Debate on a Commons motion to approve the Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2019 - Feb 4

The Financial Secretary to the Treasury (Jesse Norman)

I beg to move,

That the Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2019, which was laid before this House on 4 November 2019, in the last Session of Parliament, be approved.

This order makes a small but important technical change to business rates. Specifically, it changes the annual inflationary increase in the business rates multiplier from the retail prices index to the lower consumer prices index for the coming financial year. As hon. Members may know, the multiplier is effectively the tax rate applied to the calculation of business rates, be it through the standard multiplier or the small business multiplier. Historically, these multipliers would rise in line with the preceding year’s RPI figure. On this basis, the multipliers were due to increase to reflect the September 2019 RPI figure, which was 2.4%. In Budget 2016, the Government announced that they would switch the multiplier uprating from RPI to CPI indexation from April 2020. [Interruption.]

Madam Deputy Speaker (Dame Rosie Winterton)

Order. Will Members leaving the Chamber do so quietly, please?

Jesse Norman

The autumn Budget 2017 brought forward this implementation date to April 2018. The switch makes a reduction to business rates that is estimated to be worth more than £6 billion over the next five years, and the benefit to business will continue to grow as the business rates multipliers are uprated by the lower rate of inflation year on year. The Government introduced regulations to make this change for previous years, and we are bringing forward this order to do the same for 2020-21.

Before I proceed to outline the detail of the order itself, I would like to set out some of the background for the benefit of the House. The Government recognise that business rates can represent a high fixed cost for some businesses—indeed, many businesses—and we have taken repeated steps to reduce the burden of the tax. Reforms since Budget 2016 include, first, making 100% small business rate relief permanent and doubling the threshold of this relief from April 2017. As a result, more than 675,000 of the smallest businesses do not pay business rates at all. Secondly, increasing the threshold for the standard multiplier to £51,000 from April 2017 has removed many properties from the higher rate of the tax. Thirdly, moving to more frequent valuations by bringing the next revaluation forward one year to 2021 and moving to three-year revaluations after that will make bills fairer by ensuring they more closely reflect properties’ current rental values.

Finally, introducing a new retail discount has cut the business rates bills of small retailers by one third for two years from April 2019. This is providing up-front support to the retail sector at what is proving to be a challenging time for many retailers, and it is worth about £1 billion to businesses.

Looking forward, as confirmed in the statement I made on 27 January, from 1 April this year the Government will increase the retail discount to 50% in 2020-21, and extend eligibility to independent cinemas and grassroots music venues for the first time. We will provide additional support to pubs through a £1,000 discount for pubs with a rateable value of less than £100,000. We will extend the duration of the £1,500 discount for local newspaper office space for a further five years. However, it is important to be clear that the Government recognise that concerns remain about the impact of the tax. That is why we are committed to a further review of business rates, details of which will be announced in due course.

The order before the House is the necessary secondary legislation required to effect the change in the inflationary increase for business rates from RPI to CPI in the financial year 2020-21. It sets out the new equation for setting the business rates multipliers for the coming financial year, so that the September 1.7% CPI figure is used instead of the 2.4% RPI figure.

Given the difference in the multiplier from uprating this year, the small business multiplier in 2020-21 will be 49.9p, rather than 50.3p. The standard multiplier in 2020-21 will be 51.2p, rather than 51.6p. That change represents a cut in business rates every year, benefiting all rate payers and freeing up cash for businesses. The order applies to England—unlike in the last debate, Madam Deputy Speaker, there has not been quite the same interest from Scottish nationalists about this measure, although both provisions apply to England. The Government will provide the devolved Administrations with funding to enable them to offer similar support if they wish, and they will fully compensate local authorities for the income they will lose as a result of this measure.

This measure should not be viewed in isolation, and as I have said, it is one of many introduced by this Government, and their predecessor Governments, to support business. I have mentioned numerous cuts to business rates, including the two-year business rates relief for small retailers. Looking more widely, the UK corporate tax regime remains highly competitive, with the Government having lowered corporation tax from 28% in 2010 to 19% today—the lowest rate in the G20. Beyond that, businesses are benefiting from enhanced tax incentives, including the introduction of the new 2% structures and buildings allowance, and a temporary increase in the annual investment allowance to £1 million.

The statutory instrument that we are legislating for today will contribute to the Government’s efforts to reduce the burden of business rates and make them fairer for taxpayers. As I outlined, on top of the reliefs already in place, the Government are committed to a review of the business rates system, details of which will be announced in due course. In conclusion, this order will change the annual inflationary increase in business rates from the retail price index to the consumer prices index in financial year 2020-21, thereby reducing costs for all business rate payers in England and giving the economy a further boost. I commend the order to the House.

6.56 pm

Anneliese Dodds (Oxford East) (Lab/Co-op)

I am grateful to the Minister for his explanation of the order, and broadly supportive of its contents. It does, however, raise some significant questions about the Government’s continued use of the retail price index as against the consumer prices index, and about their approach to business rate reform and local government funding more widely.

