Order for Second Reading read.
I beg to move, That the Bill be now read a Second time.
This is a short, specific Bill, but it contains a reform with important economic, social and environmental merits. The basis for that reform is twofold: competitiveness for UK businesses and the economy and efficiency in our use of land. All right hon. and hon. Members with an interest in the future of the UK economy, the protection of our green spaces or the efficient use of previously developed land to provide for housing needs will want to support this important reform. I hope that there will be all-party support and consensus this afternoon.
I shall deal first with competitiveness. A series of recent reports by firms such as Jones Lang LaSalle, King Sturge and CB Richard Ellis have shown that the cost of property in the UK is high. Perhaps we should expect that to be the case in London, which is now the principal location for the financial services sector not just in Europe but worldwide. More strikingly and perhaps more surprisingly, the price of property—either industrial or for office firms—in cities such as Birmingham, Manchester, Leeds and Bristol is actually more expensive than in locations such as Manhattan, Madrid, Frankfurt and Singapore. Clearly, competitiveness in any modern global economy includes ensuring that incentives are properly aligned to offer good quality property at the right price—to new firms, to growing firms and also to firms that are looking to invest in our country.
The Minister has just argued that this country is enjoying—if that is the right word—a very high level of rents for office premises. Does he recognise that commercial rents, particularly in the office sector, fluctuate very rapidly, reflecting economic activity, and that it is only relatively recently that the property market has recovered from the significantly lower rents prevailing in the early part of this decade?
It is right that supply of property fluctuates as it reflects and responds to demand. That is precisely the efficient operation of the property market that we want. Empty property relief was introduced during the 1980s, when the economic circumstances and therefore the demand for property and the level of economic activity were really very different, so we are returning to the issue again. We judge now to be the right time—in totally different economic circumstances, I am happy to say—to introduce the sort of reforms proposed in the Bill.
Rather than properly aligning or encouraging investment and expansion of new firms, high rents dissuade businesses from starting up, act as a limit on growth and provide a barrier and disincentive to those who might otherwise be looking to invest in the UK from overseas. We therefore need our stock of commercial property to be used efficiently, and in doing so we need to increase the supply and reduce costs to businesses. That is precisely the purpose of the Bill.
The Financial Secretary talked about the need to invest, which we all understand and appreciate. There is concern, however, among my and many Members constituents who have investments in pension funds—many of which are dependent on their property portfolios—that the proposals might affect the net yield from property. If we also take into account the issues in relation to tax dividend credits and so on, will the proposals be advantageous to such people? What reassurance can the Financial Secretary give that they will not suffer?
The properties in any well-managed investment portfolio, whether of a pension fund or other property investor, are generally typified by low vacancy rates. The measures in the Bill create a greater incentive to ensure that vacancy rates are lower rather than higher. Those who fear an impact on their pension fund returns misinterpret the likely impact, and certainly the purpose, of the Bill.
On the issue of higher rents, my constituency has a number of old mills divided into units for small businesses. Those have a high level of vacancies because the upper stories are difficult to let. I have some concern that the Bill might add to the management costs for owners who are not deliberately leaving units vacant. I am also concerned that those costs might be passed on to small businesses in higher rents, which is not to be welcomed. Will my hon. Friend assure me that he will consider the problems of old mills and of letting space in them, which will not be improved by simply penalising owners for vacant units?
Our assessment and modelling of the macro-impact of the measure, especially in the context of other reforms that we are putting in place, suggest that rents are likely to come down. If my hon. Friend is not aware of it, she, her local authority and property owners in her constituency might find relevant a consultation launched recently on the future of tax incentives for the development of brownfield land. The closing date for that consultation is 14 June, and if she or her constituents wish to make points in that context, I and my hon. Friend the Minister for Local Government would be pleased to receive them.
Clearly, as I said to the hon. Member for Ludlow (Mr. Dunne), it is high time to consider again the rating of empty property. Since the 1980s, that has been limited to a 50 per cent. rate on empty office and retail space and a complete relief on empty industrial space—reliefs that continue without time limit. That level of rates was set, in the words of the 1983 White Paper on rates, in “a period of recession”. That same White Paper clearly argued that the rating of empty property,
“encourages owners to bring empty properties back into full use”.
It is right that we consider those reliefs in the current situation, which, after 10 years of strong, steady, stable economic growth, is clearly not comparable to that in the 1980s, which saw such a deep recession and sluggish economic activity. That is not to say that the Government need not support regeneration and support communities in areas where demand for commercial property is lower—that is essential. That is a commitment of the Government, and a personal and political commitment shared by me and my hon. Friend the Minister for Local Government from a constituency perspective. In a moment, I shall refer to several parallel policy measures and reforms that we are putting in place alongside the empty property relief reform in the Bill.
When London is the world’s most expensive place to which to locate, and its rents are the highest in the UK, can it be right that we offer a tax relief on empty property in Westminster, for instance, costing the public purse more than £70 million a year, or in the City, costing £60 million a year? Instead, we have fully accepted the arguments made to us by the Federation of Small Businesses in its review of business rates. It said that we should
“remove the tax exemption and relief for empty properties—the tax would be paid by the owners of empty premises and might persuade them to ensure that properties are used and not left empty, often as an eyesore in the community.”
The Financial Secretary makes the point about London, and I do not dispute the basic situation that he sets out. Does he accept, however, that London has two economies? There is the economy of the City and the west end, with very high rates, but there is also that of the many suburban town centres in London, which is often much more fragile and where vacancies often occur not for any improper reason, but because of the difficulties that landlords sometimes have in attracting new businesses. What assurance can he give us that they will not end up losers?
If I heard the Financial Secretary correctly, he said that owners would be encouraged to move on their properties more rapidly than they would if they benefited from the relief. That might apply when the owner is a developer of property put up for speculative purposes, which might be the case for much of the central London property to which he has just referred. What analysis has the Treasury done of the proportion of empty space to which the relief applies for occupiers—tenants of buildings—rather than owners? Outside speculative development, it is largely tenants of properties—and their predecessors, which I shall talk about in my speech—who might be unable to continue trading in those properties, who end up paying the bill.
The hon. Gentleman makes an important point—there is a distinction. Clearly, the measures in the Bill are designed to reinforce the incentives for owners of property to look to re-let more quickly than they might do otherwise, or to sell on, reuse or develop the properties that they hold. In relation to tenants of properties that have fallen empty, who are sometimes caught by inflexible and onerous lease terms that prevent them from making judgments in the same way, the hon. Gentleman might want to consider our commitment to consult later this year on reforms to the treatment of tenants who are subject to what might be termed “onerous lease arrangements”. He is right to point to the problem, and we need to examine that potential barrier to more efficient use of property.
The second purpose of the Bill is to encourage more efficient use of the property stock already developed in this country. It will be a common observation across the House that land is scarce. In a growing economy, with a growing population and an increasing demand for housing, particularly with the rising number of households, we need to ensure that land is used as fully as possible. That is essential if we are to be competitive and to provide the housing that we need, while protecting our green spaces. The shortage of land is also a key concern for the house building industry, which is why the Home Builders Federation’s view is that that supply of land is the major factor that will determine whether the Government are successful in meeting their target of increasing the number of new homes by 200,000 a year by 2016. The same message about the central importance of land supply was conveyed very clearly today by the newly established national planning and housing advice unit. I am pleased to see that the hon. Member for Surrey Heath (Michael Gove) is nodding.
As the Government increase the supply of housing to meet the needs of households across the United Kingdom, a tax relief for properties sitting empty on developed sites makes little sense. It makes little environmental sense, little social sense and little economic sense.
In the south-east there is a real need for affordable homes, but the position is slightly different in parts of the country that have not benefited from the investment provided for big cities such as Manchester and Birmingham. Those areas contain industrial land that is not let. There is a danger that the letting of such land would become beneficial only if it were used for residential purposes, and there is no point in residential use if there are not the jobs to go with the homes. Economic and social development must go side by side. I am rather anxious about the fact that we do not seem to be viewing the situation holistically, in a joined up way. I hope to say more about that in my speech.
As I shall explain more fully later, the Bill is not a policy measure designed to deal with a problem located only in the south-east. What my hon. Friend says is true, but this is a specific Bill with a specific purpose.
I know that my hon. Friend has taken an interest in a much wider review that the Government are conducting on reinforcing the capacity of areas to lead and encourage more redevelopment and regeneration. I welcome the contributions that she has already made from a Stoke-on-Trent perspective, and I look forward to hearing her speech.
I understand the Financial Secretary’s point about the need to make land available when appropriate, but what proportion of vacant buildings, potentially developable sites and brownfield land is being withheld for speculative or other purposes? Have the Government established the extent of the problem with which the Bill would deal?
As the hon. Gentleman probably realises, the answer to his question is problematic. We can never be certain about the intent of landowners and their possible reasons for keeping property vacant. What we do know—because they have been published by the Department for Communities and Local Government—are the vacancy rates of properties that are eligible for empty property relief, which show some striking patterns.
In Birmingham, where I do not think anyone would argue that demand for property is particularly low, a fifth of rateable value property is not just empty but the subject of claims for empty property relief. In the City of London, the proportion is 16 per cent. The existence of such oddities in the system underlines the argument for reform and a more sensible and efficient regime. That was certainly Kate Barker’s conclusion in her analysis of land use in England. She outlined the beneficial effects of reform of the rating of empty property, stating, for instance:
“development is encouraged on sites which have already been developed, which reduces the need to build on greenfield sites and improves environmental outcomes.”
In accepting Kate Barker’s recommendation for reform, the Government also asked Sir Michael Lyons to consider the case for change from the point of view of local authorities and local authority financing. The nature of the representations that he received from local authorities across the country, which are aware of the local impact of the current empty property relief regime, was very revealing. A number of authorities expressed the strong opinion that it should be reformed. Hampshire county council, in the constituency of the hon. Member for Fareham (Mr. Hoban), said simply “Yes” to the proposal for reform. It therefore came as no surprise when Sir Michael—agreeing with Kate Barker—concluded:
“Analysis shows that vacant property is found in areas of high demand as well as in areas of low demand and former industrial areas.
Finding ways to raise the opportunity cost of holding unused land and property in areas of high demand at such a time would be desirable. Reforming the empty property relief would help to provide this, and thus assist local authorities in their place-shaping role.”
The Chancellor accepted those recommendations in the Budget, and the Bill legislates for the reform.
The Bill, although short, has four principal elements. First, it will increase the empty property rate from 50 per cent. to 100 per cent. of the occupied business rate for all properties. At present empty industrial property is, through regulations, exempted from the 50 per cent. rate. In the light of evidence in Kate Barker’s analysis that holding one type of property involves no difference in risk, those regulations will be amended to equalise the tax treatment of all empty property—albeit with six months relief of industrial property rather than the current three months, which will remain for empty retail and offices premises. We believe that that will give owners a strong incentive to re-let, redevelop or sell on empty non-domestic buildings, thus reducing the need for new development on greenfield sites and increasing access to existing premises for businesses, which will help to reduce rents overall.
Secondly, the Bill provides for a zero rate on empty properties owned by charities—as announced by the Chancellor—and those owned by community amateur sports clubs. Many such bodies play an important role in regeneration and heritage projects in all our constituencies, and the Bill will give a significant boost to the Government’s support for the activities and commitments of the third sector and community sports clubs. Thirdly, the Bill provides a power to return the empty property rate from the new level of 100 per cent. of the basic occupied rate to a minimum of 50 per cent. of that rate. It is a reserve power, which will ensure that in future any Government will have flexibility to respond to changing or prevailing conditions in the property market. Fourthly, the Bill provides a power to tackle rate avoidance tactics by disregarding changes to the state of property in circumstances to be defined in regulations. For example, if an owner removed the roof of a property for rating purposes, it could be valued as though the roof had not been removed.
Property development and investment are key parts of the United Kingdom’s economy and the Government are well aware of the role that they play in its present and future success. I therefore want to ensure that we respond to the main issues raised by industry bodies. Since the Budget, we have had received useful representations from professional bodies. In general, they have welcomed the Bill’s intention, and although they have raised concerns about its likely effects I am confident that we can deal with them.
I apologise to my hon. Friend for my absence at the beginning of his speech, and commend him on the authoritative way in which he is presenting a Bill that I hope and believe Members on both sides of the House will approve. However, concern has been expressed to me about property regeneration schemes, many of which are only just commercially viable or will not be so for some years. It has been suggested that the change in the system may well affect their viability. Has the Minister considered that, and is it a concern that has been expressed to him?
That is indeed something we have looked at—it was a concern that was expressed to me and on which we have already begun to act. From April this year—we are not waiting for the Bill’s reforms to come in next year—we introduced a business premises renovation allowance, which may be of interest to my hon. Friend. He may have missed my saying earlier that we are consulting on future tax incentives that can help the redevelopment of brownfield land.
