-The Committee consisted of the following Members:
Chair: Dr Rupa Huq
Andrew, Stuart (Pudsey) (Con)
Blake, Olivia (Sheffield, Hallam) (Lab)
Caulfield, Maria (Lewes) (Con)
Coutinho, Claire (East Surrey) (Con)
Davies, David T. C. (Monmouth) (Con)
Hill, Mike (Hartlepool) (Lab)
Jones, Mr Marcus (Nuneaton) (Con)
† Mann, Scott (North Cornwall) (Con)
Morris, James (Halesowen and Rowley Regis) (Con)
Mullan, Dr Kieran (Crewe and Nantwich) (Con)
Nichols, Charlotte (Warrington North) (Lab)
† Norman, Jesse (Financial Secretary to the Treasury)
Owatemi, Taiwo (Coventry North West) (Lab)
† Phillipson, Bridget (Houghton and Sunderland South) (Lab)
† Rutley, David (Lord Commissioner of Her Majesty’s Treasury)
Slaughter, Andy (Hammersmith) (Lab)
† Smith, Jeff (Manchester, Withington) (Lab)
Bradley Albrow, Committee Clerk
† attended the Committee
Second Delegated Legislation Committee
Thursday 4 February 2021
[Dr Rupa Huq in the Chair]
Draft Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2021
I beg to move,
That the Committee has consider the draft Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2021.
It is a pleasure to see you in the Chair, Dr Huq. The order freezes the business rates multiplier at its current rate for the coming year. This is instead of an annual increase in the business rates multiplier in line with the retail price index.
If I may, I will start by explaining the context of the order. The multiplier is effectively a tax rate used to calculate business rates. There are two kinds of multiplier: the standard multiplier, which applies to businesses with a rateable value of over £51,000, and the small business multiplier, which applies to businesses with a rateable value of up to £51,000. Historically, these multipliers would rise in line with the preceding year’s retail price index inflation figure. On this basis, they were due to increase to reflect the September 2021 RPI figure, which was 1.1%.
At the 2016 Budget, the Government announced they would switch to uprating the multiplier in line with the consumer prices index measure of inflation instead of RPI. As Members will recall, the following year the Government brought forward this implementation date from April 2020 to April 2018. The switch from RPI to CPI is worth about £6.5 billion to businesses over the next five years, and the benefit only grows with time.
This year, in recognition of the impact of the covid-19 pandemic on businesses, the Government have gone a step further. This order provides the statutory legislation that will allow the Government to freeze the inflationary increase for business rates for the financial year 2021-22 at the same rate as that for the financial year 2020-21. This means that the small business multiplier next year will be 49.9p rather than 50.1p, and the standard multiplier in 2021-22 will be 51.2p rather than 51.4p. This measure provides relief to millions of small businesses at this most difficult time and beyond, by saving firms an estimated £575 million over the next five years.
The measure contained in this order applies to England. However, the Government will provide the devolved Administrations with equitable funding. In addition, they will fully compensate local authorities for the income that they will lose as a result of this measure.
It is important to say that this is only one part of the Government’s efforts to support businesses during the present crisis. In 2020, they provided a business rates holiday worth around £10 billion for eligible retail, hospitality and leisure businesses. Businesses have been recipients of a large proportion of the £280 billion of economic support that the Government have provided in response to the crisis. That includes the coronavirus job retention scheme, which has paid millions of workers’ wages, VAT deferrals, loans and grants. In addition, the Government are considering options for further support in response to the crisis, through business-related reliefs.
Of course, efforts to support small firms with business rates did not begin with the crisis. Before the pandemic struck, the Government were in the process of rolling out a series of major reforms to business rates, worth over £14 billion over the next five years. They included doubling small business rate relief from 50% to 100% for the smallest businesses in England and changing the standard multiplier threshold—steps that mean that nearly 700,000 small businesses pay no business rates at all. Combined with the business rates holiday for retail, hospitality and leisure, this means that half of all ratepayers will have paid no business rates in 2020-21.