Members will be aware that there has been continued argument about the use of RPI as an inflation indicator, as against CPI and CPIH. RPI was de-designated as a national statistic back in 2013, yet it is still often used in areas such as the regulation of train fares, student loan debt, and many occupational pension schemes. CPI has been adopted in this case, but we have no clear explanation why the use of RPI continues in other areas. The Royal Statistical Society has been highly critical of that approach.

After many years of confusion, the Chancellor has now agreed not to cease the production of RPI statistics, but to slowly align them with CPIH, thus ending the situation of, as The Financial Times put it,

“the Office for National Statistics and UK Statistics Authority publishing a key economy measure every month which they accept is wrong, but doing nothing to improve it.”

That is what has been happening over the past few years. I therefore find it quite revealing that, rather than amending the Local Government Finance Act 1988 through primary legislation to make that change permanent, the Government choose to make it yet again, year on year, through secondary legislation. Is this use of orders, rather than primary legislation to designate the relevant inflation measure, to retain flexibility for the Government, or for some other unexplained reason? Either way, it creates a potentially unstable environment for businesses and local authorities, perhaps up to 2025 or beyond.

We have seen no uprating in the existing thresholds at which discounts on business rates apply. I accept that the retail discount has increased from one third to 50%, and been extended to some additional categories of economic operator. I am probing, through parliamentary questions, what proportion of rateable businesses are actually covered, given the low thresholds at which those discounts apply, especially in areas of high property costs.

The Conservative manifesto said that the Government would go further and fundamentally review the business rate system, so it was disappointing that the Minister said—twice—that this would happen “in due course”. Will he please tell us once when that review will at least begin, and what its scope will be? According to the British Retail Consortium, 2019 was the worst year for retail in 25 years. We need some urgency from the Government in dealing with this issue. We also need to deal with the impact of the business rate system on preventing the investment that is required to ensure environmentally friendly business and manufacturing.

Finally, we need to put rating in the context of the overall local government funding settlement. It was disappointing that the Minister did not talk about that at all, but merely about compensation for this measure in the settlement. All Labour Members realise that the Government are suggesting a real-terms cut to local government. Even worse, the alleged increase they are putting into local government is predicated on all councils increasing council tax by the full amount, which they blatantly will not do—smoke and mirrors yet again. We have seen a concerning trend where funding from local authorities in less affluent areas is stripped back at a far faster rate than it is in more affluent areas. The Government’s laughably named fair funding approach would see almost three-quarters of the so-called red wall seats losing out even further. There is great concern among those in local government that reforms to business rates could make this even worse, with 77% of councils saying that they lack confidence in 100% business rate retention.

I hope the Minister will address these concerns, outline a timetable for the review of business rates, indicate whether that review will include considerations of local government, and, above all, let us know whether we will see an end to the current uncertainties around CPI adoption.

Madam Deputy Speaker (Dame Rosie Winterton)

It is with great pleasure that I call Paula Barker to make her maiden speech.

7.01 pm

Paula Barker (Liverpool, Wavertree) (Lab)

Thank you, Madam Deputy Speaker, for giving me the opportunity to make my maiden speech in this place. I congratulate you on your election and wish you the very best for the future.

I want to take a brief moment, at the beginning of this speech, to pay tribute to my predecessor, Luciana Berger, who served my constituency for nine years. In particular, her commitment to raising the profile of mental health issues was very encouraging. Although it is an issue more widely talked about than ever in society, it sits far too low down on the political agenda. I wish Luciana and her young family the very best for the future.

My wedding day was the best day of my life and my two sons are my proudest achievement in life, but it is the greatest honour of my life—and a most humbling one—to sit in this Chamber as the Labour Member of Parliament for Liverpool, Wavertree. I represent a wonderfully diverse constituency in south Liverpool. It has a number of communities—from Childwall to Church, from Kensington to Old Swan, from Picton to Wavertree itself—unique with their own characteristics, rich in their own history and proud of their contribution to our city’s story. I will speak for all our people in all their diversity, not least for some of the longest-established minority communities in our nation. Our Yemeni community, our Jewish and Hindu communities, and our Afro-Caribbean and African communities. I cannot go on without mentioning how much it means to our city to finally have a black MP from Liverpool sitting on these Benches—my good friend, my hon. Friend the Member for Liverpool, Riverside (Kim Johnson).

My constituency is economically diverse, too, and that is something I am less inclined to celebrate. Liverpool, Wavertree is the story of two constituencies. The economic disparity between the wealthiest and poorest parts of my constituency is far too great. My socialism is aspirational: it is not about levelling down, but rather levelling up communities that for far too long have suffered at the hands of crushing Tory austerity.

