Pubs: Business Rates

I beg to move,

That this House has considered the effect of business rates on pubs.

It is a pleasure to serve under your chairmanship, Mr Bailey, and I am happy to have secured this important debate. Pubs, particularly our historic, independent pubs, add vibrancy and attractiveness to our high streets. They support tourism, help to encourage footfall and add hugely to our local economy. They are the lifeblood of my constituency and, I am sure, of many others. Pubs in St Albans generate over £40 million a year for our local economy; the industry employs 1,600 local people and pays around £20 million a year in wages. In St Albans and Herefordshire, we are net contributors to the Chancellor’s coffers. My constituents, particularly businesses in my constituency, are the Chancellor’s golden goose, and he therefore needs to listen carefully to ensure that that golden goose thrives.

I have been contacted by many local pub owners since this debate was announced, who have all shared with me their frustrations and concerns about the impact that business rates have had on their businesses. They are under huge pressure. The Government were absolutely right to target business rates as a way of helping small businesses, pubs and the high street as a whole, and the cut of 33% in rates for businesses with a rateable value of under £51,000 is a major step in the right direction. However, in some areas such as St Albans, that rate reform is not having the positive impact that the Chancellor was aiming for. Many landlords expressed the view that the new business rate formula, designed to help pubs, has had a perverse result, with a hike in business rates for their pubs. That hike could mean that they have to cut staff numbers, or even worse, close their businesses altogether.

I fully understand the point that my hon. Friend is making about business rates. I wonder whether she has calculated how much of the problem that pubs have is due to a change in drinking habits and why we go to pubs, and how much of it is actually due to business rates.

I have not calculated that, but if my hon. Friend waits for the rest of my speech, he will hear how the huge hikes in business rates mean that pubs would have to sell so many extra drinks that they cannot possibly make up for those hikes. The fact that some people are declining to go to our pubs is one issue, but I am talking about successful, thriving pubs.

I congratulate the hon. Lady on bringing this issue to Westminster Hall for consideration, and I support her entirely. With some small pubs experiencing a rate increase of some 80%, does she agree that we are at risk of losing the independent retailer—the one who takes the keys off the customer and will ring somebody to come and get them, and says when enough is enough? Does she further agree that this is something that is not provided by the off-licence or the supermarket chain, and that society will lose out if we lose the restraining hand of those small local pubs?

The hon. Gentleman makes an excellent point. Indeed yesterday, I took some representatives of pubs to meet the Minister with specific responsibility for this issue, and interestingly they were all from small independent pubs. The big pub chains can cross-subsidise in other areas if they are hit in this way; it is the small independent pubs, often run by one or two people who have put their lifeblood into those pubs, that are suffering. Those people are the ones whose voices need to be heard today. This cannot be the message that we are sending out as a Government. We must ensure that we are supporting small businesses, such as our smaller pubs, which drive our economy and play an important role in communities.

In high-value property areas such as St Albans, there is not a standard Government model that fits. The average house price stands at over £600,000: if a struggling business closes, it will quickly be snapped up by a property developer who sees it as a lucrative brownfield site ripe for housing, and often turned into an individual house or a pair of houses. That practice of turning commercial space into residential space is affecting businesses across St Albans with, for example, a staggering loss of office space over the past few years since the planning laws were changed. That is a double whammy for pubs. Businesses, particularly pubs, are struggling under the current system, and the new rate simply provides a cliff edge that penalises successful businesses in areas plagued by high property values. We must devise a system that helps all small businesses and pubs to thrive, not just the ones with low retail value.

The 2017 business rate formula for pubs uses a methodology for setting the rateable value based on a fair maintainable trade, which is a difficult phrase to interpret. The rateable value is driven mainly by the pub’s turnover. The calculation also takes into account property valuations in the area, which means that even small pubs, such as many of the pubs in St Albans that have been hit the hardest, can have a high rateable value because the area they are in has high property values. Sadly, the current formula does not take into account the many models of pub ownership that are often used by landlords and owners. That formula effectively penalises small business operators through an arbitrary taxation system that significantly reduces any profits a pub landlord can make while trying to pay staff wages and other costs.

I thank the hon. Lady for bringing this important debate before the House. We are at risk of losing our Glassford Inn, the only pub in its village, because of the issue that she has spoken about: the high rateable value of property in the area. It is the last business in the area, yet the rateable amount cannot be varied. Does the hon. Lady agree that this situation has to be changed to sustain these businesses over the long term?

I absolutely agree with the hon. Lady, because I do not believe that what she has described was the Government’s intention. As I have said, the formula does not take into account the current models: some of these pubs are leasehold, and some are owned; there can be no bigger incentive to sell a pub than knowing it could be worth a heck of a lot more as a house than as a pub.

Does my hon. Friend agree that there should be some business rate relief when a pub has been bought under the asset of community value scheme?

Actually, we have tried to save pubs under the asset of community value scheme, and we have not been successful in St Albans, because the developer wins every time. I can see the point that my hon. Friend is making, but I am not going to take a diversion down too many tracks about the price of beer and community assets. Pubs and businesses in my constituency want a fair system that does not, as the hon. Member for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) has said, discriminate against a business because it is located in a high-value area.

I completely agree with my hon. Friend regarding high-value areas. The Old Griffin Head pub in Gildersome in my constituency has business rates of over £21,000—that is in a little village. Does my hon. Friend agree that that is an extortionate amount of money, and that it is no wonder that 21 pubs are closing every week in the UK?