May I correct one common concern, namely, that the Bill has something to do with the business rate as a tax? Empty property in the UK has been rated in the UK for tax for well over 40 years. As Michael Lyons made clear, business rates are a tax on property capable of occupation. The Government are not intending to bring new property into the rating system; rather, we are looking at the level and duration of the reliefs that are offered to property when it becomes empty.
In the past, a minority of firms decided that deliberate dereliction was preferable to paying empty property rates. The Secretary of State for Communities and Local Government will be publishing next month a consultation on the secondary legislative provisions in this Bill, in which the Government will ask for industry's comments and those of wider groups on a package of potential anti-avoidance measures to deal with such risks. However, I want to be clear that it is not the Government's intention to penalise legitimate development activities that lead to properties being removed from the rating list. On regeneration, it is true—as my hon. Friend the Member for Edmonton (Mr. Love) said—that the Bill has been criticised as a barrier to regeneration and redevelopment. The principal flaw with this argument is that those who make it have looked at the Bill, but not beyond it to the parallel reforms to the system.
A list was published by the DCLG of the top 10 local authorities where property is sitting empty. With the exception of three—Hyndburn, Sandwell and Wolverhampton—the other seven with the highest level of vacancy rates claiming empty property relief are in London, the Thames Valley and the city centres of Manchester and Birmingham. Those are not areas where the demand for land is weak or where there is an excess or supply. All, of course, are areas with high property values, hence the £60 million of empty property relief costs to property in the City.
For areas where demand is low—for example, wards across Hyndburn, Sandwell and Wolverhampton, as well as for wards across all of the assisted areas in the country—we have introduced a new 100 per cent. capital allowance for the renovation of empty commercial property from April this year. The business premises renovation allowance is available now, a year in advance of the reforms proposed by the Bill.
We are ready to go further. I have mentioned the consultation on the future of tax incentives for the redevelopment of brownfield land, which proposes an extension of the 150 per cent. allowance provided for the remediation of contaminated sites to cover long-term derelict land and property, as well as biological problems such as Japanese Knotweed.
The hon. Gentleman nods his head sagely; perhaps he has constituency experience of Japanese knotweed.
A further issue on which we shall consult—the hon. Member for Ludlow mentioned this—is the treatment of leaseholders who have surplus property but are unable to reduce their liability because, essentially, they are bound into what could be termed onerous agreements that do not allow for flexible sub-letting or for assignment of those leases. Our commitment to consult on that has been widely welcomed and many are looking forward to the consultation later in the year.
Let me sum up by quoting two sources of expertise. The first is a firm that attempts to place small firms into available commercial property. The firm has commented that the
“proposed reform will create new opportunities for smaller companies and for more innovation and flexibility on the part of landlords.”
The firm's professional opinion is exactly what the Federation of Small Businesses was hoping for and what the Government intend as a result of this Bill.
The second quote comes from Sir Peter Hall in Regeneration & Renewal last month. He believes that the Bill will provide
“the incentive necessary to reduce rents on the high street and in shopping centres, providing the opportunity for new entrants to the market place.”
In doing so, he echoes exactly the Chancellor's analysis that this measure is about competition and access. Sir Peter also points to the benefits for redevelopment and land supply and in particular for new housing starts. He concludes his article:
“It looks as if Brown is answering the call for a big increase in housing starts - on brownfield urban sites too.”
Indeed we are, and I hope that the Bill will command all-party support for its Second Reading today.
It is always a pleasure to speak in a debate opened by the Financial Secretary to the Treasury. He makes his case with fluency and care and today he has once again underlined his reputation as an asset to the Treasury. It needs every asset it can get. His presence here underlines another fact; the Bill is a straightforward exercise in raising revenue. Despite all the claims made for the Bill as a supply-side reform of the property market, it is nothing of the kind. Despite the eloquence of the Financial Secretary and, indeed, the presence of the Minister for Local Government, we know what this Bill constitutes; it is a straightforward tax demand.
If we look at the Bill as an application to reform the way in which we use land, it simply does not convince. Planning applications need to pass certain robust tests and this Bill fails the tests that any application to change the use of land would have to pass. The measure has been flimsily constructed, buckles under pressure and will not enhance the built environment.
Let us examine how flimsily constructed it is. The basic premise of the Bill is that owners are deliberately keeping property empty and need to be taxed into putting it to good use. When we first debated the issue, I asked what justification there was for the idea that individuals were deliberately forgoing the chance to maximise their income and the return on the capital they had invested. Who were these remarkable individuals or odd companies who wanted to earn less than they could every year? What evidence was there for widespread economic masochism on the part of the commercial property sector? Despite the best efforts of the Minister for Local Government, no evidence was produced at the time. Despite the best efforts of the Financial Secretary, no evidence has been produced of the wilful keeping empty of property that could otherwise be filled.
The Minister could not offer us any evidence because there is no robust evidence that landlords are wilfully depressing their balance sheets and turning away eager tenants simply out of perversity or idleness. If the Minister had taken the time to read Property Week at any point over the last two weeks, he would have seen how that magazine’s readers have been up in arms at this proposal. They have underlined how unjustified the assumptions behind the legislation are. As one correspondent said:
“Would Phil Woolas buy a car for £50,000 or £100,000 and never use it, leaving it in the garage? Why do people invest in property; to board it up and leave it empty? No—to obtain a return on their investment.”
Let me make it instantly clear that we know that the Minister for Local Government is a frugal guy and that he would never spend anything like that amount of money on a flash motor. [Interruption.] He would if he could, but he will have to wait until he is Deputy Prime Minister before he can spend those sorts of sums on cars. The reason why he would not leave that car rusting in his garage is the same reason why individuals who happen to be property owners want to find tenants. They want to get their capital working for them. It is to misunderstand the commercial property market completely to believe that some individuals who would otherwise fill their property with tenants are sitting back and drawing this relief rather than getting their capital to work for them.
In considering the tax justifications for the measure, it is also important to appreciate that it changes how business rates are levied. The Financial Secretary dealt with that to an extent, but it is important that we return to the core principles of taxation. We discussed them during the first debate on this measure—that on the Ways and Means resolution. Business rates are, like all business taxation, understood by business to be a levy on commercial activity. Unless there is activity, it is hard to justify a charge on the balance sheet. How can we tax no commercial activity?
We also need to understand that rates are a charge on the occupants of a building for the use of local services. The principle behind both domestic rates—the council tax—and business rates is that the occupants of a building are asked to pay for the services that they use. However, that principle is upended in this proposed legislation. There will be buildings that are unoccupied so there is no occupant to tax, and, because they are empty, they will not require the same level of local services as they would if they were fully operational and occupied, and yet their owners will be asked to pay for services that they do not use. That is an unfair and unjustified additional levy on business, and it upsets the delicate principle on which business rate taxation has rested.
Another basic principle is threatened by this proposed legislation: the principle of the retail prices index cap on the business rate. We also discussed that when we debated the Ways and Means resolution; however, although the Minister made his best attempt to address the matter, I felt that it was unsatisfactory. Sir Michael Lyons has been prayed in aid as the godfather of this measure, but in terms of the reform of business rates he was very clear that any change to the relief that people enjoyed on empty properties should be granted only after extensive consultation and as part of a broad rebalancing of the business rate system. He did not argue for the introduction of this change in isolation, which is what the proposed legislation will do. Sir Michael explicitly said that any change should occur in 2010 after extensive consultation. It will not have escaped the House’s attention that this legislation is being introduced three years earlier and after merely weeks of consultation. This is not considered legislation intended to rebalance business rates; it is a rush to plunder.
On the RPI cap, the principle that businesses understand in terms of the business rate is that there will be revaluations from time to time and when that happens the rateable value of some properties—such as those that have been suitably enhanced or those in areas of high demand where property values have increased—will increase. However, they also appreciate that if that happens, the multiplier—the amount they will have to pay in consequence to keep their business rate at an appropriate level—will increase only in line with inflation in the rest of the economy. The principle behind that is that business should not be used as a milch cow to subsidise other parts of the local government taxation system or of the taxation system in general. Instead, it should pay its way in accordance with inflation.
This taxation change will lead to business paying an extra £1 billion a year direct to the Exchequer through the business rate system. The basic principle behind the RPI cap will be busted. Business will be paying more than any increase in inflation would merit. The RPI cap can be maintained only if somewhere else there is a compensatory relief or reduction in the amount that businesses pay in the rating system. I would be interested to hear the Minister’s explanation of how we can possibly raise an extra £1 billion from business through the rating system and also maintain the RPI cap; if he can square that circle, I will be fascinated to learn how.
My hon. Friend has elucidated one of the fundamental flaws in the Bill. Would he care to speculate on why the Chancellor has chosen to attack business in this way for such a significant revenue-raising element of his Budget? Might that be because business is disfranchised and has no vote?
My hon. Friend makes a telling and fascinating point. We must speculate about why business has been targeted. Elizabeth I once argued when talking of this House that we cannot make windows of men’s souls, and I cannot make a window of the Chancellor’s soul; I do not know why he has chosen to target business, and in particular small business, in this way. All I do know from having looked at the Red Book is that in order to make sure that his accounts balance, he has had to mount a smash and grab raid on the business sector, which is what this measure is. Unfortunately, this tax change is built on flimsy foundations and will lead to unfortunate consequences.
Is not the concern felt by many in the commercial sector, particularly those involved in small businesses, reinforced by the remarkable fact that this is the only element of the Lyons review that the Government have made great haste to introduce into legislation? Every other matter is kicked back so that there is more consultation, but the one element from Lyons that is immediately seized upon is the element that happens potentially to increase the burden on business. That gives us concerns about the Government’s motivation.
Michael Lyons argued that what is required is a balanced change to how the business rate operated. The removal of this relief was justifiable in the context of a balanced package of reforms. Instead of introducing such a balanced package, the Chancellor has chosen the quickest, dirtiest and most effective way of raising £1 billion. Talking of quick, dirty and effective, I am happy to give way to the Minister.
I cannot resist intervening on the accusation that the Chancellor has plucked the plumpest, ripest cherry. The hon. Gentleman ascribes a motive to the Chancellor that he clearly understands, but which we do not recognise. I assure the hon. Gentleman that that was not the plumpest and ripest cherry that Sir Michael Lyons tempted us with. As my hon. Friend the Financial Secretary has said, the Federation of Small Businesses supports this measure, even though the hon. Gentleman and the hon. Member for Bromley and Chislehurst (Robert Neill) have said that small businesses do not welcome it.
I am grateful to the Minister for telling us about the FSB. I will not at present go into the details of the case made by its head of parliamentary affairs, Mr. Stephen Alambritis. However, I will move on to the broader impact that the measure will have on businesses large and small across the country. One lobby group led by one individual has made the case in favour of the Government’s measure, but many other groups, which cover not only the commercial property sector but also the important areas of regeneration and retail are deeply upset about what is happening. They include the British Property Federation, the British Retail Consortium and the Royal Charter—I mean the Royal Institution of Chartered Surveyors. How on earth I forgot the name of that body when it has been so helpful to me in the past I will never understand—it is a fantastic body. The point stands: we can trade trade bodies at the Dispatch Box for some time, but the balance rests with the Opposition and those who are concerned about the measure. If we are simply going to weigh the number of representations that have been made, the measure will fall, as the total representations critical of the measure far exceed the total representations from the commercial sector that support it.
I take it that the hon. Gentleman will give the House an undertaking never to pray in aid the views of the Federation of Small Businesses, given that he discounted it on this occasion. Did he read last night’s editorial in London’s Evening Standard—a paper not known on the whole for supporting my party—that praised the measure for supporting small shops?
I read the shameful piece of spin for which the Minister was responsible when he managed to get his particular gloss or varnish on the legislation into the Evening Standard, whose normally Olympian standards of objectivity buckled on that occasion. That is a tribute to the Minister’s guile rather than to the quality of the measure. One of the Government’s principal justifications for the measure is that it will encourage the more efficient use of land and promote the regeneration of run-down areas.
I am grateful to my hon. Friend for allowing me to pick up the allegation by the Minister that the Federation of Small Businesses is uniquely in favour of the measure. If the Minister took the trouble to read the federation’s remarks in full, he would see that it is in favour of the way in which the measure attacks large business. When it comes to the small businesses that it represents, it says:
“However, the FSB is keen to ensure that small businesses who are unable to use or sell empty property for legitimate commercial reasons are not punished by the new rules. There should be exemptions in such cases.”
In other words, it thinks that the measure should apply to everyone other than its members.
I am grateful to my hon. Friend for pointing out the true way in which we should look at the FSB’s case, and the fact that it is capable of more than one interpretation. The devil can quote scripture for his own purposes, and Labour Ministers can always pray in aid submissions from small business organisations at any time they choose. The truth is that the measure will not encourage the more efficient use of land, and it will not promote regeneration: it will actively work against both.
