It is a privilege to be granted time to hold this debate here today and to serve under your chairmanship, Mr Davies. As all Members present know, the rating of empty properties is a contentious and sensitive issue.
Let me start by outlining the situation of a couple of farmers in my constituency who have lived and worked on their land for decades. After the previous Government strongly encouraged them to diversify their land, they decided to develop a couple of small business premises to rent out to local entrepreneurs and small and medium-sized enterprises. They undertook substantial developments and put tenants in place. The future looked bright until the financial crisis broke and the recession hit. As a result of the subsequent turmoil in the financial market, many of my constituents’ tenants were forced to downsize and move out. In some unfortunate cases, their tenants’ small businesses collapsed, as bank lending sadly dried up. The limited three or six-month exemption from empty property rates has now expired, with the threshold returning to its original £2,600 level. As a result, my constituents now face bills totalling thousands of pounds.
Like all rational and sensible politicians, I have a great deal of sympathy for my constituents. In a letter to me, they said:
“We have worked hard all our lives to get what we have today... the price we are paying now is the price of progress and it is like a lump of concrete around our necks.”
One of my core principles in life is that every person has the absolute right to aspire and achieve without unfair burdens being placed on their shoulders.
In the current economic climate, our inherited policy of rating empty properties is unfair. We seriously run the risk of driving small business men and women into the ground, particularly in rural areas, where a number of small retail and commercial properties have been developed on diversified land. The owners are not wealthy property tycoons and often possess only limited experience of property management. It is wrong to believe that every property owner can take the hit of tax on empty properties; many simply cannot. To lay the blame for such a situation at the door of the coalition Government is entirely foolish and short-sighted.
I congratulate my hon. Friend on securing this debate. I must declare an interest as outlined in the Register of Members’ Financial Interests. Does my hon. Friend agree that the previous Government introduced this scheme with the good intention of ensuring that all redundant properties were redeveloped? However, it has been an incredibly blunt instrument, and with the economic downturn, it has effectively caused chaos for many small investors. We need to consider a more subtle approach to encourage the regeneration of areas.
As my hon. Friend has said, the scheme is a blunt instrument that has had unforeseen consequences. It is also a barrier to investment and regeneration, which particularly affects the north, but I will go on to that point later in my speech.
The previous Labour Government reformed the empty non-domestic property rate relief in 2007 in an alleged attempt to encourage more commercial properties to be brought back into use throughout the supposedly never-ending boom years. The Rating (Empty Properties) Act 2007 increased rates on empty properties from 50% to 100% of their occupied rate. It also removed the exemption for storage and industrial premises, which was recommended by Kate Barker and Sir Michael Lyons in their independent review ahead of the 2007 Budget. As one would expect, the plans were controversial at the time. It was said that the 2007 Act would lead to constructive vandalism. However, the vast majority of property owners would not deliberately hold back empty properties from the marketplace. If I had been an MP at the time, I would have said that such properties were most often empty as a result of the poor planning system or a simple lack of demand for commercial properties within specific locations.
Appreciating that the new policy introduced unnecessary burdens on businesses in recessionary times, the pre-Budget report of November 2008 outlined a temporary increase to the threshold for exemption from such rates to £15,000 and then later to £18,000 for a two-year period. That provided much-needed relief for many affected individuals and was greatly appreciated. The Business Centre Association estimates that that measure saved its members about £10 million. However, the problem has returned. On 1 April 2011, the empty property threshold returned to £2,600, which is a remarkable and dramatic drop from the temporary £18,000 figure.
As a loyal supporter of the coalition, I appreciate that the Government cannot afford to tackle every issue and reduce the vast deficit simultaneously. Furthermore, I understand that some issues must take priority over others. I accept that the reckless economic legacy of the previous Government has largely tied our hands. Thankfully, though, this Government are intent on spending only what they can afford, and long may that approach continue.
The previous Government are responsible not only for the creation of the empty property tax rates, which they designed and implemented, but for the inflexibility of the coalition’s fiscal options. Having to spend £120 million a day to pay off our country’s debt interest payments hinders the present Government’s ability to reform as broadly as they might otherwise do. None the less, empty property rates should be higher on the Minister’s list of priorities.
Property owners in rural villages across the country are beginning to be hurt by this policy. They now feel let down by successive Governments. Such sentiments have been summed up well by Liz Peace, chief executive of the British Property Federation, who said:
“If the Government is pinning its hopes on a private-sector led recovery, then this is a damaging and retrograde step. Empty rates are a tax on hardship at the worst possible time. The majority of the properties affected by this announcement will be in areas which are already economically disadvantaged, and so this will be a further blow.”
