6 Mar 2009 : Column 1101

6 Mar 2009 : Column 1101

House of Commons

Friday 6 March 2009

The House met at half-past Nine o’clock


The Chairman of Ways and Means took the Chair as Deputy Speaker (Standing Order No. 3).

9.33 am

Philip Davies (Shipley) (Con): I beg to move, That the House sit in private.

Question put forthwith (Standing Order No. 163).

The House divided: Ayes 0, Noes 19.
Division No. 55]
[9.33 am


Tellers for the Ayes:

Philip Davies and
Mr. Peter Bone

Binley, Mr. Brian
Chope, Mr. Christopher
Clark, Greg
Davies, Mr. Dai
Evans, Mr. Nigel
Greening, Justine
Hands, Mr. Greg
Harper, Mr. Mark
Heath, Mr. David
Kramer, Susan
Laws, Mr. David
Luff, Peter
Mackay, rh Mr. Andrew
Mackinlay, Andrew
Neill, Robert
Penning, Mike
Pritchard, Mark
Randall, Mr. John
Watkinson, Angela
Tellers for the Noes:

Mr. Tim Boswell and
David Mundell
The Deputy Speaker declared that the Question was not decided because fewer than 40 Members had participated in the Division (Standing Order No. 41).

Small Business Rate Relief (Automatic Payment) Bill

Second Reading

9.44 am

Peter Luff (Mid-Worcestershire) (Con): I beg to move, That the Bill be now read a Second time.

I sincerely thank the supporters of the Bill and of the campaign, especially the Federation of Small Businesses, for taking a lead, suggesting the measure to me and campaigning tirelessly on behalf of all our small businesses. Towards the end of my remarks, I will name some of the many other supporting organisations, to which I am grateful for all their support and advice, especially the Local Government Association. Its unqualified support for the Bill was an important factor in my decision to proceed with it.

I also thank the 115 colleagues from all parties who signed early-day motion 676 on the subject, and the 11 colleagues, again from all parties, many from the Business and Enterprise Committee, who sponsor the measure. I thank the Minister for Local Government and the Under-Secretary of State for Communities and Local Government, the hon. Member for Tooting (Mr. Khan), for their help and advice, for agreeing to a private meeting before today’s Second Reading and for at least giving the impression that they sympathised with the Bill’s objectives and might be tempted to support or adapt it, and introduce it with a package of other measures to help small businesses. We will wait and see what the Under-Secretary says in his winding-up speech.

The Bill should attract all-party consensus because its basic rationale can be found in the explanatory notes to the Local Government Act 2003, which introduced the small business rate relief scheme:

You will understand, Mr. Deputy Speaker, though the outside world does not always understand, that there are limits to what a private Member’s Bill is allowed to do. I would have liked to do many things to help small businesses that lie well beyond the ambit of a private Member’s Bill. To give specific examples, we cannot significantly change expenditure, or raise or alter tax rates or thresholds. The one criticism of real substance that small business people have made of the Bill—there are two exceptions, which I shall cover later—is its apparent lack of ambition in relation to business rates generally.

For example, I was recently approached by the owner of a Vauxhall car dealership in my constituency—heaven knows, car dealerships have been especially badly hit in the recession—who asked me to address the fact that business rates generally will increase by 5 per cent. at the beginning of April,

for which, he says, redundancies must pay.

I also received e-mails this week that highlighted the Scottish Government’s abolishing business rates altogether for businesses with a rateable value below £8,000. I believe that those below £10,000 will receive a 50 per cent.
reduction, and that those below £15,000 will get a 25 per cent. reduction. The Scottish package is attractive—I think I have understood it correctly. The Ministers and I agreed that it was complex, but I think that I have outlined its essence. It is certainly more attractive than what is on offer to Welsh or English businesses. However, sadly, a private Member’s Bill cannot tackle those bigger issues.

Void rates on commercial properties are contentious and of great concern to small businesses, as well as medium and large businesses. Again, a private Member’s Bill cannot address that.