If we look at regeneration projects overall that benefit businesses large and small, as well as the residents of areas that are run down and require investment, we can see that when people attempt to put such a project together, it is sometimes difficult to get all the parcels of land in one place before they can press the button, get the green light and go ahead with a significant regeneration project in, for example, Stoke-on-Trent. It is sometimes difficult to align all the investors that one needs for a project until different parcels of land have been brought together and investors are satisfied. By their very nature, such projects operate on the margins of viability and profitability for some investors—they are high-risk options. For many investors considering whether to press ahead with regeneration schemes, the existence of the relief is vital in making viable schemes that would not otherwise be so. The removal of the relief will imperil future regeneration projects, and a number of regeneration practitioners, developers and others have made crystal clear in the pages of Property Weekly, the Estates Gazette and other publications the direct threat to future regeneration, particularly in the most vulnerable areas of the country, posed by the measure. I should therefore like to ask the Minister, when we reconsider the measure in due course, whether he would contemplate amending it to ensure that the areas of greatest vulnerability or areas where regeneration is most needed can enjoy a measure of relief that is not extended to other areas. Is there any opportunity to achieve cross-party consensus to ensure that regeneration in vulnerable areas is not affected by the measure?
Another of the Government’s justifications for the measure is that it will help the small businesses to which the Minister referred by compelling property owners to let properties that they are perversely keeping empty. The belief is that because property owners will lose the relief, they will be compelled to lower rents to fill their properties: that is the case that the Minister has made for the measure. The truth, however, is that smaller businesses will find that owners have to take steps to safeguard their properties against the risk of companies that take leases failing, and those properties being left empty. Those businesses will therefore be liable for additional rates without commercial activity taking place on those premises. A case that has been put to me and, I am sure, to Ministers by people with a direct interest in the commercial sector is that the system of leasing commercial property will become more rigid and onerous for smaller companies. Landowners who are concerned about the additional risk of sites falling empty, will frame their leases in such a way as to make them significantly more rigid and more difficult for smaller companies to accede to. I accept that the Minister said that the Government have consulted and want to make life easier for people who want to take on commercial leases. All that good work, however, could be undermined by large property companies wishing to insulate themselves from risk and framing leases that work against flexibility and act as a barrier to entry for precisely the small shops that, I suspect, both of us want to occupy a healthy high street.
Another justification for the measure concerns the overall economic benefit that it is supposed to bring by encouraging the more efficient use of resources and increasing the amount of commercial property and commercial activity. However, as was pointed out by my hon. Friend the Member for Bromley and Chislehurst (Robert Neill), the measure has another economic effect that could be profoundly deleterious, as it impacts on pension funds. Pension funds, as we all know, hold significant property assets—a point acknowledged by the Financial Secretary. If he is right, and the measure leads to the lowering of rents, that will mean that the capital value of those property assets will decline and the yields from those properties will decline. That means—[Interruption.] It is the Financial Secretary’s argument, and I am merely pointing out that if it is correct, it will have an unfortunate effect on pension funds. The Government made a tax change before when they were in a hurry to get revenue for a pet project. They were warned by pension funds and investors in those funds that the tax change would have a deleterious effect. They pressed ahead regardless, and the effect on pension funds was significantly greater than even the most profound pessimists had imagined. There is therefore a serious risk that the value of pension fund assets will be adversely affected by the changes. It is clear that those involved in the commercial property sector fear that as a result of future projects becoming unviable, of costs increasing and of the greater rigidity of leases, the value of their assets will be lowered. That will have a direct effect on every saver in this country.
I congratulate the hon. Gentleman on the ingenuity of his arguments. He is now telling us that pension funds will be affected because rents will go down. Five minutes ago, he was telling us that the retail prices index cap would be busted because of the opposite effect. Which is it?
The hon. Gentleman uses two completely separate parts of the argument; however, both emphasise the point that this provision is a tax increase. I should be interested to hear in the Minister’s summing up examples of tax increases that are good for business. This tax increase will be an additional hit on business and busts the RPI rule, and it will also have an effect on the commercial property sector. Those who hold shares in commercial property will, like our pension funds, suffer. As I said, I should be interested to hear of any example that the Minister can give of tax increases that work in the interests of beneficial commercial activity, because they very rarely do so. As we explained earlier, the principal justification for this measure is simply the raising of £1 billion.
There are a number of different ways in which this measure will make life more difficult for businesses. We have outlined how it will make life more difficult regarding leases and the adverse effect on pension funds, but the manner of this change’s introduction could also lead to an increase in the number of companies contesting valuations, more tribunals, more bureaucracy and additional cost. So as we can see, the original foundations of the Government’s case are flimsy. The basis on which they are introducing this measure does not stand up. The costs for business are clear. Crucially, this change will also work against the improvement of the built environment.
The Government now explicitly acknowledge in the Bill that there is a real risk that some people will vandalise their own property in order to escape liability for tax. During the paving debate on the Ways and Means motion, the Minister for Local Government said that it was debatable whether people would rip roofs off buildings and strip out floors in order to evade tax. However, what was debatable then has become a real danger that the Government now feel that they need to legislate to prevent. Indeed, schedule 1(4) is specifically intended to deal with that risk. That legislative change acknowledges the force of our argument that this legislation could lead to all sorts of perverse incentives and temptations in the operation of the commercial property market.
More than that, the measure itself raises all sorts of questions. How will intent be proved? What exceptions will arise? We will have to wait for the answers until secondary legislation is introduced, but the Minister risks putting himself in the position of having to judge the intention of an individual when they change the use of their property, and all because of the creation of a perverse incentive.
The truth, which the Minister has failed to acknowledge, is that the real reason why properties lie vacant for longer than they need to is not the existence of this rate relief but our dysfunctional planning system. The operation of the use class system and the making of a change of use so difficult prevent the property market from responding as rationally as it should to demand. In the previous debate to which I referred, several of my hon. Friends—my hon. Friends the Members for Salisbury (Robert Key) and for St. Albans (Anne Main) chief among them—pointed that out eloquently. The planning rules needed to be changed, so that the use of certain properties in their constituencies could be changed and they could move from a function that was no longer required to a new one that was very much wanted. However, because of obstacles and delays in the planning system, those properties were compelled to lie empty for too long.
Under this measure, individuals who are desperate to see an active and effective new commercial use for their property will pay additional taxation even as they strive to do the right thing commercially, but are prevented from doing so by the planning system. Our built environment thus suffers, because buildings are not used as they should be. They are not used as effectively and efficiently as they should be to satisfy local demand, to meet local market needs and to ensure a proper return on the investments made.
My hon. Friend reminds me of an occasion when a pig farmer constituent of mine came to see me. He wanted to use his pig sheds for other purposes because, unfortunately, the demand for pigs was not as great as he had hoped. He wanted to turn the sheds over to light office use, and he has been fighting the planning system for several years. The buildings are still lying empty; I drive past them regularly. How much more difficult will the situation be when he has to pay a tax on top?
My hon. Friend crystallises the point that was made equally eloquently in the debate of just a few weeks ago by my hon. Friends the Members for St. Albans and for Salisbury. The way in which the use class system currently operates prevents properties from being deployed in the most efficient way. The problem is not just the use class system, however; other aspects of the planning system’s operation prevent properties currently lying empty, because their old use is no longer appropriate, from being redeployed for a more appropriate commercial or other use.
When the real answer to a problem is deregulation, it is typical of this Government to propose a tax increase. It is a particular pity that the eloquence and intelligence of these two Ministers has been deployed in the service of making life more difficult for businesses, when their hearts surely cannot be in this measure. It is genuinely sad for us to have to contemplate these two Ministers bringing forward a measure that will mean that, once again, the wealth creators, the enterprising and the bringers of opportunity are forced to pay for the Chancellor’s inability to balance the books, but there we have it.
I do not wish to let the opportunity pass of having a Treasury Minister and a Local Government Minister side by side on the Front Bench without flagging up some issues of regeneration. This is a short Bill, but it connects with many other areas of Government policy, including planning—as we heard from the hon. Member for Surrey Heath (Michael Gove)—and many other initiatives. It is important to put on the record some of the issues that I wish to be considered in some detail in the reviews that will flow from this Bill and the proposals in the 2007 Budget, and in respect of the joined-up Government agenda on the changes in how No. 10 and No. 11 will operate. It is critical that we consider regeneration and how this Bill will help that.
In general, I welcome the Bill, especially the provisions on unoccupied properties owned by charities and community amateur sports groups. They will make a real difference and will be welcomed.
The origins of the Bill lie in the Barker report on housing and land use planning, and in Sir Michael Lyons’s review of local government. I have grave reservations about the implications of the Bill for areas of hard-to-let properties, such as those in Stoke-on-Trent. It is a good thing that we are encouraging developers not to let buildings stay idle. Developers can stand by waiting for the right time for speculative developments and that is all well and good in the south-east. When Kate Barker came before the Environmental Audit Committee, much of the thrust of her recommendations related to the particular problems of lack of affordable property and the overheating of the economy in the south-east. In the Committee’s report on that inquiry, we considered the Egan report on the predict-and-provide approach in the south-east. The Minister mentioned the Lyons report, and Michael Lyons has confirmed that it was about hard-to-let areas and the rest of the country. He also said:
“Finding ways to raise the opportunity cost of holding unused land and property in areas of high demand would be desirable.”
The Bill is about areas of high demand, and the danger is that we end up with a one-size-fits-all approach that will not have the same relevance for places such as Stoke-on-Trent. I do not want a Bill on empty properties that has no relevance to my constituency. We already have a fragile economy in the area, but we also have strong regeneration strategies in place. They should not be weakened by a blanket proposal to end all relief on empty commercial properties.
The hon. Member for Surrey Heath mentioned further reviews and flexibilities. I hope that Ministers will look at how areas of low demand that need regeneration can benefit from the regulations and statutory instruments that will be introduced as a result of the Bill. That secondary legislation should be used to increase the flexibility in areas such as Stoke-on-Trent.
The Government are concerned about the economic performance of areas such as mine, and I hope that Stoke-on-Trent’s record in that respect will be included in the terms of reference for the commission that my hon. Friend the Minister for Local Government is about to set up. We urgently need a joined-up approach to regeneration.
Earlier, my hon. Friend the Financial Secretary mentioned the private discussions that we have had on this matter. I hope that the forthcoming comprehensive spending review will be used to continue the £1.5 billion already available through the neighbourhood renewal fund—
I know that my hon. Friend the Minister said that there would be more money only from a sedentary position and not formally through you, Mr. Deputy Speaker, but the neighbourhood renewal fund is used for areas with the greatest deprivation and it is part and parcel of the economic regeneration needed there. The Bill will have implications for those areas, and that is why I hope that Ministers will ensure that the matter is followed through in the context of the CSR. Other local authorities in the SIGOMA organisation take the same view.
There are between 1,500 and 1,600 empty properties in Stoke-on-Trent. It is estimated that the Treasury has lost just under £7 million from loss of rates, and it is clear that it is in all our interests to get those buildings back into use and re-let. That can only happen if a joined-up economic regeneration strategy is linked to the local authority agenda. For that, the money from the CSR must be used in conjunction with the further consultation process already under way as a result of the 2007 Budget, but we must make sure that Department of Trade and Industry policies such as that embodied by Advantage West Midlands contribute to the regeneration that we need.
The Bill must be set in that wider framework. Unless there is a mechanism to ensure that joined-up operations in areas such as Stoke-on-Trent are followed through in the strategies adopted by the Treasury, the DTI and the Department for Communities and Local Government, we will end up with a Bill that benefits the south-east and areas of high demand but does very little for areas of low demand.
Finally, I hope that my hon. Friend the Minister for Local Government, when he replies to the debate, will say something about the talks that he is having with English Heritage, as the flexibilities that have been mentioned will have great significance for listed buildings. Such buildings are often empty for all sorts of very good reasons, and they can need a great deal of help.
I look forward to the response that my hon. Friend the Minister for Local Government will make to the debate.
It is a great pleasure to follow the hon. Member for Stoke-on-Trent, North (Joan Walley). I am not on my usual territory with this debate, but at least the Financial Secretary is a familiar sparring partner.
I listened with great interest to the hon. Member for Surrey Heath (Michael Gove), who spoke with his customary eloquence.
The Bill raises some important issues, which the Financial Secretary, who is no longer in his place, set out carefully in the initial presentation. The hon. Member for Surrey Heath talked about the need for cross-party consensus, and there might at least be some small consensus in that none of us wants to see large numbers of empty properties. They cause problems for development, can blight the landscape and for a whole range of reasons are a bad thing. No doubt we will hear more about small shops and town centres from the Minister for Local Government—he referred to them briefly during an intervention—when he replies to the debate than we heard from the Financial Secretary.
As a member of the all-party parliamentary group on small shops, I certainly share the many concerns about the fate of small shops, whether in towns, villages or even cities, such as Inverness, which I represent. Over recent years Inverness has seen a decline in the number of small shops and a gradual replacement of some previously existing retail premises in the older part of town perhaps with charity shops. They tend for a number of reasons, perhaps including the rating environment, to be the sort of tenants to whom landlords find it easier to let. To share those concerns does not necessarily mean to share the Minister’s view that the Bill provides the right way forward to address the problems.