I congratulate my hon. Friend on securing this important debate. On Friday, I visited a mill complex on the outskirts of Huddersfield that is home to many thriving and positive businesses. I saw at first hand the disincentive for the owners of that complex to bring back some of the units into habitation and to make them ready to show off to new businesses. He has talked about the Business Centre Association. Does he agree with its idea of allowing an exemption period of three years for all new and refurbished units to try to get them back into use as an incentive to stimulate small businesses?
I appreciate those comments. The BCA was also talking about returning to the threshold figure of the recessionary times of £18,000. Given the tough economic times that we face, those two policies would help the situation.
On the exemption period, does my hon. Friend agree that six months is too short a period in which to find a new tenant? The commercial property market is difficult. Six months between one tenant leaving and the finding of a new tenant is insufficient to do the necessary marketing, to show people round and to get people into the accommodation. At the very least, the exemption period needs to be increased.
I entirely agree with my hon. Friend. The six-month exemption period—indeed, it is only three months for retail premises, which is obviously even shorter—is incredibly burdensome for property owners. He is right that the short exemption period is difficult when marketing these properties and looking for new tenants.
We have to accept that there must be churn within the market. No one will ever say that we will get 100% of such properties filled up. Even in the best of times, we are perhaps talking about filling 80% to 85% of properties, and there must be that effective churn within the market to allow flexibility within businesses.
I congratulate my hon. Friend on securing this debate. The specific point about churn is crucial. In my constituency, there is a very successful small business park in the town of Conwy and its proprietor feels that he is being penalised, because he tried to develop an incubator unit-style approach. In effect, he is now being penalised because of the churn. He is providing a service to the local business community and allowing people to have easy options to come in and out of the business park, which is vital for new business development, but he is actually being penalised by the system.
I entirely agree with my hon. Friend. He is absolutely right that we need the churn within the market to allow new investment and new businesses to start up. As I said in my initial remarks, there are unforeseen consequences to this measure and it seems to be a barrier to investment and regeneration within certain areas.
As I have already said, the British Property Federation has expressed such sentiments, and it is not alone in doing so. Ahead of the Budget last year, the TaxPayers Alliance urged the Chancellor to scrap this tax altogether. In addition, ahead of the pre-Budget report last year, almost 50 regional chief executives of the British Chambers of Commerce signed a letter to the Chancellor that highlighted the perverse consequences of the policy.
Sadly, nothing has happened and according to Government replies to my written questions on this matter, there are no plans in the short term to review the situation. Consequently, I want to focus the rest of my speech on three main points. If they are taken further, I firmly believe that the Minister will urge the Government to review their position sooner rather than later.
First, I have already outlined my concerns about the impact of empty property rates on small businesses in rural areas. In addition, I briefly want to discuss my fears about the specific impact that this tax has across the whole of the north of England. As a Member of Parliament for the north, I have always been interested in the economic north-south divide. My first question at Prime Minister’s questions was to ask the Prime Minister specifically about that gap. After all, it is statistically the case that the economic divide between the north and south of England actually increased during Labour’s rule.
On many fronts, the coalition should be commended for its introduction of the regional growth fund and local enterprise partnerships, which are specifically aimed at addressing regional imbalances. However, such positive measures run the risk of being undermined if negative policies, such as empty property rates, are allowed to strangle many SMEs in the north.
Recently, Horncastle Group—a property developer based in Yorkshire—wrote to me about that issue. Its chairman, Mr Andrew Horncastle, has been lobbying against this regressive taxation for years. Discussing the issue with me, Mr Horncastle said:
“This empty rates property tax is a tax on failure, and as such it discriminates between the prosperous south and hits weaker regions, particularly in the north. It is a short-sighted, ill-thought through socialist-style tax grab, and it does not sit in any proper growth strategy.”
Frankly, I could not agree more with those comments. Those areas that are directly outside new enterprise zones will be hit further by this form of regressive taxation. At a time when we are genuinely attempting to rebuild and rebalance our northern economies, it seems somewhat foolish that we are continuing to operate such negative rates on empty properties.
