Government oppose Peter Luff's bill for small businesses

It was the second reading of Peter Luff's Small Business Rate Relief (Automatic Payment) Bill on Friday. It is backed by the Federation of Small Businesses and reflects the fact that business rate relief is not taken up by half the smal businesses entitled to it. Around £400 million earmarked for rate relief for small businesses is returned to the Treasury every year.

In 2007 the Welsh Assembly made such payments automatic in Wales. In Scotland businesses with a rateable value below £8,000 have had their rates abolished.

Some 115 MPs have signed Mr Luff's Early Day Motion, number 676, on the subject. He told the House of Commons:

"I sincerely thank the supporters of the Bill and of the campaign, especially the Federation of Small Businesses for taking a lead, suggesting the measure to me and campaigning tirelessly on behalf of all our small businesses. Towards the end of my remarks, I will name some of the many other supporting organisations, to which I am grateful for all their support and advice, especially the Local Government Association. Its unqualified support for the Bill was an important factor in my decision to proceed with it.

I also thank the 115 colleagues from all parties who signed early-day motion 676 on the subject, and the 11 colleagues, again from all parties, many from the Business and Enterprise Committee, who sponsor the measure. I thank the Minister for Local Government and the Under-Secretary of State for Communities and Local Government, the hon. Member for Tooting (Mr. Khan), for their help and advice, for agreeing to a private meeting before today’s Second Reading and for at least giving the impression that they sympathised with the Bill’s objectives and might be tempted to support or adapt it, and introduce it with a package of other measures to help small businesses. We will wait and see what the Under-Secretary says in his winding-up speech.

The Bill should attract all-party consensus because its basic rationale can be found in the explanatory notes to the Local Government Act 2003, which introduced the small business rate relief scheme:

“Research published by the Government shows rates to be an especially heavy burden for small businesses, accounting for a significantly higher proportion of operating profits than in the case of larger businesses.”

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I do not pretend that the Bill is a cure-all or a panacea, but I believe that it constitutes a useful and important step forward. Indeed, the Federation of Small Businesses said in a statement that it gave me to read out:

“This cash injection could save many small businesses laying off staff or closing down completely. Our members fully support the call for automatic rate relief, a key theme of our Keep Trade Local campaign.”

The Bill may have shortcomings and I am sure that, if it gets a Committee stage, we can discuss two specific changes in more detail. However, I believe that the Under-Secretary understands that the current position is unacceptable and can be improved. Approximately half of all small businesses currently claim the relief, leaving half not getting money to which they are entitled. The Bill is far from perfect—I do not claim perfection for it—but it would improve the current position and save jobs in the real economy.

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A fascinating statistic is that 64 per cent. of all commercial innovations come from small firms. We know that this country needs to innovate to stay ahead in the international competitive race. Small firms will play a key role in helping us do so, but many are in serious trouble. The Federation of Small Businesses has seen a 200 per cent. increase in phone calls to its small business helpline compared with last year. To take one example, small independent retailers seem to be in terminal decline across the UK. The accountancy firm BDO Stoy Hayward forecasts that 33,900 small businesses will close in 2009, which equates to 120 a day. I will not list all the statistics of doom and gloom, but one that particularly worries me, as a Member with a predominantly rural constituency, is that 42 per cent. of English towns and villages no longer have a shop of any kind. We must protect the shops that are still running."

Sadiq Khan, Under-Secretary of State for Communities and Local Government, replied for the Government:

"I should like to set out in more detail what the present small business rate relief system does and how it works, because it is important to understand its logistics when considering the Bill. As we understood the challenges that small businesses face, and because we knew that rates placed a disproportionate burden on them, we introduced the small business rate relief scheme in 2005. The scheme is targeted—I emphasise that word—at small businesses that meet a number of criteria, including that of occupying a single property in England. The system is different in Wales and Scotland. During the valuation cycle for business rates, a business seeking to obtain small business rate relief is required to make a declaration on a pro forma, stating that it meets the criteria, before being granted the relief. We have recently amended legislation to make this process easier for businesses; I shall elaborate on that point in a moment.

The scheme was introduced in 2005, and addresses the disproportionate burden that business rates place on small businesses, compared with larger concerns. Relief is available at 50 per cent. to eligible properties, up to £5,000 rateable value, with relief decreasing at the rate of about 1 per cent. per £100 of rateable value up to 0 per cent. at £10,000. It has a buffer zone for properties between £10,000 and £15,000—or £21,500 in London, for obvious reasons—that meet the small business rate relief eligibility criteria.

These ratepayers, after certifying that they meet the eligibility criteria, do not have to contribute to the cost of the scheme. The scheme is paid for by businesses not receiving the relief, through a supplement on their rate bills. For 2008-09, the supplement is 0.4p, as the hon. Member for Mid-Worcestershire said. It is worth pointing out, as this matter has been raised in the debate, that the number of properties reported by local authorities as claiming small business rate relief as at 31 December 2006 was 392,000. That is the latest published figure. The amount of relief given in 2005-06 was £202 million. In 2006-07, it was £237 million, and in 2007-08 it was £260 million.

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I mentioned earlier that we have recently taken steps to amend legislation to allow more flexibility in the application for the small business rate relief. Arrangements for applying for the relief have been simplified; they came into effect in 2007-08. Instead of having to apply for the relief each year, applications can now cover the whole valuation period. For example, a ratepayer can make just one application for relief covering the last three years of the 2005 rating list—namely for 2007-08, 2008-09 and 2009-10. Eligible businesses have until 30 September 2010 to make their applications.

Although we are sympathetic to finding ways to help businesses, I shall explain why we are unable to support the Bill at this time. A number of wider issues relating to the mechanics of the support package may be offered to businesses via the rates system and there are also practical issues presented by the automation of the small business rate relief scheme. For example, granting relief automatically transfers the responsibility for ensuring that the properties meet the criteria for small business rate relief from the businesses, which know whether they meet the criteria, to local authorities, which might find it harder to determine, as in the case of new businesses, thus increasing the administrative burden on local authorities. We are not entirely comfortable with the idea of asking a local authority, at this time, to shoulder another responsibility that could easily lie with business. We would have to consult authorities formally to gauge their reaction before adopting arrangements for automatic relief."