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Mr. Clifton-Brown: The problem with small business relief, which we strongly support, is that it has to be funded out of the overall pot of national non-domestic rates. That effectively means that big businesses subsidise smaller ones that receive such relief but might well be competing against those big businesses. It might be prudent to maintain the Column Number: 403 discretion—not the duty—to allow separate funding for small business relief. As I understand it, the clause removes that discretion.I am sure that the hon. Member for Kingston and Surbiton is aware of this, but the explanatory notes reminded me that mandatory rate relief of 50 per cent. is available for properties up to £3,000 of the rateable value and will decline on a sliding scale as the rateable value increases, with no relief above £8,000. Mr. Swayne: Does that 50 per cent. figure arise from the formula A times D over C times E, or has it been plucked from somewhere else? Mr. Clifton-Brown: I am sure that my hon. Friend has had a chance to read the Bill. He will have made up his own mind. Perhaps the Minister will able to clarify the matter. That just shows how complicated these formulae are. Someone asked me on the way here, ''Does anybody understand it?'' There are people who make their living doing nothing but trying to work out these formulae and how they apply to individual calculations for non-domestic rates. Mr. Swayne: Is it a good living? Mr. Clifton-Brown: They do nothing else. If I responded to a sedentary intervention, it would be go on the record, so I shall not do so. However, it has put me off my stroke. I will have a word with my hon. Friend afterwards. I cannot quite remember where I had got to. [Hon. Members: ''It is complicated.''] Yes, it is incredibly complicated. The Minister will no doubt seek to explain it all. Mr. Leslie: The 50 per cent. figure arises out of the factor to be prescribed with the letter E. Mr. Clifton-Brown: Under subsection (5), in proposed new subsection (9),
I was wondering about that question, and the Under-Secretary has confirmed it. My hon. Friend did the Committee a service by bringing it up. A question arises therefore about whether the Secretary of State may alter that £3,000 in any one year. Will the Under-Secretary say how that sum will keep up with inflation or property inflation? Mr. Davey: I do not know whether I have to declare an interest, but I rent an office in my constituency and pay rates through the allowance. The Government are on to a good thing with the small business rate relief, as the uniform business rate hits small businesses disproportionately hard. All the research evidence clarifies that—from both the academic world and business interest groups. It is clear that we need to find a way to reduce the burden of business rates on small businesses; the question is how to do that. The Government have gone for a targeted approach, and to the extent that it reduces the burden on those whom the Government are asking to pay, one might argue that it is fairer a system. Like the hon. Member for Cotswold, I would have preferred it if the Government had invested some money and reduced overall business taxation with the Column Number: 404 relief. The Liberal Democrats have argued for a business rate allowance so that every business that paid the business rate would receive a lump sum off it. That would act fairly, because a lump sum would be like a reverse poll tax, so the poorer businesses would benefit most. The Government have gone for that in a way, but they have tried to claw it back. My concern is that that creates extra complexity.Business rates work relatively simply for normal businesses. Complications exist at the edges, but overall the tax is well understood. However, there is a danger of making it more complicated by introducing clawbacks and sliding scales. We must scrutinise the proposals to see whether it is worth the complexity to save revenue. Is it worth the candle to add complexity and bureaucracy and force the private sector to spend more time dealing with it? Would it not be simpler to go for a straight allowance system of a lump sum off the business rate bill for every business? I make that policy point not in opposition to the small business rate relief, because cutting the rate bill will attract support from Members on both sides of the House, but I question whether there could be a less complex and more efficient way of achieving the same goal. However, I want to raise a point that the CBI raised with me. I do not necessarily agree with it, for reasons that relate to what I just said, but it is worth touching on the point, which others have made in other places. The CBI is concerned that, if we reduce the business rate through the scheme, landlords might be the only beneficiaries. Will tenants see any benefits? The idea is that rents go up pound for pound to accommodate the rate reduction due to an equilibrating mechanism in the business rental sector. I do not subscribe to that argument, but I understand it. The CBI and others have said that the Government need to monitor the policy closely to check that that does not happen. Hon. Members on both sides of the Committee will not want the relief to be wasted, or for it to go to the landlords even though the intention was to give money to tenants and businesses that operate from various properties. Obviously, if the business owner is the freeholder, that point does not apply, but often they are not. Will the Government research the issue and keep the policy under review to check that the relief is not enjoyed by those for whom it was not intended?
