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Rates (North Yorkshire)

Volume 173: debated on Thursday 7 June 1990

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Motion made, and Question proposed, That this House do now adjourn. [Mr. Chapman.]

12.3 am

My starting point in this brief debate is to ask my hon. Friend the Under-Secretary of State for the Environment, the hon. Member for Southampton, Itchen (Mr. Chope), to recognise that, prima facie, there is something odd about the revaluation in North Yorkshire. The top 20 rating authorities, in terms of boosts shown in rateable values for the whole of England and Wales, contain no fewer than five such authorities—one quarter of the total—from just one county, North Yorkshire. Of the other 15 high fliers, 14 are in the south or west of England. It would be easier to be reconciled to these five northern high fliers if they were a north of England phenomenon as a whole. But they are not. They are a unique North Yorkshire phenomenon.

Go a bit further north—Darlington, Middlesbrough, Gateshead—and one immediately finds that the revaluation increases are half those in North Yorkshire. Go a bit further south—Leicester and Derby, for example,—and one finds the same: revaluations among the lowest in England and Wales, and half those in North Yorkshire. It really will not do to say that the Selby revaluation, for example, started from a very low base. Lower than Gateshead and Middlesbrough, or Leicester? I doubt it.

The kind of North Yorkshire revaluation boosts I am complaining about can be vividly illustrated. The most striking example comes from a small engineering business—literally a cottage industry—in the village of Bishopsthorpe, near York. One of this business's separately rated premises, a unit of 114 sq m—say the size of four lock-up garages—has undergone a revaluation from a figure of £43 in 1973 to £6,750 in the latest list. Have rents in Main street, Bishopsthorpe, for tiny business premises of this kind, really been driven up by some unimaginable, maniacal competition of frantic entrepreneurs, by 157 times what they were in 1973? It seems inherently unlikely and implausible.

Another bad case comes from Selby town itself, where a butcher with a back-street premises, not a prime town site, has found his 1973 rateable value of £236 boosted to £5,500. To make matters worse, the same butcher has two shops in Selby, and the other one has undergone an increase from a higher original figure—£245—to a new lower figure of £2,500.

I am grateful to my right hon. Friend for giving way for just a moment in this important debate. Does he accept that part of the problem is that the Labour party undertook to carry out a revaluation five years later and fudged it? I am sorry that no Labour Members are present. The problem stems from the original point that Labour should have carried out a revaluation five years later, but did not. The family businesses to which my right hon. Friend has referred in his constituency and those in my constituency of York, adjoining my right hon. Friend's constituency, could, like those in Ryedale, benefit enormously from the suggestion that I have already made to my hon. Friend the Minister, whereby family businesses could pay at a lower rate based on corporation tax, as already exists.

I fully accept my hon. Friend's point. The revaluation and the long delay are Labour responsibilities and are at the root of the problem. It is a good thing that all parties are now agreed that the revaluation should have taken place.

If North Yorkshire revaluations are so uniformly and uniquely high in the north of England, how come one can get such inexplicable variations for similar premises in such a tiny urban compass as the town of Selby as in the case of the two butcher's shops that I have just described? The chief executive of the Selby district council has supplied me with a list of 57 business premises in and around Selby where the multiplier is 25 times the 1973 rateable value.

I am bound to tell my hon. Friend the Minister that these atypical boosts in rateable value are a very serious matter in the Selby district and in north Yorkshire generally. One reason for which rents may have risen in the district and the county is that rates in earlier days were low—thanks to frugal Conservative authorities. Rents therefore tended to rise, because there was, as it were, some cost-slack in the overall economics of businesses, thanks to low rates. But now the valuation officer comes along and builds a new, far higher ratable value on those inflated rental figures—piling Pelion on Ossa, to use the classical phrase—as it were. The only way in which this vicious circle can be broken is for the trader to go out of business, and for rents to adjust downwards. But the newcomer to a tenancy, of course, gets no transitional relief. So we seem in North Yorkshire, uniquely in the north of England, literally to have fashioned an engine of economic depression by the revaluation, ironically so beneficial in Yorkshire and Humberside as a whole.

I should add that my hon. Friends the Members for Ryedale (Mr. Greenway), for Scarborough (Sir M. Shaw), for Harrogate (Mr. Banks) and for York (Mr. Gregory), who just intervened, as well as my hon. Friend the Member for Richmond, Yorks (Mr. Hague) all corroborate what I am saying. Indeed, they have all helped me to prepare my case by giving examples from their constituencies. I make the case for them as well as for myself. I should also add that the chairman of the Selby and district chamber of trade, Mr. J. D. Lofthouse, has told me that, since the new business rates became known in the Selby district, 140 businesses in the district have either closed or transferred or are on the market.

