Non-Domestic Rating Bill
Monday 24th April 2023
(1 year, 7 months ago)
Commons ChamberRead Full debate Non-Domestic Rating Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Victoria Atkins)
I beg to move, That the Bill be now read a Second time.
The House may have spotted that I am not in as full voice as I normally like to be. I promise that is not because I have been participating in the activities that I understand are going on outside in Parliament Square. I hope the House will understand if I do not take quite the number of interventions that I generally like to when opening a debate.
I believe that all of us across the House recognise how important business rates are to council budgets and the funding of core services. This year alone, business rates are set to raise more than £20 billion to fund vital services, from adult and children’s social care to refuse collection. However, business owners have raised concerns about the impact of this tax on their ability to stay competitive. That is why the Government have delivered and will continue to deliver on our commitment to reform business rates.
In the autumn statement, we announced substantial immediate support to help businesses adapt to the 2023 business rates revaluation. Today, we take another major step forward, turning our attention towards longer-term reform with the Non-Domestic Rating Bill. It will ensure a business rates system that is more flexible, transparent and fair.
Before I set out what the Bill delivers, I remind the House of the steps we have already taken to improve the business rates system. From April 2023, we have updated all rateable values for non-domestic properties, reflecting changes in the property market. The revaluation ensured a fairer distribution of bills between online and physical retail. On average, bricks-and-mortar retailers saw decreases of around 20%, but we did not stop there.
In the autumn statement, we announced a support package worth almost £14 billion over the next five years to support businesses. We have frozen the business rates multiplier this year—a £9.3 billion tax cut over the next five years—we have increased the retail, hospitality and leisure relief scheme from 50% to 75%, supporting around 230,000 properties, and we have removed unpopular downwards caps from the transitional relief scheme, ensuring that businesses immediately see the benefit of falling bills.
Turning to the Bill, business owners have been clear that a more frequent revaluation cycle would be extremely helpful. In place of the current five-yearly cycle, the Bill will implement a three-yearly cycle. The most recent revaluation took effect from this April, so the next will take place in 2026 and it will happen every three years thereafter. I understand that colleagues will ask, “Hang on a minute. Why every three years, rather than annually or every two years?”. The reason is that this single measure is a significant shake-up of the business rates system. An initial three-yearly cycle ensures that the Valuation Office Agency has the capacity to deliver these important reforms. I reassure the House that we will of course keep the system under review, with the aim of going even further if we can.
We are implementing a new duty for ratepayers to provide the VOA with information that supports valuation. That will be submitted through a new, simple online service. It brings business rates in line with wider tax practice, and it is a crucial first step towards going further on the frequency of revaluations in the future. We will make the valuation process clearer by increasing the transparency of the VOA’s work. The VOA has already delivered some improvements, but the Bill will allow it to go even further and provide more accessible information to ratepayers on how individual valuations have been reached.
Harriett Baldwin (West Worcestershire) (Con)
The Minister is speaking about the Valuation Office Agency, which gave evidence to the Treasury Committee last week. It reassured us that it was ready for these changes and on track for its computer system changes. Is that consistent with what she has been told?
Victoria Atkins
Yes, it is. Indeed, the VOA is very keen to get moving with this because, while it does a good job under the current system, it understands the difficulties that less frequent revaluations have posed for businesses, particularly given recent history with the pandemic. This is very much part of trying to sew the system together even more tightly, so that the VOA is able to fulfil its obligations to ratepayers.
We are going to clarify what sort of changes or events should lead to changes in rateable values between revaluations, with reforms to material changes of circumstances. Another key reform involves rethinking the way that the two multipliers or tax rates are calculated. We are making the recent practice of uprating the multipliers by the consumer prices index a permanent feature. Defaulting to this lower measure of inflation will help businesses struggling with rising costs. The Bill will also allow the Government to adjust either multiplier to a rate lower than inflation, and to prescribe which properties pay the lower or smaller multiplier, keeping business support adaptable to the fast-moving fiscal environment.
