This week's General Committee debates

Week commencing Monday 02 February 2015

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First Delegated Legislation Committee

Monday 2 February 2015

[Mark Pritchard in the Chair]

Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2015

4.30 pm

I beg to move,

That the Committee has considered the Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2015.

It is a great pleasure to serve under your chairmanship, Mr Pritchard.

The order caps the annual inflation increase in the business rates multiplier at 2% for the coming financial year. The background is that the Government are committed to supporting business and they take the impact of business costs seriously. At autumn statement 2013, the Chancellor of the Exchequer announced a £2.7 billion package of measures to reduce business rates, including a 2% cap on the inflationary increase in business rates from April 2014. Building on that package—the largest in 20 years—the Chancellor provided a further £1 billion package at autumn statement 2014, central to which was the continuation of the 2% cap on business rates inflationary increases. That will benefit all ratepayers across England in 2015-16 and have a positive impact on business rates year on year, not just in 2015-16.

Business rates are devolved, so the 2% cap will apply only to businesses in England. However, the Exchequer will provide more than £20 million to the devolved authorities, through the Barnett consequential, giving Scotland, Northern Ireland and Wales the funding to cap business rates too, or to implement other business rates measures, thus ensuring that businesses across the UK can benefit.

The order is the legislation necessary for the measure to go ahead. There are two business rates multipliers: the small businesses multiplier and the standard multiplier. Each year, business rates multipliers are increased in line with the previous September’s retail prices index, using an equation laid out in the Local Government Finance Act 1988. The business rates multipliers for 2015-16 were due to increase in line with the September 2014 retail prices index, which was 2.3%. The order changes that figure and gives a new one to be used in the equation for setting the multipliers for the coming financial year. Instead of using the September RPI figure, the uprating will be based on a figure of 2%, which means that the small business multiplier will increase from 47.1p to 48.0p. The standard multiplier is calculated from the small business multiplier plus a supplement to cover the in-year costs of small business rate relief. That supplement has been calculated as 1.3p for 2015-16, so the standard multiplier will go up from 48.2p to 49.3p.

As a result of the order, business rates will fall in real terms and save businesses in England £105 million in business rates compared with using the RPI increase. Furthermore, the Exchequer has committed to the full reimbursement of local authorities for any loss of receipts to ensure that the measure has no negative impact on the provision of local services. The order anticipates the local government finance settlement, which will be laid before the House in due course.

The measure should not be looked at in isolation; it is part of a £1 billion package to reduce business rates. In addition to the inflationary increase cap, through the doubling of small business rate relief for a further year that package continued support for 575,000 small businesses, of which 385,000 will pay no business rates at all until April 2016, and increased the discount for lower value shops, pubs, cafés and restaurants from £1,000 to £1,500 from April 2015.

In the autumn statement the Chancellor announced that the Government will conduct a review of the future structure of business rates to report by Budget 2016. The review will be fiscally neutral and consistent with the Government’s agreed financing of local authorities. Terms of reference will be published in due course, and I encourage all stakeholders to engage with the review.

Of course, the Government are not only taking action on business rates. The main rate of corporation tax will fall from 28% to 20% in this Parliament, we have introduced a £2,000 employment allowance to support small businesses to expand their work force, and we cancelled the fuel duty increase planned for September 2014.

The order will cap the annual inflationary increase in business rates in April 2015 to 2%, reducing business costs for all ratepayers in England and helping to revitalise the economy. I commend the order to the Committee.

4.35 pm

It is a pleasure to serve under your chairmanship, Mr Pritchard. I do not intend to detain the Committee long. As the Minister explained, the order puts into effect the Government’s announcement at autumn statement of a cap on the rise in the business rates multiplier of 2% for 2015-16, without which the rise would have been 2.3%. For 2014-15, the cap was set at 2% against a prospective rise of 3.2%, and the Minister and I debated a similar order after that autumn statement.

We welcome the move to retain the 2% cap. The pressure on businesses is very real, with the cost of business rates often being much more than the cost of rent. The Minister and I have had a number of debates and interactions on our differing proposals for business rates in the next Parliament. My party will stand on a commitment to cut and freeze business rates in the early part of the next Parliament, which would go much further than the order. However, those are matters for the campaign trail.

We support the order. I have only one question for the Minister, which is about the review of business rates announced by the Chancellor, in addition to this measure, at autumn statement. Will the Minister say a little more about the interaction between that review and the review of business rates administration that has taken place? He said that the review announced at autumn statement will be fiscally neutral. What are the practical limitations on that review?

4.37 pm

I thank the hon. Member for Birmingham, Ladywood for her support for the measure. She tempts me into debating various proposals on business rates. I do not know whether she has any intention of matching the order in terms of the rebate available for retailers. Taken as a whole, the measures the Chancellor has set out in the last two autumn statements will benefit businesses considerably more than the Labour party’s proposal would. Of course, the Labour party would increase corporation tax—a retrograde step would make the UK less competitive than it is set to be.

The hon. Lady asked about the review announced at autumn statement, and in particular the fact that we intend its impact on the Exchequer to be fiscally neutral. I will not set out too many details now, as we will set out the scope of the review in due course, but it is important to bear in mind the state of the public finances. If we announced that the review was not intended to be fiscally neutral, she would understandably be the first to question how we would raise the money for it. It is important that any review looks at all available options, while taking into account the fact that there is no magic money tree. That is why we have made it clear that the review should be considered fiscally neutral.

The hon. Lady also asked about how the review interacts with the administration review. The interim findings of the review into the administration of business rates were published at autumn statement, and that report focused on practical changes to the appeal system, billing and collection, and information sharing. The responses to that interim report are due by the end of February.

At autumn statement, a larger look at the policy behind business rates was announced. The hon. Lady and other Committee members will be aware that a number of businesses were concerned about how our business rates system operates. It is right to use the opportunity to consider that matter more widely to see what measures can be taken. I do not want it to be missed that the Government have in the interim taken steps in the last two autumn statements, and not least in the contents of this order, to protect businesses from the impact of rising businesses rates. Indeed, in real terms we have introduced measures to ensure a reduction in business rates, including one last year.

Of course, the Government will always be on the side of businesses, including small businesses. We will ensure that the tax system does not stifle them and prevent them from being the engines for economic growth that they have so successfully been in the past couple of years.

Question put and agreed to.

4.41 pm

Committee rose.