Non-Domestic Rating (Chargeable Amounts) (England) Regulations 2009

My Lords, I thank all noble Lords who have contributed to this debate. I think that we had a qualified welcome, a reluctant acceptance and a qualified comment on the proposals. A lot of questions were asked, each of which I shall try to answer. The noble Earl, Lord Cathcart, asked about the timing of the consultation paper. I am aware of concerns that the consultation period for the transitional arrangements finished before actual rateable values were published at the end of September. However, we are required by statute to ensure that these regulations are in force by 1 January. Even on the timetable we follow, it was extremely difficult to secure this debate before the House rose. Therefore, extending the consultation period would not have allowed us sufficient time to make these regulations, and that could have meant that billing authorities and their software providers did not have sufficient time to calculate rates bills before next April. Ultimately, this could have meant that ratepayers would not have received the transitional relief they need and deserve. Nevertheless, we released information on the revaluation at a regional and sectoral level in the summer—more information than has ever been released previously at that time in the revaluation cycle. We believe that this allowed ratepayers to respond to our consultation exercise. The noble Earl referred to these being exceptional times and asked about help for the 700,000 businesses facing an increase. We are putting in place exceptional measures to help businesses with the revaluation. The transitional relief scheme provides more than £2 billion of relief to 467,000 ratepayers to cap and to phase in rises, and it extends this protection for longer—for five years instead of four. I reiterate that no small property will see more than a 5 per cent increase next year, before inflation, because of the revaluation benefiting 366,000 small properties which, on average, will receive £1,000 per property over the five years. After inflation—the difference between the figures we are talking about is because of negative inflation from the base—the maximum increase for small properties will be only 3.5 per cent and 60 per cent of ratepayers, more than 1 million in total, will see their bills fall because of the revaluation The Government’s preferred option for transitional relief proposes that the increase for large properties would be capped at 11 per cent after inflation. We have also increased the thresholds for rate relief with effect from April 2010. We have given a range of other support measures to businesses: we have deferred tax payments, there is an additional £1.3 billion of lending for small and medium-sized businesses and a working capital guarantee for businesses. There is assistance for the automotive industry, health checks for businesses to help them ride out the downturn and prompt payment codes. There is a great deal of support quite apart from these transitional relief provisions. The noble Earl said that local government settlements show that the Government are increasing revenue from the revaluation. That is absolutely not the case. The distributable amount shown in the local government settlement is not the amount of business rates collected from business in any one year but the amount estimated to be available for redistribution to local authorities as part of formula grant. A change in the distributable amount has no effect on the rates bills paid by businesses. Over the five years of the new revaluation list, the revaluation does not raise any extra money. I stress that. Initially we would have collected 1.5 per cent more in 2010-11, but this would then be reduced in later years because of assumed appeals that arise in the system. Once all appeals have been settled, we would expect the amount collected in respect of 2010-11 to be less than that in 2009-10. The noble Earl referred to the extent to which rates have gone up since 2005. While revaluations do not raise any extra revenue for the Government, the total amount paid in business rates can vary for other reasons. In particular, inflation can increase the multiplier and therefore the rates’ yield, and the RPI inflation between 2005 and recent times is generally between 3 per cent and 4 per cent. Furthermore, physical growth in the tax base—by which we mean extensions and new properties—will also increase the total paid in rates. These factors will contribute to the increase in rates paid since the 2005 revaluation. However, for those properties whose rateable value has not changed since 2005, the ratepayers know that their rates bill before reliefs will not change beyond inflation. As to why we have not done an impact assessment, the five-yearly revaluations are required by statute and have been a regular part of the rating system since 1990. They maintain fairness by ensuring that rateable values are based on up-to-date information and, as no decisions were required to proceed with revaluation in 2010, no formal impact assessment has been prepared. However, an impact assessment on the transitional arrangements was available from July of this year and contained a great deal of information on revaluation in 2010. From 1 October, ratepayers have been able to put their new rateable values into the excellent business rates calculator on the Business Link website to see the impact of the revaluation on their property. A great deal of information is available to ratepayers and the wider rating profession on the impact of the 2010 revaluation. The noble Earl raised the issue of empty property rates. The Government stand by their decision to reform empty property rate relief. A £1.3 billion subsidy to owners of empty commercial properties is no longer justified. The reforms to empty property rate relief introduced from 1 April 2008 are principled and right for the long term. Charging rates beyond the initial rate-free period when properties stand empty increases the incentive to re-let and to reuse empty property. However, the Government have listened to concerns expressed by property owners. PBR 2008 therefore announced that for 2009-10, the year that we are just about to exit, all empty properties with rateable values up to £15,000 will be eligible for full relief. That has been extended for a further year for properties up to £18,000 rateable value in PBR 2009. It is estimated that up to 70 per cent of properties are rated under that