The key driver for all of these changes is to help businesses grow, and in so doing we want to remove barriers to investment and to incentivise growth. We are therefore creating an entirely new 100% relief for ratepayers making eligible improvements to their property. They will not face higher bills as a result of those investments for 12 months. I know that that is something for which businesses, and indeed colleagues, have been asking for some time. We will also enshrine in law the 100% relief for low-carbon heat networks that have their own rates bill. That is something we recently brought in with the support of local authorities, and it has been warmly welcomed by the business community.
The Bill shows that the Government are honouring our promise to British businesses that we will be there for them no matter what, so that they can continue to innovate, expand and thrive in a globally competitive economy. In the last six months, my right hon. Friend the Chancellor has announced almost £14 billion of support to the business rates system, and now through the Bill we are going even further. The Bill creates a modern system that can adapt to the ebb and flow of market tides. It delivers a fairer system that provides greater transparency for ratepayers and a business-friendly system that helps, not hinders, growth and rewards companies that invest. I commend it to the House.
Sarah Owen (Luton North) (Lab)
There is no getting around it: this has been an incredibly tough time for businesses across the UK. There was the pandemic, of course, but before and after it, they have had this Government’s mismanagement of Brexit to contend with, the Government’s failure to manage rising energy costs, the highest inflation for a generation and the unforgivable mess of the Government’s mini-Budget in October.
With this Bill reaching its Second Reading still inadequate in many areas, business owners are concerned about what further challenges await them. While businesses have welcomed some elements of this legislation, it is clear across the board that supportive measures such as improvement relief are being delivered far too late. The most glaring omission from the Bill continues to be the lack of any substantial improvements to our outdated, dysfunctional business rates system. Labour is committed to scrapping business rates root and branch, but the Government continue to tinker around the edges, buying time with short-term measures, rather than addressing the depth of the problems they have caused.
The last thing businesses need is more short-term sticking-plaster fixes. Maybe they are waiting for a Labour Government in the next 18 months to come and fix it for good. Our proposed reforms to business rates are what small and medium-sized enterprises have spent years lobbying for. All of us will know a high street that was prosperous 15 years ago and is now in miserable decline, along with libraries, nurseries and leisure centres. The Tories’ commitment to austerity policies has led to the death of a devastating number of high street businesses. They sat by and watched business after business go bust and the hearts of our high streets gutted. Office for National Statistics figures show that, even at the height of the recession, business deaths under the last Labour Government never rose above 277,000. In stark contrast, this Tory Government oversaw a staggering peak of 331,000 business deaths in 2017—years before the pandemic, before the war and any other factors that they may try to draw on.
While the Tories tread water, Labour has a plan for British business. We will support entrepreneurs to turn their ideas into reality. We will ensure that bricks and mortar businesses stay on our high street by making their tax contributions proportionate. Labour will make online tech giants finally pay their fair share of tax—something the Conservatives have never had the will to do. By raising the digital services tax paid by the likes of Amazon, we will be able to raise the threshold for small business rates relief, helping more homegrown small and medium-sized businesses to thrive in our retail sector. Sadly, among other common-sense reforms suggested by Labour, the Tories have refused to provide short-term support through raising the threshold for small business rates relief this financial year. Our estimates suggest that raising the threshold to £25,000 would save our high streets more than £1 billion. Instead, SMEs will continue to wade through bills and fight for their survival. Corner shops and cash and carries are essential staples of our neighbourhood and many families rely on them to meet daily need.
Although some measures in the Bill have been welcomed by small shop owners, worry continues over the administrative burdens of meeting the new “duty to notify” requirements. The Association of Convenience Stores told me that, despite representations to Ministers, its concerns about clause 13 have not been addressed. Forcing ratepayers to submit taxpayer reference numbers to the Valuation Office Agency will create more work for all retailers, but have a particular impact on convenience store chains. Has the Minister considered the difficulties facing businesses in that situation: those that may need to spend more to safely report sensitive tax information for multiple sites? There are also valid fears that fines will be incurred through small businesses not knowing when or what to update the VOA with regarding changes to their premises. Can the Minister update me on what consultations the Government are conducting to bring clarity to that process?