4 pmMr. Turner: I am interested in the hon. Gentleman's proposition, but how is it possible to prevent a reduction in a tenant's accommodation costs, which would give him more disposable resources, from being retrieved somehow by the freeholder? Obviously, the freeholder would be trying to attract the maximum income from the tenancy. Mr. Davey: I am saying that I am concerned that that might be possible; I can imagine that in some cases it would not be. For example, there might be rental agreements that last a long time. At the end of that period, there might be some adjustment. There is a timing issue, which will clearly affect whether there is a one-for-one situation and how quickly the market returns to equilibrium. Column Number: 405 I am not necessarily convinced by the argument that I have outlined, because if it were true and the rates and the uniform business rate were increased, there would be no effect on the tenants, because rents would have to go down. The argument to the contrary is that there are some very unfair leases in this country and rent reviews are often only upwards. With some leases, there cannot be downward rent agreements. That might preclude the option that I have described. However, let us say that we made illegal the provisions in leases for only upward rent reviews. The implication of the CBI's analysis is that if the Government pushed up rates, rents would go down and tenants would not be affected. Money would in effect be taken from the landlords. There is a problem with the CBI's analysis, but it raises a fair question. Will the Government monitor the policy in this respect and undertake the necessary research? Mr. Clifton-Brown: The CBI did not put that point to us. In any case, I am not sure that it entirely holds water, because rateable value is related to rental levels. If rental levels increase, rateable value increases, so I cannot quite see the point that the CBI is trying to make. Mr. Davey: In many respects nor could I, although my question about the CBI's analysis was slightly different. That is why I do not oppose the relief, although the CBI wanted us to do so. I think that the relief is a step forward, for the reasons that I have outlined. However, because that very reputable organisation has advanced a different argument, it is incumbent on the Government to consider it and to keep the policy under review as a result. My next point was taken up by the Select Committee and relates to the thresholds that the Government have said that they will introduce through regulations. We have heard that the mandatory rate relief will be available at 50 per cent. for properties up to the £3,000 level and will then be removed on a sliding scale up to the £8,000 level. I was concerned to read that the Association of Convenience Stores, which represents many of the small retailers at which the relief seems to be targeted, has argued that, to be viable in the modern economy, a small store needs a turnover of about £4,000 a week. The threshold published by the Government suggests that the relief will apply only to small stores with a weekly turnover of less than £1,400. Organisations that represent businesses that will benefit from the relief are concerned that the threshold is too low. I recognise that there is a balance to be struck between giving the relief to those who will benefit, such as MPs, it appears, and the larger businesses that will have to pay under the Government's proposals. Will the Minister comment on that analysis from the Association of Convenience Stores, so that we can accept that the Government have got the balance right? Mr. Borrow: I should preface my remarks by saying that I shall not oppose the amendments. Assistance for small businesses is crucial. However, I have spent more than 20 years dealing with rating valuation, listened to many ratings surveyors, read Column Number: 406 many books and attended many lectures in which the link between rates payable and rent payable has been part of the fabric of the discussion. The argument that increasing rates reduces rent and vice versa has been part of the culture and the understanding of the rating world for as long as I have been involved in it, which is since the mid-1970s.I am concerned that, in the long term, the clauses will help not small businesses but landlords, by allowing them to increase their rents. The hon. Member for Kingston and Surbiton makes his points well. Many of the submissions that I have seen argue that we should be making such proposals, but the problem for small businesses is that they pay high rents in relation to the turnover of the business compared with large businesses in large business premises. Rates relate directly to the rents that are paid, which means that small businesses end up paying relatively high rates compared with large businesses.
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| ©Parliamentary copyright 2003 | Prepared 6 February 2003 |
