§ 5.30 p.m.
§ The Parliamentary Under-Secretary of State, Department of the Environment (Lord Hesketh)
My Lords, with the leave of the House I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for the Environment about business rates.
"The Local Government Finance Act 1988 provides for a uniform business rate in England and in Wales and for a revalual ion of non-domestic property. These changes will take effect on 1st April 1990. The new arrangements will mean the end of wide variations in rate poundages between different areas; and rateable values will be brought up to date to reflect accurately the relative benefits of different types of property in different locations. This will provide a welcome incentive for businesses to expand in the currently less economically buoyant areas.
"My right honourable friend the Secretary of State for Wales and I have considered the Inland Revenue's preliminary sample survey of the likely combined effects of the 1990 revaluation and the introductuon of the uniform business rate. The results of the survey must be interpreted with caution: they give only a general indication of possible changes in rate bills from 1990. Subject to that important qualification, the survey suggests that rateable values will increase from 1973 levels by around seven and a half times on average in England and by around eight times on average in Wales.
"It is our intention to fix the business rate poundage in 1990–91 so as to raise in real terms broadly the same amount of rates from private business and nationalised industries as in 1989–90. So this increase in rateable values by seven to eight times does not mean that rate bills will go up by seven or eight times. That is because, to secure the same overall yield as in 1989–90, the rate in the pound will fall to between one-seventh and one-eighth of the present national average poundage. On this basis the poundage would be in the 30 to 35 pence range if the business rate were introduced today. This means that the average rate bill payable by businesses will be the same as before the change in real terms. But there will of course be wide variations in actual bills depending upon how the rateable value of the particular property changes relative to the average and whether the present local rate poundage is above or below the average.
215 "The survey suggests that the broad effects of the uniform business rate and the revaluation taken together will be that businesses in the North and the Midlands will tend to pay less and businesses in southern England will generally face increases. As a general rule, factories and warehouses will tend to pay less, while shops and offices will pay more. Overall, business in the North and Midlands is projected to enjoy rate reductions of some £800 million once the transition is complete. In Wales, businesses in the Valleys will tend to gain, but the shift in burden between the Valleys and the rest of Wales will not be very large.
"To give businesses time to adjust to their new rate bills, we are proposing transitional arrangements to introduce the changes gradually. These arrangements will be self-financing. There will be limits on the percentage by which the rate bill for any property may change from one year to the next, for the first five years of the new system at least. For properties in England and Wales facing increases the limit will be 20 per cent. generally but to help smaller businesses there will be a lower limit of 15 per cent. for small properties. That is, those with new rateable values below £7,500 in London and £5,000 elsewhere. Arrangements in Scotland are of course a matter for my right honourable friend, but he proposes comparable protections for business ratepayers facing increases in rates as a result of the revaluation in Scotland in 1990.
"For properties in England due to benefit from rate reductions I shall decide finally on the percentages by which changes will be phased when 1 have fuller information in the summer. But present projections imply that limits on annual reductions of 15 per cent. for small properties and 10 per cent. for large would offset the cost of the protection for losers. My right honourable friend will similarly base his final decision on phasing of reductions for Welsh ratepayers on later information; but present projections indicate slightly higher limits would be sufficient in Wales to offset the cost of protection for losers.
"Compared with present rate bills, the percentage increase for losers is greater than the percentage reduction for the gainers because the losers as a group have substantially lower rate bills at present. All these limits are net of the annual change in the rate poundage resulting from the link to the retail prices index; and they are compound, in that after the first year the maximum percentage increase or decrease would be calculated from the rate bill in the preceding year.
"We wish to give the highest possible priority to preparing fully and promptly for the new business rating system and have therefore concluded that it would be right to reduce the incentive for business ratepayers to propose changes in the old 1973 rating list if the sole purpose is to secure a slightly better position under the transitional arrangements. We therefore propose that in 1990–91 the base liability to which the transitional limits will be applied should be calculated using the rateable value in the list today, adjusted only for 216 changes resulting from ratepayer proposals to amend the value received by the Valuation Office by yesterday. Ratepayer proposals to amend the 1973 list received by the Valuation Office today or in the future, including those posted before today but not received until today, will not be reflected in the transition. Any changes in rateable values in the 1973 list resulting from existing or future proposals made by the Valuation Office will however be taken into account in the transition.
"Ratepayers will still have the right to propose changes to the 1973 list and, if such proposals lead to reductions in value, will get the benefit until March 1990 but not thereafter. They will also of course have the right to make proposals in relation to the 1990 list.
