Motion to consider the Local Government Finance Act 1998 (Non-Domestic Rating Multipliers) (England) Order 2017 - Jan 29

The Financial Secretary to the Treasury (Mel Stride) 

I beg to move,

That the Committee has considered the Local Government Finance Act 1998 (Non-Domestic Rating Multipliers) (England) Order 2017.

It is a pleasure to serve under your chairmanship, Mr Austin. The order changes the annual inflationary increase in the business rates multiplier for the coming financial year from the retail prices index to the consumer prices index, which is lower. The Government have also committed to switching to CPI as an uprating measure in all subsequent years.

The multiplier is effectively the tax rate applied for the calculation of business rates. There are two business rates multipliers: the small business multiplier and the standard multiplier. Historically, these multipliers rose in line with the preceding year’s RPI figure. On that basis, the multipliers were due to increase to reflect the September 2017 RPI figure of 3.9%. Given the high rate of inflation, the Chancellor announced in the autumn 2017 Budget that he would bring the planned switch to consumer prices indexation forward by two years, to April 2018. This decision, which was a key ask from business at the Budget, further reaffirms the Government’s commitment to supporting firms of all sizes to achieve their potential.

The benefit to ratepayers from this change will grow significantly each year because business rates will be uprated by a lower rate of inflation year on year. For example, it is estimated that business rates on the average property could be approximately £1,200 lower in total by 2023. Bringing forward the planned switch will be worth £2.3 billion to businesses over five years—the switch to CPI will be worth £4.1 billion in total by 2023.

The Government recognise that business rates can represent a high fixed cost for firms, so in the 2016 Budget, following a fundamental review of business rates, we announced major reforms and reductions at a cost to the Exchequer of approximately £9 billion over five years. Those reforms included making the 100% small business rate relief permanent and increasing its threshold from April 2017, as a result of which 600,000 of the smallest businesses will not pay business rates again. We also increased the threshold for the standard multiplier from April 2017, taking 250,000 properties out of the higher rate of business rates. As part of the package of reform, we announced that we would switch the annual indexation of business rates from the RPI to the lower CPI. In addition, in the spring 2017 Budget we announced a £435 million package to support businesses that face the steepest increases in bills following the recent revaluation.

The order is the necessary secondary legislation required to effect the change in the inflationary increase for business rates from RPI to CPI. It sets out the new equation for setting the multipliers for the coming financial year so that the September CPI figure of 3% is used instead, meaning that in 2018-19 the small business multiplier will be 48p and the standard multiplier will be 49.3p. The change represents a cut in business rates every year that will benefit all ratepayers and free up cash for businesses. We are committed to fully compensating local authorities for the business rates income that they will lose as a result of this measure, and we will provide the devolved Administrations with funding to enable them to provide similar support if they so wish.

The order is part of a wider package of measures in the autumn 2017 Budget to reduce business rates and improve the fairness of the system. This includes legislating retrospectively to address the so-called staircase tax and reinstating small business rate relief for ratepayers who lost it as a result of a recent Supreme Court ruling. We are continuing the £1,000 business rates discount for pubs with a rateable value of up to £100,000 for one more year. We also announced that we would increase the frequency of property revaluations by the Valuation Office Agency from every five years to every three years after the next revaluation, which is due in 2022. This is to ensure that bills are fairer, more closely reflecting properties’ current rental values. We will consult on the detail of the revaluation policy in the spring and would welcome the views of stakeholders.

The order will change the annual inflationary increase in business rates from the RPI to the CPI in 2018-19, reducing business costs for all ratepayers in England and giving the economy a further boost, and I commend it to the Committee.

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

It is a pleasure to see you in the Chair, Mr Austin. As always, it is good to sit across the Committee Room from the Minister—we have a lot of dealings with each other at the moment.

As the Minister explained, the order enables the Government to uprate the business rates multiplier by the consumer prices index, rather than by the retail prices index. Labour welcomes that change. In fact, we argued for it long before the 2017 Budget, and it has been a matter of some frustration that it has taken the Government so long to enact it. However, we are concerned that the change in and of itself does not tackle the other major problems with the business rates system, including the problems caused by the delayed revaluation that led to rates rising by up to 500% for half a million businesses and the average small shop seeing its rates bills increase by £3,663. That of course dwarfs the £1,200 saving that the Minister mentioned some firms will get because of the changes we are discussing. I appreciate that those rises should not occur again to the same extent, given the Government’s commitment to have a revaluation every three years instead, as the Minister mentioned. That commitment is not as positive as Labour’s commitment to yearly revaluations, but it is better than nothing. As of December last year, 200,000 appeals were still outstanding, and it would be helpful to know what that number is now.

In addition, it is all very well applying a different method of calculation for inflation to the hereditament, but I am deeply concerned that the Government are pushing ahead with changes to the Valuation Office Agency that are likely to reduce the reliability of calculations of the hereditament’s value in the first place. Valuation office staff already report having to make assessments using Google Earth, of all things, rather than building up strong contacts with local stakeholders and local experience, as used to be the case. The situation will surely be exacerbated if the Government go ahead with their planned 50% cut to valuation office staff numbers. Will the Minister explain to us now how he will ensure that the accuracy of valuations is maintained with such a swingeing cut to staff numbers?

Finally, those things are all occurring in a context where the Government appear to have no long-term vision of where business rates and local government finance are headed. Despite apparent disincentive effects arising from the parameters of the current system, new plant and machinery investment are still included within the hereditament. Furthermore, we still have no clear answers as to how any redistribution measure will work with 100% business rate retention. That was not really referred to by the Minister, but it is proceeding apace in pilot form without any indication of how base values might be calculated in future.

In that regard, it is worth quoting from the Key Cities Group. In response to the Government’s proposals around local government finance—to the extent that they exist— it said:

“There is clear evidence that the gap between affluent and poorer authorities is widening with authorities with relatively high needs and low resources being left behind. A prime example is Blackpool, the most deprived area in England which has seen reductions in its core funding from Revenue Support Grant, Business Rates and Council Tax of 12.4% between 2010/11 and 2016/17, equivalent to £126 per head of population—by contrast, Wokingham, an area with significantly less deprivation, has over the same period seen its core funding increase by 8.9% or £56 per head of population.”

I mention that because the Minister referred to the fact that the Government will compensate local authorities that might lose out from the calculation of the multiplier changing from RPI to CPI. Surely any compensation through that route will be dwarfed by the 40% cuts to local government that we have seen over the past few years.

While Labour Members support the order, we urge the Government to adopt our commitment to properly and thoroughly review local government finance. That is surely essential now more than ever as we find many local authorities struggling to deliver even statutory services, such as child protection.