PARLIAMENTARY DEBATE
Draft Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2023 - 24 January 2024 (Commons/General Committees)

I beg to move,

That the Committee has considered the draft Local Government Finance Act 1988 (Prescription of Non-Domestic Rating Multipliers) (England) Regulations 2023.

It is an absolute pleasure to serve under your chairmanship this morning, Mrs Murray.

Business rates are a crucial element of the UK’s tax system. They raise over £20 billion per year, which goes to help local authorities fund our country’s vital local services. While business rates provide crucial revenue, over the past few years the Government have taken extensive action to hold the tax rates steady and target support towards those ratepayers who need it. At autumn statement 2023, the Government announced a package of cuts worth £4.3 billion over the next five years to support small businesses and the high street with local tax cuts, including freezing the small business multiplier for the fourth consecutive year and extending the retail, hospitality and leisure relief scheme at 75% for 2024-25.

It is essential that the business rates system runs smoothly, with continuity and stability. These regulations ensure exactly that: they are crucial to maintaining a healthy, stable system for the financial year 2024-25 and beyond. Their primary purpose is to maintain the threshold between the two business rates multipliers. There are two multipliers in the English business rates system—the higher, standard rate multiplier and the lower, small business multiplier. The threshold between the two has stood at a rateable value of £51,000 since 2017, but due to the passing of the Non-Domestic Rating Act 2023 these regulations are required to preserve it at the same level from 1 April 2024 onwards.

The Minister will know that, certainly in Torbay, things like the discount on tourism and retail are very much welcomed. But will he confirm that the effect of these regulations not being passed would be that thousands of small businesses across the country would end up paying more business rates?

My hon. Friend has embarrassed me, because he just summarised my eight pages of notes in one paragraph. He is absolutely correct. If we do not do this, hundreds of thousands of businesses across the country—those with a rateable value of between £15,000 and £51,000—would effectively have to pay far higher rates than they otherwise would, and that is the core purpose of the discussion today. I should probably sit down there, but I will carry on just a little bit for the edification of others who probably do not get the principles as keenly, enthusiastically and quickly as my hon. Friend.

The secondary purpose of the regulations is to extend the scope of the small business multiplier to include unoccupied properties, charities and properties on the central list—which I will explain in a moment—with a rateable value below £51,000 and which do not currently receive full rates relief. This will level the playing field for all types of properties, promoting consistency in the system; in other words, it is a simplification. Those properties that move to the small business multiplier for the first time will also receive a tax cut worth around £5 million in total per year.

Hon. Members may appreciate a very brief reminder of the business rates multiplier and what it is. The multiplier is the tax rate used to calculate business rates. The relevant multiplier is multiplied by the yearly rental value of a property, known as rateable value, to calculate its business rates bill before any reliefs are applied. As I have mentioned, there are two multipliers in operation—the small business multiplier and the standard multiplier. The legislative default is for both multipliers to rise by consumer price index inflation each year, but the Government took action at autumn statement 2023 to freeze the small business multiplier for the fourth consecutive year, protecting over 1 million ratepayers from an increase in bills.

The regulations must be made as a result of the passing of the Non-Domestic Rating Act 2023 in October.

I thank my right hon. Friend for her comments. I know, and have experienced in many debates, what a champion she has been for small businesses, including in her constituency. She is absolutely right: we want to ensure that the tax level is appropriate but not overly burdensome. Some reliefs that we have given in retail, hospitality and leisure over the past years have been precisely to ensure that such businesses can operate on a level playing field, operate efficiently, and create jobs, economic activity and the all-important tax revenues that we need for a sustainable economy. At the heart of the matter is business success and jobs—my right hon. Friend is absolutely right—and that is what this Government are laser-focused on delivering.

The Non-Domestic Rating Act implemented important reforms to the business rates system, which were announced following the 2020 business rates review. The headline measure of the Act was more frequent revaluations. It also introduced a new improvement relief for those who raise the value of their properties through qualifying improvements and several other measures. Most relevant to this debate, the Act made a series of changes to the administration of the business rates multiplier to streamline and improve the system. One such change granted the Government the power to set the threshold for which properties pay which multiplier in secondary legislation; and as these new reforms will come into force from the 2024-25 financial year, the Government must bring forward these regulations in order to maintain the threshold for which properties pay which multiplier at its existing level: £51,000 rateable value.

If the regulations were not passed, the small business multiplier would instead only apply to businesses in receipt of small business rates relief, which would constitute a tax hike for hundreds of thousands of businesses whose properties have a rateable value of between £15,000 and £51,000—exactly the point made by my hon. Friend the Member for Torbay.