"We believe business ratepayers as a whole will welcome our intention to concentrate on getting the new system right and thus to discourage further attempts to change rateable values which have stood for up to 16 years.
"The powers in the 1988 Act to make regulations are inadequate to facilitate transitional arrangements of the kind I have described. We shall therefore propose amendments to the 1988 Act in the Local Government and Housing Bill. In order to give businesses and local authorities as much certainty about the transition as possible, it is our intention after consultation to bring forward amendments setting out the arrangements in the Bill itself rather than in subsequent regulations.
"We are today issuing and placing in the Library a consultation paper, which includes the results of the Inland Revenue survey referred to earlier, setting out the details of the transitional arrangements and inviting comments".
My Lords, that concludes the Statement.
§ 5.37 p.m.
§ Lord McIntosh of Haringey
My Lords, the House will be grateful to the Minister for repeating the Statement made in another place earlier this afternoon. It is, however, peculiarly unhelpful. For all the assurance it gives to occupiers of business premises as to what their future business rates are likely to be, it could as well have been issued not only before Christmas but at the time when the Local Government Finance Bill was enacted. We have no indication whatever of the likely effect on any individual businesses, group of businesses or type of businesses. The most broad indications are given in the Statement about regional differences but nothing else to help businessmen assess their likely rate obligations.
The consultation paper to which the noble Lord referred is not available in the Library of your Lordships' House, I asked only a few minutes ago. It is therefore peculiarly difficult for us to make any rational assessment of the Statement, or indeed to have any indication of what effect it will have. Would it not have been possible for the Government to ensure that the consultation paper was available to us, as the Statement is being repeated a long time—two hours—after it was made in another place?
217 The indication of the likely effect on individual businesses becomes very clear when one looks at the provision for transitional payments. The Statement tells us that transitional relief will be self-financing. The figure was 20 per cent. compound for larger businesses over a period of at least five years. That means that the Government are already envisaging increases for individual premises of something considerably over 100 per cent. Does not the inadequacy of the 1988 Act, which was referred to in the Statement, mean that those increases could be very much higher than that?
As we understand it, the intention is that the 1988 Act is to be amended to increase the legal powers to bring in transitional schemes. What that presumably means is that the transitional arrangement can go on for longer than five years, even substantially longer than five years. The Secretary of State said that it could be a second quinquennium, or a third or a fourth. What does that mean in terms of the ultimate effect on individual business premises of the unified business rate? Can the noble Lord tell us whether there will be any ultimate limit or is he saying, as appears from the Statement, that it is not just more than 100 per cent. but that 200, 300 or even 400 per cent. might be possible?
The national business tax or, as the Government choose to call it, the unified business rate, was brought in on the basis that it was supposed to be a promise to business people that they would have a fairer rating system. Can that argument now be sustained? The same amount is to be raised from the business community, but it will just be raised in a way that will be arbitrarily different. The effect on local authorities will be even more arbitrarily different because what they get from the unified business rate will not be based on commercial or business activity in their area. It will now be based simply on a head count, the size of the population.
When I was involved in local government we believed that it was good to encourage business in our area because that gave us a higher rateable value. That incentive to local authorities to encourage business and commerce no longer exists. The unified business rate is not as effective a democratic procedure as it was in the past. It is simply another example of central government extending their powers further and further into every reach of our national life at the expense of local government and at the expense of local democracy.
§ Lord Ross of Newport
My Lords, I am sure that the Minister will agree that this is a long Statement which takes time to assimilate. As he will be aware, we are opposed to the uniform business rate for reasons similar to those which have just been expressed—that it takes total local control from authorities and it is purely arbitrary now as to what the Government decide to distribute to local authorities. One has the impression when talking about the 15 to 20 per cent. phased increases that in some cases these sums could be very substantial, particularly for the smaller businessmen. Coming on top of what undoubtedly are to be sharply rising water charges and electricity charges and 15 per cent. on VAT on new building, the business community should be warned about what is likely to happen over 218 the next two or three years. I hope that the Government will look again, if they insist on bringing this procedure in, to decide whether to phase it in over a much longer period.
Is it not somewhat novel to say that those people who are entitled to decreases—lower rates to pay—will have that limited to 15 per cent.? That seems to be a fairly novel idea to me. But they will not have the advantage of that in one go. They will have to pay for the increases or to marry the two and will not get their full allowances except ever the same five-year period. That seems to be a fairly novel idea and one which I am sure will lead to some comment.