I have a number of concerns and questions to raise, which I should like the Minister to answer. I am concerned about the process that the Government have gone through to reach the Bill. I am concerned about the genuine purpose of the measure and, most important about its impact. In opening the Financial Secretary presented a macroeconomic argument for the Bill, but it is in its microeconomic impact at local level that it will be judged. In that I share some of the concerns of the hon. Member for Stoke-on-Trent, North (Joan Walley) about the variability of the Bill’s impact across the UK. Those serious worries are genuinely held in areas in need of regeneration.
As a Member representing a Scottish constituency, I should point out that the Bill applies to England and Wales only. On one level, therefore, perhaps I should welcome it on the basis that it might promote more property development in Scotland, but I will not go down that route because these are serious matters that will affect the whole country one way or another, including Scotland.
My biggest concern with the process has to do with the lack of consultation. The hon. Member for Bromley and Chislehurst (Robert Neill) pointed out that this was one of the few items from the Lyons report that had been implemented with alacrity. In his opening remarks the Financial Secretary listed a whole range of consultations that were either going on or about to start. We appear to have consultations galore, except on this proposal. While this measure was proposed in one part of the Lyons review, paragraph 8.6 stated:
“The Government should conduct a review of exemptions and reliefs to consider the scope for removing inappropriate subsidies and distortions”.
That is clearly a recommendation for a review, a discussion and consultation to seek evidence from the wide range of parties who have a strong interest in the matter. The Financial Secretary referred to a blizzard of reviews. Perhaps the Minister will confirm whether that specific recommendation of the Lyons review has been taken up.
As other speakers have said—I do not wish to trade bodies with other hon. Members—there has been a lot of feedback and many different responses, which I am sure all hon. Members taking part in the debate have received. A range of contrary views has been expressed. We have heard about consultations on rate relief for brownfield developments. We have heard about consultation that is shortly to take place on the position of leaseholders—a matter to which I am sure other contributors to the debate will return. We have also heard about proposals for 100 per cent. relief for regeneration in assisted areas. That rather invites the question why, if we are having consultations on all those matters, the Government are rushing ahead with the Bill.
We were previously treated to an exhibition of joined-up government. I am afraid that one element of that “joined-upness” has left the Chamber now. If the Government seek to have a joined-up, coherent approach to reform of the business rating system, why rush ahead with this one element when all the other elements are being consulted on? It suggests that the motivation behind the Bill is perhaps not as straightforward as the Minister would have us believe.
The Government are trying to persuade the House to support the measure on the basis that they are thinking about all these other nice things. They hint that, when those consultations are completed, countervailing measures that will modify the impact of the Bill in areas such as Stoke-on-Trent will be introduced and we will see then an overall balanced package, which is not before us today. I am not sure that many outside the House will want to accept those assurances. They would like to see the whole package—the results of the consultation and the countervailing measures as well as the measure contained in the Bill—before deciding whether it is worth accepting. To do otherwise might be considered to be accepting a pig in a poke.
Does the hon. Gentleman share my concern that there might be a perverse consequence? Smaller businesses will be disproportionately affected, given that they cannot afford to pay extra taxes or rents, whereas larger businesses can afford to play a waiting game? Tesco in my constituency can afford to buy up smaller businesses and keep them waiting while it gets a land bank together. A smaller business would be forced to do something somewhat more quickly, with this extra burden.
The hon. Lady makes a serious point. In other circumstances, I have expressed a great deal of concern about the land-banking practices of supermarkets. They acquire property and do not use it until such time as they are ready, perhaps to keep competitors out of the market. The Minister might say that the Bill represents a tax on such land banks, but if land bankers can afford to pay that tax easily, it is of no real concern to them. It may be of benefit to the Exchequer, but it is not of benefit to the local economy, which is the argument that the Minister seeks to advance in favour of the legislation. I do not see it necessarily in that way.
What is the true purpose of the Bill? Is it, as the hon. Member for Surrey Heath suggested, simply a revenue-raising measure dressed up as a measure designed to promote regeneration? If it was a measure designed to promote regeneration, I would have hoped that we would see the Government bring forward a revenue-neutral set of proposals that took more money from empty properties—there is no doubt in my mind that the system for taxation of empty property is in some need of reform; the question is whether this is the right reform—and used it for the regeneration of local economies in the manner suggested by the hon. Member for Stoke-on-Trent, North (Joan Walley) in the form of other reliefs. However, as the explanatory notes make clear, the Government expect net additional revenue to the Exchequer of £950 million in the first year and £900 million in the second year and, presumably, further net revenue thereafter.
Has the hon. Gentleman considered why it has been calculated that revenue would actually go down? Does not that reflect the fact that rateable values in the non-domestic rating system are based on rental values, not capital values? If the policy is successful, as we expect it to be, there will be a decrease in net revenue to the Exchequer.
I understand the Government’s argument that the Bill would lead to lower rents over time and to empty properties being filled more quickly, and thus more revenue from those occupied properties.
As I was saying, the Liberal Democrat approach to environmental taxation is to propose additional taxes for environmental pollution and to return that money in a way that encourages good behaviour. However, the Bill would act as a stick from the Government—because they want to discourage bad behaviour—with no carrot to encourage good behaviour. Without hearing more about which other business and property taxes the Government propose to reduce by using the £1 billion that will be raised by the Bill, it is hard to avoid the conclusion that it is intended as a revenue-raising measure rather than to promote regeneration.
Ministers have made the point that the Bill is a way of trying to change behaviour, which can of course be an important part of the tax system, as it is in the environmental sphere, for example. Has the Minister considered the representations made by the Local Government Association? Indeed, he may want to pray the LGA in aid, because its briefing notes that it supports the Bill. However, it states:
“It is crucial…that the additional revenue raised is reinvested in the local economy. HM Treasury estimates that £950 million…will be raised…and councils are best placed to decide how and where the additional money can be spent to best effect locally”.
The policy of the LGA is that if money is to be raised it should be used to good effect; otherwise the measure is simply a way of clawing back more money from businesses.
The LGA makes the important point that it wants the extra revenues raised to go back to local government, but can the hon. Gentleman clarify whether he means that the money should go back to the local area where the business rate is raised or should it be distributed across the country? If the former, which is his party’s policy, it would make better-off areas with empty property much richer.
I am grateful to the Minister for that intervention. I am trying to make a more general point: there should be some degree of balance in the proposals so that the measure is revenue-neutral rather than a means for Ministers to take an extra £1 billion a year from the business community.
The impact of the measure is the most important aspect of the debate. It was rightly asked—not least in the context of Stoke-on-Trent—whether the Bill would really promote regeneration. The hon. Member for Stoke-on-Trent, North characterised it as a one-size-fits-all measure that might not be appropriate to parts of the country that are most in need of regeneration.
There are arguments about empty property relief, especially in relation to pension funds and other property owners. As my noble Friend Lord Oakeshott pointed out in another place, for offices and retail premises full relief would apply only for three months. However, even the most assiduous landlord working as hard as possible would usually take longer than three months to let their premises. When the Minister for Local Government responds, perhaps he could say where that three-month time period came from. I hope that it will not be disputed that even the most responsible property owner could take more than three months to re-let their property. If the Minister has not considered that matter, perhaps he could reflect on it and table amendments at a future stage. It would not seem right if even landlords who sought to re-let their properly as quickly as possible were caught with an additional tax burden. If the previous tenant in a shopping centre went bust, it might take some weeks to recover the property, because of the legal process that have to be gone through. In that case, three months would be far too short. It might be six months or longer before even the most assiduous landlord was able to make sure that their property was re-let.
Has the hon. Gentleman noticed the discrepancy between the Bill and empty dwelling management orders, which are usually sought after six months? That is considered a reasonable period of time when letting an individual property, but when it comes to letting a complex commercial property, which can often take far longer, half that time is given.
I am grateful for that intervention—and, as the Minister said, well spotted. That is a good point. It suggests that six months is a minimum reasonable period in any such situation. It seems odd to have a period of three months. The Financial Secretary did not offer a justification for that when opening the debate; perhaps the Minister for Local Government will do so in his response. I hope that the other speeches are long enough to ensure that he has time to receive the information that he needs.
In areas where regeneration is needed, the development of commercial property—whether office or industrial—is often done on a speculative basis. Property developers will develop a series of industrial units on the basis that they can see a commercial opportunity. They may have acquired some land and heard a suggestion from the local authority that business parks in the area might help to promote the economy. I am worried. Will the new tax regime in the Bill discourage that sort of speculative property regeneration, on the basis that the developer will be in a less advantageous tax position while the properties lie empty? That question has to be answered.
That raises a further point. Is the proposed new rating regime a tax on change? It takes time to change the use of a property. It takes time to refurbish a property and it can often take an inordinate amount of time to get the relevant planning permissions in place, although that varies across the country. I represent Inverness, which is the fastest-growing city in the United Kingdom. In locations that are growing quickly, or areas that are changing in the opposite direction and where the economy is contracting, there should be an incentive to encourage people to change the use of their business premises—perhaps moving from factory to retail, office to retail, or retail to domestic use. Planning changes and refurbishment are required in those circumstances. All those things take time—potentially quite a lot more time than the three or six months allowed in the legislation. When he responds, will the Minister address the concern that the proposal will discourage the sort of business changes in local economies that need to be encouraged as cities, towns or local areas grow? Although I would not suggest this, at its most pejorative, the measure effectively means that businesses will be faced with a new tax while the planning system delays their projects.
The hon. Member for Salisbury (Robert Key) made an excellent speech on rural communities during the Ways and Means debate. There are serious aspects of the measure that will affect rural areas, rather than urban areas. I would be especially grateful to hear from the Minister the efforts that the Government made to rural-proof the Bill before bringing it forward. It is supposed to be common practice that all legislation is rural-proofed. If there is documentation on the rural-proofing of the measure, I hope that the Minister will place it in the Library so that all Members concerned can read that information.
Those of us who represent rural constituencies know that changing economic circumstances might necessitate, for example, the conversion of a hotel into flats, which happened in a village in my constituency relatively recently. Again, that process takes a great deal of time.
I agree with the thrust of the hon. Gentleman’s argument. Will he consider what would happen if, as sometimes occurs, a local authority or another agency wished to put together a significant regeneration scheme? As part of that scheme, the authority or agency might well acquire commercial property and the residential property surrounding it, as happened with the pathfinder schemes in Manchester. If the homes that feed local shops are acquired, it is inevitable that the agency or authority will have to acquire the nearby commercial premises as well because their business will have gone. While the agency or authority assembles the rest of its desirable scheme, will it be penalised by the empty business rate? Surely such a situation would be perverse.
I can do no more than express my wish that the Minister will address the hon. Gentleman’s useful intervention during his winding-up speech.
The Minister needs to reflect more on rural communities. It can take a good deal of time for a small industrial unit in a rural area to be re-let, even with the owner’s most assiduous efforts. It can often take a great deal of time for a new business venture to spot an opportunity in a rural location. Changing the tax regime will not alter that situation, but simply take more money out the system and perhaps threaten the viability of the business owner who wishes to make a change.
The measure could affect the situation facing post offices. I deeply regret the fact that the Government are going ahead with plans to close 2,500 post offices. As the House will know, sub-postmasters and postmistresses are small business people who own their premises. If they will be subject to compulsory closure, they will no doubt receive a compensatory payment, as would be only appropriate, but it might well be for them to find an alternative use for the property, whether by letting it or selling it on. Will former sub-postmasters and postmistresses be expected to pay the new taxation while their premises remain vacant, even though the Government will have enforced the closure of the business? I hope that the Minister will address the circumstances of post offices because that is a significant issue.
The Bill rightly contains an exemption for charities and community sports clubs. However, the ownership of community facilities by community companies is becoming more prevalent. Perhaps that trend is more common in Scotland than in England and Wales, but it is none the less increasing. I hope that the Minister will be able to reassure me that premises owned by community companies will be exempt from the change, given that, as I would hope that hon. Members on both sides of the House would agree, such community involvement in the ownership of facilities should be encouraged. Substantial risks for community companies could be inherent in the new regime, so the situation must be addressed.
Will the Minister clarify one other point that has been raised with me? It relates to unoccupied buy-to-let properties. There may be differences of opinion about the buy-to-let market among Members of different parties, but in my constituency it causes great problems with the sort of property that first-time buyers might seek to acquire. What is the position of unoccupied buy-to-let property under the Bill? I have heard stories about buy-to-let; indeed, in my constituency, there is a case of a buy-to-let property speculator buying a number of flats in one development and not letting them, but instead sitting on them in order to take advantage of the capital appreciation.
