Rating (Empty Properties) Bill

That shows the assiduousness of my hon. Friend. I shall turn first to the comments of the Financial Secretary, who is not yet in his place. He deployed the representation made by Hampshire county council on the Lyons review because it wrote in favour of the changes. That should be qualified on two counts. First, I suspect that it felt that it would benefit from the additional money that was raised through the measure. Secondly, it was in the context of the wider review of exemptions by Sir Michael Lyons. The hon. Member for Stoke-on-Trent, North (Joan Walley) is also not in her place for the wind-up. She expressed a train of thought to which hon. Members on both sides of the House have returned from time to time when she said that she had grave reservations about the impact of the Bill. She was concerned about the impact that the Bill would have on regeneration projects in constituencies such as hers. That theme was picked up in the contributions made by many hon. Members. She said that the Bill would have a different effect on different parts of the country and different sectors of the economy and that the blanket nature of the proposal would lead to unintended consequences for her constituents and people up and down the country. The hon. Lady argued that the Bill would benefit the south-east and areas of high demand for property. I am not sure that I agree with that analysis. I shall come on to some more thoughts on that later. I do not think that the measure will help the south- east or areas of high demand, just as the hon. Lady thinks that it will not help her area and regeneration projects there. The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) also commented on the regional impact of the measure. He spoke from a position of perhaps detached isolation in so far as the measure does not apply in Scotland, although he felt that it might have some beneficial effects on the property sector in Scotland. He made the important point that, if the sole aim of the measure was to change the behaviour of property owners, its revenue effect would be neutral and there would be some way of recycling the revenue back to local authorities or used in other measures. Of course, we know that the Bill is here to plug a black hole in the Chancellor’s forecast. It was during the hon. Gentleman’s remarks that my hon. Friend the Member for St. Albans (Anne Main) made a telling intervention. She contrasted the different approach to the management of commercial and residential empty property and considered when action was taken to penalise people who allowed property to remain empty for some time. The Minister, in one of his many sedentary interventions, indicated that he would come back to the matter later in the debate. He is looking slightly perplexed because he was not listening. I hope that he is listening now. I was referring to the intervention by my hon. Friend the Member for St. Albans about the different treatment of commercial and residential empty property. My hon. Friend the Member for Bromley and Chislehurst (Robert Neill), despite his confessed aversion to algebra, made an important contribution about the impact of the Bill. Clearly, it did not stand in the way of his looking at the impact of the measure on his constituency. He talked about the two economies in London—the City and west end, and the suburbs, one of which he represents, and London boroughs. It is worth reflecting on the argument about the benefit to the south-east and high-demand areas. I am not sure that I understand the Government’s logic. In my constituency and the neighbouring areas in south Hampshire we have a lot of economic activity; it is a vibrant area economically. We have a low rate of vacancy. The Library provided figures in the research paper about vacant properties. The vacancy rate in the City of London, which has been mentioned a couple of times as a sign of overheating, was only 8 per cent. in 1998-99. It only grew significantly—to 16 per cent.—in 2004-05, so there is no consistent pattern of high vacancies. My role in the shadow Treasury team includes responsibility for regulation and taxation of the financial services sector so I spend much time talking to people in the City and I know it well. The growth of the financial sector in recent years has led developers to build speculatively in anticipation of demand for business property in the City. That is not a sign of overheating; it is a normal commercial reaction. People are developing property to accommodate growth in demand for high quality office space in the City, so I am wary when the Government want to use vacancy rates, which actually fluctuate significantly from year to year, as an argument for the effectiveness of their proposals. The hon. Member for Blaenau Gwent (Mr. Davies) made an important point about how long property remains empty in his area. I am not sure that the Bill would help his constituency or promote occupancy of some of the premises in his area that have been empty for so long. There have been high vacancy rates, on a sustained basis, in some London boroughs for the past seven or eight years. Hackney was mentioned; the vacancy rate there was about 30 per cent. in 1998-99 and is now 28 per cent. There was a dip for part of the period, so the figure did not remain constant. In Newham, vacancy rates remained static and at a high level, so I am slightly sceptical about the benefits the Government think the measure will bring in terms of the occupancy of empty property. Praying in aid property hot spots such as the City does not strengthen their argument. My hon. Friend the Member for Bromley and Chislehurst highlighted the fact that the tax increase will raise about £0.9 billion, which will not be recycled to local authorities. The money will stick with the Treasury and be used in different ways, but it will not be returned to the local authorities whose local property market will change as a consequence of the measure. My hon. Friend the Member for Ludlow spoke not only from his constituency experience but also from his business experience in retail. He made some important comments about the state of the property market and how letting voids can occur in small provincial high streets. As he said, it is a complex sector yet the Government propose a one-size-fits-all policy for every high street and every industrial park in every constituency and the effects will differ depending on what is happening in the market in each of those constituencies. That makes it hard to argue with the certainty expressed by the Government that the measure will suddenly produce lower property rents and enhance economic activity in our constituencies. That will not necessarily be the case. My hon. Friend mentioned the caveat to the Federation of Small Businesses argument. The Government have prayed in aid the FSB in this debate and elsewhere, but it recognises not only the possible benefits but also the possible costs of the measure to small businesses, demonstrating yet again that the measure and its impact are not straightforward. That is part of the problem with the proposal. As hon. Members on both sides of the House have indicated in speeches or interventions, there is going to be a differential impact that will not to be easy to predict. Prior to introducing the measure, the Government should have consulted much more with those involved in the property market to work through the impact fully, rather