The Shopkeepers’ Campaign rightly notes that the clause allowing fines for retailers to notify the VOA within 60 days represents a “stealth tax”. Surely Ministers do not intend to find new ways to make small businesses worse off. Can they please commit to reviewing that policy?
Many convenience stores are owned and frequented by first, second and third generation migrant communities and those on lower incomes. Have Ministers carried out an equality impact assessment of the unintended consequences that these costs will have on the owners and, therefore, their customers? I would be grateful to know whether any such assessment has also investigated regional differences in the impact of the Bill. Recent analysis by Savills estate agents found strong disparity between the new rateable value for city centre retail units and those in small towns. Surely the Government are not proposing yet more policy that will make a mockery of their central promise to level up.
The hospitality sector was at the sharp end of the pandemic restrictions and slow economic recovery. Most recently, it has suffered a severe workforce shortage due to post-Brexit limitations on migrant workers. UKHospitality has joined other business advocacy groups in questioning the new proposals regarding expanding the VOA’s remit and powers. What is the Minister’s response to businesses facing extensive administrative time and costs to provide the VOA with more information than it reasonably requires? We welcome the commitment to revaluate rates more frequently, but every three years is still not enough to keep up with the sudden changes that businesses can experience during economic turmoil. A Labour Government will introduce annual revaluations, delivering the up-to-date monitoring and support that businesses are crying out for.
As I have raised with the Minister before, there is still no explanation from the Government on how they will support local authorities that have the huge task of processing tens of thousands of new business rate forms. Local authorities, as we all know and appreciate, are already understaffed and under-resourced. I do not need to remind the Minister that councils still do not have a long-term sustainable funding model, so each year brings more financial insecurity than the last. With yet another new administrative responsibility dumped on their desks, how does the Minister expect councils to be able to afford the time and staffing to adjust? Have the Government conducted any sort of consultation with local authority leaders to assist with the burden?
We will not be voting against the Bill today. We know some improvements have been made and we will work towards further improvements in the next stages. What will not change between this version of the Bill and the next is that Labour remains the party of business. We are committed to ensuring that every business, every entrepreneur, every high street, every worker and every customer gets what they need from government to live well and see our economy thrive in return.
Sally-Ann Hart (Hastings and Rye) (Con)
I would like to focus my remarks on our retail sector. The last few years have seen an acceleration in shop closures and job losses. The Centre for Retail Research found that more than 17,000 shops closed in 2022, equivalent to 47 a day and the highest total in five years. More than 5% of retail staff lost their jobs last year through insolvencies and store closures arising from rationalisation.
Retail, especially independent shops, is hugely important in beautiful Hastings and Rye, where over 30% of the local economy depends on the hospitality and tourism sectors. I know many local outlets have ceased to trade, and the town centre in Hastings is punctuated with empty or shuttered shop windows. Even key areas such as Robertson Street, which has seen something of a revival since the pandemic, now has prominent outlets closed and empty. Sadly, some businesses we lost were Hastings institutions, such as the fishmongers in Queens Arcade, which had been there for more than half a century. Others include the large Argos near Breeds Place, which remained empty for several years prior to the pandemic, and big names such as Game, in Priory Meadow. Several cafés across the town have also closed.
It would be unfair to say that all those business closures relate to the business rates system. Some are due to an increase in rent, on top of the increase in supply chain and energy costs caused by the pandemic and Russia’s invasion of Ukraine, but I have no doubt that business rates is a significant contributory factor to many business closures across the country. The business rates system has become disconnected from the realities of modern retail and retail real estate, which is why I am pleased the Government have decided to modernise it.
There are several positive measures in the Bill which will help our retail sector. A more frequent cycle of three years for revaluations will allow changes in economic conditions to feed through more rapidly into businesses’ liabilities. As long-term changes in the economy continue to manifest, accelerated by the aftermath of the pandemic, that will ensure the business rates system is more agile and responsive to change, while also improving fairness for ratepayers. However, it has been argued that annual revaluations would be most ideal, ensuring a highly responsive and up-to-date system. Perhaps the Minister can explain a bit more about that in her response.