There is one particularly vulnerable group in the Selby district, and more widely in North Yorkshire. I refer to small business premises, particularly those where the proprietor lives "over the shop", and has a rates liability apportioned between community charge and business rate. Many of these small businesses, as my hon. Friend knows, survive on low turnover and small profit margins by dint of long hours and unremitting service. They are a section of the commercial world which the Government have singled out by all sorts of initiatives and incentives in the small business field, to support and encourage. But the North Yorkshire revaluation is having precisely the opposite effect: it is depressing them. I single out in particular the small corner shop and the sub-post office.

The National Federation of Sub-Postmasters has been kind enough to furnish me, from its Yorkshire office, with some samples of complaints and representations that it has received from North Yorkshire members about the new valuation lists. From a bundle of about 30 such letters that I have seen and that I have here, no fewer than 11 refer to the possibility or likelihood of their packing the job in, and going out of business.

The Appleton Roebuck sub-post office, for example, finds that its ratable value has risen from £51 to £1,600, an increase of over 30 times. Have rents really risen 30 times in this small village since 1973? Another example—from Scarborough—shows a ratable value increase of similar proportions, from £157, for a small village post office, to £3,250. Many similar cases can be cited. And my hon. Friend will know that the special vulnerability of sub-post offices is that they cannot simply raise prices to defray costs. They labour under the fixed price regime of the Post Office tariff. No wonder many are contemplating closure.

Against that background, I urge my hon. Friend to consider four points and courses of action. First, he should double-check with the York valuation office that it has got things right. To err, after all, is human; to correct is a ministerial prerogative. I urge my hon. Friend officially to encourage small businesses in North Yorkshire to appeal, and to encourage the York valuation office to go out and meet the appellants halfway and more than halfway.

Secondly, I draw my hon. Friend's attention to section 49 of the Local Government Finance Act 1988, which provides for local authorities to reduce, or remit entirely, the uniform business rate, where hardship is threatened. I hope that my hon. Friend can confirm that that provision is there precisely to temper the wind to such businesses as struggling sub-post offices and village corner shops and that he will today explicitly encourage local authorities to make generous use of those powers.

Thirdly, I hope that my hon. Friend can confirm that transitional relief, welcome and essential as it is for businesses in the Selby district and in North Yorkshire, is set for a long innings on the statute book, and not just for the next four years until the 1995 revaluation.

Will my hon. Friend consider whether some fundamental exemption provision under the uniform business rate might not be desirable and feasible for smaller businesses, akin to the exemption provided to smaller businesses in relation to VAT? There is no rationality in providing admirable small business incentives and exemptions, as with VAT, with the right hand if the left hand promptly takes them all away through rating.

This debate has not been a criticism of the uniform business rate itself, or of the recent revaluation associated with it. I have already observed that that has been endorsed by all parties in the House. The uniform business rate and the revaluation have been substantially beneficial to Yorkshire and Humberside. No, my complaint and that of my hon. Friends is about the quirks and anomalies of the revaluation uniquely to North Yorkshire. It is that to which I hope my hon. Friend will apply his mind.

12.16 am

Does the hon. Gentleman have the agreement of the right hon. Member for Selby (Mr. Alison) and the Minister?

The Parliamentary Under-Secretary of State for the Environment
(Mr. Christopher Chope)

indicated assent.

I congratulate my right hon. Friend the Member for Selby (Mr. Alison) on securing the debate. I am grateful to him for allowing me to endorse briefly some of the points that he has raised.

Ryedale is one of the five North Yorkshire districts to which my right hon. Friend referred. He mentioned the district valuer in York; I should like to pay tribute to him for the co-operation he has shown in meeting traders from my constituency. I know that that is also true of my colleagues in neighbouring constituencies.

One statistic concerns me and goes to the heart of the problem. The district valuer, on his own admission, expects that, of the 15,000 or so business premises in his valuation area, no fewer than 10,000 will appeal. Such is the scale of the problem.

Many of the examples that my right hon. Friend cited are equally prevalent in my constituency. An increase of three or four times above the present level of rates is all too commonplace, and many small shops have been badly affected.

The Minister should please, please think again about phasing the transitional arrangements beyond five years. An early announcement about that could help confidence in small businesses a great deal. Will the Minister also look carefully at the arrangements for small village shops, especially sub-post offices to which my right hon. Friend drew attention, where people live on the premises? Many such shops consist of one room in the house and we should re-examine the de minimis provisions to ensure that the shops that we are trying to support in every other way are not put out of business. The amount gained from such small businesses represents a small contribution to the overall business rate fund, but it is crucial to those businesses.

Can my hon. Friend also assure us that there will be a review of the valuation in North Yorkshire if the early appeals suggest that the tone of rent has been misjudged? Will he also recognise that many owner-occupiers face ratable values that are based on rental values that no small business could possibly hope to afford were they expected to pay them? Will he also consider allowing the transitional relief to be available to the new owner of a business? That should be done on the property basis and not just on the owner basis.

