Ways and Means

As ever, my hon. Friend makes an excellent point. Some of the Economic Secretary’s comments about the support that he wishes to see for small business would carry more credibility if the Budget that he helped to co-author had not been responsible for such a comprehensive tax hit on small businesses overall. The record of the Economic Secretary and the Treasury in supporting small businesses is far from exemplary. In that respect, one can understand the degree of scepticism on this side of the House. I wish to raise three broad issues in connection with this measure, and I have several specific questions. I appreciate the kind invitation from the Economic Secretary to reach a measure of consensus. As I said earlier, I love consensus and I always like to reach it whenever possible. But we can be certain that the measure is worthy of support only if we get satisfactory answers to those questions. The three broad areas are a matter of theory, a question of principle and the reality in practice. On a matter of theory, on what basis do we levy business rates? What is the theoretical principle behind them? As widely understood, they are a tax on business activity. As my hon. Friend the Member for Peterborough (Mr. Jackson) might say, it is one of all too many taxes on business activity. Nevertheless, business rates are an accepted part of the Chancellor’s portfolio. Business rates are supposed to be a tax not on land values but on commercial activity. That is why there is a relief when there is no activity. Changing the principle to remove that relief does more than increase revenue: it changes the very nature of the levy, and it raises key questions in turn. The principle that there should be tax relief on empty properties was outlined by the admirable Kate Barker, whom the Economic Secretary prayed in aid in support of the measure. However, it is also clear that, in her report, she made the case for a relief on business rates when properties are empty. She said:"““The principle behind empty rates relief is to create a broadly symmetrical tax, given uncertainty. When property earns a positive revenue, it is taxed; when it does not, relief is granted. This helps remove what would otherwise be a distortion.””" According to Kate Barker, therefore, the Government, by removing the existing relief, are introducing a distortion. They are levying a tax that should be designed to get revenue from activity on property that is inactive and, in the process, changing the nature of the tax itself. Why? Do the Government accept Kate Barker’s argument that the change would be a distortion? If not, why not? What is the justification for the change? We acknowledge that, all other things being equal, the change will raise revenue. The Economic Secretary said with some pride that the amount would be £900 million. However, that tax increase raises another issue. One of the principles underpinning business rates is that, overall, the yield nationally from them should remain broadly neutral in real terms. In other words, when business rates rise, they should do so broadly in relation to the retail prices index. If the proposed change is made, the amount generated by business rates will increase by more than the rate of inflation—even as that has been adjusted under this Government, and even as inflation rises and the Governor of the Bank of England writes to the Chancellor warning of the consequences. The question that we have to ask is as follows: are the Government contemplating a balancing reduction in the burden on business? My hon. Friend the Member for Peterborough (Mr. Jackson) asked that question earlier. Alternatively, are the Government breaking another golden rule—that business rates should not be used to make up losses elsewhere? The danger in using business rates as another source of revenue to make up shortfalls elsewhere was explored in the review by Sir Michael Lyons. The Economic Secretary also prayed in aid Sir Michael in support of his argument, but we should look at what he actually said. Sir Michael said that"““the national business rate is not an appropriate way to raise additional resources to fund services…particularly given the high level of taxation on property that business rates represent, by international standards””." Are the Government therefore breaching that principle as well, and rejecting Sir Michael Lyons’s advice? In his report, he made an explicit recommendation:"““The RPI cap on the national level of business rates should be retained.””" Will the Minister for Local Government spell out whether the Government agree with that principle? If so, given that the measure amounts to a tax increase, will there be compensation elsewhere in the level of business rates? I shall be very interested in the reply. I have asked a series of questions about the theory of the business rate, and all of them touch on the fact that, under this Government, business faces a bigger burden of taxation than ever. I now want to move to the key issue of principle at the heart of the relationship between business and Government—the need for certainty. When business is asked what it wants, the answer nearly always is that it wants certainty and stability. However, some businesses fear that this change will jeopardise all that. Many will have built the rate reliefs into their plans and accepted them in their balance sheets, and altering the reliefs could throw into uncertainty a series of developments that would bring economic growth and regeneration to parts of the country. Conservative Members’ guiding principle is that the tax system should raise revenue and support economic growth and development wherever possible. The process of assembling suitable sites for redevelopment or of putting together the complex business deals that can bring regeneration is often complex, with many variables. Some companies might have to accept that some sites will be left vacant for longer than might be desirable in other circumstances. For instance, they might be left vacant until the correct combination of land sites and finance is in place to make a significant regeneration project truly viable. For some deals, the existing reliefs will have been factored into the equation already. Under the changes proposed by the Chancellor some companies will have to look again at potential regeneration projects. That consideration is more than theoretical. I am sure that the Economic Secretary will have read this week’s Property Week. It reported that, as a result of the measure, a company called Palmer Capital Partners had suffered what was described as an £80 million ““hit””. The company has had to ““scrap”” a project on which it was planning to embark as a direct consequence of the proposed change. Regeneration projects and economic growth that would have taken place are now not happening. A director of the company, Alex Price, said that it could not go ahead with the plan"““because we couldn’t quantify what business rates would be.””" That shows that an element of uncertainty had been introduced into the calculations, with the result that the project could no longer go ahead. I would be grateful if the Minister for Local Government let me know what assessment was made of the potential impact on current regeneration projects that were factoring the relief into their calculations. That is not merely a theoretical concern, as it goes to the heart of the active business of regeneration today. I have discussed the theory of business rates, and the matter of principle in connection with certainty. I turn now to some specific matters of reality, in an attempt to discern what happens on the ground when it comes to regeneration. I have a series of questions to which I hope the Minister will respond. First, it is appropriate that we learn from history. A very similar measure to the one being proposed was introduced in February 1974, when the Conservative Government of the day were on their way out and desperate to secure tax revenue by any means necessary. If any historical parallels suggest themselves, I am more than happy that Ministers should draw them.