The digitalising business rates project will, I hope, modernise the business rates system, improve the targeting of rates relief, generate better data for central Government and local government and help to improve business rates compliance. Measures to support de-carbonisation and investment, including a relief for low-carbon heat networks and a new improvement relief, will ensure that, from April 2024, ratepayers will not see an increase in their rates bill for 12 months from qualifying improvements made to their property. That is important because businesses that improve their properties should not be penalised for it.
However, I have some concerns that the Bill does not go far enough to help small businesses. The move to the three-yearly valuations has a cost to the ratepayer. The Valuation Office Agency has imposed a corresponding duty to notify, which requires ratepayers to inform it of any changes made to a property within 60 days of the change. This new duty represents a significant administrative burden for businesses, particularly the small ones. Whenever a change is made to the property, the occupier must inform the VOA within 60 days, or be met, it seems, with punitive fines.
The VOA’s job is to determine a property’s rateable value. It appears that the imposition of the new duty is simply the VOA asking the ratepayer to do its job for it. Many small businesses will struggle with that additional burden. Perhaps most concerning is the lack of a corresponding duty for the VOA to respond to ratepayers’ requests. Although the ratepayer must notify the VOA within 60 days—with the threat of financial sanctions—the VOA may respond to the ratepayer at its leisure. That hardly seems fair.
I am concerned that the uniform business rate multiplier has risen to 51p, which is a significant increase from the 43p that it stood at on its introduction in 1990—admittedly, that is quite a long time ago. Although freezing the UBR is welcome, it is temporary and contrary to our promise in the 2019 Conservative manifesto to cut the burden of tax on businesses by reducing business rates. The Bill means there may be annual increases in the UBR by linking it to the consumer prices index. I would be grateful if the Minister could explain a bit more about that. We need to keep in mind that in 2019 voters were promised reduced business rates bills on SMEs. Can the Minister outline what has been done to lower the UBR? Can she explain how linking the UBR to inflation through the consumer prices index will help to reduce the tax burden on businesses?
Overall, the Bill is welcome as a positive step in the right direction. We must do all we can to protect our retail sector. The Conservative party is always the party for small businesses. I would like a business rates system that flexes with profit rather than one based on the value of a property—that would be fairer.
Helen Morgan (North Shropshire) (LD)
I have been looking forward to this legislation, partly because I am passionate about any measures that will revive the fortunes of the high street in North Shropshire’s historic and beautiful market towns, and partly because, from my previous role as an accountant and financial controller, I have first-hand experience of dealing with the business rates system.
Businesses are facing tough conditions. Every ingredient, nut and bolt and widget purchased is more expensive. Many businesses are finding it impossible to pass on those additional costs to consumers. On top of that, energy costs have been historically high. Many businesses were forced to sign up to fixed-price energy contracts when prices were stratospheric. The Government left those businesses facing a cliff edge when support was withdrawn at the beginning of this month. Many pubs, cafés and restaurants have seen a 90% cut in Government help. In my constituency, they are reporting to me that they are looking at closure. Businesses have it really tough right now and they need a break. They need a Government who will
“cut the burden of tax on business by reducing business rates…via a fundamental review of the system.”
Those are not my words but the commitment that the Conservatives made in their 2019 manifesto.
The Bill before us today is a disappointment. It tinkers around the edge of an outdated tax that does not work for the modern economy. Our high street shops are competing with online retailers that do not have the same overheads as the physical shops that form the backbone of our communities’ common spaces. Business rates increase those costs further, making it even harder to compete. The Treasury Committee’s 2019 report, “Impact of business rates on business” confirmed that view.
In market towns such as Oswestry in my constituency, the smaller independent stores benefit from small business rates relief. They are not paying anything, so more frequent revaluations will not help them because they pay nothing in the first place. The opportunity was to make the difference for the larger retailers—the anchor tenants and the drivers of footfall that are needed to bring people back to town centres in person. I think that opportunity has been missed.