We are the party of small business and are proud to be so, but many of our most loyal supporters are beginning to doubt it. They need strong reassurances that they have not misjudged the situation.

12.20 am

The Parliamentary Under-Secretary of State for the Environment
(Mr. Christopher Chope)

I am grateful to my right hon. Friend the Member for Selby (Mr. Alison) and to my hon. Friend the Member for Ryedale (Mr. Greenway) for giving me the opportunity to respond to what I know are long-standing and real concerns about the effects of the new business rating system, and particularly the revaluation, in North Yorkshire. I hope that I shall be able to allay some of those concerns.

As my right hon. Friend recognises, the key factor for businesses in North Yorkshire has been the revaluation of properties on the basis of rental values at 1 April 1988. Indeed, the increases for businesses in all districts except York are entirely attributable to that revaluation; locally set poundages in those districts in 1989–90 were between 3 per cent. and 9·5 per cent. above the national average. In York itself, where the locally set poundage in 1989–90 was just I per cent. below the national average, the revaluation accounts for all but the smallest part of any increase.

With the retention of non-domestic rates, ratable values had to be kept up to date. That was why the revaluation was carried out. It had, as my right hon. Friend recognises, widespread and all-party agreement. It was indefensible that businesses were still being taxed on 1973 property values as recently as March of this year, 17 years after the base date for that valuation. To continue to ignore changing circumstances would have been to expect businesses in the less prosperous regions to go on subsidising indefinitely those in more buoyant areas.

Given the lapse of time since the last revaluation, it is inevitable that there are some large increases in ratable values, as well as large reductions. I know that my right hon. Friend accepts that that is the natural consequence of the extent to which market rents rose between 1973 and 1988, but I understand his concern that the percentage increase in values in North Yorkshire has been greater than elsewhere. I believe, however, that there is a clear explanation for that.

While it is true that all the local authority areas in North Yorkshire have above average revaluation factors for most property types, especially for shops, it is equally true that they start from a very low base because, relative to other parts of the country, non-domestic ratable values in the area in the 1973 valuation list were low. I can best illustrate that with some examples.

In Selby, for example, although shops throughout the district have an average revaluation factor of 13·9 compared with the national average of 9·5, the average new ratable value is still only £6,777, which is 53 per cent. of the national average of £12,762. I understand that, in the town of Selby itself, the revaluation factor for shops is only just above the national average. The same point can be made about offices and warehouses in the district.

A similar picture emerges if one looks at the other districts in North Yorkshire, with the exception of York, which has both a high revaluation factor and high average ratable values, attributable to the considerable rise in open market rent levels in that city since 1973.

Taking North Yorkshire as a whole, despite an average revaluation factor for all properties of 12·1, compared with the national average of 8·1, the average new ratable value of £10,978 is only 60 per cent. of the national average of £18,081—lower than the shire county average of £15,011, lower than the Yorkshire and Humberside regional average of £11,826, and lower than the average for 27 of the 38 other shire county areas.

My right hon. Friend expressed doubts about whether the ratable value base in North Yorkshire in 1973 was lower than that of Gateshead and Middlesbrough or Leicester. Most definitely that was the case. The average ratable value for business premises in North Yorkshire in 1973 was just over £900, whereas the equivalent figures for Gateshead, Middlesbrough and Leicester were around £1,600, £1,850 and £1,975 respectively. What has happened since is that rental values, and hence ratable values, have risen more than average in North Yorkshire and by significantly less in the areas that my right hon. Friend mentioned.

My right hon. Friend has also highlighted a number of cases in his constituency where rates have risen significantly. There is not time to go into all the cases, so I shall deal with the first one mentioned by my right hon. Friend—the small engineering business in Bishopsthorpe. My right hon. Friend said that they appeared to have experienced an increase in ratable value of 157 times. As I understand it, that is not the case, because the base from which the value has risen to £6,750 is more properly £388. The figure of £43 mentioned by my right hon. Friend is attributable to only a part of the premises prior to a merger which produced the property that was subsequently revalued. That illustrates the difficulty of taking individual cases and using them as a basis for saying that there has been a dramatic increase. Obviously, there has been a substantial increase, but it has been nothing like the increase of 157 times that my right hon. Friend's figures indicate.

The increase that has taken place means that the rate liability has gone up from about £1,050 in 1989–90 to £2,350. However, with transition, this year's bill will be only about £1,300—an increase of about £250 in the first year. While I do not deny that the property is facing a significant increase as a result of the revaluation, the picture is not quite as black as my right hon. Friend has painted. Threfore, I hope that he will agree that, in relative terms, businesses in North Yorkshire, with the understandable exception of York, do not face as great a burden as he had feared.

