– in the Senedd on 19 October 2022.
We move on to item 9, the Welsh Conservatives' debate: business rates. I call on Peter Fox to move the motion.
Thank you, Deputy Presiding Officer, and I move the motion tabled in the name of my colleague the Member for Clwyd West, and welcome the opportunity to bring forward this debate this evening. Businesses in Wales are fundamental to our economic prosperity. They are important drivers for growth, creating jobs, wealth, and they underpin our communities, with many providing important services to local people. Put simply: their success is Wales’s success. But—and we’ve heard this many times in the Chamber and beyond—many businesses have experienced some very difficult times over the past few years. From the pandemic to the current energy crisis and inflationary pressures, businesses have been subject to a range of challenges that have held back their potential.
These issues don’t just impact on businesses directly, such as by increasing overheads, but they have indirect impacts as well, and we know that the inflation and cost-of-living crisis will reduce discretionary spending powers, meaning businesses face another hit to their income streams. Many have tried to absorb price pressures over the last few months already, but clearly this is not sustainable in the longer term. We know that businesses and business owners are really concerned.
I welcome the various measures that have been announced by both the UK and Welsh Governments in relation to supporting businesses. Just a few examples of this include the UK Government’s furlough scheme, which provided significant help for businesses during the pandemic, as well as the energy bill relief scheme that was recently announced. The Welsh Government’s amendment, as noted on the agenda, also lists the support that it provides to businesses across Wales, which of course, we on this side of the Chamber really do welcome.
But more help is needed. There’s not just a cost-of-living crisis at the moment, but a cost-of-doing-business crisis as well, and this is why the Welsh Conservative group will not be supporting the Government amendment. Because if the cost of doing business was reduced, then they wouldn’t need such substantial support to relieve the burden of business rates. And unfortunately, the Government amendment does not capture the need to reconsider business taxation to ensure that it’s not a regressive barrier to aspiration and business growth.
As it currently stands, businesses worry that making improvements to their premises—including efforts to make them more sustainable, for instance—will cause the rateable value of their property to rise, meaning they would be forced to pay more just because they wanted to expand their business or improve their prospects, or even, in the case of energy improvements, to reduce their overheads and help the environment. In fact, the way that business rates work means that firms are forced to pay tax before they’ve even had any income, let alone made any profit. Add in the fact that rates in Wales are relatively high in comparison with other countries—Wales currently has the highest business rates in Great Britain—and you can see why the sector is calling for a re-think as to how we tax prosperity.
Presiding Officer, I’m not going to pretend that I have all the answers, or indeed that this debate will solve the issue; it’s a complex situation and it’s going to take time to work with business to strike the right balance between supporting public services via taxation and economic growth.
I note the suggestion of a land value tax, as argued for in the Plaid Cymru amendment. However, unfortunately, we on this side will not be able to support that amendment either as things stand. Whilst I recognise that such a reform does have some benefits compared to the current system, we really have to be careful about the impacts that such a wide-reaching reform as proposed may have, as I’m sure Members will all agree. For example, there are many small businesses that are currently in the centre of towns and cities where land values are expensive. Could such reform drive them out of our high streets, where their presence is much needed? We have to ask ourselves what do we really want: vibrant town centres, or something else? Would a land value tax encourage people to set up more online businesses rather than having a physical presence, to avoid paying this tax? How, then, would we ensure that online businesses are fairly taxed, and are treated equally to those that have a physical premises? But I do look forward to hearing from the Plaid benches on how such a tax could work in practice, and ensure that the pot of money currently raised via non-domestic rates would remain the same whilst being fairer on businesses.
However, there are things that could be introduced over the coming months to help businesses survive whilst wider reforms are considered. For example, the Federation of Small Businesses Cymru have called for the reintroduction of a 100 per cent business rates holiday for retail, leisure and hospitality businesses whilst this uncertain economic climate continues. At the very least, there could be a consideration of extending the current 50 per cent relief scheme beyond its current lifetime during these difficult times, as businesses currently are fearful of the cliff edge they face. Or the Government could maintain the freeze on the multiplier, so that businesses can at least plan with some sort of certainty. I would also argue that we could look at splitting the multiplier, much like what we see in other parts of the UK, so that small businesses are not treated in the same way as large businesses, and that would encourage growth. FSB Cymru have also raised some very valid points, such as minimising the cost of appeals for businesses and ensuring that all businesses are aware of the various support schemes that already exist.
