Westminster Hall debate on Pubs: Business Rates - Jan 15

I beg to move,

 

That this House has considered the effect of business rates on pubs.

 

It is a pleasure to serve under your chairmanship, Mr Bailey, and I am happy to have secured this important debate. Pubs, particularly our historic, independent pubs, add vibrancy and attractiveness to our high streets. They support tourism, help to encourage footfall and add hugely to our local economy. They are the lifeblood of my constituency and, I am sure, of many others. Pubs in St Albans generate over £40 million a year for our local economy; the industry employs 1,600 local people and pays around £20 million a year in wages. In St Albans and Herefordshire, we are net contributors to the Chancellor’s coffers. My constituents, particularly businesses in my constituency, are the Chancellor’s golden goose, and he therefore needs to listen carefully to ensure that that golden goose thrives.

 

I have been contacted by many local pub owners since this debate was announced, who have all shared with me their frustrations and concerns about the impact that business rates have had on their businesses. They are under huge pressure. The Government were absolutely right to target business rates as a way of helping small businesses, pubs and the high street as a whole, and the cut of 33% in rates for businesses with a rateable value of under £51,000 is a major step in the right direction. However, in some areas such as St Albans, that rate reform is not having the positive impact that the Chancellor was aiming for. Many landlords expressed the view that the new business rate formula, designed to help pubs, has had a perverse result, with a hike in business rates for their pubs. That hike could mean that they have to cut staff numbers, or even worse, close their businesses altogether.

I fully understand the point that my hon. Friend is making about business rates. I wonder whether she has calculated how much of the problem that pubs have is due to a change in drinking habits and why we go to pubs, and how much of it is actually due to business rates.

I have not calculated that, but if my hon. Friend waits for the rest of my speech, he will hear how the huge hikes in business rates mean that pubs would have to sell so many extra drinks that they cannot possibly make up for those hikes. The fact that some people are declining to go to our pubs is one issue, but I am talking about successful, thriving pubs.

I congratulate the hon. Lady on bringing this issue to Westminster Hall for consideration, and I support her entirely. With some small pubs experiencing a rate increase of some 80%, does she agree that we are at risk of losing the independent retailer—the one who takes the keys off the customer and will ring somebody to come and get them, and says when enough is enough? Does she further agree that this is something that is not provided by the off-licence or the supermarket chain, and that society will lose out if we lose the restraining hand of those small local pubs?

The hon. Gentleman makes an excellent point. Indeed yesterday, I took some representatives of pubs to meet the Minister with specific responsibility for this issue, and interestingly they were all from small independent pubs. The big pub chains can cross-subsidise in other areas if they are hit in this way; it is the small independent pubs, often run by one or two people who have put their lifeblood into those pubs, that are suffering. Those people are the ones whose voices need to be heard today. This cannot be the message that we are sending out as a Government. We must ensure that we are supporting small businesses, such as our smaller pubs, which drive our economy and play an important role in communities.

 

In high-value property areas such as St Albans, there is not a standard Government model that fits. The average house price stands at over £600,000: if a struggling business closes, it will quickly be snapped up by a property developer who sees it as a lucrative brownfield site ripe for housing, and often turned into an individual house or a pair of houses. That practice of turning commercial space into residential space is affecting businesses across St Albans with, for example, a staggering loss of office space over the past few years since the planning laws were changed. That is a double whammy for pubs. Businesses, particularly pubs, are struggling under the current system, and the new rate simply provides a cliff edge that penalises successful businesses in areas plagued by high property values. We must devise a system that helps all small businesses and pubs to thrive, not just the ones with low retail value.

 

The 2017 business rate formula for pubs uses a methodology for setting the rateable value based on a fair maintainable trade, which is a difficult phrase to interpret. The rateable value is driven mainly by the pub’s turnover. The calculation also takes into account property valuations in the area, which means that even small pubs, such as many of the pubs in St Albans that have been hit the hardest, can have a high rateable value because the area they are in has high property values. Sadly, the current formula does not take into account the many models of pub ownership that are often used by landlords and owners. That formula effectively penalises small business operators through an arbitrary taxation system that significantly reduces any profits a pub landlord can make while trying to pay staff wages and other costs.