Turning to the detail of the Bill, there are some steps in the right direction. The increase in the frequency of revaluations, from every five years to every three years, is clearly welcome. It is also right to enable businesses to use business rates improvement relief to encourage businesses to improve and upgrade their properties. We would hope that the relief might encourage businesses to look towards ways in which they can embrace decarbonisation.
It also seems sensible to link business rates to a unique taxpayer reference. The provisions around notification of completion of works look to be a welcome measure to reduce the possibility of fraud in relation to buildings being removed from the rating list while being refurbished. From experience, that struck me as a potential weak spot for fraud, so that measure is welcome.
However, I want to expand on the onerous nature of placing a responsibility on businesses to keep the Valuation Office Agency informed about market value and changes to the lease or ownership. Businesses already receive a notification to inform the Valuation Office Agency when something material changes at a premises—primarily, ownership or the registration of a lease—and they must provide detailed information to confirm that the rating value is still appropriate. Moving to an annual notification, even in the event of no change, would mean yet another form to fill in for the beleaguered financial controller, with whom I have huge sympathy, who is already bogged down in seemingly endless monthly and quarterly ONS returns, on top of their monthly and quarterly financial reporting requirements. It is estimated that around 700,000 small businesses that currently do not pay rates at all will be included in this annual form-filling exercise, with significant penalties in place if they get it wrong.
Speaking from my own experience, the VOA is not quick to decide and respond when changes are notified. I spent a year persuading the VOA to put a new office building on the rating register and to record other alternations to a mixed-use site, including inviting the officers on a personal visit to assess the site at first hand. This was after the pandemic restrictions had been removed. Changes in case manager, records lost, confusion, and lack of interaction between the valuation for business rates and council tax meant that it was an administrative nightmare, as well as a business planning nightmare.
Businesses need to know what their rates liability is going to be. Cash-flow planning is critical to staying afloat, particularly at a time when businesses are struggling with soaring energy costs and rocketing inflation. Businesses cannot do that if they do not know what their rates bill will be; we should remember that the rates bill is backdated to the point circumstances change, not to the point that the Valuation Office Agency makes its decision.
I am extremely nervous about imposing a further administrative burden on small and medium-sized businesses, complete with harsh fines and penalties, when there is no acknowledgement of the importance of a swift response from the VOA. Surely some timetable could be put in place, at least for interim assessments, to help businesses to plan. I would be grateful if the Minister could consider corresponding reliefs or an appeals system, with remedies provided, when the VOA has taken an unreasonable amount of time to reach a decision, or got its decision wrong or in a state that requires challenge.
The current business rates system is broken. The Federation of Small Businesses said:
“these changes do not amount to the fundamental overhaul the system needs, to reduce the chilling impact of a regressive tax that you pay before even earning a penny in turnover, let alone profit.”
Fundamentally, Liberal Democrats disagree with business rates. They are harmful to high streets and our wider economy, and the current framework is a huge burden for small businesses. They tax productive business investment in structures and equipment, rather than taxing profits and land value.
The Liberal Democrats would abolish the broken business rates system and replace it with a commercial landowner levy. That levy would be paid initially by the landlords of commercial properties, not the businesses occupying them, and it would feature annual revaluations, which Netherlands has proved are possible administratively. It would tax only the land value of commercial sites, not productive investment. Removing buildings, utilities and other physical capital from taxation would boost business investment, in turn increasing productivity and wages.
Liberal Democrat plans would improve our high streets by boosting investment and helping shops that struggle. None of that will be achieved by today’s Bill.
Peter Aldous (Waveney) (Con)
The Bill is welcome as it was a 2019 Conservative manifesto commitment to carry out a fundamental review of business rates, the final report for which was published alongside the 2021 autumn Budget.