I know that the Minister is going to say that these things cost money, and I’m aware that there isn’t an unlimited pot of money for the Welsh Government to use, but it still has the levers it needs to provide help to businesses through this period, like it previously has done. We can use existing resources better to provide support that doesn’t just reduce the business rate burden, but helps businesses to grow, reducing the reliance on additional financial support from Government to pay the rates.
Presiding Officer, I look forward to hearing the contributions of Members from across the Chamber this afternoon, and I hope that we can use this debate to constructively discuss how best we can support Welsh businesses, not just through these difficult times, but beyond, so we can help build a stronger, more prosperous economy for all. In summary, Presiding Officer, I ask Members to support the original motion and to oppose amendments 1 and 2. Thank you.
I have selected the two amendments to the motion. I call on the Minister for finance to move formally amendment 1.
Amendment 1—Lesley Griffiths
Delete all and replace with:
1. Notes the different non-domestic rates tax base in Wales, with a larger proportion of small and medium-sized businesses.
2. Welcomes:
a) the non-domestic rates relief Welsh Government provides to ratepayers every year, which means 44 per cent pay no bills at all.
b) the £116m of extra support for retail, leisure and hospitality businesses this year to help them recover from the pandemic, providing up to 50 per cent relief on their non-domestic rates bills.
c) that, as a combined result of these reliefs, 70 per cent of non-domestic properties in Wales are receiving support with their non-domestic rates bills in 2022-23.
Formally.
That has been moved. I call on Llyr Gruffydd to move amendment 2, tabled in the name of Siân Gwenllian.
Amendment 2—Siân Gwenllian
Add as new point at end of motion:
Further calls on the Welsh Government to replace the current system of non-domestic rates with proposals for a new single land and property tax covering residential, commercial, and industrial land (with agricultural land remaining exempt).
Diolch, Llywydd. Can I thank the Member for opening the debate, although I think that today’s debate shouldn’t really be about which part of the UK has the highest or the lowest business rates level? I think, and you acknowledge, that it needs to be a wider, more sophisticated discussion, really, around whether in the first place, in my view, the business rates system itself is the best approach, and whether there’s a fairer and a more effective way of doing it. Our amendment hints that we have a particular view on that.
But it really is an important issue, rightly raised, because business rates are one of the biggest costs for business in Wales. It’s regularly listed as one of the heaviest burdens that many of our businesses face. But of course it’s also, at the same time, an important stream of income for local authorities, as was acknowledged. So, there is a balancing act to be performed here and we have to ensure that the system we use is both fair and progressive, but also collects the necessary revenue that is so important to public finances.
I’m particularly mindful here, of course, of the interests of small and medium-sized businesses within this whole equation. We all know that there are various relief schemes that have been touched upon, and much has been done to provide support to those businesses who have struggled because of various impacts from Brexit, the pandemic, and now, recently, the inflationary crisis. But we also know that not everybody has had access to the support that they felt that they needed, and many of us will have dealt with casework in our regions and constituencies where there were people falling through those cracks. And regardless of whether they were supported or not, many businesses now, as we know, find themselves torn between having to grapple with the additional costs, and do you increase your prices or do you try and remain competitive, and it’s a gargantuan challenge for many of our businesses. So, not only does increasing inflation, the energy costs, staff shortages, debt repayments for many businesses, not only does all that have an economic cost, but there’s also a human cost as well, isn’t there, in terms of the stress and strain for those individuals trying to make ends meet. But all told, the picture doesn’t look very sustainable as things stand.
So, we should have a tax policy that not only is fair, but that also incentivises entrepreneurs here in Wales in the right ways. We know as well that business rates are largely seen as unfair and regressive, and the Minister, in fairness, has said previously that she wants to move towards creating a fairer Wales and is committed to exploring a land value tax, with various pieces of work being done around that. So, it would be good in your response, Minister, to this debate today to explain where you are now on much of this work, and maybe you could update us on timescales and, hopefully, reiterate your commitment to exploring and developing options around the land value tax.