I thank the hon. Lady for bringing this important debate before the House. We are at risk of losing our Glassford Inn, the only pub in its village, because of the issue that she has spoken about: the high rateable value of property in the area. It is the last business in the area, yet the rateable amount cannot be varied. Does the hon. Lady agree that this situation has to be changed to sustain these businesses over the long term?

I absolutely agree with the hon. Lady, because I do not believe that what she has described was the Government’s intention. As I have said, the formula does not take into account the current models: some of these pubs are leasehold, and some are owned; there can be no bigger incentive to sell a pub than knowing it could be worth a heck of a lot more as a house than as a pub.

Does my hon. Friend agree that there should be some business rate relief when a pub has been bought under the asset of community value scheme?

Actually, we have tried to save pubs under the asset of community value scheme, and we have not been successful in St Albans, because the developer wins every time. I can see the point that my hon. Friend is making, but I am not going to take a diversion down too many tracks about the price of beer and community assets. Pubs and businesses in my constituency want a fair system that does not, as the hon. Member for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) has said, discriminate against a business because it is located in a high-value area.

I completely agree with my hon. Friend regarding high-value areas. The Old Griffin Head pub in Gildersome in my constituency has business rates of over £21,000—that is in a little village. Does my hon. Friend agree that that is an extortionate amount of money, and that it is no wonder that 21 pubs are closing every week in the UK?

I absolutely agree with my hon. Friend, and that is why I think the Government need to hear why their best intentions have not hit the mark. As I was saying, and as the hon. Member for East Kilbride, Strathaven and Lesmahagow has described, pubs want a system that does not discriminate against businesses because they are in high-value areas. That is especially the case when they see a neighbouring, lacklustre pub—and by “neighbouring”, I mean literally three doors down in my constituency—that seems to have either had poor management or low investment, but perversely has benefited from a rate cut. How is that for a trading market? Hard-working landlords of successful pubs are penalised for their strong personal investment; they are enduring eye-watering rate hikes for their trouble.

 

The hon. Member for East Kilbride, Strathaven and Lesmahagow mentioned high rates in her area; I suspect that anyone who comes to St Albans will take a deep gulp. This is not what they expect from a Conservative Government, or any Government, especially one that has recognised the pressures our pubs are under and tried to help. I accept that, as I was told yesterday, the formula potentially has helped up to 90% of pubs nationwide, but it only benefits 60% of pubs in St Albans, and for some of them, the benefit is only marginal. That leaves many of the small, independent pubs that the hon. Member for Strangford (Jim Shannon) referred to facing massive hikes. The formula must be revised. The current methodology for pubs and the high tax-rate multiplier are barriers to new investment in small businesses and pubs, and we have to tackle that issue and find a fairer formula.

 

In November, I visited several pubs in St Albans—I think it was 10; that is how easy it is to walk around the pubs in St Albans—that are being hit the hardest by these rate increases. The campaign group, Save St Albans Pubs, took me on a tour of the pubs that face huge increases because of the system.

 

One of the pubs I visited recently, The Boot, is a tiny heritage pub that, as has been pointed out, will have to sell an additional 22,000 pints to cover the additional £51,000 in business rates that it now has to pay. That is a 280% rate increase, which is unsustainable and unfair.

 

Mr Christo Tofalli of Ye Olde Fighting Cocks told me that unless we have proper reform and relevant taxes, licensing laws and duty costs, his pub is finished. He speaks from experience because he has already come in and pulled the Fighting Cocks back from being closed under a former owner and not trading. He has invested considerable money and effort in the pub since then and has turned a closed, failed business that was an eyesore in St Albans into a successful pub that is an asset. However, under the new model, his taxes and rates have gone up to such an extent that he is now personally funding his pub to keep it open. Who would run a business like that?

 

Ye Olde Fighting Cocks has seen an increase in its rates of 66%, or £33,000. I hope the Minister will appreciate that that is an enormous increase for any pub owner to cope with and it does not show the level of support that the Government said was needed for small businesses.