I support the Bill generally, but I have two concerns. First, the Bill should be seen not as the endgame but as the start of the process to radically reform business rates. The ultimate objective should be to reduce the uniform business rate multiplier to something in the order of 30p in the pound; to carry out annual revaluations; to abolish the multitude of complicated reliefs; and to digitalise the Valuation Office Agency. If we do so, business rates will be reduced to an affordable level, the system will be put on a long-term and more easily understood footing and we shall be able to get on with so-called levelling up—removing barriers that impede regional growth. That will enable businesses to know where they stand and to make long-term investment decisions. The message I continually get from the Suffolk Chamber of Commerce, which carries out quarterly economic surveys, is that the No. 1 concern for businesses in Suffolk is always business rates.
My second worry is that the Bill will increase rather than ease the bureaucratic and administrative burden on businesses. I urge the Government to introduce amendments to prevent that. I shall set out my concerns in more detail later.
Before I came to this place, I was a chartered surveyor; I did not specialise in business rates, but I carried out appeals from time to time. Business rates are a tax with certain inherent advantages for the Treasury: they yield approximately £25 billion per annum, they are relatively easy to collect and they are difficult to avoid. However, if the system is not administered properly, they can have a significant negative impact on businesses generally, on specific sectors—we have heard about the challenges facing hospitality and retail—and on local economies.
Business rates are in effect a tax on existence rather than on profitability, so it is important that they be kept as low as possible. High business rates not only discourage occupation, but disincentivise investment in innovation, improvement and expansion—and if you will forgive a quick commercial interlude while I am on that subject, Madam Deputy Speaker, I must congratulate PCE Automation of Beccles, which has just received the King’s award for enterprise in recognition of excellence in innovation.
At a time of high inflation, high utility costs and stubbornly high rents, business rates are a fixed cost that occupiers cannot escape. The Chancellor made some significant and welcome announcements in his autumn statement, including the revaluation that is now coming into effect, the reform of the transitional relief scheme and the freezing of the uniform business rates multiplier. The Bill provides the necessary legislative framework for some of those changes and for others that arise from the Government’s review, as well as making some minor legislative adjustments and correcting some anomalies. I shall not go through the Bill’s provisions in detail at this stage, but I repeat that I applaud the Chancellor for the undertakings that he made in November, which are much needed in these challenging times. As I say, however, the Bill must be seen as the start, not the conclusion, of the process of radical reform.
It is also necessary to guard against some unintended consequences. As drafted, the Bill will add to the regulatory burden on businesses at a time when we should be seeking to ease and reduce it. The new duty to notify set out in clause 13, which the VOA has justified as necessary to facilitate the move to a review every three years, will result in a mountain of paperwork for ratepayers. Businesses will now have to notify the VOA of any changes to their properties within 60 days, or find themselves facing punitive fines or even imprisonment. It is not right for us to expect businesses which are already facing an extraordinarily challenging regulatory environment to put up with that.
This obligation was formerly the VOA’s, but has now been transferred to the ratepayer. The VOA has no corresponding obligation, and is able to respond to requests for information at its leisure. Ideally, the duty to notify should be removed from the Bill in its entirety, but if the Government wish to impose this new duty, they must do so with the principle of reciprocation in mind. The VOA must have a corresponding duty to respond within 60 days, giving the ratepayers rebates on their business rates bills equivalent to the penalties imposed on them if there is a failure to respond within that time.
My second concern relates to clause 14, which proposes changes in the circumstances in which rateable values may be altered outside the regular cycle of revaluations. I am concerned about the consequences of this clause, and I believe that it should be removed. Let me explain the background. A “material change in circumstances” allows ratepayers recourse to pursue relief on their business rates bills when factors outside their control have an impact on their ability to do business and to operate. To my mind, that is logical natural justice, but the VOA seems to dislike the paperwork associated with these claims, as is evidenced by its mass rejection of 400,000 covid-related appeals. It appears that to prevent the repetition of such circumstances, it is now proposed to exempt any Government legislation as qualifying grounds for a challenge. In practice, this means that the Government would be able to act with impunity and enact policies that could hamper businesses without allowing them the legal recourse to challenge them. That is fundamentally unjust.