A point has been made about the impact on pension funds, and that is a significant issue that needs to be addressed. My noble Friend Lord Oakeshott has calculated that the measure would take some £150 million a year out of pension funds, and the impact on the overall capital value of pension funds would therefore be worth some £3 billion. I do not think that that is scaremongering. The Minister may regard it as a price worth paying, but I should certainly be interested to hear his justification on that point.
I understand and have some sympathy with the Government’s overall objectives, but a great number of questions concerning the Bill remain to be answered. I hope that they will be dealt with satisfactorily as the Bill completes its further stages.
As a matter of principle the House should be wary of legislation that begins with an algebraic formula, although that may be a throwback to my wrestlings with algebra when I was at school. The Bill actually begins with two formulae; in fact, the whole of the first clause is effectively two algebraic formulae. The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) rightly observed that legislation has to be rural-proofed, but I am beginning to think that it should be mathematics-proofed, or algebra-proofed, too. I am tempted to read out the whole of the first clause for the edification of those who have not read it, but I will spare everybody that. It makes one wonder what lies behind the algebraic formula, and that brings us to the motives and to the point that I raised in an earlier intervention, which has already been addressed. I know that the Minister for Local Government is straining to say that there were other things that he could have cherry-picked, but it is significant that the Bill has been brought forward as it has been.
The hon. Gentleman criticises the Bill on the grounds that clause 1 starts with a formula, but the formula derives from the Local Government Finance Act 1988, which the Bill will change, and of course the 1988 Act was intended to nationalise business rates and take control away from local authorities. I trust that he will bear that in mind when we come to debate the Sustainable Communities Bill.
As always, I am grateful to the Minister for his useful point. I assure him that my aversion to algebraic formulae knows no party boundary, and I suspect that the 1988 Act did not commence in the same stunning fashion as this Bill. What concerns me is that there is a feeling among many people, and certainly among my constituents, the Federation of Small Businesses notwithstanding, that the Bill is essentially a revenue-generating exercise. The Financial Secretary to the Treasury, with his usual reasonableness and skill, said, “No, this is essentially a regeneration exercise, and a supply-enhancing exercise”, but some of us are rather sceptical about that given the way in which the measure has come about. There is a real worry among many of my constituents, particularly those with small businesses, about what lies behind that algebraic formula.
Hon. Members in all parties have drawn attention to the situation in London and the south-east. If the Bill is a regeneration exercise, it is a high-risk strategy that the Government have embarked on. Those risks have been mentioned by every speaker in the debate, except those on the Treasury Bench. I hope that, as the Bill makes progress, Ministers will flesh out what they intend to do to ameliorate and mitigate those risks.
It was suggested earlier that the Bill was designed to tackle the particular situation in London, and the Financial Secretary referred to the vacant property rates in London and one or two other places. As I endeavoured to point out when I intervened and as I shall elaborate, even to me as a London Member of Parliament the situation in London is not entirely straightforward. There is a huge difference between the highly charged economy of the west end and the City of London, which is financial-services dominated and where property and rental values have been driven up for a raft of reasons, and the economy of other boroughs in the city. That applies to suburban areas such as mine, and also to some of the inner-city boroughs, where there is a real regeneration issue. That is why the concerns expressed by my hon. Friend the Member for Surrey Heath (Michael Gove) and others about the effect of the Bill on regeneration activities are well founded.
The Financial Secretary spoke about the worryingly—from his point of view—and, I assume, the unacceptably high vacancy rates of 16 per cent. in the City of London. He might take comfort, for his argument, from the thought that according to the published statistics that has broadly doubled since 1998. That is by no means the whole picture in London. The London borough of Newham has vacancy rates of some 14 per cent. That figure has remained consistent throughout the nine or 10-year period, so it cannot be suggested that in Newham there has been a speculative holding on to vacant sites because of the potential from, say, the Olympic development. The situation existed long before that possibility arose.
In Hackney, for example, there has been a fluctuation from 30 per cent. at the start of the period down to 20 per cent. and back to 28 per cent. The vacancy rates have always been stubbornly above the 20 per cent. level, which indicates that there are a raft of reasons or high levels of vacancy. The reasons why it is difficult to get commercial premises let and occupied in Newham and Hackney are very different from those causing premises to be vacant in the City of London or Westminster. Unless significant exemptions and safeguards are built in, perhaps by the regulations, about which we have not heard much at this stage, the Government’s approach may be a blunt instrument that does as much damage in some quarters as it seeks to do good in others.
In my London borough of Bromley, we have a vacancy rate of some 4 per cent. That has fallen from its high of 6 per cent. We are pleased that that is a comparatively low vacancy rate. I hasten to add that that is in no insignificant measure due to the enlightened policies of the Conservative-controlled London borough of Bromley council, working with our private sector partners. The master plan that we have just published for Bromley town centre will, I hope, build on that. I know from my time in local government, and I agree with the Government on this, that many local authorities seek to encourage commercial development. That is why, as the Minister knows, I favour a return of the business rate to incentivise local authorities in that regard.
However, that is not the whole picture. I know from taking a walk up my high street that, even in Bromley, although we have a thriving centre around the Glades and the southern part of the high street, that 4 per cent. vacancy rate masks the fact that there is almost complete occupation at one end but a much higher rate at the northern end of the town centre, for example, where smaller premises usually owned by individual landlords are struggling to compete because the trade is drawn further south.
The situation that my hon. Friend describes is very similar to that of St. Albans, where many smaller quirky premises within the conservation area are falling empty. It is partly because the high street is attractive, but it is also because those premises are quite small and it is hard to generate the high rents that commercial premises need. It is not as simple and straightforward as having high-rise tower blocks or big office spaces that could easily be let. These properties are quite difficult to let and I am sure that my hon. Friend realises that this is one of the important issues surrounding the Bill.
My hon. Friend is absolutely right and extremely well informed. I suspect that what she said entirely mirrors the experience of most of us who have medium-sized shopping centres in the towns of our constituencies. As my hon. Friend rightly says, the problem is not due to speculative landlords trying to make a fast buck by leaving premises dormant and hoping for a capital appreciation. These people actually want to let their properties, but for all the reasons that have been specified, they are unable to do so. That is why the caveat to the observations of the Federation of Small Businesses is so important. It was right to read it out, because that caveat is perhaps the most important point.
At the moment, most of us remain convinced that the Government have recognised that
“small businesses who are unable to use or sell empty property for legitimate commercial reasons”
should not be “punished” by the new rules. It is worth restating what my hon. Friend the Member for Ludlow (Mr. Dunne) said about that. Many of us will want to reflect very carefully as the Bill progresses on what the Government say they are going to do to meet that legitimate issue, which is particularly important for people based in the fringe area of north Bromley in my constituency and in many other small shopping centres elsewhere.
It is a mistake to assume that there is one simple cause of the vacancy rates that distress and trouble all of us under those circumstances. That also helps to explain the concern about regeneration and why a number of property experts and people in the industry have expressed concern about the effect of what seems to be a tax-raising measure on regeneration. It will be interesting to hear what the Minister says in his reply to provide reassurance on that point. We know that, in numerical terms, the vast bulk of the consultation has been unsympathetic to the Government’s proposed changes. It might be interesting if the Minister enlightened us on whether the majority of the urban regeneration organisations that he consulted were in favour or opposed to the scheme. It is important to tackle that issue.
As has been acknowledged, small businesses in such sectors are already under pressure. After all, this measure does not stand on its own. Pressure has already been exerted from the 2005 business rates revaluation, so adding this on top could be enough to push small businesses beyond the point at which they can remain viable. Particularly if the Government’s intentions are genuine and this is not a tax-raiser, it would be a tragedy if the provisions had that perverse effect by over-egging the pudding. Nothing has yet been said by the Financial Secretary—perhaps the Minister for Local Government will be able to clarify the position—about whether the proposals are indeed revenue-neutral. I think that we know the answer: it is pretty obvious that there will be a significant take. The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) made that point very strongly. Against that background, how is what is perceived by many as the imposition of an additional tax likely to increase demand for vacant property or incentivise people to bring property on-stream?
Reference was made earlier to the position in the 1970s. I accept, as the Minister has argued on other occasions, that the economy is different now. It is important that the risk of vandalism and other issues are spelled out and dealt with carefully in the regulations. If the Minister accepts—the Government appear to do so by putting it in the Bill—that there is a risk, who will monitor and assess it? Are we going to create needless bureaucratic burdens? Will it be another obligation that will fall on the local authority? If so—we do not know for sure whether that is envisaged at the moment—will the need for staff to carry out the monitoring be reflected in the financial settlement for local authorities? It seems to me that a number of seriously unanswered questions arise from the Bill.
The hon. Gentleman makes a significant point. How should we judge whether, for example, a property has been vandalised or has simply become dilapidated? If the roof comes off on a windy night, was it the wind, or was the wind taken advantage of? Those are difficult judgments, and we have not heard much from the Minister about how that is to be monitored.
The hon. Gentleman is absolutely right. I am almost beginning to regret that I no longer practise law, because the greatest business growth might be for those lawyers who appear in rating tribunals, and who argue exactly that sort of neat and interesting point. I am sure that that is not the type of job creation that the Government were intending, but it might be the result. We need to hear a great deal more from the Government on such a serious point. We do not know whether rating appeals are likely to increase significantly, or what burdens will fall on the system, in addition to the other burdens affecting local authorities.
Generally, those of us who look at our own shopping centres do not believe that properties are deliberately left vacant. It is tough enough for smaller landlords to survive without such burdens being placed on them. In areas such as mine I am concerned that, if smaller landlords find that the additional burden tips them over the edge of viability, they will be forced to sell up. The only people who will be able to take advantage and buy will be the large landlords—Tesco, Sainsbury’s and the others, who will gobble up yet more sites. As has been pointed out, they can bear the cost, proportionately, of land banking. That cannot be what is intended; it is hardly consistent with the Sustainable Communities Bill, on which I am delighted to see the Minister is increasingly a convert. Those of us who want and value diversity of tenure in our town centres would be concerned if the Government’s proposals had such an unintended consequence.
It is also worth remembering that the commercial property sector is important for the UK economy. The retail sector alone has an aggregate rateable value of some £38 billion, which is hugely important to our economic interest. Overall, current estimates suggest that about 7 per cent. of that is vacant. That might suggest an aggregate rateable value for those vacant properties of about £2.5 billion.
That brings me back to my concern about the motivation for the proposal. I agree that the Local Government Association was supportive of the proposals, but for the reason that caused me to support the return of the business rate—that any additional money raised had to stay in the local economy, where it could be used for the benefit of the local community. No such safeguard appears anywhere in the Bill. No algebraic formula ensures that that money will go back to the people of Bromley or any other local authority. The danger is that it will go straight into the hands of the Treasury. The way in which the Treasury has increasingly nationalised revenue raised from local sources is one of the real problems that we face in trying to make our local communities sustainable.
Taken in the context of other Government measures—powers to trim back business rates across the board, and the removal of the exemption on agricultural land and farmland, of which Bromley and Chislehurst has some but not much—there is real concern about the effect of the proposals. Small businesses in my part of the world have been concerned that previous measures enacted by the Chancellor of the Exchequer have damaged them. The fact that the small business rate relief was not automatic led to a considerable drop in take-up. That was a burden placed on small businesses, and they fear another burden of the same kind.
We look to the Minister to act. The only occasion on which I parted company from my hon. Friend the Member for Surrey Heath was when he described the Minister as frugal. As we know, the Minister is capable of acts of great generosity, and we look forward to its being redeemed in due course. My hon. Friend the Member for St. Albans (Anne Main) is not present at the moment, but if the Minister feels inclined towards the same generosity on this occasion, perhaps she should be awarded a prize for the “champagne moment” of the debate.
I hope that by now the Minister has an answer to the point that I have raised. He nods, so I can sit down.
Let me begin by reminding the House of the origin of business rates. They were developed in, I believe, the late 1960s as a way of raising revenue to help fund local services. That is, of course, a worthy purpose, but now a Bill is being introduced whose purpose, far from being to help fund local services, is to help plug holes in national debt. It is highly regrettable that a form of local revenue raising should be used simply to raise revenue.
We have been led to believe by the way in which this Bill was described—or barely described—by the Chancellor in his Budget speech, and the way in which it was introduced by the Economic Secretary in the Ways and Means debate and again today by the Financial Secretary, that it is somehow of benefit to broader society. Indeed, I believe that it has been described as of environmental, social and economic benefit. It is, however, plainly and simply a money-raising measure, and a significant one at that. As was pointed out earlier, the Red Book states that in the first year alone the Bill will raise £950 million, which makes it the fourth largest revenue-raising measure in this year’s Budget. An enormously significant measure is being introduced behind a smokescreen of social good, and I hope that my speech will help to explode the myth. There is another possible explanation. It may—not for the first time—be a case of the Government’s basic lack of understanding of some of the commercial realities that underpin economic activity in large parts of our economy. I shall say more about that later.