Secondly, I fear that empty property rates carry with them unintended consequences. A number of Members have already touched on this issue. In 2009, the Royal Institution of Chartered Surveyors showed that empty property rates are the key driver behind decisions to demolish empty properties and they act as a barrier to investment in new property. Likewise, with an increased work load—owing to the higher vacancy rates—the cost of administering this tax within local authorities has already started to mount. Demolitions, higher administrative costs, additional financial demands on small businesses and a stagnating commercial property and flexible space sector are the consequences of this regressive policy.
My third point relates to the very simple principle of fairness. My right hon. Friend, the Prime Minister, has himself talked passionately and genuinely about “enemies of enterprise” that act as unnecessary hurdles for entrepreneurs and SMEs. The empty property tax is a perfect example of an enemy of enterprise. For a country targeting a private sector-led recovery, it is not right that such rates are imposed upon the very small businesses whose success we are counting upon. Indeed, it is not only not right; it is not fair. I believe passionately that no Conservative would view the policy as being desirable or fair.
Actions speak louder than words, and if we admit that something is wrong but fail to reform it, we are badly letting down all those who are affected by it. I also firmly believe that any cost of tackling empty property rates would be far outweighed by the investment in premises, jobs and training that would follow in a rejuvenated market.
I congratulate my hon. Friend on securing this debate and I apologise—I would very much have liked to have been here at the beginning of this debate. The point that he has just made is very important. Regarding regeneration, in my constituency, I have found that empty property rates often make individuals who own commercial or industrial property view that property as a problem. Consequently, they will sometimes consider measures to try to mitigate the empty property rate tax. So the tax actually changes the mindset of property owners; it changes how they view the property. They do not view it as an opportunity but as a millstone around their necks.
I entirely agree with my hon. Friend. If he had been here for the beginning of my speech, he would have heard me quote one of my constituents who said almost exactly the same thing.
The coalition should be commended for pursuing a fairness agenda, but let us now extend the principle of fairness to the empty property rates tax, because there is nothing fair about increasing taxes on property owners who are already suffering due to high vacancy levels.
On fairness, one of the small business owners in Castle Point said that he would be very happy to pay tax on income that he was earning. He supports local businesses; he often has very good deals to help local businesses to get going; and he contributes enormously to the local community and local economy. He says that he would be delighted to pay even more on income that he was genuinely receiving, but he feels that it is incredibly unfair to be penalised when a property is empty.
I entirely agree with my hon. Friend and that point is very well made. In fact, the whole hub of the argument is about fairness. People are completely prepared to pay tax on income earned, but this tax on empty properties could be seen as a tax on failure and it is just simply unfair.
Similarly, there is nothing fair about forcing entrepreneurs to consider selling, abandoning or even demolishing their premises because of the threat of excessive taxation. To penalise a property owner whose property falls vacant in recessionary times is not a prescription for economic recovery but a recipe for economic stagnation. Our stance on empty properties requires a fundamental review.
Does the hon. Gentleman have permission from both the Member who secured the debate and the Minister to speak?
Mr Davies, I have spoken to my hon. Friend who secured the debate, but not the Minister. Could I have two minutes to speak?
You can speak very briefly, because we want to hear the Minister’s response to the debate.
Thank you, Mr Davies, for calling me to speak.
I declare my entry in the Register of Members’ Financial Interests and I remind the Chamber that I raised this issue in Westminster Hall in November 2010. Interestingly, Mr Davies, you were in the Chair then too. Equally interestingly, there was no attendance at that debate by any Opposition spokesmen, which perhaps indicated the Opposition’s level of concern about matters affecting business.
At that time, I raised a constituency case, as my hon. Friend the Member for York Outer (Julian Sturdy) has done today. My constituent had a commercial property as an investment, which he had acquired after selling his business that had been located there. In recent months I, too, have visited constituents who have been very much affected by the changes including, most recently, an engineering company that has a vacant unit on its site, is unable to find a tenant and is liable to pay the commercial rates. In his reply to me a year ago, the Minister spoke of support to small business generally, but regretted the fact that the Government were unable to offer the concession that property owners would like.
My hon. Friend the Member for York Outer drew attention to the fact that the situation has become worse rather than better as a consequence of the fall in the exemption limit from £18,000 to £2,600, which means that the large majority of properties are now included. My hon. Friend spoke about the need for a private sector-led recovery from the recession we are suffering. Critically, at a time when we are demolishing perfectly sound industrial premises to avoid paying the vacant commercial rate, and developers are not developing new industrial and commercial premises because if they do so they might be left vacant, we are making it more difficult for small businesses to get started. There are strong reasons why the Government need to address the issue, and I very much look forward to the remarks that the Minister may make to be able to assuage the fears of businesses in this sector.
