Indeed. I have my misgivings about whether any approach to the reset procedure can make the system fair after more than a few years. Indeed, I am still to be convinced that the system can be reset in a fair and proper way. But, Mr Deputy Speaker, I digress beyond the scope of the amendments that I tabled.
Let me now turn to amendment 63. During earlier debates on the Bill in the Chamber, I argued that this was an unsuitable system for long-term Government funding. Ultimately, business rates yield is too volatile, and it is too volatile on a year-by-year basis. Let me give three examples, a couple of which will be close to home for those on both Front Benches.
In Warrington the business rates yield has dropped by £10 million over the last 10 years, from £53 million to just £43 million. In Sunderland there was a £17 million drop between 2010 and 2011, and in the year before that there had been a £12 million rise. I can tell the Under-Secretary of State for Communities and Local Government, the hon. Member for Bromley and Chislehurst (Robert Neill), that in the middle of 2005-06, the business rates income in his borough of Bromley halved. In two of the last four years, the changes—up and down, and up and down again—have amounted to more than 10%. The funding stream is inherently volatile, and, in my view, is inherently unsuitable as a basis for the funding of essential local government services.
The main purpose of amendment 63, however, is to draw attention to concern about the volatility caused by appeals. I believe that areas in which there is a particular concentration of a single or consistent business type are particularly vulnerable to a big impact from them. The hon. Member for Cities of London and Westminster (Mark Field), who has just left the Chamber, may recall that in 2007-08, a full 20% of the business rates yield of
the City of London was lost as a result of successful backdated appeals. So the appeals add another important, volatile element to the system of business rates.
Those appeals are made against decisions by the Valuation Office Agency, not local authorities. The system is managed by the VOA and tribunals, not the local authority, and it brings benefits to the companies that are successful, not the local authorities. We must ensure that the impacts of appeals do not affect the funding base of the local authorities; we must not expose authorities to vagaries in the system and to the impact of appeals, when they cannot predict them, control the risk of them or benefit from them. Actually, neither can they benefit from business rate increases through revaluation, at least while the Government put in place transition relief.
I tabled amendment 63 because the Government are creating a one-way bet, in which the Chancellor wins each way and the councils lose each time. If the appeals are won by the company, the local authority has to manage the volatility and has to bear the loss up to the level of the safety net threshold—which, according to the statement of intent in the Government’s publications of Thursday last week, is likely to be somewhere between 7.5% and 10%. Amendment 63 is an attempt to make sure that once the calculations and the thresholds are determined, safety net payments take full account of rating appeals. Linked to that, I hope the Government will accept the case for fully compensating local authorities from the levy pot for the impact of any successful business appeals—over which they have no control, and which they cannot predict.
New clause 11 is relatively modest, and I hope the Minister will accept it in principle, if not in practice at this stage. The power for setting and changing business rates policy—business rate reliefs, which are mandatory, as well as the payment schedules for business rates and the transition periods for business rate increases—will continue to rest with the Secretary of State and the national Government. Currently, any national business rate policy changes have no direct impact on local authority finances or local authority budgets. In future they will, however. They will not be local government decisions, but they will create consequences that local government will have to deal with. If the Government decide to change the rate or the type of mandatory rate reliefs, or to allow the deferral of part of the change in business rate bills, that will have a direct impact on that year’s yield in the area concerned, and therefore on the local authority’s funding. Local authorities will be hit by the consequences of decisions that they did not make and that they cannot control. That is unfair and unreasonable.
It may surprise some Members to learn that the Federation of Small Businesses has also made that argument. It said in response to the consultation of October 2011 that
“the FSB is concerned that the incentive system could actually deter local authorities from promoting and utilising the reliefs available to small businesses such as small business rate relief, rural rate relief and hardship relief…It would mean that a local authority would lose out on income if it increased the proportion of businesses that received rate relief or would make money if the number of businesses able to get reliefs fell.”
I am sure the Minister does not want to design into the new system perverse incentives that will hit small firms in that way.
As currently proposed, the new system will be bad for local authorities, and could be bad for local small and medium-sized firms. My new clause requires that, at the very least, the Secretary of State must consult the parties that would be affected by changes in national business rates policy before making such decisions. Under the new system, the stakes for councils will be higher, so the guarantee to consult them before any changes are made is the minimum that Ministers should promise.
8.15 pm