I absolutely agree with my hon. Friend, and that is why I think the Government need to hear why their best intentions have not hit the mark. As I was saying, and as the hon. Member for East Kilbride, Strathaven and Lesmahagow has described, pubs want a system that does not discriminate against businesses because they are in high-value areas. That is especially the case when they see a neighbouring, lacklustre pub—and by “neighbouring”, I mean literally three doors down in my constituency—that seems to have either had poor management or low investment, but perversely has benefited from a rate cut. How is that for a trading market? Hard-working landlords of successful pubs are penalised for their strong personal investment; they are enduring eye-watering rate hikes for their trouble.

The hon. Member for East Kilbride, Strathaven and Lesmahagow mentioned high rates in her area; I suspect that anyone who comes to St Albans will take a deep gulp. This is not what they expect from a Conservative Government, or any Government, especially one that has recognised the pressures our pubs are under and tried to help. I accept that, as I was told yesterday, the formula potentially has helped up to 90% of pubs nationwide, but it only benefits 60% of pubs in St Albans, and for some of them, the benefit is only marginal. That leaves many of the small, independent pubs that the hon. Member for Strangford (Jim Shannon) referred to facing massive hikes. The formula must be revised. The current methodology for pubs and the high tax-rate multiplier are barriers to new investment in small businesses and pubs, and we have to tackle that issue and find a fairer formula.

In November, I visited several pubs in St Albans—I think it was 10; that is how easy it is to walk around the pubs in St Albans—that are being hit the hardest by these rate increases. The campaign group, Save St Albans Pubs, took me on a tour of the pubs that face huge increases because of the system.

One of the pubs I visited recently, The Boot, is a tiny heritage pub that, as has been pointed out, will have to sell an additional 22,000 pints to cover the additional £51,000 in business rates that it now has to pay. That is a 280% rate increase, which is unsustainable and unfair.

It is a pleasure to serve under your chairmanship, Mr Bailey. I thank my hon. Friend the Member for St Albans (Mrs Main) for securing the debate, and I do so for two reasons. First, this is an important matter; pubs lie at the heart of our local communities and the Government’s view is that we should do whatever we can to assist and support them, although, as my hon. Friend the Member for Henley (John Howell) pointed out, there are issues other than rates at play when one looks at the pressures that pubs are under. Secondly, I know that my hon. Friend is a strong campaigner on these matters, and this debate is yet another reflection upon the assiduous approach she takes to her duties as a Member of Parliament.

Undoubtedly there are great pressures on pubs, as we have heard. At the same time we should recognise that there are some rays of light in the overall story. The Office for National Statistics has published data showing that the number of larger pubs—those that employ 10 or more—has grown since 2011. In fact, we now have the largest number since 2011. If we look at the pub and bar sector in total, we see that employment has grown by some 6% since 2008, to 450,000 employees. That does not mean that pubs are not under pressure, as my hon. Friend set out at length and in detail, so the Government have taken action, and she has recognised the things that we have done.

For example, in the Budget last year we introduced a discount of one third to the business rates for retailers, including pubs and bars that have a rateable value below £51,000. I know that my hon. Friend’s constituency is in a relatively high-value property area and that the discount will not have had the same impact as it has had on the estimated 90% of all pubs and bars across the country. The figure for her constituency is 63%, so it is certainly the case that the majority of the pubs in her constituency are at least entitled to the discount of one third that we announced.

I encourage the Minister to come and see my pubs. Many of them are in historic listed buildings within a conservation area. They have small square footage and it is difficult to grow a business beyond the growth it has already seen. They are in areas where the house prices drive up their rates to an unsustainable level. I appreciate that some of the bigger ones—not the independent ones—have been helped, but I want to help all the pubs, and particularly the ones I have referred to.

As I said, 63% of pubs and bars in my hon. Friend’s constituency—typically those with lower rateable values, which probably correlates to the kind of pub she describes—will benefit from the one-third reduction that we announced in the Budget. That reduction will be worth about £900 million to the sector over the next two years. She also rightly referred to what we have done in freezing beer duty and spirit duty. In 2013 we withdrew the beer duty escalator, so the price of a pint is now some 14p less than it would have been otherwise, and we froze beer duty yet again in the last Budget. Across the country, around half of the income of pubs is driven by beer sales alone, so those are important measures. The further reliefs that we have been introducing come on the back of a great deal of activity, particularly since 2016. We have introduced a total of about £13 billion-worth of reliefs across the business rates terrain. That includes making 100% small business rates relief permanent, and doubling the threshold for small business rates relief in 2017.

My hon. Friend asked what we are doing for all the pubs in her constituency. That is a valid point. We have changed the uprating from the retail prices index to the consumer prices index. We initially announced that that would come in from 2020, but in the recent Budget it was brought forward by two years. That will lower the level of business rates right across the pub sector, irrespective of the size of the particular establishment. That is worth about £5 billion in additional relief over the next five years. We have doubled the level of rural rate relief to 100% from 2017.

My hon. Friend referred to specific examples of where there have been very large increases in rateable value—I think she quoted a figure in excess of 60% in one case. In 2017, at the time of the revaluation, we introduced the transitional relief scheme, which was worth some £3.6 billion of relief, to ensure that we smoothed out some of those increases. I would be happy to meet her at some point to look in detail at one or two of the examples she raised, which might be useful for us both. An increase in one year of more than 60%, given the transitional relief that would be available, would be on the high side, but I would be very interested to look at that with her in detail.

I thank the Minister for all the work that he is doing for the sector, which needs as much support as possible. Does he agree that it cannot be right that the rateable value of our Glassford Inn, for instance, is so high that even if it sold beer every night of the week to every single person in the village, it still could not pay the rates that have been set? Will he agree to look at that issue for me?