We've seen research, of course, from Bangor University showing that a land value tax can be a more equitable system, and as the reforms you previously outlined are proposed to happen over, I think, a four-year period, if I recall, then I hope there will be regular opportunities for us here to scrutinise progress, to make sure that the voice of businesses, local authorities and others, of course, are central to that whole process. For me, land value tax does offer fairness and efficiency. It's pretty straightforward to collect, I'd imagine; it's very hard to avoid paying land value tax—you can't hide it offshore as you can for other things very often. It can act as a strong disincentive to property speculation, because landowners who accumulate prime land for that purpose would clearly face a bigger bill. And that, in turn, I'd hope would help smooth out cycles of boom and bust, potentially making property more affordable to young people.
In addition, a land value tax could encourage development, because people would have an incentive to put idle and under-used land to more productive use. While most taxes tend to discourage investment or interfere in markets, land value taxes don't distort economic activity; rather, they help increase long-term stability and growth—and heaven knows, we need a bit of that these days—by fostering more productive use of capital. And, of course, critically, it helps Government finances by bringing in revenue efficiently and quickly.
The assessment by Bangor University concluded that land values in Wales provide a large enough tax base to ensure that a land value tax could raise revenues equivalent to those raised by the current local tax regime in Wales. But, of course, there is a lot of work to be done. There are a number of questions and a number of challenges that need to be overcome, and many have been referred to earlier. But, of course, we're not proposing to rush headlong into this, but, done properly, I believe it would be a fairer and more equitable system.
It's one that's gained political salience in the UK in recent years, with commitments from Labour, from the Liberal Democrats, Greens, Plaid Cymru here proposing this in our amendment. More than 30 countries have adopted various types of land value tax, including Australia, New Zealand, Kenya, Taiwan, Singapore, Denmark, some US states as well. So, in proposing the Plaid Cymru amendment today, I'm asking Members of the Senedd to support a clear statement that Wales wants to be next.
There are 126,700 non-domestic properties in Wales liable for business rates, and I take my hat off to them. Business rates have increased by 10 per cent in the last six years; compare that with 3 per cent in England, 2.9 per cent in Scotland. That's making Wales the most business-unfriendly corner of the United Kingdom. The FSB's national chairman stated that the current business rate system is contributing to empty shops. And when we see an empty high street, it isn't just the fact that there aren't the businesses there; it doesn't look good to see empty shops on a high street. It actually brings down the value of other shops.
Eighty eight per cent of businesses believe that you should be using tax breaks to boost growth, and I welcome the retail, leisure and hospitality rates relief scheme, but it only stretches to 50 per cent relief with a cap of £110,000. And I believe what FSB is saying to be true. We should reintroduce the 100 per cent business rates holiday for retail, leisure and hospitality businesses. To put it short, some businesses could shut up shop and simply trade online, and we do not want that to happen. We should be rewarding their presence on our high streets, keeping them as vital, living areas that people can frequent.
Will you take an intervention?
Perhaps one way forward would be to charge online retailers as if they were on the high street.
Well, do you know what, I can't disagree with that, Mike, actually? And I did listen that time. [Laughter.] I do think you make a very valid point, because—
You'll probably be Chancellor before long. [Laughter.]
Or Home Secretary. Oh, Home Secretary's gone. [Laughter.] Sorry.
There is a need for common sense in your dealings with the VOA. I know how frustrated you must get, because when I try to work on behalf of a constituent on valuations, it can take up to two years. I've raised it with the valuation office, and if I'm having difficulty, it must be difficult, but, somehow, you must pursue those conversations. All businesses on Mostyn Street will have to go to appeal, of course, when the new rateable values are published. And I just think that the VOA appeal process, as I've mentioned—. I've even got some businesses at the moment in Aberconwy waiting five years for their appeals to be heard. So, somehow, there has to be some liaison. Now, I've had this out over the years with the First Minister, and other Ministers, and their argument to me is, 'Oh, the VOA, it's a UK Government department'. But, I'm sorry, it's the Welsh Government that's procuring the service of the VOA from the VOA. So, in my book, if I'm tendering for or if I'm procuring a service myself, I have a say in how good or bad that service is. So, I don't think the excuse is good enough, for you as a Welsh Government to say, 'Well, it's UK Government, the VOA, it doesn't come under us'. You are procuring, using taxpayers' money, so I firmly believe that you should have some levels of expectation on the standard of their workings.