threshold and, if empty, will pay no rates in 2009-10. Introducing relief for all empty property would be costly and not well targeted. The noble Earl referred to certain types of properties—petrol stations, in particular. I say again that revaluation does not raise any extra revenue, it simply ensures that each business pays its fair contribution and no more. Ratings for all properties, including petrol stations, are based on rental value. In the past five years, alongside rising petrol prices, the profitability and turnover of many petrol filling stations has grown significantly. It is only fair to all ratepayers that that is reflected in rates bills. Rental values for petrol filling stations are determined by the market according to the trading potential of the individual site. That is regardless of whether they are independent or part of one of the multinational chains. As I said, the majority of businesses—60 per cent—will see their overall rates liability decrease because of the revaluation. The noble Earl asked why we are doing this now. Regular revaluations are important, as they maintain fairness in the rating system and keep bills up to date, which is necessary as relative property values change over time. Postponing revaluation would hit hard those businesses which most need our help, such as businesses in the Midlands and in industry, whose relative property value has fallen since the last revaluation and which therefore should pay less in rates. The noble Earl concentrated on those businesses facing increases, but if we were to do as he urged, many businesses would miss out on a reduction. Businesses facing increases are in sectors and locations which have performed better than average since the last revaluation, such as inner London and such as supermarkets. It is only fair that they should pay a proportionately higher share of the total rates bill. In particular, I instance the fact that the revaluation was based at the height of the property market. It would have been wrong to delay or postpone revaluation, as to do so would, as I said, deprive the majority of business properties—1 million in total—of a deserved reduction in their rate bills. The high property market of April 2008 does not mean higher bills or more money collected by government nationally in aggregate, because rateable values, as we have discussed, are only one part of the rates bill; the other is the ratings multiplier—which, as I recall it, used to be called the rate poundage—which is applied to calculate final bills. The noble Lord, Lord Tope, who gave the regulations a qualified welcome, instanced issues concerning software. We are not aware of any software problems connected with the revaluation. As I said in my opening presentation, we do not expect any delays. If the noble Lord has more information that he would like to share with us, I am happy to have a discussion outside the Committee, or we could correspond on the matter. The noble Lord and the noble Baroness, Lady Valentine, talked in particular about London. Of course, London is a key player in our economy, with the highest concentration of business properties, particularly in inner London and the City of Westminster. It has seen the highest economic growth of any region in the UK, and it is only right that it makes a proportionate contribution through business rates. Nevertheless, nearly 45 per cent of businesses in London—124,600—will see their rate liability fall as a result of revaluation. Small shops are expected to be winners, and could see rate bills fall by 3 per cent on average in 2010-11, an overall reduction of £6.5 million. Furthermore, more than 55 per cent of business properties in outer boroughs in the capital will see their rate bills fall next year by an average of £950 as a result of revaluation. We estimate that 16 London boroughs in total will see their total rates liability fall due to the revaluation and transitional relief. For those ratepayers facing increases, London will benefit more than anywhere else in the country from the transitional relief scheme to help with future business rate liability. While London is expected to see a 10 per cent increase, the transitional relief scheme would see this reduced to 3 per cent in 2010-11. In total, 466,000 ratepayers will benefit from transitional relief, of whom 112,000 are in London—some 24 per cent. Over five years the transitional relief will be worth £2 billion. Of that, £934 million would go to London. The noble Lord, Lord Tope, asked about London’s so-called "double whammy". The business rate supplements provide a new tool for local authorities to invest for the longer-term economic development of their area. The GLA and the Mayor of London have just finished consulting on proposals to levy a BRS as part of the funding arrangements for Crossrail, as I am sure the noble Lord is aware. Under these proposals, properties with a rateable value of £50,000 or less would be exempt from the supplement, which would mean that more than 80 per cent of properties in London would not have to pay the supplement. The Mayor of London also has discretion to set a higher threshold exempting additional properties. Furthermore, London will benefit more than anywhere else in the country from the transitional relief scheme, as I said a moment ago. The noble Lord asked for confirmation that the transitional relief scheme does not apply to the business rate supplement. He is right: the transitional relief is designed to limit and phase in significant increases in business rate liability resulting from the regular five-yearly revaluation of business rates. The majority of business properties, 60 per cent, will see their rates liability fall as a result of that revaluation. Transitional relief is a national scheme that is funded by other business ratepayers. Extending it to the BRS would mean that ratepayers in parts of the country where rateable values have gone down as a result of the revaluation could be asked to contribute to relief on an increase that did not result from revaluation but was instead the result of a local BRS that had not been levied in their area and therefore would not bring any benefit to them. I hope that that has covered each of the points raised. The noble Baroness asked what the levels of potential increase were. The 12.5 per cent is before inflation; it becomes 11 per cent after inflation. The 5 per cent is before inflation and becomes 3.5 per cent after inflation because of the 1.4 per cent reduction.