Ways and Means

We have had a good, short debate. I commend hon. Members on the thoroughness of their research. The points have been made reasonably and, in response to the tribute to my hon. Friend the Economic Secretary, eloquently and authoritatively. It is right and proper that we reply as fully as possible to the points made. [Interruption.] The hon. Member for Lichfield (Michael Fabricant) on the Opposition Whip’s Bench is teasing me; I am not going down that route. The hon. Member for Peterborough (Mr. Jackson) questioned the process that is taking place. The Ways and Means resolution arises from the Budget and, being a matter of local taxation, cannot be considered in the Finance Bill, as would be the case with other Budget measures. It is also worth pointing out that I considered whether there was appropriate scope for the measure in the Local Government and Public Involvement in Health Bill, but it is specifically not a finance Bill. We have therefore facilitated debate through the resolution and, to allay Members’ fears, there will be further debate on Second Reading. Although it is a finance measure, there will be consideration of the detail of the Bill in the other place, should the House pass the resolution today, as I hope that it will. If I am not able to answer all the points that have been reasonably raised, I commit the Government to attempting to do so, should the House pass the resolution, in further consideration. An important point has been made about the possible impact of the measure, and constituency Members of Parliament have done their research. The hon. Member for Salisbury (Robert Key) in particular has researched the possible impact on the three examples that he gave. The law of unintended consequences bedevils legislation, so we must give the matter proper consideration. The hon. Member for Surrey Heath (Michael Gove) set out a logical argument based on theory, principle and practice. Let me deal with the theory first. Non-domestic rates are not a tax on business activity, but a tax on property. The domestic rate is partly a tax on property, for property services, and partly a tax on individuals. Although Members have referred to business rates today, the motion refers to non-domestic rates. That answers the points made by the hon. Member for St. Albans (Anne Main), who sought exceptions. As for the hon. Gentleman’s points about the principle, there is a misunderstanding—I forgive him for perpetuating it—that bedevils the debate about non-domestic rates, and I am grateful to Sir Michael Lyons for shedding light on it. Many people assume that the retail prices index cap on non-domestic rates is a cap on the individual bill paid. Non-domestic rates, unlike council tax, are based on the rental rather than the capital value, although some argue that the system should be different. In considering the impact of this measure, therefore, we must consider its impact during the two periods before and after revaluation. That pulls the rug from under the feet of those who say that this is a smash-and-grab raid on businesses. The intention of the measure is to decrease rents across areas. By increasing the supply of available premises, it will decrease rents after revaluation. In this country there are regular revaluations every five years, as there have been since the system was introduced. It is worth noting that revaluation for the purpose of non-domestic rates proceeds without a murmur in the House or a column inch in the newspapers, in stark contrast to the hundreds of thousands of column inches devoted to the non-revaluation of domestic properties. That, to my mind, justifies my policy of not proceeding with the domestic revaluation: goodness knows how many column inches would be spilled if such a revaluation took place. The principle of the RPI cap is clearly there, and I restate our commitment to it. That is important, because it will decrease rents in the future. The hon. Gentleman assumes, however, that it is a simple cap on the yield. In fact, the cap is on the increase in the business rate multiplier—what we all know as the penny in the pound. We used to call it rateable value, and I think we should reintroduce the term because more people understand it. I make that commitment as well: I shall not use the horrible phrase ““business rate multiplier”” again. The exception arises at the time of the revaluation, when overall rateable values increase if that is the way in which the market is going. The multiplier is adjusted, and the resulting increase in yield is pegged to inflation. That has been the case throughout the system of non-domestic rates, and it is a very strong pro-business measure. It deals with the point that the hon. Member for Surrey Heath rightly made about general stability. We must remember why uniform business rates were introduced in the first place. I think it right for me to concede that my party got it wrong before that. Our actions led to instability, and were bad for business. As for the practice, the hon. Gentleman asked a number of questions—more than he said he had. I counted 10, although he said there had been seven. In any event, I shall try to answer them as best I can. The accusation has been made that pension funds may be damaged because they hold property portfolios. Empty properties are only a small part of pension fund portfolios, and portfolios that are occupied will benefit in the medium and long term from the reduced rents that will result from the pincer effect that I have described. I do not accept the hon. Gentleman’s point in respect of the short term either. The actively managed property portfolios experience low levels of voids. However, the most important determinant for growth in yields to pension companies and other investors in property is demand from the wider economy. I do not dismiss the point that has been made, but I always think that it is a good debating point to look at one side of the equation. The argument about pension fund tax misses the point that corporation tax was reduced at the same time; from the overall point of view, that must also be considered. I hope that I have answered the point about consultation and proper parliamentary scrutiny. The next question that was asked was about the alleged failure to consult on what is an appropriate rate-free period. A three-month rate-free period currently exists, and we will not change that—there is certainty in that regard. The Kate Barker review found that there is no structural difference in the propensity of properties in different sectors to fall empty. None the less, we will provide an additional three months of rate-free period for industrial property, returning the total rate-free period to six months, so there is movement in that direction. We can debate these matters. It has been argued that there is no evidence to justify the making of the reforms