In addition, we continue to listen closely to business owners who have voiced concerns about the fairness of the business rates system. As a result, the Government are conducting a fundamental review of business rates and greatly welcome the wide variety of responses generated by the call for evidence to the review launched last year, to which the Government will respond in due course.
British businesses are the beating heart of our economy. It is only right that we do what we can to support them through this difficult time. As I outlined earlier, this statutory instrument is one part of a much wider package of support. The order will give more certainty at a difficult time and underlines the Government’s commitment to firms large and small. That is why I commend the order to the Committee.
It is a pleasure to see you again in the Chair, Dr Huq.
Throughout the outbreak, we in the Opposition have relentlessly pushed the Government to help businesses through these extraordinarily difficult times. We have made it clear that Ministers must set out what will be available in good time, rather than leaving announcements to the last minute, as has far too often been the case. We therefore will not oppose the Government’s decision today to effectively freeze the multiplier calculating business rates between 2020 and 2021, as this provides support and certainty for businesses during the outbreak.
In fact, this measure being announced and agreed fully two months before it comes into force is, sadly, exceptional for this Government. It compares well with the Prime Minister’s announcement on 31 October last year about furlough being extended, which came just five hours before the time by which the existing scheme was due to end. Even two months, however, is nowhere near being a long-term plan looking six months ahead, for which we have repeatedly been pushing the Government.
I also want to be clear that, while this measure will be welcomed, we believe that the Government should urgently be looking at and setting out how they can use the business rates regime to help businesses struggling through the pandemic. We know that earlier in the crisis, the Government offered relief from rates for businesses in the retail, hospitality and leisure sectors in England during 2020-21, as the Minister has said. However, the Chancellor’s approach was, not for the first time, based on a one-size-fits-all method of doing things. In contrast, the Welsh Government took a more targeted approach to support those who needed it most, by declining to extend the 100% relief to properties with a rateable value of £500,000 or more.
Fortunately, some of the big supermarkets operating in England have recognised the weaknesses in the Government’s approach and have returned around £2 billion of unneeded business rates relief that they had received from the Treasury. We see this as a welcome opportunity to redeploy that £2 billion to help struggling businesses on the high street, through a hospitality and high streets fightback fund, and also to support those who have been excluded from support right throughout this crisis. Even though we proposed the urgent redeployment of resources towards the end of last year, the Government have still not acted on it or accepted our proposals. I therefore ask the Minister again: does the Treasury agree that the £2 billion returned by supermarkets should be used to support our struggling high streets and to provide additional help to those who, through no fault of their own, have been excluded from Government support right from the beginning of this crisis, almost a year ago?
I thank the hon. Member for Houghton and Sunderland South for her questions and her speech, and I thank the Opposition for their support for this measure.
The hon. Lady will be aware that the Government have tried to build longevity into their policy making where they have been able to do so. That was one of the reasons why the furlough scheme was extended to the end of April. In relation to a long-term plan, she will also be aware that the Government will come forward with further plans at Budget.
In relation to business rates, I think the hon. Lady will be aware that we have done a fundamental review of the regime. We will come forward with further announcements on that in due course. It has been looking not just at the surface; it has been looking deep. She complained that the measures are one size fits all, but the fact that we have a separate rate for small businesses precisely reflects the fact that we treat those businesses differently from larger businesses. The fact that we have segregated retail, leisure and hospitality shows that we are targeting those areas, but I take her comments in good heart.
The hon. Lady asked whether we will redeploy the £2 billion that is being repaid. Of course, as she will be aware, this money goes into the consolidated fund at the Treasury, from which we are able to draw the £280 billion of support—more than 130 to 140 times the amount she discussed—for the economy as a whole. We will continue to redeploy that money to support the economy as a whole. Of course, that comes alongside all of the longer-term measures that I have already outlined in support of businesses facing business rates.
Question put and agreed to.