It is good to serve under you today, Mr Davies. I commend the persistence of my hon. Friend the Member for York Outer (Julian Sturdy) in getting this matter before the House. It is interesting to see how many other colleagues share his concerns.
I want to begin and, bearing in mind the time, it might be very nearly where I finish as well, by picking up one of the points that my hon. Friend the Member for York Outer made about the financial situation facing the country. He drew attention to the fact that £120 million a day is spent servicing the interest on the outstanding public sector debt; I wish that that was the whole story, but unfortunately it is not even half of it—it is only a quarter. In the 2009-10 fiscal year, the signed-off accounts showed a deficit accumulation of £164 billion of extra debt added to the national debt for that year. That sounds like a lot of money, but people find it very difficult really to understand how much it is. Looked at on a daily basis, it is £450 million added to the national debt for every day of that financial year, and it was in that context that the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) left his famous note: the money has all gone.
I want to make it very clear that the Government recognise the vital role that small businesses play in building a sustainable economy, but a sustainable economy depends on having a sustainable financial system and sustainable public expenditure. I am sure that my hon. Friend the Member for York Outer, and our other hon. Friends who have contributed to the debate, would be even more enthusiastic than I am, as a member of the coalition Government, to see the fiscal and financial situation brought under control. We have a coalition commitment to rebalance the economy and to support businesses to provide the growth and jobs that the country needs, and Members have eloquently pointed out the particular role of small start-up companies in doing so. This Government have made an excellent start and are doing a great deal, but there is always a balance between putting the finances right as a short-term necessary foundation and providing the right springboard for growth.
This Government fully recognise the problems that were caused by the outgoing Government’s so-called reform of empty property rates. Members have spoken eloquently today about the problem, and have allocated the blame correctly to the outgoing Government. From 2008, the exemption period was restricted to three months for non-industrial property and six months for industrial property, with ratepayers being liable for full rates once that period had lapsed. The previous Government claimed that the purpose of the reforms was to increase the cost of holding empty property and thus to encourage owners to relet or redevelop empty commercial properties, or to sell them on to people who would do so. That argument was based on an economic theory that was, and still is, not fully accepted by the business community; hon. Members have pointed out that even in good times it would be unrealistic to think that every commercial property in the country would be full—there would always be churn and vacancies.
The Government fully understand and appreciate that ratepayers would like us to undo the previous Government’s so-called reforms, or to continue with the temporary measures, but our ability to take action needs to be balanced against the very high costs involved. We are, however, also providing targeted support on business rates, and there is an overriding need to reduce public expenditure and support the economy generally by reducing the deficit. Had any Labour Members been here today, and that is perhaps something of a statement in itself, I can imagine that they might have said, “Why don’t you do it anyway, it’s only another day’s deficit borrowing?” Restoring the relief would cost somewhere between £400 million and £500 million a year—just another day’s borrowing. I believe that those of us present are more mature and responsible than that, and would not simply say, “Oh yes, it’s just another day. Let’s do it.” That is the challenge the Government face because, as my hon. Friend the Member for York Outer made clear, the Government have to balance getting the economy straight financially and fiscally with providing the springboard for business growth.
I have a long list of the very wide range of help we have provided to businesses, and had time permitted I would have read it out, but I would be happy to pass it on to Members who have contributed to the debate. The help focuses on getting new businesses started and on getting existing businesses to expand. We have to set priorities. Although changes to the empty property rate are currently unaffordable, we recognise that the problems caused by the previous Government’s reforms are still there, and we will certainly keep the matter under review.
We have already taken some major actions, particularly on business rates, to demonstrate our commitment to providing targeted support for the business community. Yesterday, the Local Government Finance Bill, which reforms business rates, received its Second Reading. When the measure comes into force, it will give every local authority the capacity to rebate business rates at their discretion in their local area. I hope that Members here today will support that legislation with great enthusiasm, and that they look forward to the day, in April next year when the measure comes into force, when they can go to their local authorities and make as eloquently as they have today the case for empty property business rate relief, which can then be targeted and shaped to local circumstances.
Although I would like to spend time on the long list of good things that the Government have done to support business, I hope that in the limited time available I have been able to explain why the Government have set rigorous priorities and feel obliged to stick to them through these 12 months. I hope that there is a glimmer of light at the end of the tunnel, when the Local Government Finance Bill becomes law, for my hon. Friends to approach their local authorities and put their case strongly to them.