Rating (Empty Properties) Bill

It is always a pleasure to speak in a debate opened by the Financial Secretary to the Treasury. He makes his case with fluency and care and today he has once again underlined his reputation as an asset to the Treasury. It needs every asset it can get. His presence here underlines another fact; the Bill is a straightforward exercise in raising revenue. Despite all the claims made for the Bill as a supply-side reform of the property market, it is nothing of the kind. Despite the eloquence of the Financial Secretary and, indeed, the presence of the Minister for Local Government, the hon. Member for Oldham, East and Saddleworth (Mr. Woolas), we know what this Bill constitutes; it is a straightforward tax demand. If we look at the Bill as an application to reform the way in which we use land, it simply does not convince. Planning applications need to pass certain robust tests and this Bill fails the tests that any application to change the use of land would have to pass. The measure has been flimsily constructed, buckles under pressure and will not enhance the built environment. Let us examine how flimsily constructed it is. The basic premise of the Bill is that owners are deliberately keeping property empty and need to be taxed into putting it to good use. When we first debated the issue, I asked what justification there was for the idea that individuals were deliberately forgoing the chance to maximise their income and the return on the capital they had invested. Who were these remarkable individuals or odd companies who wanted to earn less than they could every year? What evidence was there for widespread economic masochism on the part of the commercial property sector? Despite the best efforts of the Minister for Local Government, no evidence was produced at the time. Despite the best efforts of the Financial Secretary, no evidence has been produced of the wilful keeping empty of property that could otherwise be filled. The Minister could not offer us any evidence because there is no robust evidence that landlords are wilfully depressing their balance sheets and turning away eager tenants simply out of perversity or idleness. If the Minister had taken the time to read Property Week at any point over the last two weeks, he would have seen how that magazine’s readers have been up in arms at this proposal. They have underlined how unjustified the assumptions behind the legislation are. As one correspondent said:"““Would Phil Woolas buy a car for £50,000 or £100,000 and never use it, leaving it in the garage? Why do people invest in property; to board it up and leave it empty? No—to obtain a return on their investment.””" Let me make it instantly clear that we know that the Minister for Local Government is a frugal guy and that he would never spend anything like that amount of money on a flash motor. [Interruption.] He would if he could, but he will have to wait until he is Deputy Prime Minister before he can spend those sorts of sums on cars. The reason why he would not leave that car rusting in his garage is the same reason why individuals who happen to be property owners want to find tenants. They want to get their capital working for them. It is to misunderstand the commercial property market completely to believe that some individuals who would otherwise fill their property with tenants are sitting back and drawing this relief rather than getting their capital to work for them. In considering the tax justifications for the measure, it is also important to appreciate that it changes how business rates are levied. The Financial Secretary dealt with that to an extent, but it is important that we return to the core principles of taxation. We discussed them during the first debate on this measure—that on the Ways and Means resolution. Business rates are, like all business taxation, understood by business to be a levy on commercial activity. Unless there is activity, it is hard to justify a charge on the balance sheet. How can we tax no commercial activity? We also need to understand that rates are a charge on the occupants of a building for the use of local services. The principle behind both domestic rates—the council tax—and business rates is that the occupants of a building are asked to pay for the services that they use. However, that principle is upended in this proposed legislation. There will be buildings that are unoccupied so there is no occupant to tax, and, because they are empty, they will not require the same level of local services as they would if they were fully operational and occupied, and yet their owners will be asked to pay for services that they do not use. That is an unfair and unjustified additional levy on business, and it upsets the delicate principle on which business rate taxation has rested. Another basic principle is threatened by this proposed legislation: the principle of the retail price index cap on the business rate. We also discussed that when we debated the Ways and Means resolution; however, although the Minister made his best attempt to address the matter, I felt that it was unsatisfactory. Sir Michael Lyons has been prayed in aid as the godfather of this measure, but in terms of the reform of business rates he was very clear that any change to the relief that people enjoyed on empty properties should be granted only after extensive consultation and as part of a broad rebalancing of the business rate system. He did not argue for the introduction of this change in isolation, which is what the proposed legislation will do. Sir Michael explicitly said that any change should occur in 2010 after extensive consultation. It will not have escaped the House’s attention that this legislation is being introduced three years earlier and after merely weeks of consultation. This is not considered legislation intended to rebalance business rates; it is a rush to plunder. On the RPI cap, the principle that businesses understand in terms of the business rate is that there will be revaluations from time to time and when that happens the rateable value of some properties—such as those that have been suitably enhanced or those in areas of high demand where property values have increased—will increase. However, they also appreciate that if that happens, the multiplier—the amount they will have to pay in consequence to keep their business rate at an appropriate level—will increase only in line with inflation in the rest of the economy. The principle behind that is that business should not be used as a milch cow to subsidise other parts of the local government taxation system or of the taxation system in general. Instead, it should pay its way in accordance with inflation. This taxation change will lead to business paying an extra £1 billion a year direct to the Exchequer through the business rate system. The basic principle behind the RPI cap will be busted. Business will be paying more than any increase in inflation would merit. The RPI cap can be maintained only if somewhere else there is a compensatory relief or reduction in the amount that businesses pay in the rating system. I would be interested to hear the Minister’s explanation of how we can possibly raise an extra £1 billion from business through the rating system and also maintain the RPI cap; if he can square that circle, I will be fascinated to learn how.