 

The Six Bells, another great pub in my constituency that I visited on my tour, had an increase of 87% in its business rates: £31,000 a year. It has 1,000 square feet of operational space, which is smaller than many people’s homes. It exists in a neighbourhood where the average residential property is valued at more than £1 million. It is vulnerable to property developers wanting to move in, as they did recently with The Blue Anchor, which was located in a similar area and has now turned into a house. As Alan Oliver of The Six Bells said in his letter to me, he simply wants a level playing field for his business. It could take up to three years for Mr Oliver to appeal the unfair rate revaluation system. Meanwhile, he faces enormous penalties. He told me:

 

“If we put our prices up our customers will go to the pub next door which has the same size and offering but which has not had a rate increase.”

 

How unfair is that in the trading environment that we tried to achieve? No wonder he feels hung out to dry.

 

The landlord of the White Hart Tap also wrote to me and said that he risked losing customers if he put his prices up. He, too, has invested significantly in his business, a small heritage pub. When all costs are taken into account, his annual pre-tax profits are £24,000, which results in £12,000 each for him and his partner. They take no other salary. Many pubs operate with a business model that pays about £12,000 to £15,000. It is not sustainable. Those are just two examples. I have all their details and will send them to the Minister.

 

In fact, 30 of the 50 pubs in St Albans have seen a rate increase. Astonishingly, they need to sell around 180,000 more pints per year to cover those increases. The Blacksmiths Arms has had an 82% increase and The Beech House a 59% increase, meaning they pay £74,000. I invite the Minister to come and see those pubs, which are less than half the size of this room. Pubs in St Albans saw an average increase in rateable value of more than £27,000. That is a 56% increase in rateable value since the business rate reform. So far, 10% of pubs in St Albans have closed because of such pressures. Sadly, further closures are expected. I know the Minister talks to representatives from the industry, but I am concerned, as has been indicated, that he is not hearing the voice of small independent pubs such as The Boot.

 

CAMRA, which is based in my constituency, recently provided a comprehensive submission to the Chancellor ahead of the Budget in September. It has called for a full review of the business rate system with regard to pubs. It maintains that the current system is not fit for purpose and a review is needed to tackle the unfair penalisation of property-based businesses like pubs, especially given the vastly reduced levels of taxation paid by online retailers. I hope CAMRA will engage with all the pubs I have mentioned today to ensure that everyone is singing from the same hymn sheet and that their voices are heard.

 

The British Beer and Pub Association has rightly pointed out that pubs pay 2.8% of the total rates bill, yet contribute only 0.5% of rate-paying business turnover. That is an overpayment potentially of £500 million. Not only are pubs hit hard by business rates, but many other shops on our high streets face similar rate hikes. Save St Albans Pubs, the campaigning group in my constituency, is calling for the 33% cut to apply to all pubs for the first £51,000 to prevent the cliff edge that I talked about. If there is an ambition to help all pubs—the Government believe 90% have been helped—why not help the other 10%? I seem to have a lot of them in my constituency and they are also in the constituency of the hon. Member for East Kilbride, Strathaven and Lesmahagow. Why not ensure that all pubs get the help that they need for a favourable trading environment?

 

I welcome the freeze on beer duty that was announced by the Chancellor. It will help pubs across the country, and it will certainly help many pubs where the margin is narrow, but it does not help to make up for the major hit on business rates that pubs in St Albans have to endure. As I have said, small pubs, particularly ones with 1,000 square feet of space, cannot possibly have enough people coming through their doors when they are already busy and trading to make up for the huge hike in rates. In the long term, Save St Albans Pubs is calling for a fundamental review of the business rates formula for small businesses, particularly pubs. It rightly points out that pubs are complex with various business models. It is not a one-size-fits-all tax. There are many examples, particularly in high-value areas, where property values drive up the rates, meaning pubs risk being closed.

 

The Government have rightly identified business rate cuts as a method to support our high streets and pubs. Now we must alter the system to make sure it works for all of them. I hope the Minister will take that on board. Time is running out for pubs. Three years to challenge a business rate is far too long. The whole idea of demonstrating a sustainable trading market is obviously not working. I hope the Minister will come to St Albans. I invite him—in fact, I demand he comes to do the same pub crawl that I did. Pub owners in my constituency would be delighted to welcome the Minister to their pubs so that they could show him their premises and tell him why the model has got to be altered in line with a fairer system that respects the heritage pubs that are the lifeblood of constituencies such as mine.