The Government claim that the Bill will help to establish a more level playing field between different types of property use. That is true to an extent, but only to an extent, because the Bill maintains the distinction between commercial premises for retail, office and other use and those for industrial and storage use. If the Government were being straightforward, they would have acknowledged that.
My hon. Friend the Member for Surrey Heath (Michael Gove) used an expression that may be common Scottish, or perhaps Surrey, parlance. He said that the Government were “praying in aid” both Sir Michael Lyons and the Barker review to provide justification for the Bill. Indeed they are, although I would use rather more basic and less colourful language. I would say that the Government were hiding behind the claims in those reviews to provide some sort of ethical justification for a tax grab.
There are some difficulties with that approach, not least Sir Michael Lyons’ comment that the Bill would constitute an appropriate reform in the context of other measures that he thought the Government might like to introduce. He was advocating that the Government should wait until the revaluation that he was proposing, which would start in 2010, so the negative effect on business of this increased taxation could be absorbed within the adjustments to rental valuations and the impact that that would have on business rates and rateable values. He wrote in section 8.107 of his report:
“Depending on the size of complexity of the task involved, it might be possible to remove exemptions from the beginning of the 2010 list in April 2010.”
Of course the Government have leapt upon that suggestion and, as we have heard—notably from my hon. Friend the Member for Bromley and Chislehurst (Robert Neill)—taken it up with alacrity because of the significance of the revenue-raising measure.
Sir Michael Lyons made some interesting observations about the extent of business rates and their impact on revenue raising for the Government and on businesses in general. Rates are a very significant tax revenue raiser—[Interruption.] I do not know if the Minister for Local Government is intending to intervene—
As I will explain, I am seeking to highlight merely the degree of taxation raised in the measure. I am not suggesting that the Government are doing anything inappropriate; clearly, they have a job in raising tax. It is the manner and extent of the tax and the measure that I am concerned about.
Sir Michael Lyons pointed out in section 8.9 of his report:
“Business rates are a significant tax for businesses—in 2006-07, they are expected to raise about £18.4 billion in England (£20.3 billion across the UK), compared to £47.5 billion (net of tax credits) in UK corporation tax”.
Business rates are now raising almost half the amount that businesses pay in corporation tax. The impact of that is distorting, depending on the sort of business. Many contemporary businesses—recently established businesses that are developing their business as a result of technological change—do not require many premises to operate from. Operating online, it is possible to exist with a very modest proportion of one’s profit going in the form of business rates. I want to develop that point. The suggestion in the Lyons report was that, on average, about 3 per cent. of turnover is paid by business through business rates, but he acknowledged that that varies significantly between companies in different parts of the country and different sectors of the economy.
The impact noted by Kate Barker in her report was:
“The principle behind (empty rates relief) is to create a broadly symmetrical tax, given uncertainty: when a property earns a positive revenue, it is taxed; when it does not, relief is granted. This helps remove what would otherwise be a distortion and helps to share risk between property owners and the government.”
I quote that because the Government are arguing that they are removing a distortion by reducing this relief and are claiming support for that argument in what Barker and Lyons have said. Barker pointed out that the distortion is itself balanced by the relief. Lyons made the point that the impact falls very disproportionately on different parts of the economy. Therefore, this measure will also fall disproportionately and will have unintended consequences on different parts of the economy. I shall discuss that later.
Let me illustrate the extent of the differential. As my hon. Friend the Member for St. Albans (Anne Main) rightly said, some major supermarket chains can afford to retain land banks and pay rates on vacant property. In responding to the Barker review, it was pointed out that in 2005 Tesco spent 13 per cent. of its profits on business rates, compared with 1 per cent. of profits for a mobile telephone operator, which is a high-street competitor. I therefore contend that the evidence from Lyons and Barker is somewhat contradictory and does not necessarily support the Government’s argument that the measure is not distortive. The retail market is changing so rapidly as a result of the internet that the measure will compound the problems being experienced by many retailers with significant high street presences. Trade is moving online and out of premises, and this measure will exacerbate that. I will talk about the retail sector shortly.
Another impact addressed in the Lyons review and which has been misunderstood by the Government is to do with the timing of rental voids. The Lyons review assumed that properties remain empty for the duration of the relief, but that is not the case. As my hon. Friend the Member for St. Albans said, speculative developments tend to be large and complex and have many occupiers, and there is often a considerable period of time between the point when the property is completed and the point when it is entirely let. I contend that one reason why vacancy rates are higher in areas such as the City of London and Westminster is that they are desirable locations. That draws in speculative development during periods of strong market growth, and it is in the interests of the developer to hold out for the highest possible rent because that will enhance the capital value of the project.
The capital value of a project is what is of greatest significance to the developer undertaking a speculative development, rather than the running rent, which is of most interest to the occupier. It is therefore unsurprising that there are higher vacancy rates in areas of strong demand. This measure will have little impact on that, as it is relatively insignificant in relation to the overall rent that the developer anticipates he will have to forgo for the period until the property is fully let. That was not well understood in the Lyons report.
A British Retail Consortium submission to the Chancellor in advance of the Budget referred to the fact that surveyors conducting appraisals for development in regeneration areas typically anticipate letting voids, following completion of construction, of 18 to 24 months—the voids are, I assume, slightly longer for properties in regeneration areas than for those in areas where there is already a ready demand. That suggests that the duration of relief for retail and office premises is already relatively short when compared with the void periods for such properties, and this measure would exacerbate that problem.
I referred in an intervention to a point that the Federation of Small Businesses made to Sir Michael Lyons, and that was repeated by my hon. Friend the Member for Bromley and Chislehurst. I hope that when he responds to our debate, the Minister will acknowledge that the FSB wants to understand the exemptions on which the Government intend to consult, because it hopes that its members can benefit from them. I would therefore welcome a little more explanation from the Minister.
May I touch briefly on the commercial consequences of the relief, particularly for retailers? I had a 20-year involvement in retail until last year, most of it in provincial high streets. However, we also had exposure to shopping malls, both in and out of town, so I have some experience of the impact of business rates on retail premises. It is in that particular area that the FSB seeks to develop exemptions, and I hope that the Government will show it some sympathy. The Government argue that by increasing the amount of business taxation on empty properties the Bill will consequently reduce rents in some way. That is probably a correct interpretation when applied to vacant industrial units in run-down areas that require regeneration and where ownership is likely to be not on a continuing lease, but in the hands of a developer or owner who can reduce rents. However, in many cases, and certainly those where properties are empty yet still subject to tenancy, that does not apply.
The Financial Secretary referred to the complexity and rigidity of the structure of lease documentation and tenancy contracts. That problem should be well understood by the Government because it is not easy, even in legislation, to rewrite commercial contracts that, in many cases, stretch over decades rather than years. Indeed, in the 20 years that I spent in the retail business, the average duration of leases into which we entered was initially 25 years. After 20 years, it came down to about 15 years, but it will take many years to change practice in the property market and the problem cannot easily be solved in legislation by any Government.
Consequently, as developers seek to build, for example, a shopping mall, they will wish to take into account the probability that they will have to pay more to the Government for voids as a result of the measure while they develop and let their properties. Far from reducing the rents that they charge tenants in the mall, they will increase them because they must recover the outgoing additional tax that they would not otherwise have to pay. That is the nature of evidence submitted to my hon. Friends and me by professionals in the property industry and those who represent retailers. I hope that the Minister recognises, as I said earlier, that while it may be true that rents will come down for certain types of property, for many others that simply will not happen. The initial developers will raise rents, and that will apply in the office sector, too. In cases that do not involve new build but existing premises, the rents are fixed, and there is nothing that the owner can do about it until the end of the lease.
May I dwell a little more on some other consequences of the measure for the retail trade? Where trade takes place in a strong location, in a strong retail market, if a property becomes empty a void can be readily filled, so the measure will probably make very little difference. However, that applies to only a relatively small proportion of retail space in periods of economic growth. The retail sector is not in that situation at that moment—a lot of retail trade, as I said, has moved online and many retailers are not looking at a growing market: they are defending their market share, which is subject to competition.
In many other instances where there is a strong location and a weak retail market, an empty property void might take many months to fill. Equally, in a weak location with a strong market it might take many months to fill premises. However, the real problem arises where there is a weak location and a weak market. That situation might cover some of the examples given by my hon. Friend the Member for Bromley and Chislehurst regarding one end of Bromley high street. Who has to solve that problem? It is not the owner of the property, which is what the Bill indicates, but the tenant—the occupier of the property. I hope that the Minister will be able to convince me that that fundamental misunderstanding has been, or will be, taken properly into account when looking at these exemptions. Nor is it necessarily the problem of the tenant who has just vacated the property—as a result of the lease contract, the problem often reverts to the previous occupant. Should the tenant who has had to close down the business also become bankrupt and cease trading, the lease reverts to the previous tenant.
I do not know the circumstances of the new Kwik Save company, which has just decided to close a lot of its stores, but it would not surprise me if the original vendor of the new Kwik Save stores—I think that it is Somerfield—is feeling a bit anxious about what might happen to those leases. Should the business not be able to fund the business rates and rents of those premises, having been unable to get rid of them, the cost may revert to Somerfield. Such situations arise throughout the country and are particularly applicable to small chains of a relatively small number of stores, which are often unable to trade satisfactorily in all those stores and therefore seek to close the worst-performing ones. All portfolios of retail stores have some strong performers and some poor ones. If the business is strong enough to cope with the closure of a small number of stores, all well and good; if it goes out of business, the problem is writ large.
The problem is particularly applicable to small provincial high streets. We are already experiencing a shift of trade out of the small market towns and into the larger retail catchments, where there is greater choice and more destination shopping, and which can compete better with the internet than many local high streets can. So as part of the consultation, the Government need to look carefully at high streets in provincial areas throughout the country. The Royal Institution of Chartered Surveyors said that the Bill will undoubtedly affect many businesses; it seemed to be thinking in particular of businesses in the smaller town high streets.
I want to pick up on a few of the points made by the Financial Secretary. He referred to local authorities’ enthusiasm for the Bill, and in discussing their response to Lyons he touched on Hampshire county council, in order to bring the point home to my hon. Friend the Member for Fareham (Mr. Hoban). It does not surprise me that local authorities might see this provision as an easy way of raising revenue because it is a stealth tax. It is not paid by the people who—[Interruption.] The Minister for Local Government says from a sedentary position that it is not a stealth tax, but it is a classic stealth tax, in that nobody who puts their cross on a ballot paper—[Interruption.]
Order. The Minister is very fond of interjecting from a sedentary position. It would be helpful to the debate if he would either resist or get to the Dispatch Box in the normal way.
I am grateful, Mr. Deputy Speaker.
The proposal is a stealth tax because the people who vote through the ballot box are not directly paying it. It is being borne by businesses, and often by businesses in difficult circumstances; otherwise, they would not have an empty property. It is therefore not surprising to me that local authorities are likely to vote yes to a measure that will not have a direct impact on them.
Secondly, any local authority asked whether it would like more funds to be raised locally other than through council tax is likely to support that. In the context of the Lyons review, which considered the balance of funding, anything that encourages funding by any means other than the council tax will be attractive to local authorities, especially if there is some prospect of the Government passing it back to them in increased grant. Therefore, I do not take much comfort from the responses by local authorities. I hope that the Minister will tell us how many applications for local business tax he has had from local authorities who would voluntarily increase tax on business. If local authorities had to make the decisions themselves, I suspect that they would react differently.
Thirdly, the Financial Secretary touched on the vacancy rate analysis and highlighted the high rates in cities. He described it as applying equally in areas of high and low demand, citing Manchester and Birmingham as areas of relatively low demand compared with London. The answer is to offer a differential response, not the same response, to both kinds of problem. I touched on the importance of the rate to speculative developers—the relative lack of impact that it will have on those undertaking speculative development of properties that are sitting idle—because it is in the developer’s interest to wait for the market to improve to match their rental expectation. Generally speaking, the developer can afford to do that. It is different for vacant industrial property in our industrial heartlands, where the owner is in a position to accept an occupier at any rental better than zero, because that is in their commercial interest.
I would argue that the impact will fall elsewhere and the law of unintended consequences will apply. Those in more marginal areas, especially tenants, will find higher vacancy rates as a result of the Bill. The consultation that the Government will undertake is welcome, but why will it take place after the Bill is enacted? Surely the exemptions to the proposal are just as important to many of the sectors that I have touched on as the Bill itself. I suspect that the answer is that the Chancellor is desperate for the money and needs to have this in place as soon as possible.