I hope that the Under-Secretary is considering tackling some of the wider concerns later in the year, and that he will share some of his thinking on the matter later.

I am not trying to create a perfect Bill or a perfect situation. The measure is an attempt not to eradicate all problems, even those with the small business rate relief scheme, but to offer some practical assistance. It is simply another string to the Department’s bow and to the Government’s and Parliament’s efforts to make life easier for small businesses. Other things need to be done well beyond changes to the small business rate relief scheme.

I do not pretend that the Bill is a cure-all or a panacea, but I believe that it constitutes a useful and important step forward. Indeed, the Federation of Small Businesses said in a statement that it gave me to read out:

The Bill may have shortcomings and I am sure that, if it gets a Committee stage, we can discuss two specific changes in more detail. However, I believe that the Under-Secretary understands that the current position is unacceptable and can be improved. Approximately half of all small businesses currently claim the relief, leaving half not getting money to which they are entitled. The Bill is far from perfect—I do not claim perfection for it—but it would improve the current position and save jobs in the real economy.

At first, the Bill looked gleefully simple in its scope and attractive. However, Luff’s law of politics applies: everything, when properly understood, is rather complex. I have examined some of the complexities of local government finance and rating systems as I have chewed through the Bill’s detailed implications.

However, let us first deal with the measure’s simplicity. It is, at its heart, a simple Bill—it is, I hope the House will agree, a commendably short Bill—with a simple aim: to ensure that small businesses, which are always struggling, but never more so than in a recession, get the help to which they are entitled by law. The Bill would create no new entitlements; it would just make it easier for small businesses to get what they are already entitled to. The Bill would also bring England into line with Wales, which has had automatic payments since April 2008, and help to close the huge gap in rates for small businesses between Scotland and England.

Today is not the time to discuss the way in which the banks treat small and medium-sized businesses, but that, too, has an important impact. A couple of years ago, before the current recession, small and medium-sized enterprises employed 13.5 million people—58 per cent. of the private sector work force—and turned over £1,440 billion. Some 95 per cent. of them employ fewer than five people—they are very small businesses indeed. Let me remind the House that if the Bill is passed, they would all still pay significant businesses rates. They would get a discount, not absolution from the bills. Apart from still paying small business rates, small businesses would be acting as tax gatherers, collecting pay-as-you-earn and national insurance contributions, and paying VAT where relevant and, if they are making a profit, corporation tax. Small businesses would all still be paying handsomely for our public services. It must be understood that the Bill would not be a free ride for small businesses.

Mr. Brian Binley (Northampton, South) (Con): And they pay to have their dustbins removed.

Peter Luff: Typically, businesses pay extra to have their dustbins removed, on top of paying their rates bills; I am glad for my hon. Friend’s reminder.

Given their locations and the services that they provide, small businesses, such as post offices, village shops and pubs, are often crucial to many communities. Given the jobs that small businesses offer, we must do everything possible to help them at all times, but especially now. This is not a criticism of this Government, but it is easy for Governments in general to go for big businesses and the big opportunities that they present, but small businesses make a much bigger net impact on the real economy. Crucially, we need to look to the future and to recovery from this recession, whenever it comes. Because of their enterprise, many companies, if they survive the recession, will be the medium-sized and big businesses of tomorrow.

A fascinating statistic is that 64 per cent. of all commercial innovations come from small firms. We know that this country needs to innovate to stay ahead in the international competitive race. Small firms will play a key role in helping us do so, but many are in serious trouble. The Federation of Small Businesses has seen a 200 per cent. increase in phone calls to its small business helpline compared with last year. To take one example, small independent retailers seem to be in terminal decline across the UK. The accountancy firm BDO Stoy Hayward forecasts that 33,900 small businesses will close in 2009, which equates to 120 a day. I will not list all the statistics of doom and gloom, but one that particularly worries me, as a Member with a predominantly rural constituency, is that 42 per cent. of English towns and villages no longer have a shop of any kind. We must protect the shops that are still running.