We know that we've got a climate and energy crisis. I've already mentioned today some of the unbelievable costs that some of my businesses are facing. I've had people writing to me about this, and I've had to say, 'Well, actually, energy comes under the UK Government'. But they come back to me straight away, and say, 'But I'm asking what will the Welsh Government do to help us as businesses'. And to me, business rates is a no-brainer. That is one of the ways in which you can actually help those businesses that are really suffering.
The fact remains that the businesses in Wales, the businesses across the UK, are the backbone of the economy of our country. Not only do they want to pay their own way, provide a good service, but they want to employ. It's become a lot more difficult now for apprenticeships going through retail, going through the hospitality sector—it is now, right now. There's been lots of focus on what the UK Government is doing. Where business rates are concerned, I genuinely believe that you could pioneer a way forward for businesses—that's if you have the appetite and the will to do it. Diolch.
Let's be under no illusions, business is the backbone of our economy—from the small business owner on the high street to the larger companies that employ hundreds and thousands of people across the nation. The most prosperous countries in the world are where businesses can thrive, and a key part of that success is less red tape and less tax imposed on those businesses. In Wales, we have the highest business rates, as Peter Fox has said, in the whole of Great Britain. We have the worst gross domestic product outputs per head of any part of the United Kingdom. And this is after 23 years of devolution, and 23 years of Labour control, so I think it's about time that businesses had a friend in Cardiff Bay.
There are businesses in my communities in Brecon and Radnorshire that have cited business rates as a reason that they cannot afford to carry on, that business rates as they are currently set are simply not affordable for many, especially in a time of economic problems, triggered by Putin's disgraceful war in Ukraine and global market uncertainty. They've also had the devastating legacy of COVID-19 restrictions to deal with, and the effects of that will be felt for decades to come, with some businesses leaving the high street, never to return again. It's undoubtedly a difficult time for business. So, reforming business rates, as we as Welsh Conservatives believe, would make Wales a competitive nation and throw businesses a much-needed lifeline at a time when they need it the most. And I would urge the Welsh Government to consider this in the Minister's response.
Businesses aren't just good for business' sake. They provide jobs, they increase prosperity, they make our towns and villages and cities more attractive, and they encourage innovation, and improve value and choice for customers. Reforming business rates in Wales would make us a far more attractive location for inward investment, which will boost jobs, growth and prosperity. But I do agree, as others have said, we do need to look at wider measures that could support our business sector in retail and hospitality, because we are seeing pubs shutting at a huge rate, and that is something that needs to stop. So, let's put an end to the weariness that has been imposed upon Welsh businesses and give them the tools and the freedoms to prosper in a way that will benefit our economy and the people of Wales for generations to come. Diolch, Llywydd.
I'm grateful to have the opportunity to take part in this debate today. As a former county councillor, but not reaching the dizzy heights of council leader like my two esteemed colleagues either side of me, I am acutely aware of the importance of that revenue business rates raise for local authorities, but also the inadequacies of the current funding formula and the raw deal that many councils receive when it comes to budget settlements and distribution of funds. It is for this reason that I am grateful to have the opportunity to contribute.
It came as no real shock, really, that businesses in Wales pay the highest business rates in the whole of Great Britain, with Welsh businesses paying up to 4.5 per cent more than other businesses across GB. The fact that Wales is the only nation in Great Britain to levy a one-size-fits-all standard rate, whatever the business size or turnover, seems both counterintuitive and dismissive of the breadth of businesses here in Wales, especially SMEs. As my colleague the Member for Monmouth so eloquently put in opening the debate, businesses in Wales are fundamental to our economic prosperity. This stands just as true for those independent small traders as it does for the bigger multinationals, both of whom play an important role on our high streets. So, while the sector has faced uncertainty over the last few years, this Welsh Government surely has a duty to do what it can, with the levers it has, to mitigate some of these pressures and help businesses to navigate a route back to growth and prosperity.
