Ways and Means

As this is a pre-legislative phase, where we are asking broad questions rather making forceful assertions about legislation that we have not yet seen—I agree with the hon. Member for Surrey Heath (Michael Gove) that that is the best way to approach the measure—I want to start by asking about the process. The Economic Secretary based his presentation on the Lyons recommendations, and although it is certainly true that the Lyons report recommended precisely what the Government want to proceed with, that recommendation does not quite fit with his recommendation in a later paragraph, which is not a criticism of the Government but of the report. In paragraph 8.6, Lyons recommended that:"““The Government should conduct a review of exemptions and reliefs to consider the scope for removing inappropriate subsidies and distortions, and to simplify the system.””" There was thus a firm recommendation, but also a recommendation for a review, so it was not clear how the two would hang together. Having read through the relevant paragraphs of Lyons, it is fair to say that although he made a firm recommendation, on which the Government have acted, his arguments were more equivocal and balanced than those in the Minister’s presentation—I know that the hon. Gentleman takes economic arguments seriously. Lyons called in aid Tony Atkinson and Stiglitz, who made a good theoretical case for keeping empty property relief, because of the risk-sharing problems. So, there are clear arguments on both sides, which is all the more reason to have proper consultation and consideration. The other reason why the process—whatever the outcome—needs to be carefully staged is that the feedback that the Government have had from both interested and disinterested bodies is not clear cut either. The Federation of Small Businesses is quite supportive of what the Government said, but it made the interesting recommendation that the legislation should take account of the fact that some businesses are making a genuine effort to fill their property. It is not clear how the legislation will accommodate that. The Campaign to Protect Rural England was, again, broadly supportive of what the Government are trying to do, but it said that the Government must undertake the measure in conjunction with changes to the VAT regime to make it more attractive to improve property. The Royal Institution of Chartered Surveyors and the British Retail Consortium were much more critical. The first issue is about the process and why the Government cannot undertake a process of consultation over the next year or so, which is what Lyons appeared to envisage. My second set of questions is about the revenue implications. The hon. Member for Surrey Heath has suggested that, whether we call this measure a withdrawal of state aid or a tax, there clearly are major revenue implications. That may indeed be right. First, I would like to be clear what the implications are. In his speech, the Minister referred to various offsets. I want to be clear whether he envisages a full whack of £950 million on the commercial property sector or whether there are any offsets and, if so, what they are. My other question is about the behavioural implications of the change. I think that the Government are arguing that the measure is necessary both to raise revenue and to change business behaviour to make it more efficient. There is nothing wrong with that. In the context of environmental taxation, we argue—as do the Government—that it is possible to raise revenue and change behaviour at the same time. There is nothing wrong with the argument, but I want to be clear what assumptions the Government are making. Lyons implies that the cost of empty property rate relief is £1.3 billion. The Government say in the Red Book that they will raise an additional £950 million. Does that mean that the difference is accounted for by improvements in the utilisation of commercial property? Are the Government assuming that commercial property use will improve by a factor of a quarter? Or are the figures completely unconnected? A related question is: who will pay the tax? As we know, with all business taxation, the cost is shifted in one direction or the other. There is an assumption that the tax will be paid by inefficient landlords and over-exuberant speculators, but is that in fact the case? We must assume that, in most cases, the increased taxation of commercial property will, at some point, be paid for by occupiers. It could be paid for by the landlords’ other occupiers or in the form of longer leases.