I know that we are all growing weary of the noughts on public announcements—“What’s the odd billion or trillion among friends?” one might ask. However, for small businesses, it is not billions, millions or even thousands; it is often hundreds of pounds that can make the difference between success and failure. That is why, despite its modest ambitions, the Bill is so important. The Bill could save many small businesses up to £1,200 a year. That might not sound like a large sum in the context of those billions and trillions, but it is a significant sum in the day-to-day struggle for survival of those small businesses.

Mark Pritchard (The Wrekin) (Con): My hon. Friend is making a powerful and persuasive case, and I congratulate him on introducing the Bill in such a timely manner. He will know that Worcestershire is similar to Shropshire and has many market towns. That £1,200 could make a real difference to whether a business survives. I therefore wish him every success and hope that the Government will support him today.

Peter Luff: I am glad that I gave way to my hon. Friend, as he is absolutely right. As I will remark later—I will give the House a trailer now—rural areas would be some of the biggest beneficiaries of the Bill, as would deprived urban areas. It is therefore an important Bill for market towns, as he suggests.

What I had not realised before I began looking into the Bill is that the rates bill is the third biggest expenditure that many small businesses face after wages and rents. Crucially, the rates bill must be paid irrespective of whether the business is making a profit. Small businesses can, with great sadness, cut the staff or their hours—I know how attached small businesses are to their staff—to see themselves through a recession if they have to. They might, if they are lucky enough, also be able to renegotiate their rents with their landlord or get some kind of holiday, but they cannot reduce the rates, which have to be paid.

The estimate of the number of small businesses missing out on the relief because they do not claim it is—I think from our discussions that the Minister and I agree on this—around one half. We do not quite know why they are not claiming. Perhaps those businesses do not know about the relief or think that the process may be complicated—and heaven knows, small businesses are flooded in paperwork these days—or perhaps they think that it is too good to be true and that there must be a catch. But the relief is not too good to be true: it is there and waiting to claimed. Frankly, however, the reason does not matter. The fact is that far too many small businesses are not getting the relief to which they are entitled.

There are about 1 million hereditaments—a technical term: properties—with a rateable value of under £10,000. Of those, roughly 765,000 are classified as factories and workshops, offices, shops, and warehouses and stores, which are probably the categories that have properties eligible for the small business rate relief. For anyone who is interested in seeing the picture for their area, the Valuation Office Agency has an excellent website, on which people can enter a postcode and see how many such properties there are in that area. Doing so proves, as I have said, that rural areas and deprived urban areas have disproportionately large numbers of small rateable value properties, so rural areas will get the greatest benefit.

It has been put to me by some people that the Bill is not necessary. We could just aggressively promote the current relief arrangements and get close to 100 per cent. take-up. Well, up to a point, Lord Copper, as Evelyn Waugh once said. The Local Government Association would not be so enthusiastically behind the Bill if it thought that the answer was that easy. The LGA is prepared to see what it believes will be a modest increase in the burden on authorities for two principal reasons. First, the LGA thinks it important that residents in those small businesses get the relief to which they are entitled.

The Parliamentary Under-Secretary of State for Communities and Local Government (Mr. Sadiq Khan) indicated assent.

Peter Luff: That is a clear position and I am glad to see the Minister nodding. The LGA thinks that the change should mean fewer enforcements against non-payers, which is a burdensome duty for local authorities, thereby saving them a lot of work.

Many councils are already putting a lot of effort into the application system, which involves a lot of work. Automaticity would reduce a lot of those burdens, but it seems that the amount of work done in various regions around the country is hugely different. The take-up in different regions—these are only estimates, but they look fairly good to me and they are quoted in the Library paper on the Bill, which is a pretty good indication—ranges from 26 per cent. in the north-west of England to 79 per cent. in the north-east, which is a huge difference in the northern parts of our country.