§ Lord Hesketh
My Lords, I assure the noble Lord, Lord McIntosh of Haringey, that immediately on leaving your Lordships' House I shall inquire about the consultation document.
I first refer to the large increases which the noble Lord mentioned. I am sure that all in your Lordships' House arc well aware that in the last 16 years, particularly in the South-East of England, there have been enormous structural changes and vast changes in value. Because of that there will be cases where there will be substantial increases in the rateable values of property. The other factor to remember is that those businesses have in many cases benefited because of there being no rerating for 16 years, a considerable period of time.
§ Lord McIntosh of Haringey
My Lords, I am grateful to the noble Lord, but I was not referring to increases in rateable value. We all know that there have to be increases in rateable value. What the transitional arrangements are about is not increases in rateable value but increases in the amount of rates paid.
§ Lord Hesketh
My Lords, I wanted to move on to that, having made my first point. Because there are to be substantial changes, the Government are committed to the transitional period so that a balance can be made. The noble Lord, Lord Ross of Newport, drew your Lordships' attention to the phased reduction of payments. What we are hoping to do is to make this self-financing and balanced so that there will not be a tremendous shock. The purpose is for us to have an orderly transfer to the new system.
The noble Lord also referred to the phased reductions for small businesses. We have a high rate for reduction for small businesses and a lower rate for increase for small businesses and have taken into account in our calculations the extra needs of small businesses. The noble Lord, Lord McIntosh, also mentioned the possibility of a second quinquennium or even a third. I have not heard of the third quinquennium, but I believe he is correct that if an increase was to be above 149 per cent. we would have to go to a second quinquennium. He is entirely correct.
§ 5.45 p.m.
§ Lord Boyd-Carpenter
My Lords, can my noble friend confirm that where a business desires to appeal against the valuation of its premises in the 1990 list, the procedure for appealing will be the same as at 219 present? While I am on my feet may I say that I support what was said by the noble Lord, Lord McIntosh of Haringey, about the consultation document. It should be possible when a Statement is repeated an hour or two after it has been made in the Commons for the consultation document to be available here. It is a help not only to noble Lords opposite but to those on this side of the House. Perhaps he would look into that with a view to the future.
§ Lord Hesketh
My Lords, I take my noble friend's last point very much to heart.
A proposal with regard to an appeal after 1st April 1990 can be made to the valuation office to charge a rateable value within six months of 1st April 1990 and in limited circumstances thereafter. If this is not agreed, the proposal becomes an appeal to the local valuation and community charge tribunal, which will replace the existing local valuation court.
§ Lord Harmar-Nicholls
My Lords, the point that strikes me is rather different. It is not to do with the details of the Statement. As was said, it is so intricate and detailed that we shall want to study it before we can draw any worthwhile conclusions from it. Will my noble friend see that his right honourable friend is fully aware of the possible electoral consequences that can flow from the Statement. I am perhaps focused on that because I discovered that my last election was my 18th. I doubt whether many in your Lordships' House or in the other place have gone through that litmus paper test in that way before.
The point I want to make to my noble friend and to his right honourable friend is that when we examine the details behind this Statement, if it looks as though in order to alleviate the impost of the poll tax more is being put on the business contribution, the electoral consequences could be pretty tough. If it is felt that more people would be paying the poll tax than would be paying the business tax, and therefore if we are to be reasonably kind and generous, we had better favour the bigger crowd, the poll tax payers, and extra can be put on to the business group, no greater mistake could be made.
I have vivid remembrances of our losing an election when the Conservative Government intervened on the issue of retail price maintenance. If by being unfair to alleviate a problem in another direction we put unnecessary imposts upon the business community—who are the bedrock of the Conservative base, if ever we want to keep in mind a Conservative point of view—its consequences in electoral terms will be very real. I do not believe that today one has the same access to ensuring that one's personal point of view is taken into account, as was the case a few years ago. Perhaps that is sad, or it may be wise that a few holes have been stopped which allowed people to be troublesome.
We are far enough away from the details which must be applied but if the Government believe that advantages will be produced by marginally alleviating the poll tax and adding it to the business tax, I suggest that as concerns this side of the House, they will not be good advantages.
§ Lord Hesketh
My Lords, as always, I am grateful for my noble friend's remarks. I assure him that with my best endeavour I shall draw anything that he says to the attention of those to whom I have access.
The gross sum of money about which we are talking, £8.8 billion, is based on the figure for 1989–90 which will be raised during the last year of the existing rating system on the list.