As I have mentioned, the move to three-yearly revaluations should not be the endgame, but should be a stepping stone towards annual revaluations. The advantage of that approach is that there would no longer be a need for the current complex system of reliefs; businesses would in effect be paying a tax that moved with the market, and that would lead to greater long-term certainty which would then encourage private sector investment. At first glance, annual revaluations might seem too complicated and challenging, but, as we have heard, such a system operates in the Netherlands, and there is no reason why we should not have it here.
It is regrettable that, for many businesses, discussions and negotiations with the VOA are conducted in accordance with the philosophy of “one rule for us and another for them”. The proposed duty to notify embeds this sentiment still further. It must be removed, and the system must become more transparent. The VOA’s processes are notoriously opaque, and leave many ratepayers scratching their heads when they receive their revaluation figures. As it stands, a business’s only recourse when it comes to understanding its rateable value is to go through the VOA’s complex “check, challenge and appeal” process, which many feel is deliberately designed to discourage people from—dare I say it—peering behind the curtain.
The Bill, as currently drafted, does provide the VOA with the power to give more information to ratepayers, but only at its discretion, if it considers it “reasonable to do so”. This provision is set out in clause 10, but it is vague and undefined, and some might say that it provides the VOA with the ability to reveal information to no one while appearing to be forthcoming. If clause 13 requires businesses to provide reams of information to the VOA, it is only right that it should reciprocate. Ratepayers must be given the option to understand the process that defines the tax that they will be paying for the next three years, and to reasonably expect an answer within 60 days of submitting their request, thereby mirroring the duty to notify.
My final concern relates to another unintended consequence of the duty to notify, as currently drafted in the Bill, which is the wave of predatory, unqualified and unscrupulous rating advisers that I fear it may spawn. The ramifications of financial advice, whether good or bad, can be huge for individuals and businesses. Most financial advisers in most settings require a licence to give advice from a sanctioning body. One therefore has to ask why this does not also apply to rating advisers.
Helen Morgan
The hon. Gentleman is making an excellent speech. On his point about advice, financial controllers are inundated daily by people cold calling them and offering to challenge their rates bills. They have no idea who they are, yet they take a cut of any saving that might be made. This indicates two things to me: first, that the system is not fit for purpose; and secondly, that the rating values are inadequate in the first place. Does he agree with me on those points?
Peter Aldous
I agree with the hon. Lady. This is a specialist area of valuation. When I was practising as a chartered surveyor, I quite often got called in because the client, the business owner, had gone down the line of paying money upfront to someone who had sent them a circular—they may have paid them £1,000 or £2,000—and that person had suddenly disappeared. I often got called in to try to sort out that type of situation.
At the current time, with the publication of the new rating list, thousands of businesses are being flooded by solicitations from charlatan rating advisers who are taking advantage of the confusion created by the complicated rating system. There is a significant risk that many businesses, particularly SMEs, will have neither the understanding nor the capacity to meet the duty to notify. They will increasingly fall prey to such bad advice, and this could have a devastating impact. The Government should therefore consider some sort of licensing to protect businesses from the scourge of cowboys looking to take advantage of the duty to notify.
Madam Deputy Speaker, you will be pleased to hear that I have now reached my conclusion. Taking into account that we have been awaiting legislation on the reform of business rates for the whole of the 13 years that I have been an MP, this legislation is indeed welcome. For too long we have been carrying out reviews and searching for holy grail solutions that involve the abolition of business rates, but my personal view is that those do not exist. As I have said, the Chancellor should be commended for the positive announcements he made in his autumn statement, some of which are included in this Bill. The Bill should be viewed as a step in the right direction. However, as currently drafted, it contains a number of false steps that are likely to have unintended consequences. It is also vital to recognise that this is not the end of the reform of business rates, but it is the end of the beginning. I am happy to support the Bill this afternoon, but it has defects that need to be addressed as it progresses through this and the other place, and I hope that the Government will take on board the concerns that I and my colleagues across the Chamber have highlighted.
