Derek Thomas – 2022 Speech on Business Rates and Levelling Up

The speech made by Derek Thomas, the Conservative MP for St. Ives, in Westminster Hall, the House of Commons, on 13 December 2022.

It is a privilege to speak under your chairmanship, Mr Mundell. I thank my hon. Friend the Member for Waveney (Peter Aldous), for bringing this subject—a pet subject of mine—to the House once more. I am glad that the debate is called “Business Rates and Levelling Up”, because I want to pick up on both of those, and include the VAT threshold within the levelling-up issue, because it is absolutely relevant to my constituency.

Much of what has been said today does not come as a surprise, but every opportunity to argue for a reform of property-based taxes is one that we should seize. As I said, I will touch on business rates and levelling up in relation to the VAT threshold. I do not think I am alone in the view that business rates are arbitrary, taxing the existence of a business within a building, irrespective of its economic activity. It is unfair and discriminates against large independent businesses, especially in town centres, and favours—in my view—out-of-town and online businesses.

I believe that business rates should be scrapped altogether and replaced, although I know that I differ from my hon. Friend the Member for Waveney on that. We should have the courage to replace business rates with a system that taxes in-town, out-of-town and online equally and fairly.

I have a great news story from my constituency. In Penzance, we have the oldest working dry dock. It is a fantastic business, and Members are welcome to come and see it. It is an amazing bit of infrastructure—donkey’s years old, and quite leaky, which does not really work for a dry dock. However, it would not be there—there is still a real risk of closure, partly because of businesses rates—if not for a local individual, a young man, who decided that it needed to be saved and wanted to have a go at it.

The dock was threatened with closure, but he has secured that business and all the jobs and skills there—and increased them—and is spending a huge amount of money on the infrastructure, trying to plug the holes and level the floor of the massive engineering workhouse. It is a fantastic piece of marine engineering, which is vital, and strategically important for the British coastline, particularly Cornwall.

That young man has invested significantly in that old facility, although much more is needed. New jobs and apprenticeships have been created and significant services have been secured and enhanced for marine engineering, and shipping more generally. However, it operates in a highly competitive market and he must find £4,000 a month just for business rates. That is undermining, as we speak, its ability to be competitive, as he needs to pour money into bringing the facility up to where it should be.

It is actually more tax-efficient—if that is the right phrase to use—to close that strategically important dry-dock facility in favour of housing or hospitality. I have done a lot of work with Cornwall Council, which says that there is nothing that it can do, but we are working to find a way to give that dry dock a level playing field with others in the area, which benefit from an enterprise zone arrangement.

I will move on to levelling up, particularly to the obstacle of the VAT threshold. In a rural coastal area where so much of the economic activity, and jobs supporting it, are compressed into the tourist season—many MPs share that problem—effort has been made for years to extend that activity. In west Cornwall, we have worked hard to extend the tourist season into the shoulder months—much earlier and later in the year. I am sure that is true in other coastal areas. That would increase economic gain, jobs wages and skills; it would provide job security, if nothing else.

However, we have faced challenges as we try to do that. There is an acute issue on the Isles of Scilly where, as we try to increase the shoulder months, we come up against the understandable need that small hotels, guest houses and restaurants have for curtailing their business. As they get closer to the VAT threshold, which I think is about £85,000, they will either close or slow down their business to avoid that threshold. The simple reason is that the minute they go over the £85,000 threshold, even by £1, they are clobbered for £9,000 of VAT. They would have to earn another £45,000 in order just to stand still. The problem with a small hotel is that it just does not have the beds, particularly in the shoulder months or the winter, to grow business to that extent.

Unfortunately, the inevitable and sensible decision for many businesses in Penzance and in my coastal community on St Mary’s on the Isles of Scilly is to close. That immediately puts other businesses in the area at risk, contributes to job insecurity and the challenges we face around that every year, hollows out communities, and threatens transport links. We tried to increase the transport running to and from Scilly in the shoulder months, but it was just not viable because people were booking the ferry, but were then unable to find accommodation or places to eat. It is a real challenge, which I have raised many times since I was elected. The last answer I received was that it was going to be looked at in 2024, but I think that might have been pushed further into the future.

Those businesses cannot grow and they would need to earn another £45,000 just to stand still—that is not an incentive for someone to work in the winter, supporting our local economy but with no gain for their business. As a result, we have a real problem in coastal areas. It is harming our ability to level up and to provide good, skilled jobs. We have seen during and following covid that jobs in hospitality and tourism are beginning to be reasonably well paid and more skilled, but they are not secure, partly because of this problem. There is thus a direct impact on job security, other businesses, transport and so on. I am not sure if this is the right place to raise it, but the simple fix is that when a business reaches the £85,000 threshold, VAT should be applied to all money earned above that. It is so simple and obvious that I am not sure why the Government do not do it.

In conclusion, I differ from my hon. Friend the Member for Waveney; tweaking business rates has actually increased unfairness and depressed growth and aspiration —that is the experience in my constituency. Business rates should be scrapped in favour of a tax that reflects the economic activity, not the building the business occupies. To support levelling up, serious consideration must be given to the chilling impact of an arbitrary VAT threshold.