It is a pleasure to serve under your chairmanship, Mr Bailey. I thank my hon. Friend the Member for St Albans (Mrs Main) for securing the debate, and I do so for two reasons. First, this is an important matter; pubs lie at the heart of our local communities and the Government’s view is that we should do whatever we can to assist and support them. Although, as my hon. Friend the Member for Henley (John Howell) pointed out, there are issues other than rates at play when one looks at the pressures that pubs are under. Secondly, I know that my hon. Friend is a strong campaigner on these matters, and this debate is yet another reflection upon the assiduous approach she takes to her duties as a Member of Parliament.

 

Undoubtedly there are great pressures on pubs, as we have heard. At the same time we should recognise that there are some rays of light in the overall story. The Office for National Statistics has published data showing that the number of larger pubs—those that employ 10 or more—has grown since 2011. In fact, we now have the largest number since 2011. If we look at the pub and bar sector in total, we see that employment has grown by some 6% since 2008, to 450,000 employees. That does not mean that pubs are not under pressure, as my hon. Friend set out at length and in detail, so the Government have taken action, and she has recognised the things that we have done.

 

For example, in the Budget last year we introduced a discount of one third to the business rates for retailers, including pubs and bars that have a rateable value below £51,000. I know that my hon. Friend’s constituency is in a relatively high value property area and that the discount will not have had the same impact as it has had on the estimated 90% of all pubs and bars across the country. The figure for her constituency is 63%, so it is certainly the case that the majority of the pubs in her constituency are at least entitled to the discount of one third that we announced.

I encourage the Minister to come and see my pubs. Many of them are in historic listed buildings within a conservation area. They have small square footage and it is difficult to grow a business beyond the growth it has already seen. They are in areas where the house prices drive up their rates to an unsustainable level. I appreciate that some of the bigger ones—not the independent ones—have been helped, but I want to help all the pubs, and particularly the ones I have referred to.

As I said, 63% of pubs and bars in my hon. Friend’s constituency—typically those with lower rateable values, which probably correlates to the kind of pub she describes—will benefit from the one-third reduction that we announced in the Budget. That reduction will be worth about £900 million to the sector over the next two years. She also rightly referred to what we have done in freezing beer duty and spirit duty. In 2013 we withdrew the beer duty escalator, so the price of a pint is now some 14p less than it would have been otherwise, and we froze beer duty yet again in the last Budget. Across the country, around half of the income of pubs is driven by beer sales alone, so those are important measures. The further reliefs that we have been introducing come on the back of a great deal of activity, particularly since 2016. We have introduced a total of about £13 billion-worth of reliefs across the business rates terrain. That includes making 100% small business rates relief permanent, and doubling the threshold for small business rates relief in 2017.

 

My hon. Friend asked what we are doing for all the pubs in her constituency. That is a valid point. We have changed the uprating from the retail prices index to the consumer prices index. We initially announced that that would come in from 2020, but in the recent Budget it was brought forward by two years. That will lower the level of business rates right across the pub sector, irrespective of the size of the particular establishment. That is worth about £5 billion in additional relief over the next five years. We have doubled the level of rural rate relief to 100% from 2017.

 

My hon. Friend referred to specific examples of where there have been very large increases in rateable value—I think she quoted a figure in excess of 60% in one case. In 2017, at the time of the revaluation, we introduced the transitional relief scheme, which was worth some £3.6 billion of relief, to ensure that we smoothed out some of those increases. I would be happy to meet her at some point to look in detail at one or two of the examples she raised, which might be useful for us both. An increase in one year of more than 60%, given the transitional relief that would be available, would be on the high side, but I would be very interested to look at that with her in detail.

I thank the Minister for all the work that he is doing for the sector, which needs as much support as possible. Does he agree that it cannot be right that the rateable value of our Glassford Inn, for instance, is so high that even if it sold beer every night of the week to every single person in the village, it still could not pay the rates that have been set? Will he agree to look at that issue for me?