Many of us in this Chamber today would probably proudly boast of a high street in their constituency full of independent traders, which acts as an exemplar as to how we would like to see high streets across Wales look. For me, it is Narberth, and that's not just because my office is on the high street, but I'm sure it's a contributing factor—a high street full of independent traders, high-quality eateries and family businesses drawing punters into the town. Members have looked to other towns across Wales and the positive examples that they have in their constituencies, but, for all these success stories, we also have areas where businesses have been priced out of the town centre. The historic towns of Pembroke Dock in Pembrokeshire or Whitland in Carmarthenshire are sadly examples where, over the last generation, businesses have closed and shops remain empty. One of the contributing factors to this is the inflexible business rates regime that they have to operate under. Towns such as Narberth greatly benefited from previous rural rate relief schemes, which did much to establish the town as a shopping destination for visitors and locals. I understand that such schemes remain at the discretion of individual local authorities, but I would be keen, Minister, to understand whether the Welsh Government is encouraging their local government colleagues to make use of these levers that remain at their disposal.
Long before I was elected to this place, my colleagues on this side of the Chamber have called for businesses under a rateable value of £15,000 to be exempt from business rates altogether, and for businesses that are valued under £18,000 to pay a rate that tapers up in value to that full amount. This would enable more money to be reinvested in small businesses, especially in their earlier years of operation. If our policy is not palatable to the Welsh Government, could I urge the Minister to give consideration to a suggestion made by the Federation of Small Businesses regarding when start-up businesses should begin to pay business rates? Rather than landing a new business with a rates bill from day one, would it be worth exploring the option of a rate holiday for, say, the first 12, 18 or 24 months of operation? This would see more businesses start, increase the chances of long-term survival and increase the numbers of premises being occupied and job opportunities created.
Minister, it's obvious that no-one has all the answers to this problem. There are a range of solutions, however, that can go some way to address some of the challenges that lie ahead. I urge the Chamber to support our motion today and show businesses in Wales that the Welsh Government is, in fact, on their side. Diolch, Llywydd.
The Minister for finance to now contribute to the debate. Rebecca Evans.
Diolch, Llywydd. The Welsh Government is absolutely on the side of Welsh businesses, and we fully recognise the challenges faced by businesses, and other ratepayers under the current economic conditions, and, indeed, the Welsh Government is also exposed to the same budget pressures.
Non-domestic rates have been an important part of the local government finance system for more than 30 years, raising more than £1.1 billion annually, and this is not a trivial contribution to the funding required to sustain the local services that we all rely on, nor, indeed, is it a trivial contribution to the Welsh Government's annual budget. But we have to remember that every single penny goes back into supporting local authorities and the public services that they provide. I do recognise that ensuring that vital revenue is collected to fund those local services that we all use, and securing the fair and sustainable contribution from ratepayers is a challenging balance to achieve. But I do challenge those who would like to see us go even further than we already do—and we already provide a great deal of support—to say which of those public services you would want to see cut or reduced to accommodate that extra support, because that is the honest choice that we're facing when we have these conversations. I don't think it's enough to say that we should just use existing resources better, because that doesn't really engage with the enormity of what's being asked. These are open conversations that we should be having about priorities, and I'm open to having those conversations.
But, over recent years, we have capped the increases in the multiplier. Between 2018-19 and 2020-21, we have used the lower measure of inflation, the consumer prices index, to moderate annual uplifts in the multiplier. I know that's been warmly welcomed by industry representatives. We've also since frozen the multiplier in 2021-22 and 2022-23, and that recognises the prolonged impact of the coronavirus pandemic on businesses and other ratepayers, and let's remember that that has saved ratepayers in Wales almost £200 million on their rates bills since 2018-19, compared to the revenue that we would be raising if we had increased the multiplier annually by the higher measure of inflation, the retail prices index.
The multiplier is one factor that determines a ratepayer's bill, and it should not be considered in isolation. Another factor, of course, is the rateable value of the property. Our tax base in Wales has an average rateable value of around £19,000, and that, clearly, is very different from that in England, which has a much higher average of around £32,000. That drives a large difference in the average liability of ratepayers. Reliefs are then applied to the bills that reduce or remove the liability for the majority of ratepayers in Wales, so I do have to say that, as a result of the differences between our tax bases and our fully funded relief schemes, average bills in Wales are considerably lower than those in England.