that alter the rate and the length of the rate-free period and that there is also no evidence of what their exact nature will be. That was also addressed by Kate Barker and Sir Michael Lyons. As has been said, she carried out a fairly thorough assessment of the case for reform, and so did Michael Lyons. That is part of the evidence base that we are using in bringing forward our proposals. However, I concede that there is a question to do with balance in respect of some of them. The hon. Gentleman also asked questions that perhaps anticipated an economic downturn should his party ever form the Government; the DNA and mindset of the Conservative party is to plan for recessions, as that is what its experience shows happens. The Bill will provide—I appreciate that Members have not seen it, so I do not criticise those who asked about this—a new power for the Secretary of State to reduce the rate for empty properties from the new level of 100 per cent. of the occupied rate back to a minimum of 50 per cent. There is some flexibility in that measure. The hon. Gentleman should not now rush away and write in his newspaper column that the Government plan for a recession; there is always a danger of that happening when we talk about introducing prudent and cautious measures. It is important that measures such as this one are not locked in stone. The hon. Member for Salisbury referred to the Valuation Office Agency. It is already the case that an empty property is valued, so we do not anticipate a surge, or even a blip, in the work of the VOA. Its work is already part of the tax base. The hon. Member for Surrey Heath will know—perhaps from reading lurid headlines, which I think of as scaremongering—that we are computerising the valuation process. [Interruption.] Well, it is the central premise of the Conservative argument against our policy that we are doing that, so it is not fair of Members to criticise this point. We are successfully computerising the valuation process. The VOA has been successful at non-domestic rates revaluation, which has passed without a comment; I have been surprised about that. That is a reasonable point to make. The question was also asked why this measure will be implemented in 2008, rather than in 2010. Lyons’ recommendation was of course linked to the revaluation process, and we propose to introduce the measure in 2008 because we believe that its benefits—I do not mean just the increased revenue, which I shall come to in a moment—are required now. As my hon. Friend the Economic Secretary explained, relatively speaking we have very high rents. In my view and as the Financial Times reported this morning, it is daft that the taxpayer effectively subsidises empty properties, given that we have among the highest rents in the world. When my constituents heard that rental values in Manchester are higher than in Manhattan, they were surprised, as was I. So I checked it out and it proved to be true. On the question of certainty, I appreciate the point that the hon. Member for Surrey Heath was making about the micro level. However, stability will be provided at the macro level because, as evidence shows, if the policy is successful—as we of course expect it to be—it will have a beneficial effect in the medium to long term. I have already dealt with the point that he made about the Lyons report and increased revenue from empty properties. Members also asked about assessing the location of empty properties and whether there will be differential effects. It is clear that the policy needs to be examined in relation to areas such as the cities of London, Manchester and Birmingham, and Slough, which my hon. Friend the Economic Secretary mentioned. Analysis of England by region and by value shows that, unsurprisingly, the north-east and the south-west have the lowest figures. Some important points have been made about regeneration areas, and I was grateful for the recognition earlier of my own commitment to regeneration; I did indeed not only read the available evidence, but consulted some of the urban regeneration organisations. Renovation funds are available in areas with Department of Trade and Industry assisted area status. However, compared with areas such as the City of London, a major obstacle in regeneration areas is of course the availability of land. We do not believe that there will be a negative impact on business confidence as a result of this measure. For example, redevelopment and regeneration schemes in Liverpool are already making available £8.2 billion for development, with planning permission already granted. That is not related, except in a tiny way, to the empty property issue. I concede that one has to consider the impact in different parts of the country, and Members have made strong points about the potential impact on their local economies. If I cannot deal with those points today, I hope to be able to do so on Second Reading, should the House resolve this motion today. The hon. Member for Twickenham (Dr. Cable) called for further consultation, which is clearly desirable. However, we in this country sometimes suffer from consultation fatigue, and Opposition Members have criticised us for having too many independent reviews. One cannot have one’s cake and eat it, but the point about consultation, particularly parliamentary consultation, is a fair one. The hon. Gentleman also referred to the twin objectives of raising revenue and changing behaviour, both of which are indeed objectives in this policy area. Such measures are part of the revenue-raising measures in the Budget. They have to be taken in the round, alongside decreases in corporation tax over the years—and, of course, the most successful stewardship of the economy in our country’s history over the past 10 years. I shall say that especially loudly today. However loudly or softly I say it does not change the fact that it is true, and I wish that people would sometimes listen to the argument and not who is making it. The hon. Member for Twickenham asked about the £1.3 billion in Sir Michael Lyons’s report and the £950 million. It is important to point out that in our assumptions we build in a £900 million figure in year two, recognising that the impact overall will be to lower rents. That addresses the point that the hon. Member for Peterborough (Mr. Jackson) rather sceptically—I do not say cynically—raised. I think that he called the measure a stealth tax or a smash and grab raid. It is not. It is part of the revenue-raising measures, but it will also have the desirable consequence of changing behaviour, as the hon. Member for Twickenham pointed out. We want to bring empty properties into the market. It is ridiculous that companies leave properties empty, whether intentionally or not. I do not have examples of companies that deliberately set out to do that, and I suspect that it would take a private detective agency—