I thank the hon. Lady for her intervention. Of course, I am not familiar with that particular establishment—although I would probably like to be—or with its current trading conditions. My point is that a pub, or any business for that matter, will be under pressure for a variety of reasons—my hon. Friend the Member for Henley raised, for example, the change in drinking habits as one factor. Importantly, the Government have a responsibility on the tax front to ensure that we ease those pressures to the greatest extent that we can, while taking a balanced and responsible approach to the economy.

I want to raise the plight of some of the Gower pubs. Owing to the rural nature on the peninsula, many are closing and have great challenges ahead. As the Minister mentioned, those challenges are for a range of reasons, but several members of the community and I have set up a working party to address that. I look forward to informing the Minister of the good work that we will do.

I thank the hon. Lady for that intervention. I would be very interested in hearing from her and her working group when she is ready.

 

It is important to say that pubs are typically central to high streets. It is an issue not only of providing whatever support we can in terms of reliefs, many of which I have outlined, but of assisting high streets, and pubs as part of high streets, to evolve and transition. The high street is under a huge amount of pressure, not least through the online retail marketplace, which takes around 18% of all retail sales. A decade ago, it would have been a fraction of that.

 

The high street, and pubs at the heart of it, will therefore have to transition. That is why we made an important announcement in the Budget about the future high streets fund—£675 million to assist local areas to develop plans to ensure that they transition their high streets into a format that works more effectively. That includes the review being conducted at the moment into the change-of-use regime, and how it operates to allow certain businesses to change to different businesses, or to retail premises.

May I ask the Minister in the few minutes that are left specifically to discuss anomalies such as fair maintainable trade—where the rates of one pub are hugely increased and those of another, which is not making so much investment and effort in the community, are cut? It cannot be right that businesses that are trying their best are penalised. Fair maintainable trade is an undeliverable anomaly, as is the fact that it takes three years to challenge the rates.

My hon. Friend has astutely pre-empted my very next set of remarks, which relate to the fair maintainable trade approach to valuations. The British Beer and Pub Association has looked at that approach with us and is broadly comfortable with it. We recognised the importance of revaluations in the Budget. We have talked about bringing forward the next revaluation, and having more frequent revaluations so that we have fewer changes of a more dramatic nature.

 

On the way in which the system works, I think it is broadly a fair approach, because it does not take into account the actual value of the property; it recognises, however, the turnover that a pub can achieve if run appropriately. If a pub is extremely well run and is a very successful business, the Valuation Office Agency is not out to penalise the owners or tenants of that particular establishment in its valuations. There is an established check challenge appeal process through the VOA that can ultimately lead to an independent assessment of the VOA’s decision.

 

I would like to discuss the three-year point that my hon. Friend raised with her after the debate. If there are cases where it is the fault of the VOA that we are not responding across that period of time—of course, there are many reasons for delays that may come from either party—that would be of concern to me. With the VOA, we are in a position where the backlog of valuations, from when we had speculative valuations, before we changed the process, should all be cleared by September this year—and 1 million had to be gone through.

I thank the Minister for making various offers to talk outside the debate. Of course, the debate is being watched hotly by people in my constituency and outside it. I ask that the Minister commits to coming to St Albans, because those conversations need to take place with the people who are running the businesses. They are beginning to think that whatever they say is not listened to. I would like him to come and put to them the same arguments that he might put to me. I am not that closely involved, and would be unable to reply in the way that they could, so please will he come to St Albans?

The commitment that I will give my hon. Friend is that I would certainly be very happy to meet with publicans from her constituency, if she would like to arrange such a meeting. I have some very fond memories from many years ago of having many a very satisfying pint in Ye Olde Fighting Cocks. Perhaps we could discuss it afterwards. Whether I go on a pub crawl with her in her constituency is another matter, but I am certainly happy to meet her and the constituents to whom she refers.

 

Once again, I thank my hon. Friend for introducing this extremely important debate. She has once again ensured that it is very much at the forefront of the Government’s agenda. I hope that she will accept that we have done a great deal in this area to do what we can. Of course, we keep all taxes under constant review, and I will certainly bear in mind her representations at future fiscal events.