We have provided unprecedented financial support to businesses and other ratepayers over recent years, and particularly since the onset of the coronavirus pandemic. Our permanent relief schemes mean that 44 per cent of the tax base do not pay any domestic rates at all, regardless of the level of the multiplier. This year, we're providing an additional £116 million of targeted relief to businesses in the retail, leisure and hospitality sectors. To ensure businesses in Wales are sufficiently supported, and reflecting the nature of our tax base, we've invested an additional £20 million on top of the consequential funding from the UK Government for this purpose, again demonstrating the different tax base that we have here in Wales. But, as a result of our permanent reliefs and this additional support, we're spending over £350 million this year to provide 70 per cent of properties in Wales with full or partial support with their rate bills.
The next non-domestic rates revaluation will take effect on 1 April 2023, based on property values as at 1 April 2021. This means that the rateable values will reflect the impact of the coronavirus pandemic, as well as changes in the tax base since the last revaluation. The VOA will publish a draft new rating list by the end of this year, and we'll assess the impact of revaluation on our tax base.
But, it is right that our non-domestic rates system reflects the unique nature of the tax base here in Wales. On 29 March, I set out a programme of non-domestic rates reform that will be delivered over the next four years. I've since launched a consultation on a range of reforms, including more frequent revaluations and a range of measures to better enable the Welsh Government to adapt the system to meet the needs of Wales in the future, and, of course, appeals also form part of that consultation.
Our plans include the further exploration of a local land value tax as a possible replacement for non-domestic rates and council tax. Replacing the existing local taxes would be a major undertaking requiring significant investment, and it is vital that we have a thorough understanding of the costs and the impacts. I have set out my intention to produce a potential road map for this work towards the end of this Senedd term. I was pleased to hear the reference to the technical assessment of the potential for a local land value tax in Wales by Bangor University. That was work that we commissioned in the Welsh Government, and it does set out, as we've heard, that there are a range of questions that yet need to be answered, and that a lot of work does remain to be done in this particular area. But it is something that we are committed to continuing to pursue and explore.
On the issue of digital sales, this is the domain of the UK Government, but just to reassure colleagues that my officials are very much engaged with their counterparts on this particular issue.
So, whilst our interventions over recent years—[Interruption.] Yes, of course.
As I said to Janet Finch-Saunders earlier, why can't we charge the online sellers in their big warehouses as if they were on the high street?
I know that the UK Government is exploring a range of ways that a digital tax might be introduced, and I know that they'd be keen to hear from colleagues in the Senedd as well, in terms of ideas of how such a thing could be brought in. Because, as I say, officials in the Welsh Government are having some discussions to further understand what the plans and opportunities might be and different models for introducing a digital sales tax. That is a responsibility of the UK Government, but something that we are engaging in.
Whilst our interventions over recent years demonstrate that the non-domestic rates system is one of the tools at our disposal to provide support to businesses, we mustn't lose sight of the fact that the purpose of local taxes is to raise revenue for local services. Our extensive package of reliefs and interventions to moderate the multiplier is fully funded by the Welsh Government. There's been no impact on the funding available to local authorities, and that's not easy to achieve. It has arisen from difficult and carefully considered decisions about how to spend a finite budget to the optimal benefit of all of the people of Wales.
For more than 30 years, non-domestic rates have been an important part of the way that we fund our public services here in Wales, and I'm committed to making improvements to the system in line with our ambitions for a fairer, greener and stronger Wales, whilst maintaining the strengths of the existing local tax. I urge Members to vote for the Government amendment today.
Sam Rowlands to reply to the debate.
Diolch, Llywydd, and can I say what a pleasure it is to close today's Welsh Conservative debate on business rates? I'll be very brief in my closing. I want to thank Members for their contributions, raising important points around the fact that, in Wales, business rates are the highest in Great Britain. Plaid Cymru, of course, raised their proposal for a single land and property tax. I think Peter Fox very clearly outlined why there are concerns about that. I would call, Llywydd, on all Members to support our Welsh Conservative motion and oppose Welsh Government and Plaid amendments today. Diolch yn fawr iawn.
The proposal is to agree the motion without amendment. Does any Member object? [Objection.] Therefore the vote is deferred until voting time.
We are now at voting time. Unless three Members wish for the bell to be rung, I will proceed directly to voting time. Are there any three Members who wish for the bell to be rung? One, two, three. Yes. So, the bell will be rung.