Non-Domestic Rating (No. 2) Bill (Hansard, 25 May 1993)

§ Viscount Goschen
My Lords, I beg to move that this Bill be now read a second time.
The Bill gives effect to a pledge given by the Chancellor of the Exchequer in his Budget Statement on 16th March. The provisions of the Bill give further protection for those businesses facing the largest rate increases as a result of the 1990 revaluation. It works by freezing business rates in real terms for a further year. The similar measure which we brought before the House last year was welcomed and I hope that this Bill will be equally well received.
As your Lordships will recall, while a property's valuation stays the same, annual business rate bills cannot rise by more than the rate of inflation in the previous September. The Government's success in tackling inflation means that bills will go up by no more than 3.6 per cent this year, following increases of only 4.1 per cent last year. Indeed, following the changes we made last year which allowed any gains from 1990 to come through in full this year, many businesses will be benefiting from substantial reductions in their rates bills.
However, 30 per cent of businesses are still subject to limits on upward changes under the transitional arrangements following the 1990 revaluation. Although these arrangements phase in increases gradually, some businesses would still have faced 20 per cent real rises. Last year, taking account of the effects of the recession, the Government decided not to add to the burden on businesses. The Non-Domestic Rating Act 1992 froze rates increases under the transitional arrangements in real terms for 1992–93.
The 1992 Act was intended to give one year's respite. However, although the health of the economy is now improving, a full resumption of the transitional 253 arrangements—with increases in bills of up to 20 per cent in real terms—might impair the speed of the recovery. Many of the businesses which fared worst from the recession were those facing the largest increases as a result of the 1990 revaluation. The Bill therefore extends in real terms the freeze on transitional increases for a further year.
The total cost of implementing the Bill is estimated to be £350 million this year and £225 million next. This is on top of the continuing cost of last year's freeze. Approximately a quarter of a million shops and offices —mainly in the South of England—would benefit from reductions worth over £190 million. Some 85,000 factories and warehouses—mainly in the North—would also benefit from reductions to the tune of over £30 million. A further 165,000 properties would gain relief worth £120 million, and businesses in Wales would save some £14 million.
In 1995 a new revaluation will have effect based on market rents at 1st April this year. We believe that rents for many properties in the more depressed sectors of the economy will be significantly lower than they were at the time of the last revaluation. This could well mean a shift in the rates burden away from them in 1995. So, some businesses still in transition next year—the last in the life of the 1990 rating lists —may never have to face the full rate liabilities implied by their 1990 valuations. A further pause in increases this year should help to smooth any changes to bills resulting from the 1995 revaluation. We believe that this measure will provide further valuable help for many businesses and will give another welcome boost to the economic recovery. I commend it to the House.

