufacturing and hard-pressed areas such as the Midlands and the North to those who are better able to bear it. The Minister reads the press and observes the markets; he knows that retailing is going through a very difficult period. Two or three years ago such changes could have been looked upon if not with equanimity then with some knowledge of ability to absorb. But the whole retailing scene is changing rapidly. There has been a complete change in the mix of retailing. Those with whom I consult and whose views I respect have advised me that retailing is not in the best condition to absorb these increases.
I should like to draw the Minister's attention to an article by Peter Wilsher which appeared yesterday in the Sunday Times and which gives two illustrations of this situation. The Minister talks in terms of formulae and poundages and puts forward abstract arguments. But what does that mean to individuals? For example, Marks & Spencer, whose mere presence in a new development can easily double a prospective rental, already face a bill of £35 million a year for rates. It can expect that amount to increase by about £9 million next year. Of course, it will have enormous after-tax profits and that increase can be absorbed. However, the picture is very different for the closely comparable Storehouse, which is another large, reputable and successful retailer. Marks & Spencer pays £35 million in rates; Storehouse pays £30 million in rates but its forecast for next year's gross profits is such that to add £8 million as the likely rates damage could make a very nasty dent. In other words, it will find that the additional on-cost will be difficult to bear. Those two companies are two giants, very highly organised, efficient and successful businesses.
As John Banham said, there are 500,000 —half a million, my Lords—little businesses. The party which the Minister represents says that it looks after small businesses better than any other party. However, he has added to the impost on small businesses to a degree which is disgraceful. He is simply putting forward a piece of legislation in the form of an order and we are limited in what we can do about it. As I understand it, each year the Minister will come forward and tell Parliament that he wants to add to the 36p a figure that he estimates he will need increased in line with the RPI. It is a debatable amount.
When the Minister was faced with the same kind of transitional costs for the domestic ratepayer, he worked out a formula which in effect meant that 86 while the gainers were left as such, the tab for those who lost was picked up over a transitional period by the Exchequer. Why does the Minister choose to favour the domestic ratepayer over the business ratepayer in this respect? Could it have anything to do with the revolution on the Back Benches of the Minister's party in another place which threatened all sorts of action and warned that if a cushion of some kind were not provided, then his party would be in very real trouble next year. I believe that there is a lot in that.
I ask the Minister to take this measure back to his right honourable friend and tell him that unless he is able to revise his intentions in the future, he will not only have a political storm —which I shall welcome —but also a much more difficult job to defend his actions at this Dispatch Box.
§ 8.6 p.m.
§ Lord Hesketh
My Lords, as always, I am grateful for the remarks of the noble Lord, Lord Graham. I am also grateful to him for earlier today having brought to my attention the fact that he would refer in particular to the retail business.
When considering these orders, I believe that it is absolutely critical to see the UBR in its entirety. It is not an abstract device at all but a very real one. Perhaps I may go back to the noble Lord's first remarks which were very relevant. He referred to the fact that there had not been a revaluation since 1973 and then very cogently deployed his argument. He finished by saying, when he was displaying his reasons for not being happy with the proposals (which are not before us tonight but as he sees it are part and parcel of what he was describing), that such were the consequences of the scheme. In all truth, it must be fair and right to say that they are in part the consequences of not having a revaluation since 1973, and are not consequences only of the scheme.
The noble Lord went on to suggest that the introduction of the new system would be inflationary; but in my earlier remarks, I made the Government's position clear. It is that there is fiscal neutrality in these arrangements. It can hardly lead to inflation if the total sum of money to be raised will remain the same.
The noble Lord drew your Lordships' attention also to the possibility of profitability or otherwise of 'certain retailers and gave comparisons between two leading companies on the High Street. But the basis of raising taxation through the uniform business rate is a basis of valuation on property. In this case it is not the Government's responsibility to make an assessment on profitability within the context of what they are achieving by raising revenue through a basis of evaluation and a tax on property.
The noble Lord also drew attention to the fact that he felt that small businesses which he said that the Conservative Party claimed to support, were not being helped by the interim arrangements of £ 10,000 and £15,000 to protect and help smaller businesses with the transitional arrangements. However, the fact of the matter is that 75 per cent of non-domestic businesses rated at over £500 will be protected by those two levels of protection. That is a very substantial amount indeed.
87 Finally, I should make absolutely clear that one can look at these arrangements only in the overall context. Yes, some retailers will be paying more. However, I suggest that one considers what the opportunities will be for further employment in the North and in the Midlands where companies will be able to take on more men because they will be paying less. There is a totality in these arrangements that we hope and believe will be for the future good and benefit of all those involved. I fully understand and accept the position of the noble Lord, Lord Graham. I hope he understands that I also have a position which represents the other side. It has to be seen as the mirror image.
§ Lord Graham of Edmonton
My Lords, before the noble Lord sits down, he referred to the Government having consulted local authorities and a number of other bodies. Can he tell us to what extent consultations were taking place with representatives of retailers? I do not refer to individual retailers, though I could name one or two. However, reference has been made to Mr. Banham, speaking on behalf of the CBI. That represents many businesses. I refer also to advice to me from the Retail Cosortium, which represents many businesses including the large high street retailer; from the Chamber of Trade including the smaller retailers; and from the Co-operative sector. I do not press the point aggressively. However, if those people who will have to pay have made their views as clear to him as they have to me why are they so angry and concerned at the impact of the legislation?
§ Lord Hesketh
My Lords, I speak as a farmer. Farmers always tend to complain when they feel that they are at the wrong end. The Government have consulted the Group of Ten, the Retail Consortium and the Chambers of Commerce. We discussed the figures with the forum. We understand the position that the noble Lord, Lord Graham, has explained. However, as a responsible Government we have to accept the totality of the situation. We cannot look at the uniform business rate with only the retailer in mind. I commend the Motion.
§ On Question, Motion agreed to.