Some councils do a first-rate job of promoting the existing rate relief scheme, but some are not so enthusiastic. For a national relief scheme, introduced by Parliament through national legislation, we should not have a postcode lottery in the outcome, which is what we have at present. My area of Wychavon works extremely hard to promote the scheme and has good promotional materials. I have three more examples of good practice. Sunderland has undertaken activities to promote the scheme such as ensuring that councillors take application forms with them when visiting small businesses. That is a practical and sensible idea. Sutton has gone a step further, by identifying 1,000 local businesses that were not applying and proactively contacting them. Birmingham city council has gone further still, by identifying every business that has not applied—it can be done, therefore—and sending personalised letters to them all. That has resulted in 6,000 new applications in Birmingham city council’s area.

It is possible to make things better without my Bill, but the LGA is quite clear that it would create a co-ordinated approach and ensure that the money was getting to thousands of small businesses that would not get it otherwise. The current arrangements are rough justice, and far too rough at that. My Bill would smooth the corners of that rough justice.

How would the Bill work in practice? Small business rate relief was introduced in April 2005, after a lot of consultation, and my party welcomed it. The relief can be claimed on properties with a rateable value of up to £15,000, with higher values applying in London—this is a brief summary of quite a complex provision. All small businesses qualifying for the relief still pay at least half of their original bill—as I have said, small business rate relief is not a total relief scheme. The relief is paid at 50 per cent. up to rateable values of £5,000 and, on a sliding scale downwards, to values of £10,000. Between £10,000 and £15,000, rates are charged using the slightly lower small business multiplier, not the main national non-domestic rate. The relief is paid for by a premium charged on the business rates for larger firms, but it is a very small premium. I will return to that later. The Bill aims to make that relief automatic to all qualifying ratepayers. The need to apply will be removed—or largely removed—if a possible amendment that I will discuss later is made.

Clause 1(1) simply imposes a duty on the Secretary of State to introduce a statutory instrument implementing automatic payments to eligible ratepayers, and gives him the necessary powers to do so, with considerable flexibility. The Bill is not specific about many of the provisions that need to be made, because I recognise that the Minister and his officials will have specific ideas and suggestions for the necessary repeals and amendments. So, rather than specifying those details in the Bill, I have left them to the Department, which removes one practical objection that the Minister might have—namely, that the Bill was too detailed.

I realise that setting six months to get the regulations drafted, consulted on and approved is—at least by public sector standards—a tight time frame, but small businesses do not think that it is, as they are hurting and need that help now. Six months is the maximum period that I could put in the Bill, but I hope that, if the Bill is accepted, the Government will move a good deal faster than that.

Clause 1(2) gives the Secretary of State scope to amend existing legislation in order for payments to be made automatically. It says that any statutory instrument should be subject to the affirmative procedure. That will be an important statutory instrument, and it is right that it should be subject to the affirmative procedure and be properly scrutinised by the House within the limits of the statutory instrument procedure.

Clause 2(1) and (2) deal with the eligibility criteria for rate relief. Provided the rateable value of the property fits with the criteria set out in the Local Government Finance Act 1988—as amended in 2003—it will be eligible for automatic rate relief. This information is sufficient, and no declaration is necessary by the business owner. Clause 2(3) and (4) provide the billing authority with the power to require overpayments to be repaid, as well as giving the Secretary of State the power to make provisions to recover such sums. Clause 3 is a simple interpretative clause, and clause 4 clarifies that the Bill extends only to England, as different arrangements apply to the devolved Administrations.

There are only two objections to my Bill that I think have any real validity—there is a third objection, which I will come to later—and I have looked hard at them and decided that they can both be addressed. The first is the possibility of paying businesses money to which they are not entitled, which rightly concerns the Royal Institution of Chartered Surveyors. This could be a problem when people have more than one qualifying property in different areas of country, as the relief is essentially allowed only for one property. It is a bit more complicated than that: a business can have more than one property to qualify as long as they do not add up to more than £15,000. The relief is then available only on the main property—it gets quite complicated, but the essence of the matter is that it involves only one property.

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