§ Baroness Hollis of Heigham
My Lords, we on this side of the House do not object to the Bill; but we wish to emphasise that it is necessary only because of the state of the business economy. The Government must take considerable responsibility for that. Since revaluation in 1988—the effect of that came into being in 1990 for business rates—businesses have had to be protected for each of the following four years from its effects. Thus, as the noble Minister said, that will take many businesses tidily into the 1995 revaluation without ever paying the bills of the 1990 revaluation.
The cost to us all has been something like £2 billion when one takes into account the roll-up effect of previous remissions together with the additional announcements of today's Bill. This is to be set against a background of the Government's economic mismanagement which meant that in 1990 30,000 businesses collapsed. In 1991, 48,000 businesses collapsed, or nearly 1,000 a week. In 1992, by which time the Chancellor was already talking about the green shoots of recovery, 63,000 businesses collapsed. That figure was up by 31 per cent on the previous year. Alas, that level of business failure is currently being maintained at around 1,300 a week, or 4 per cent worse than this time last year.
We also note that the collapse has hit the South disproportionately hardest—the Minister is right 254 about that—because the property values in the South were relatively high and inflated under the 1988 valuation. The consequence is that the national domestic rate contributed to local authority budgets to the tune of £12.4 billion in 1991 to 1992 but by only £11.6 billion in the forthcoming year. The shortfall will have to be made up by the general taxpayer as local authorities, being capped, cannot do so. Does this therefore not call into question an issue which the Minister did not raise at any point—that is, the whole concept of the national business rate as such? It is clear that the national business rate depends on valuations which are as transitory as junior Ministers. If one has a valuation and one then has to spend each of the next four years protecting oneself from the consequences of that valuation—that is necessary to introduce the NDR—that must surely put a question mark over the situation.
However, there is a deeper problem which we have regularly tried to draw to the attention of Ministers. am not sure they have yet taken this problem into account. Under the NDR, rates are collected on business rate within a local authority or district council. They are redistributed back nationally on the basis of population. That is a perverse system as it breaks the link of a local authority with its local business community. Whatever my local authority may now do to enhance business in its local community—for example, it may invest in training schemes, key worker housing, start-up units and extra infrastructure—not one penny of that money will be recycled back to the local authority in the form of an enhanced revenue rateable base. I see that the Minister is looking at his officials; but I can assure him that is the case.
For example, in 1990 the businesses in Norwich —a local authority I know well—contributed £40 million under NDR which would normally have been retained by the local authority. It receives back just £26 million on its population base. Business in the adjacent rural authority, which has done nothing for business, contributed £8 million; but, because of its population base, the authority received back £20 million. In other words, local authorities who have done nothing to enhance their business base—this is irrespective of politics as I was speaking of a Labour authority and an adjacent Conservative authority—or their business communities, are now entitled to piggy-back off those who have. To break that link between a local authority's commitment to its local business and the revenues it thereby returns is perverse; and, coming from a Tory Government, it is beyond belief.
I again refer to a local authority I know well where business and commerce would like to have security cameras installed. They would cost £100,000 in capital and £60,000 a year to run. But why should the local authority bother spending that money as it will not make a ha'p'orth of difference to the revenue it will get back in business rate? Therefore there is no incentive whatsoever to produce the partnership between local government and the local economy which we all want to see.
255 The final folly of the national business rate is that it produces a heavy dependence of local government on central government funding. Only four or five years ago local authorities could expect to raise between 45 and 60 per cent of their moneys locally, depending on what contribution came from RSG. Now that has been reduced to just 15 per cent—that means every pound one wishes to raise can only fall on the residual 15 per cent—and the gearing effects are very high and produce some of the wild swings and roundabouts that we have seen both under the poll tax and under the council tax. That volatility in local authority finance has been constructed by a business rate which reduces the capacity of a local authority to spread its costs over a wider local base.
I insist that local authority revenues and the sense of community for which a local authority should be responsible would both be stronger if local business rates were truly local as that would again encourage local government to enhance local economic development. The Government nationalised the business rates at the very point the Government were destroying local business. We see here tonight in a Bill we accept is necessary a sad and sorry indictment of what the Government have done.

§ Baroness Hamwee
My Lords, we too welcome this Bill—if "welcome" is the right term. It is a necessary provision to deal in some small measure with the effects of the recession. Many people in local businesses and in shops will inform noble Lords that the business rate is the straw that is breaking the camel's back. That has been so for some time and life does not become easier. I hope that if the hoped-for green shoots do not burgeon the Minister will come back to us with further measures, including national non-domestic rates, which will help businesses to survive.
Local democracy is an important issue. This Bill, which would be almost incomprehensible were it not for the Explanatory and Financial Memorandum—and I am grateful to the Minister for explaining the effects of the Bill—continues our very unsatisfactory method of raising money for local government from the business community. At recent elections we have seen that the electorate is glad to make its choice and produces a number of very different permutations. The local community as electors, also wearing their hats as business people, would like the opportunity to have greater influence on the way business rates are dealt with.
There is also the question of the application of the business rate. Perhaps I may repeat the point made in another place on 27th April by my honourable friend the Member for a Cornish seat—Bodmin, I believe —who spoke of hardship restrictions which are so narrowly drawn by many local councils that they are not used at all. By hardship restrictions I mean the facility for a local authority to apply the regulations in a way which will assist a local business if it is in trouble. I shall refer to my honourable friend's point rather than quoting him. It is not a party political 256 point but a matter which is of concern to all local authorities—namely, how hardship relief can be defined so that all parties in local government can use that relief better. When I say all parties in local government perhaps I should include that new political party, if one can call it that, "No overall control".
People are interested in the application of local government and in good local government. This Bill, welcome as it is in dealing with the immediate effects of the economic situation to some extent, regrettably merely continues a tradition which is not welcome.

§ Viscount Goschen
My Lords, I thank the noble Baroness, Lady Hollis of Heigham, and the noble Baroness, Lady Hamwee, for their support for the Bill, despite their general reservations. I should say in defence of the universal business rate that it means that there is more certainty for businesses now that the poundage cannot rise by more than the rate of inflation. Because of the Government's success in bringing down inflation, the poundage for 1993–94 is 41.6 pence—an increase of only 3.5 per cent on 1992–93. In addition, if the UBR had not been introduced businesses would have paid £842 million more in 1992–93 and £797 million more in 1993–94. I commend the Bill to the House.