The regulations also widen the eligibility for the small business multiplier, including unoccupied properties, charities and central list properties within its scope for the first time. That brings those properties in line with occupied properties, maintaining consistency across the entire system. The proposal to bring unoccupied properties and charities within the small business multiplier was initially made in the technical consultation following the business rates review, and the Government committed to the change in the summary of responses to that document in March 2023. To promote consistency, we have decided to bring properties on the central list—the centrally managed list of properties that span multiple local authorities areas, including, for example, utilities pipelines—within the scope of the small business multiplier. There are a relatively small number of such properties, but we believe this point of consistency is important.

What this instrument does therefore is very simple: the regulations continue and extend Government policy, setting the threshold for which all property types pay the small business rates multiplier at below £51,000, unless they are subject to full relief. Properties of £51,000 or above will be subject to the standard multiplier. In short, the regulations will largely maintain the status quo for the vast majority of ratepayers. The £51,000 threshold will remain where it has been for the past six years. The regulations will ensure continuity under the legislative reforms made by the Non-Domestic Rating Act 2023, and I therefore commend them to the Committee.

It is a pleasure to serve on this Committee with you in the Chair, Mrs Murray. I welcome the opportunity to address the draft regulations on behalf of the Opposition.

As we know, business rates are determined according to the formulas defined in the Local Government Finance Act 1988. The rates are calculated as the product of the property’s rateable value, as determined by the independent Valuation Office Agency, and the relevant multiplier. As we heard from the Minister, this statutory instrument continues the existing policy under which the majority of occupied properties with a rateable value below £51,000 pay rates calculated by reference to the small business multiplier, and extends it by making charities and unoccupied properties eligible for the small business multiplier too.

Specifically, as the Minister set out, the statutory instrument seeks to do three things: first, to maintain the threshold for the small business multiplier to be applied at below £51,000 of rateable value, which, as the Minister notes, has been Government policy since 2017; secondly, to give effect to the announcement that charities and unoccupied properties will be eligible for the small business multiplier; and thirdly, to implement the Government’s decision to extend the small business multiplier to central list properties below the £51,000 rateable value threshold, of which we understand there are seven.

We will not oppose this statutory instrument. However, I would be grateful if, when the Minister responds, he could provide further detail about his and the Government’s understanding of what constitutes an unoccupied property. As he will know, the Government consulted on business rates avoidance and evasion in July last year. In the consultation document, the Government made it clear that Ministers were concerned about potential abuse of empty property relief by owners who use a brief period of apparent occupation to reset their property’s eligibility for that relief. The consultation document that I am referring to made clear that,

“There is no statutory definition of what constitutes ‘occupation’ of a property, and minimal occupation possibly of no material benefit to the occupier, except as a method to avoid paying rates, may be sufficient to allow ratepayers access to a further rate-free period.”

As there is no statutory definition of what constitutes occupation of a property, I would be grateful if the Minister could explain to the Committee what definition the Government are using to identify unoccupied properties for the purposes of this SI.

I would also be grateful if the Minister would confirm when the Government intend to set out their response to the business rates avoidance and evasion consultation, and when they plan to bring forward any actions they intend to take to combat avoidance and evasion in the business rates system.

I thank the shadow Minister and others for their participation. As I said, the Government are committed to ensuring that the business rates system is fair, equitable and as streamlined as possible, and the regulations have been drafted with that in mind. As is usual practice, further guidance will be provided with regard to the policy’s roll-out.

We are well aware of the issues of avoidance and evasion across multiple tax systems; the hon. Member for Ealing North will know that that is an important matter that the Government consider. The inclusion of unoccupied properties is to try to create a level playing field. Nobody wants to see unoccupied properties on high streets or elsewhere, and the intention is to try to ensure that they are not empty for any longer than needed. The definition of an unoccupied property is established in case law, and there is a degree of local authority discretion to decide—but, as I said, further guidance will be forthcoming. The shadow Minister also asked about the response to the consultation; we will be responding in due course.

Ultimately, the regulations promote consistency and stability in the business rates system—important tenets of any tax system. Through them, the Government will continue to protect about 90% of properties by placing them on the small business multiplier, which is now open to a greater range of property types than ever before. The regulations are crucial in ensuring the smooth, consistent operation of the business rates system for the financial year 2024-25 and beyond, and I commend them to the Committee.

Question put and agreed to.