Rural diversification was mentioned by the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) and my hon. Friend the Member for Bromley and Chislehurst. I was pleased to learn that there are agricultural endeavours in Bromley. The implicit assumption in the Bill is that vacant premises are deliberately left vacant. I assure the Minister that in rural areas it is not the case that properties are deliberately left vacant; it is generally the case that there is either a difficulty in finding new occupants or it takes time—as we heard in a strong contribution by the hon. Member for Inverness, Nairn, Badenoch and Strathspey—to secure a change of use for planning purposes, if that is what is required to turn a redundant building into something else. That is a particular problem in rural areas, where planning policies tend to be more restrictive. Fewer businesses tend to seek premises, with the result that premises can stay idle for longer. Therefore, I urge the Minister for Local Government to consult his colleagues in DEFRA when he considers the impact of the Bill on farmers seeking to diversify into activities that are not purely agricultural.
The problem posed by different types of property in different areas could be solved by the use of local solutions. I know from previous encounters that the Minister regards himself as a localiser who wants local solutions to problems. I believe that local authorities should be given discretion to implement the proposals as they choose. They are best placed to decide whether businesses in their areas should be allowed to take advantage of exemptions that apply in some places but not in others. In that connection, I cannot resist reminding the Minister about another matter under discussion at the moment. If Shropshire were to go down the unfortunate unitary authority route, people in the most rural parts of the county that I represent—that is, in south Shropshire and Bridgnorth—would be very upset to be told that they must adopt a proposal coming from the unitary authority based in Shrewsbury. That is because the effect of any such proposal in rural areas would be very different from the effect that it would have in Shrewsbury.
I turn now to the detail of the Bill, and in particular to two provisions in clause 2. I welcome the proposed exemption for charities, but want to echo one note of caution expressed by the hon. Member for Inverness, Nairn, Badenoch and Strathspey. That is that the presence of too many charity shops in a high street tends to deter a proper and balanced retail mix. Charity shops are an indicator of a decline in footfall and customer traffic; they are often established in premises that are otherwise vacant and other activity can be deterred when there are too many of them. I welcome what the Minister wants to do, but point out that it is not all good news, all of the time.
My absolutely final point has to do with the welcome exemption proposed for community amateur sports clubs. Many sports clubs in my constituency, and I am sure elsewhere, benefit from the Finance Act 2002 provisions giving them a zero value added tax rating, but I hope that the proposed exemption will be applied only rarely. I am pleased to say that the Olympian movement has its origins in Much Wenlock in my constituency, and that the approach of the 2012 games in London means that interest in sport is rising across the country. I hope that no amateur sports groups find that they have empty premises, and so I hope that the proposed exemption is merely a goodwill gesture that is not likely to be used.
Has the Minister considered extending the proposed relief to other, similar organisations? The hon. Member for Inverness, Nairn, Badenoch and Strathspey referred to community-owned properties. In my constituency, there are many village halls and other community properties. If, for some appalling reason, they had to become vacant, they would find it very difficult to fund the business rates—not least because, often, they are owned not by the parish council but by a village hall committee. Such committees are a community enterprise of one form or another and have no funding. As a result, their inability to pay the rating bill would be likely to lead to the demolition of premises.
My contribution will be brief. I guess that there will be some slight differences in how the proposals will be implemented in Wales from in England.
As a former mining community my area has not unique but different problems from those of bigger towns and cities. My constituency has four major town centres and a number of small retail areas that used to rely on a pit at the end of the street. The turnover and take-up of properties, such as shops, small offices and factories, is small. Some of the properties have been empty, not for weeks or months, but for years. It has reached the stage where we do not even know who owns some of the properties. To take up the point made by the hon. Member for Bromley and Chislehurst (Robert Neill), it will be an onerous exercise to trace the owners.
When I consider properties that have been empty for some time I hope that we can look at ways to reinvest money that is raised, whatever the outcome is, and turn them back into domestic dwellings. Instead of seeing dereliction in the streets, which will never change because of out-of-town shopping centres, I would rather see the areas redeveloped as domestic housing. If we can invest some of the taxes raised in that way, we would all benefit. To echo what other Members have said, none of us wants to see our towns and small retail areas boarded up, but that is what we are seeing now.
We have just heard the announcement about the closure of Remploy. It has a factory in my constituency which is likely to sit empty for some considerable time. I hope that if there are to be exemptions, that sort of property could be included.
My final point concerns exemptions for dwellings. In my constituency it is not a case of building houses, but of renovating terraced houses. Rate relief, albeit for a short space of time, helps first-time buyers who are looking to renovate.
I hope that the Government will continue to consult as widely as possible. We have all had contact from the Confederation of British Industry about its concerns. Many groups have yet to have an input into the Bill. I hope that the Government will take notice of their comments and that over the next couple of months we will all have the opportunity to put thoughts and ideas forward.
This has been a brief, informative and thoughtful debate. I hope that my remarks will match all those qualities, but I make no commitment on that.
The Financial Secretary to the Treasury, my hon. Friend the Member for Ludlow (Mr. Dunne) and I have gone to some lengths to avoid taking part in the final sitting of the Finance Bill this afternoon, such is the attraction of this measure.
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 using it 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.
Hon. Members on both sides of the House have made well-informed speeches. They clearly did their research before putting forward their arguments, as was the case in the debate on the Ways and Means resolution. Many of the matters that were raised were points of detail, although some were points of policy and principle. I hope that you will forgive me, Mr. Deputy Speaker, if I am not able to respond to every comment because although a relatively limited number of Members have spoken, many detailed points were made.
I start by referring to the opening remarks of my hon. Friend the Financial Secretary to the Treasury, because in much of the debate two policy points have been missed, although this is a Second Reading debate. The first refers to the 1983 White Paper to which my hon. Friend referred. It said that the purpose of the original measure on empty property rates was to reflect the fact that there was a period of recession. Before that, of course, different measures were in place. The arguments that have been put forward today—some based on evidence, others ingenious in their contortions—miss the big picture, which is that the measures were introduced at a time when, as a result of the infamous 1981 Budget, there was deliberate industrial vandalism as a part of macro-economic policy.
Secondly, I congratulate the hon. Member for Surrey Heath (Michael Gove), who is proving an eloquent performer—perhaps “performer” is unkind—at the Dispatch Box, but he has adopted the technique of the right hon. Member for West Dorset (Mr. Letwin), who perfected the art of assigning to us a premise to which we do not sign up, and then proceeding to demolish it. The arguments put forward by the hon. Member for Surrey Heath are fascinating, coherent and completely irrelevant to what we are putting forward. No doubt that is entertaining for sketch-writers and colleagues at The Times, but it is of no relevance whatever to the British property market or the measure before us. The fact of the matter is that non-domestic rates in this country are based on rental, not capital, value. If a property has been empty and is in an area of weak demand, the rent for that property will be very low. That is why we base non-domestic rates on rental value, not on capital value.
In addition, it was argued that we were introducing the measure because we believe that property developers deliberately build premises and keep them empty. We have not said that—we put forward the measure as an incentive for owners to bring those properties on to the market. We have not hidden from the fact that the measure will raise revenue. I remind the House that if the measure had not concerned local taxation, it would be in the Finance Bill. It was a Budget announcement. Of course, we have followed the correct procedure, but we have not hidden the fact that it is a revenue-raising measure. That takes me back to my previous point, which was made previously in our debate on the Ways and Means resolution.
I shall make my point first, if I may, then the hon. Gentleman can argue against my actual premise, rather than the premise that he is ascribing to me. That is an art that he has perfected.
If the Government’s policy is successful, as we obviously hope and expect that it will be, rent will come down. The multiplier for non-domestic rates is capped at the retail prices index. The yield from non-domestic rates broadly rises with RPI broadly; that has been the experience. The hon. Member for Ludlow (Mr. Dunne) has done his research very well and he has significant experience, particularly of the retail sector, as his entries in “Dod’s” and the Register of Members’ Interests show, but his argument that the proportion of tax from business rates has gone up misses the obvious arithmetic—or is it algebraic?—point, which is that that is because corporation tax has gone down.
Of course, the proportion coming from business rates relative to corporation tax will have gone up if corporation tax has come down, as it has again in the recent Budget. That point has not been made by hon. Gentlemen on the Opposition Benches and hon. Ladies from a sedentary position, yet I can still argue with justification that non-domestic rates have been capped at inflation as well. That is one of the reasons why the Government’s economic policy has been so strong for business. I invite the hon. Member for Surrey Heath to criticise the argument that we have actually used, not the argument that he says we have used.
I am grateful to the Minister for acknowledging that, in his Budget speech, the Chancellor of the Exchequer accepted the submission made by my hon. Friend the Member for Tatton (Mr. Osborne) and lowered corporation tax, though not quite to the level that he suggested.
The Minister claims that he has never argued that property developers deliberately leave their properties empty, but in the debate on the Ways and Means resolution he said that
“there are many examples of companies who build offices, turn the lights on brightly to advertise them, stick a For Rent notice outside, hire a security guard and disappear to the Mediterranean.—[Official Report, 10 May 2007; Vol. 460, c. 363.]
That is an example of precisely the sort of behaviour that he says he did not describe, and which we said did not occur.
The hon. Member for Ludlow argued that in his experience, which is more substantial than mine, property developers made speculative decisions. I presume the word “speculative” means that they take a risk. At present they know that they will not be required to pay business rates on empty properties, so they factor that in.
My right hon. Friend the Member for Rutherglen and Hamilton, West (Mr. McAvoy) is ever present and I need to answer the debate. He is not in the Chamber; he is just ever present—[Interruption.] And all-powerful.
The point about deliberate vandalisation, which was mentioned by a number of speakers in the debate, relates to the schedule. We see it is good planning to ensure that there should not be such a tax avoidance measure. I can give reassurances on that point, and on the allegation that there may be increased bureaucracy. Empty properties are already part of the tax base and there is no expansion of that. The Valuation Office, whose job it is to consider such matters and appeals, already has empty properties in its remit. Although it is the billing authority that collects the tax, it is the Valuation Office that checks that. I hope that that provides some reassurance.
I thank the hon. Member for Blaenau Gwent (Mr. Davies) for staying through the debate to make his points on behalf of his constituents. He raised three points, the first of which was about his fear about empty properties. It is a similar point to that raised by my hon. Friend the Member for Stoke-on-Trent, North (Joan Walley). If properties are empty for a substantial period as a result of low demand, the valuation, which is based on rent, will be very low. By definition, a valuation officer is required to assess the valuation on that basis.
In our argument we use the City of London, Westminster, Manchester and Birmingham as particularly strong examples of areas where there are high rents and relatively high vacancy rates. This is not a south-east matter. As I have said before, my own area in Greater Manchester, Manchester city, has higher rents than the island of Manhattan. That is a testament to this Government’s hugely successful stewardship of the economy, which is a matter of fact. Twenty years ago, I doubt whether I would have been able to say that cities such as Birmingham and Manchester were in these high-growth areas, but they are now. This is not a north-south issue. I caution Conservative Members not to make the mistake of thinking that we are all poor up north. We are not: we have some very rich areas raising high business rates, which we redistribute to poorer areas, some in the south of England, goodness me, and not far away from the constituency of the hon. Member for Fareham (Mr. Hoban)! I am pleased to report back to the House about that.
More seriously, let us look again at the figures on vacancy rates and the amount of empty property relief claimed, to which my hon. Friend the Financial Secretary referred earlier. The latest figures for 2006-07 show the 10 highest authorities and top of the list, of course, is Westminster, with some £72 million. Then we have the City of London at £65 million; Birmingham, £42 million; Manchester, £37 million; and so forth. The latest figures published last year show at the bottom of the list areas such as Teessdale at £91,000; Chester-le-Street, £192,000; and Castle Morpeth, £307,000—but they are not all in the north. I was hoping to tempt an intervention from a southern Member, but so far I have not. I am holding back on some in the list—[Interruption.] It looks as though I have tempted someone to intervene.
I was going to ask the Minister not to comment on the geographic divide—he is doing so eloquently, going into impressive detail on different areas’ vacancy rates and so forth—but on something else. I asked him earlier whether any assessment had been done of vacancy rates by type of occupier—owner-occupier or tenant, for example—and I hope that he will come on to that in due course.
I will come back to that. The hon. Gentleman mentioned another important point earlier about rateable values and rent in different sectors. He and the hon. Member for Fareham referred to the impact of the internet on the retail sector. To take the argument to its logical conclusion, if every shop in this country found that its business was being done through the internet so that all the shops were empty, the rental value of those shops would be naught, zero or nothing! Nobody would want to rent them, so the empty property rent charge would be naught as well. The argument does not hold up.
Except, of course, that we have a regular revaluation of non-domestic rates every five years. Because of our successful policy of regular revaluation and capping the ratio at inflation, those revaluations take place without a murmur from Conservative Members, despite the fact that they bang the drum about the alleged evils of domestic rate revaluation as though it were the end of the world. The hon. Gentleman is not rising to the bait, so I shall move on, but there is no evidence that it would take 15 to 25 years. In any event, to be fair to him—I recognise the “real world” point that he is trying to make—I said that that would be the logical conclusion of the argument, but because of our hugely successful economy, all this country’s shops are not going to shut down. As the hon. Gentleman knows, the retail sector is one of the flagships of our economy, as my town centre manager is reporting, but I need to move on.