While I cannot, of course, say that no individual ratable value will be found to be excessive, I can assure my right hon. Friend that there is no reason to believe that values generally are incorrect. He also asks me to encourage small businesses to appeal against their ratable values and to encourage the district valuer at York to meet them halfway, or, indeed, more than halfway. In view of what I have just said, I know that he will not expect me to advocate a wholesale challenge to rating lists in North Yorkshire.

I understand, however, that the district valuer at York has already had meetings with the Greater York chamber of trade, the Selby small businesses association and the Selby chamber of trade—a meeting which my right hon. Friend attended. As we have heard in the debate, there has also been a meeting in the Palace of Westminster to discuss the revaluation with my right hon. Friend and some of our hon. Friends. I know that the district valuer is happy to continue to meet district associations. However, if ratepayers remain convinced that their new ratable value is unfair, they may propose to the district valuer before 1 October this year that it be altered. If the district valuer does not accept the proposal, it will be transferred to the local valuation and community charge tribunal as an appeal. They should do this rather than seek to pursue their case informally with the district valuer in order to protect their right to have the matter decided by a VCCT if agreement cannot be reached.

Although rates have gone up for most businesses in Selby and elsewhere in North Yorkshire, we have to take into account the transitional arrangements. The whole purpose of those arrangements was to ensure that the impact of the new bills did not have to be faced overnight. The arrangements phase in the higher increases and I know that the details of the phasing arrangements are familiar. The small business transition scheme will benefit between 77 and 87 per cent. of business premises in the county, with the exception of York, where 65 per cent. will benefit. That shows that a high percentage of businesses in York and North Yorkshire will benefit from the transitional arrangements which, at 15 per cent. in real terms, affect smaller businesses.

These arrangements will last for a least five years, and we have powers to extend them beyond 1995. I remind hon. Members that my right hon. Friend the Secretary of State for the Environment told the House on 25 April that the Government would be
"prepared to extend the transitional period if, after the next revaluation, small businesses face a steep increase on top of the 15 per cent. tranches of increase that will have occurred in the intervening period."—[Official Report, 25 April 1990; Vol. 171, c. 359.]
My right hon. Friend has argued that, between 1973 and 1990, rent levels reflected lower rates in North Yorkshire, but he is concerned that increased rates will not result in lower rents. He is right to make the connection but he should not worry that the link will suddenly be broken. Any property expert could confirm that there is an inverse relationship between rent and rates, because businesses usually take a view of the overall occupancy costs that they can afford; so if rates rise, this will exert downward pressure on rents. This does not necessarily mean that rents will fall, but they are certainly likely to increase less than would otherwise have been the case. This should help even businesses with leases containing upward-only rent reviews, because it would moderate the rent increases which they would otherwise face.

Lower rental levels in comparative terms should feed through to produce lower ratable values at the 1995 revaluation. The result may be that many of the bigger increases emerging from the revaluation will never, in practice, take effect. I know that that will be consolation to the businesses affected.

My right hon. Friend has asked me to encourage local authorities to make generous use of their powers to reduce or remit rates on grounds of hardship. I can certainly confirm that such powers could be used to protect businesses such as sub-post offices and village shops from closure, but local authorities alone can make decisions of this sort, and they are required by law, before doing so, to have regard to the interests of their community charge payers.

The purpose of the uniform business rate and the non-domestic revaluation is to remove distortions in the competitive position of business caused by widely varying rate poundages and the long delay since the last revaluation. The aim has been to redistribute the burden of business rates more fairly, not to increase it in real terms. To achieve this we have set the uniform business rate for 1990–91 at a level of 34·8p, which will ensure that we raise broadly the same amount of rates in real terms from private businesses and the nationalised industries as a whole as in 1989–90.

Under the new system, all businesses will benefit from the assurance, written into statute, that the rate poundage cannot rise each year by more than the rate of inflation, and may rise by less. This compares with the old system by which, between 1979–80 and 1989–90, non-domestic rate poundages rose by around 37 per cent. more than inflation nationally and by between 34 per cent. and 45 per cent. more than inflation in North Yorkshire. This cannot happen in future and all businesses are getting a good long-term deal from the new system, since they are now protected from real increases in the cost of local authority services. These will now fall on the community charge payer, to whom authorities are accountable through the ballot box, or to the Exchequer.

We estimate that, if the old system had been in place this year, in the light of the local authorities' spending decisions, there would have been an additional burden on businesses of about £1 billion. That is the extent of the savings from which businesses will be able to benefit in the first year of the new arrangements.

I hope that I have been able to allay some of my right hon. Friend's concerns.

Question put and agreed to.

Adjourned accordingly at twenty-eight minutes to One o'clock.