Rating (Empty Properties) Bill

I should like to develop some of the comments that I made in the Ways and Means debate, which were consolidated by my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) on Second Reading. Time sat rather heavily on us this afternoon. It was enlivened by some erudite shafts of wit from the hon. Member for Surrey Heath (Michael Gove) and some rather nice turns of phrase that we may hear again on ““Newsnight Review””, but apart from that, it was rather heavy going. I want briefly to recap the basic arguments about the Bill, at the heart of which is a perfectly sensible proposition about providing an economic incentive to use property more efficiently. We have three basic reservations, which have been partly, but not entirely, alleviated. The first concerns the process, particularly the consultation; the second concerns the Government’s motives, particularly the revenue aspect; the third concerns unintended consequences and special problems arising from the fact that there is no such thing as a uniform property market, as that market is complex and variegated. It is true, as the Government argue, that if we impose an economic penalty on unoccupied property, business has an incentive to use property more intensively and cut rents to fill it. The model is obviously sensible in a simple market framework, but the position is a little more complicated than that. I reread the Lyons report and what Barker had to say. It was interesting that Sir Michael Lyons quoted Stiglitz, one of the top global economists—I am not sure whether he is a Nobel laureate, but he has certainly been lined up for that prize—who tried to set out the basic economic arguments about empty property and taxation. He made the point that the property market is different from markets in apples and pears, or in cars, because entrepreneurs have to build property ahead of demand—that is the nature of the business—so a certain amount of spare capacity is built in. There is a risk associated with that, particularly if there is a risk of being penalised for creating excess capacity. The economic argument is that there is a good case for empty property taxation relief, because risk sharing is involved. Without that relief, investment would never take place. At issue, therefore, is not the principle but the period within which it is sensible to create empty property relief to encourage the healthy growth, as well as the balancing, of the property market. The first of our three main concerns is about the process. It was clear from the Lyons report that Lyons himself envisaged a much longer period of consultation before his recommendation was put into legislation. The Government are consulting about exemptions, and they are consulting separately about particular problems with leases, which is welcome. That is welcome, but the fundamental point, which has been made several times by the hon. Member for Surrey Heath, is that when the results of those consultations bear fruit, they will take the form of secondary legislation, which will not be subject to the same extensive scrutiny as the Bill. The process is therefore not as satisfactory as it could be. Secondly, it is clear that the Bill is a revenue-raising measure. Ministers have turned that to their advantage as a debating point by saying to the Opposition parties, ““Well, if you’re against the Bill, how would you raise the £950 million?”” That is a fair debating point, as far as it goes, but it raises the obvious question about who pays that £950 million. I have never been clear who the Government think would pay it. They would argue that it is not paid by the tenants of commercial property, because they argue that rents will fall. When Ministers were challenged, from the Liberal Democrat Benches I think, about the potential impact on institutional investors who have extensive property portfolios, they said that those investors would not lose anything either, because there would be an increase in profits in the sector. So how will the miracle happen whereby the Government acquire substantial revenues—£950 million, although admittedly those would be regressive as rents fall? Who will pay? No one, apparently. There is something odd about the logic. If the Government were a little more honest and accepted that there will be serious losers in the property sector, at least we would be clear about their thinking. The Government could argue that, to a degree, nobody is a loser if the whole system becomes much more efficient and the British economy becomes more efficient. That could indeed be the case, but I have not heard it explained what the Government’s objectives are. We know from the helpful tables at the back of the Library research paper that the average level of voids is about 9 per cent. in England and Wales. Sophisticated property companies probably operate on a 6 to 7 per cent. basis. It would be interesting to know what the Government think the natural level of vacancy should be, and how realistic it is to expect that to be achieved. Unless the level falls, the property sector will pay more, and that will be paid by the owners, who are usually institutional investors, or by tenants, directly or indirectly. Somebody must pay. The third set of issues relates to the exemptions and the special difficulties, which fall into two parts. The first was debated extensively today, and I will not review all the arguments, which were well made, about the problems associated with legal difficulties, planning and historical buildings. Those will have to be dealt with. The second set of issues, which has not been debated, involves the differences between different parts of the country. In the Ways and Means debate and on Second Reading we argued about the particular problems that were said to be likely to accrue in areas like Wales, where there have been many factory closures, and parts of west Yorkshire, which are subject to regeneration, and the difficulties that those areas have. Regeneration often takes place in the industrial sector by advance building, with an expectation that property could remain empty for a considerable time. It relies very much on speculative building on industrial estates, so those areas could be penalised. One of the difficulties that I have in trying to understand what is going on is connected with the differences between different parts of the UK. Perhaps the Minister can explain. I am not trying to make a point. I am trying to understand what is going on. There are big differences between different local authority areas. It was not surprising that the biggest area of unused property in Britain, let alone in London, is Hackney, because Hackney is an extremely problematic area with serious regeneration difficulties. There are some strange anomalies. My own borough, which is quite prosperous and is rapidly growing, has a vacancy rate of about 6 per cent. Next-door Hounslow, which is equally dynamic, has a vacancy rate of about 14 per cent. Manchester and Birmingham, which have problem areas, have very high vacancy rates. Newcastle, which has the same problems, has a very low one. Why these enormous discrepancies occur, and what the impact of the Bill will be on them, is not clear to me. The Government have expressed their willingness to be flexible—if, for example, there is a period of recession—but how flexible can they be in recognising the differences in different parts of the UK and in allowing regional exemptions? Many of those issues will be pursued in the other place, as there are clearly a lot of unresolved questions. Question put and agreed to. Bill accordingly read the Third time, and passed.