I was replying to the hon. Member for Blaenau Gwent, who had raised the issue of domestic properties. As he knows, the provisions do not cover that, but there are circumstances in which council tax is relieved on the renovation of empty homes. Indeed, as I explained earlier, it is the capital value, not the rental value, that applies. I recognise the significant experience of the hon. Member for Ludlow in retail centres in towns and cities, although not the big cities, throughout the country. It is fair to say that the Government need to consider the differential impact. My hon. Friend the Financial Secretary referred to the consultation.
The hon. Member for Ludlow and the hon. Member for Fareham both made the allegation that the Government were hiding behind the fig leaf of Barker and Lyons. When we agree with a consultation, we are accused of hiding behind a fig leaf, and when we disagree with a consultation, we are accused of arrogantly riding roughshod over it. Both points cannot be true. The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander)—it is easier just to say, “the hon. Member for the Liberal Democrats”, which is a little tip that my hon. Friend the. Member for Bolsover (Mr. Skinner) gave me—accused us of not consulting. Of course we have consulted. The Barker and Lyons reports were substantial pieces of work, which we studied and took seriously. I note that his party said that we had kicked the document into the long grass without even reading it. Again, he cannot have his cake and eat it.
I have answered the point made by the hon. Member for Ludlow about commercial activities and the ratios between non-domestic rates and corporation tax. He also asked about consultation. We did, of course, consult on Lyons and Barker, and another consultation will take place later this year. A Committee of the whole House will take place, as this is a finance measure but not part of the Finance Bill. We have given the issue a generous amount of time.
The hon. Member for Ludlow brought his experience to bear on the issue of leases and made an important point. My hon. Friend the Financial Secretary made a specific point about leases, the need to consider the impact on them, and the consultation that will take place, particularly with regard to onerous leases. The hon. Gentleman also asked about business improvement districts. There have been 40, and there are more in the pipeline. I am not making great claim for them, although I think that they are very useful in the areas where they exist. We have one in the centre of Oldham, for which I voted; I am obliged to pay into it, and jolly good it is too.
The hon. Gentleman asked about Manchester and Birmingham. I will not tease him, but I think that he was just making the point that the richer commercial areas have to be treated differently from the rural areas. The hon. Member for the Liberal Democrats asked about rural-proofing, which we believe the regulatory impact assessment does. I should also point out that rural rate relief schemes are in place.
The hon. Member for South Norfolk (Mr. Bacon), who is no longer in his place, made an important point about empty farm buildings in relation to an empty pig farm. Agricultural buildings do not pay business rates; they are treated differently. The impact in such areas is therefore taken into account by that. The hon. Member for Salisbury (Robert Key) made some similar and important points about the interaction between planning policies and procedures and rates for empty properties. We are addressing those points in relation to planning policy. Two of the three examples that he raised, which I have researched, are matters for planning policy. When we debate planning policy, however, I hope that the Opposition will resist the temptation to accuse us of riding roughshod over local opinion, building over the countryside, demolishing our heritage buildings and so on, and that their arguments will be consistent—as they no doubt will be in the debate on the Sustainable Communities Bill—with what they have called for in this debate.
It is advantageous for Opposition parties to be consistent in their arguments. I was going to say “to have consistent policies”. It would be nice if they had any policies, but let me be non-partisan and say that the points about planning are important.
The hon. Member for Ludlow also asked about the localisation of relief, as part of the recent pendulum swing towards localism in the Conservative party. I wonder where it will end: in kibbutzes in Shropshire, perhaps.
I remind the House that it was the Conservative party that nationalised the rate of tax on empty properties in 1981, removed discretion for empty rates on industrial policy from local councils in 1984, and nationalised the whole lot in the Local Government Finance Act 1988. However, if they are moving in the other direction now, I welcome that.
The hon. Member for Bromley and Chislehurst (Robert Neill) spoke on the basis of experience rather than a Conservative research department briefing. I congratulate him on that, and on the fact that he distanced himself from his Front Bench on two occasions. He raised some important issues. He said that ours was a risky strategy. The purpose of the strategy is to bring more properties on to the market by reducing rents, and to that extent—I hope I shall not be quoted out of context—there is a risk involved. But although there is some fairness in that criticism of the policy, it rather militates against the criticism that the Bill is motivated solely by a desire to raise revenue. Again, both cannot be true.
The hon. Gentleman said that London was not uniform, for a whole raft of reasons. How true that is. There are different property markets in different parts of London, just as there are in different parts of the country. That returns us to the point about the rates of rent. I think the hon. Gentleman was talking about Bromley high street—I shall not make the mistake of getting the geography of his constituency wrong again—but whether on a micro-level or on a sub-regional level, in the round rents reflect supply and demand in the market place. I should have thought that the hon. Gentleman supported that. Indeed, I know he does support it, for I have heard him quote Adam Smith on many occasions.
I think it was the hon. Gentleman who was worried about roofs blowing off in the night, and asked us to take account of the fact that an empty property might not be fit for use as a result of either a deliberate act of self-vandalism or a windy night. Paragraph 4 of schedule 1 is very specific, having learnt the lessons of the past. It states that the regulations may
“provide that an act is to be treated as done on behalf of a prescribed person if it is done by any person connected with that person”.
Paragraph 4(1) states that
“the hereditament shall be deemed not to have changed—
(a) since before any event of a prescribed description, or
(b) by reason of any act done by or on behalf of a prescribed person.”
That covers the hon. Gentleman’s “windy night” fear.
The credit for the “windy night” argument should be shared between me and the hon. Member for Inverness and all points to the north-east. It was a discussion between us. But does the Minister accept that until we have a little more clarity about what “prescribed” means in this context, the lawyers are still likely to have a pretty windy field day?
I completely apologise for getting wrong the author of the windy night argument; I cannot think why I did that. We are trying to be fair and to stop tax avoidance. We also want to recognise that there may well be good reasons why a property could not be occupied. I repeat that the Valuation Office will have this matter within its remit, not least of course through its very successful computer database, which is the source of much excitement on the Conservative Benches.
Newham and Hackney were mentioned. I would not claim to be an expert on the property market in those two parts of London, but Newham is one of the authorities involved in our new targeted 100 per cent. allowance for renovation of long term empty properties. That is a good example of how we are trying to ensure that policies are more locally sensitive. Sometimes we may not get it wholly right, but we do listen to these arguments.
The admin burdens were referred to and I have tried to cover that point. I have looked at this because although Revenue and Customs is the lead department for the Valuation Office, policy and operational matters are an issue for my Department. We have consulted on that point and we are working closely with the Local Government Association and the Institute of Revenues Rating and Valuation to ensure that we get this right. We are confident on that point.
My hon. Friend the Member for Stoke-on-Trent, North talked about regeneration and I am familiar with that issue in regard to her constituency. I hope to be able to announce the details of the commission on democracy in Stoke-on-Trent—both its membership and remit—very shortly. I thank my hon. Friend for her assistance in this regard.
Regeneration is central to our goals in that area. Stoke-on-Trent is an assisted area, with 100 per cent capital allowances. I am grateful for my hon. Friend’s comments on the neighbourhood renewal fund and its future. My hon. Friend the Financial Secretary is attending urgent business; I should have put on the record earlier that he had to leave to attend the Finance Bill Committee. I know that he heard what my hon. Friend said; I know that because I kicked him when she said it to ensure that he did. The neighbourhood renewal fund in her area has proved to be very important.
I come back to my point about low demand and low value; rents are low in areas where properties are empty simply because there is no demand. My hon. Friend raised an important point about listed buildings and we will be looking at that. It is important; we all know of examples of listed buildings that are empty and, perhaps because of their listed status, cannot be rented out. The hon. Member for St. Albans (Anne Main) is not here, but she has informed us of the Rex cinema in St. Albans. I looked into that because I have a love for cinemas. I am looking at why Brixton was able to regenerate its cinema, but St. Albans has not been able to do so thus far. I can see you frowning, Madam Deputy Speaker, so I will move on.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey talked about the process of the Bill. I hope I have convinced him that we did take seriously the consultation on the Barker and Lyons reviews and the pre-consultation in the period since. We have had the usual consultation that my hon. Friend the Financial Secretary has talked about, but this is a finance measure coming out of a Budget. There are good reasons for that, but I hope that I can reassure him about the purpose of the Bill and its impact on revenue. The policy will bring about a reduction in rental values, so the revenue we raise from it will diminish over time if we are successful.
The hon. Gentleman asked whether the policy has been rural-proofed and what information will be placed in the Library. I have answered that by mentioning the regulatory impact assessment. Rural business rate reliefs provide substantial support for rural businesses in respect of empty properties. Every area and sector could, of course, argue for special treatment, but that one is a special case.
The hon. Gentleman and many other Members asked about the three-month period question. The period is laid down in existing regulations for offices and retail premises, and the Conservative party made those regulations. We wish to give all property the same tax treatment.
The hon. Gentleman asked about reviews of other business rate reliefs and exemptions. We will take forward Sir Michael Lyons’s recommendations on that. The hon. Gentleman also asked about social enterprises and companies. To tease him, his party is always asking for certain categories of business to be exempt, but it never points out the consequences of that for other categories of business. To be more serious, however, we will look into that matter, as he made an important point about the growth of the third sector—of social enterprise organisations.
The hon. Gentleman asked about local councils. I repeat what I said about the support of Hampshire county, Hull, West Sussex, Birmingham, Essex and Kent, because that is a strong point.
The hon. Member for Surrey Heath accused us of rushing to plunder and argued that the measure would breach the retail prices index cap. That argument misunderstands how the multiplier works. I can give him a lesson on the algebraic formula in clause 1 if he wishes. I should also point out that there are two multipliers, as there is a different one for small businesses—it is not always understood that we provide help to such businesses. The hon. Gentleman then contradicted his argument by saying that we would damage pension funds because rents would decrease. As I have said, both arguments cannot be true. However, the hon. Gentleman was gracious enough to praise the Financial Secretary’s thoroughness and eloquence, although he did not say that about my contribution, for which I cannot blame him. [Interruption.] The hon. Gentleman says from a sedentary position that that goes without saying. He made an eloquent argument that was well researched and based on a false premise—which I suppose is what the journalistic trade teaches its practitioners.
Some areas of our country have the highest rents in the developed world and also high empty property rates. That is a silly situation, and this policy is intended to change it. We have the RPI cap on the multiplier to protect businesses, and that has proved to be sustainable.
We have provided ample time for this debate, and we have another debate next week to look forward to, in which we can address matters of detail, rather than of policy and principle, which is the proper subject of a Second Reading debate.
I believe that I have answered all the questions asked in our debate, and that the Comptroller of Her Majesty's Household, my right hon. Friend the Member for Rutherglen and Hamilton, West (Mr. McAvoy) is happy. My hon. Friend the Minister for Housing and Planning is in the Chamber, so I shall conclude.
Question put and agreed to.
Bill accordingly read a Second time.
RATING (EMPTY PROPERTIES) BILL (PROGRAMME)
Motion made, and Question put forthwith, pursuant to Standing Order No. 83A(7) (Programme motions),
That the following provisions shall apply to the Rating (Empty Properties) Bill:
1. The Bill shall be committed to a Committee of the whole House.
Proceedings in Committee, on consideration and on Third Reading
2. Notwithstanding the practice of the House as to the intervals between stages of Bills brought in on Ways and Means Resolutions, proceedings in Committee, any proceedings on consideration and proceedings on Third Reading shall be completed at one day’s sitting.
3. Proceedings in Committee and any proceedings on consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
4. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion one hour after the commencement of those proceedings or at the moment of interruption on that day, whichever is the earlier.
5. Standing Order No. 83B (Programming committees) shall not apply to proceedings in Committee and on consideration and Third Reading.—[Jonathan Shaw.]
Question agreed to.
RATING (EMPTY PROPERTIES) BILL [MONEY]
Queen’s recommendation having been signified—
Motion made, and Question put forthwith, pursuant to Standing Order No. 52(1)(a) (Money resolutions and ways and means resolutions in connection with bills),
That, for the purposes of any Act resulting from the Rating (Empty Properties) Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase in the amounts so payable under Part 3 of the Local Government Finance Act 1988.—[Jonathan Shaw.]
Question agreed to.
On a point of order, Madam Deputy Speaker. Have you received a request from the Foreign Secretary or the Prime Minister to make a statement about plans to transfer the individual convicted of the Lockerbie bombing, who is currently serving his sentence in Scotland, to Libya? Surely such a sensitive matter concerning our relations with a foreign Government and matters relating to terrorism requires a statement. What advice would you give, Madam Deputy Speaker, about ensuring that it is forthcoming as quickly as possible?
I have not been advised that any Minister has asked to make a statement, but the hon. Gentleman’s remarks are now on the record, so I hope that he will able to pursue the matter and find the answers to the questions that he has raised.