I was born in the constituency at Sefton General Hospital. My mother and father both worked at the sweet factory, Barker and Dobson—the name a mere coincidence. Both were workers on the shop floor and members of the Transport and General Workers Union. When my dad tragically died two weeks before my second birthday, my mum raised me as a single mother—so, according to the Prime Minister, in his own words that makes me “ill-raised, ignorant” and “aggressive”. In all honesty, I may well be the latter—it comes with the territory of being a woman with an opinion, and a Scouse one at that.

I joined my trade union, Unison—or NALGO, as it was then—on my first day working for Liverpool City Council, so it is apt that we are discussing a statutory instrument on local government finance today. Liverpool City Council is a council that has had its funding reduced by 64% since 2010, equating to £640 million; a council that is the backbone of our communities, providing services from cradle to grave; and a council that, along with so many others, needs to be funded properly and equitably.

I did not find politics; politics found me. I owe most things in life—I make no apology for this—to the trade union movement. It was that movement that gave me security at work. It was that movement that made me understand the power of solidarity. And it was the working-class movement that made me realise that we, the collective, are the tide that lifts all boats. All these principles were reaffirmed—and thank you to Conservative Members—by the Conservative party, which waged an unrelenting assault on my city, attempting to put us into a state of “managed decline”.

We are self-reliant, hard-working and independently minded people. There is no such inclination towards “welfarism” or a prevailing sense of “victimhood”, as The Spectator once asserted while the Prime Minister was undertaking tough, arduous graft doing real work in that infamous sweatshop that was its editorial room. Like my party, we are a city of work and workers—human beings with long memories, united in our ideals and fundamentally optimistic about our collective future. I will always champion my constituency, my city, wider Merseyside and our beloved north-west region, so long as the good people of Wavertree continue to put their faith in me.

I want to give a warning to Conservative Members using a contemporary example, but before I do, I must say that the Secretary of State for Housing, Communities and Local Government is not better qualified to understand the problems that our city faces than the actual people who represent it. The point is this: if devolution is to mean anything whatsoever, it is Liverpool City Council and the city Mayor who should have the power to decide whether to continue the successful landlord licensing scheme. I know that my constituents will suffer on the back of the decision to withdraw the scheme, and we will not take it lying down. We seldom take anything lying down in my part of the world.

Bill Shankly had it right when he said:

“The socialism I believe in is everyone working for each other, everyone having a share of the rewards.”

It is the way he saw football and life. I and my fellow Scousers are not much different. My party has a long road back to power. United in our common aims and values, we can and will overcome the odds to achieve power, because it is only through power that my constituents will be able to realise their hopes, dreams and aspirations.

7.08 pm

Jesse Norman

Let me start by responding to the comments from the Opposition Front Bencher, the hon. Member for Oxford East (Anneliese Dodds), who raised a series of questions of a technical nature. She asked why the Government are continuing to use RPI versus CPI, and I was grateful that she acknowledged that the policy has been one of slow alignment. In September 2019, the Chancellor announced that the Government and the UK Statistics Authority would jointly consult on proposals to address shortcomings in RPI. We expect that consultation to launch at the time of the Budget.

I am sure the shadow Minister is aware—I think she hinted at this—that since 2010 the Government have been reducing the use of RPI, and we will continue to do so where practicable. She asked why primary legislation had not been used in the context of this instrument. The answer is that the Government have made a commitment that this will be permanent and that they will use CPI for the uprating of business rates. We have also said—if we have not, let me say it now—that we will consider introducing primary legislation in due course, but the parliamentary timetable is very congested and we have to make sure it can fit alongside many other items, including items to which I am sure she is thoroughly committed.

The shadow Minister talked about raising thresholds. As I think she will acknowledge, we have increased the rate for the retail discount, and the pubs discount has been set at a high level and so includes a great number of pubs. She asked about the review. We have said we will launch a review in due course. I will not go further than that, although at this time of the year it does not require the application of rocket science to see when “in due course” might ultimately land.

Finally, the shadow Minister talked about local government. Of course, she is right to focus on the importance of business rates to local government funding. I had the British Retail Consortium in to see me only recently, and I talk closely with all those affected by the rate. As she will be aware, the Secretary of State for Housing, Communities and Local Government published the provisional 2020-21 local government finance settlement in December, which set out an additional £2.9 billion in core funding, as announced in the spending review 2019. As she also knows, however, it is not just a matter of what funding is provided by central Government; it is also a matter of what core spending power is available to local authorities.

I am pleased to welcome the hon. Member for Liverpool, Wavertree (Paula Barker), who made her maiden speech. I congratulate her and welcome her to her place in the House. She got wonderful support from her colleagues on the Opposition Benches, which is always a comfort when doing one’s maiden speech, so I congratulate her on that as well. She described herself as a woman with an opinion. In this House, anyone who can describe themselves like that will go a long way, so I congratulate her again. Just to correct the public record, however, I hope she will recognise that Tory support for Liverpool goes back a long way. Michael Heseltine was recently given the freedom of the city in recognition of his support, and I think that everyone can see the difference and the energy the city has at the moment. The Government are seeking to support it and the mayoralty in many different ways.

Question put and agreed to.