than looking at things in a somewhat piecemeal way. At the heart of the measure is the fact that it raises £900 million in tax. The fact that the debate was opened by a Treasury Minister, for the second time, indicates that the fundamental driver of the measure was to raise additional money to sort out some of the Chancellor’s financial problems at the time of the Budget. The Barker and Lyons reports were a convenient fig leaf to justify the increase. The Financial Secretary prayed in aid the Lyons report, but, as my hon. Friend the Member for Ludlow and others have highlighted, the Lyons report suggested that the proposals could be introduced in 2010, not the next financial year. This year, the property sector has seen not just a change in the relief for empty property, but the start of the abolition of the industrial buildings allowance and the agricultural buildings allowance, which we have debated in the Finance Bill Committee over the last few weeks. Those are significant tax changes that will impact on the way in which the sector operates. [Interruption.] The Financial Secretary said from a sedentary position that he referred to the example of real estate investment trusts. We seem to have one set of measures that move in one direction and another set that go in another direction. There is a lack of consistency when it comes to the direction that the Government are taking on the matter. The Government have argued that changing the empty property relief will bring forward new commercial property for rent, which will reduce rental levels. However, the detail in the regulatory impact assessment indicates that the fall in rental would be about 0.25 to 0.5 of 1 per cent. That would be insufficient to tackle the international differences, the inter and intra-regional differences, and the intra-city disparities that have been cited by Ministers over the course of the debate. When the Economic Secretary opened the debate on the Ways and Means resolution, he cited the difference in property rentals in different locations in Newcastle—a city with which I am familiar and that I visit regularly. He said that there was a big difference in the rent between Eldon square and Lower Grainger street. If the Economic Secretary, or any other Minister, visited those two centres, they would see exactly why there is a big difference in rent. It is nothing to do with the level of empty property; it is because one area is a major shopping centre—a destination for people across the north-east to visit—and one is not. To a large extent, simple market forces dictate why those rents differ. I cannot see how the changes that the Government have brought forward will reduce significantly the disparities in the rents in those locations. So, what are the arguments against the measure? It is worth reflecting that the weight of opinion seems to be critical. The British Property Federation and the Royal Institution of Chartered Surveyors highlighted the impact that the measure would have on the viability of regeneration schemes—a point that was also made eloquently by the hon. Member for Stoke-on-Trent, North. There is a possibility that buildings will remain empty and that the costs that people will incur as a result of the measure will dissuade them from putting together development packages and will make it less attractive for them to regenerate areas. The Financial Secretary mentioned in his opening remarks the business premises renovation allowance—he also cited other measures, such as ones to tackle Japanese knotweed. It is interesting that the British Property Federation said that the allowance"““will not, in our view be sufficient to redress this concern as it will only apply to specific areas.””" Even if we rely on the Minister’s stand-by of the package of measures, given that the package will not apply throughout the country, there will be differential effects. Insufficient might be done to make schemes in the constituency of the hon. Member for Stoke-on-Trent, North financially viable. My hon. Friend the Member for Ludlow touched on the fact that we are going through a process of economic change. The way in which people manage their property portfolios is affected by changes to the economy. As the economy expands and contracts, the nature of activity changes. My hon. Friend cited the fact that in retail there is a move away from bricks and mortar towards the internet, which will have an impact on people’s decisions about what to do with their premises. If people with expanding businesses think that moving to larger premises will cause them to incur a higher cost because the old premises will remain empty for a long time, it might inhibit them from adjusting their operations and taking advantage of opportunities. The measure might discourage landlords from accepting lease surrenders because they would prefer the occupier to pay the cost of an empty property. Again, that would have an impact on businesses of different sizes throughout the country. There is a general move towards more flexible leases and attempts are being made to promote better relationships between landlords and tenants. However, if the period for which a property may be empty is reduced, landlords will not be keen to grant short leases or regular break periods because they will want to protect themselves against additional costs. Both the British Property Federation and RICS have expressed that concern in their briefings on the Bill. The comments made in the Chamber and elsewhere have given me the loud and clear message that the measure has been introduced without proper consultation on its impact on the complex relationships between landlords and tenants, and business sectors and communities. The Government are yet again acting in haste and making decisions on complex matters that will need revisiting. In the time since our debate on the Ways and Means resolution, there have been changes to the treatment of property that could be vandalised, which the Government have reflected in the Bill. The Government should have paused and thought more carefully before introducing the measure. Let me cite again the British Property Federation:"““A proper consultation with industry would allow a reform of business rates on empty property based on how the property markets actually work, rather than measures based on very limited evidence, including certain well publicised behaviour that has in the past occurred at the margins. It is for this reason that the principal recommendation of the combined industry group is that the proposals are deferred until 2009 in order to allow this consultation to be undertaken””." The Treasury has not always a demonstrated a clear understanding of the way in which property markets work. The Government have already made several U-turns on property measures. Residential property was going to be in the SIPPs scheme—self-investment personal pensions—but was then taken out. Stamp duty was reintroduced for commercial property in disadvantaged areas because the Government misjudged the take-up of the relief. As the speeches made by hon. Members on both sides of the House have demonstrated, the Government need to think through the impact of the Bill very carefully. When we consider the Bill’s remaining stages next Thursday, we will have yet another opportunity to air these issues. The Government will be able to demonstrate whether they have listened to the wise words spoken not only in the House, but outside it.