It is a pleasure to serve under your chairmanship, Mr Caton. I am grateful to my hon. Friend the Member for Rochdale (Simon Danczuk) for securing this debate, and I welcome to the Front Bench my neighbour, the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Great Yarmouth (Brandon Lewis).
I welcome the debate, as this is an opportune time to review the future of business rates. Business rates are attractive to the Treasury and always have been, no matter which party has been in Government. They are easy to collect, difficult to avoid and highly productive, representing 5% of the UK’s tax bill. However, there is
concern that the Treasury’s over-reliance on business rates is having unintended consequences. First, it is hitting high streets particularly hard, contributing to the large number of vacant units. Secondly, it is holding back economic growth, as the retail sector in particular is an important engine of the economy. Thirdly, it hits hard businesses that are property-reliant and must be in a specific high-value location. Many profitable internet-based businesses that are less property-intensive are not penalised to the same extent.
I am not an expert on the subject of business rates, but I do have an interest in the subject: before I came here, I was a chartered surveyor for 27 years. I dabbled occasionally in business rates, but it is a very specialist subject. I am interested in playing a small role in encouraging the renaissance in the high street, and I commend the Government for the work they have done in that respect. Lowestoft, in my constituency, is a Portas pilot, and the town team is setting about its work with relish. It is important that we in this place provide the framework through which its work can come to fruition.
I shall concentrate on the retail sector, which pays a significant portion of all business rates—more than a quarter, at 28%. On average, 14.6% of retail units in our high streets are vacant. That is due to a variety of factors: the growth in out-of-town retail parks, the rise of online shopping, falling consumer demand and high business rates. In some cases, the business rates are higher than the rent. Often, a retailer is interested in a particular unit; the rent looks okay, and he is working things out, and then suddenly he is hit with how much the rates will be. Mary Portas has said that high rates are a deterrent to investment in town centres and to retailers occupying shops.
To be fair to the Government, they recognise the vulnerability of small businesses to high rates. There is a small business rate relief scheme, a business rate deferral scheme and discretionary rate relief. The problem is that those schemes have had a limited impact and are of limited benefit to many small retailers. As was mentioned, the retail sector is the UK’s biggest private sector employer. It provides crucial first jobs to approximately 1 million 16 to 24-year-olds. There is real concern that another hike in rates will lead to fewer chances of work, less investment in the fabric of our town centres, which are so important to the country as a whole, and a more troubled high street.
Any decision to postpone the five-yearly revaluation review needs more consideration, scrutiny and consultation. I note that the British Chambers of Commerce was taken by surprise by that postponement. I hope that as the Growth and Infrastructure Bill progresses through Parliament, we have the opportunity to consider the matter in more detail. Any property tax requires frequent revaluations to ensure acceptability and fairness. The five-yearly reviews that have been in place for more than 20 years are well understood and provide a level of certainty. A break in that precedent creates an air of uncertainty—people will not know whether a review will take place.
It is also important to take into account that relative property values change over time. Relatively, rents in some sectors and locations will rise, while those in others will fall. It is important that the rating system has an in-built review system that reflects the dynamic nature of the property marketplace. We can then be
sure that the tax burden is spread fairly—that those with the broadest shoulders pay the most, and those whose business may not be as profitable at a particular time pay less. Liz Peace, the chief executive of the British Property Federation, sums it up well:
“A revaluation should shift the burden from those who are suffering to those who are prospering.”
With the proposed freeze, there is concern that those in lucrative locations will benefit and those in hard-hit areas will suffer.