James Murray (Ealing North) (Lab/Co-op)
As we have heard today, this Bill makes a number of changes to the system of business rates, with most of these changes arising from the Government’s business rates review, which was first announced in March 2020. My colleagues and I will not oppose the Bill today, as any support it offers to businesses is welcome. However, as we know, some business organisations are concerned that the Bill will increase the overall administrative burden on businesses, and I will address that point in a moment.
First, it is worth putting this package of measures in the context of Government promises on businesses rates in recent years. The review that led to many of these measures was first launched by the Prime Minister when he was Chancellor at the Budget of March 2020. He called this project a
“fundamental review…of the long-term future of business rates.”—[Official Report, 11 March 2020; Vol. 673, c. 281.]
When the final report was published alongside the autumn Budget of October 2021, however, the verdict was clear. As the British Retail Consortium concluded at the time, it
“falls far short of the truly fundamental reform that is needed and was promised in the government’s 2019 manifesto.”
The truth is that the changes before us, now more than three years in the making, miss the opportunity to begin replacing the current system of business rates with one that understands the needs of British businesses and that is fit for the modern day.
What is more, right now, we know that many smaller businesses, particularly those on high streets, that are already struggling after the pandemic and a difficult winter of high energy bills are worried about the impact of the current revaluation, which is why we called for an immediate cut in business rates for small firms this year by raising the threshold for small business rates relief in 2023-24. This would be funded by an increase in the rate of the digital services tax that is charged on the global revenues of global tech giants. We were disappointed that the Government failed to adopt our plans, although we welcome their having heeded our call to ensure that firms are immediately given any discount they are owed through the current revaluation, thanks to the Bill’s changes to transitional relief.
It is clear, however, that businesses need a Government who are ready to go further. In the Government’s own press release on the Bill, a quote from the British Retail Consortium’s chief executive makes it clear that
“the job is not done.”
That is, of course, right, and members of the Government may well accept that the job is not done but, after 13 years in power, how much longer can Conservative Members get away with the excuse that they have not yet got round to the urgent and fundamental reforms our country needs?
We know that fundamental reform is needed, which is why Labour has said that if we win the next general election, we will replace the business rates system with one that shifts the burden of tax away from the high street and on to online giants, that moves towards annual revaluations and that truly supports entrepreneurship. Businesses across the country want the Government to transform the system of business rates to meet the needs of the modern economy, which is what Labour will do in power.
There are measures in the Bill that we hope will give at least some support to struggling businesses. As I mentioned, we have been calling on the Government to remove downward caps on transitional relief, so we welcome the measures in the Bill to make that so. We are also glad to see the revaluation cycle being moved to every three years, rather than every five years, although we are concerned that the Government have kicked the prospect of annual revaluations far into the long grass.
The importance of annual revaluations was, again, made clear in the Government’s own press release on the Bill, in a quote from the chief executive of the British Property Federation, who made it clear that her organisation
“would like to see Government continuing to strive towards even more frequent revaluations in due course.”
We are therefore concerned that, in the final report of the business rates review, the Government said only that they will
“consider the case for…annual revaluations…in the longer-term.”
We do not have to read between the lines very hard to conclude that annual revaluations are off the table under this Government.
Furthermore, alongside the reservations that many businesses and their representative bodies hold about how the Government’s reforms do not go far enough, we know that others, such as the Shopkeepers’ Campaign, have raised important concerns that the Bill will increase the overall administrative burden on businesses. As we have heard, the Bill introduces a new legal duty on business rate payers to provide annual confirmation of the information held on their property and to inform the Valuation Office Agency of any changes made to the property within 60 days of the change or face a fine.
The new requirements will have an impact on business rate payers and on the billing authorities—indeed, the impacts are referred to in the information and impact note on the new duty, published by the Treasury and the VOA. I wish to press the Minister on two points in particular on the impact of the new duty. First, the note makes it clear that the average annual cost for each ratepayer will more than double as a result of the new duty and that in the first year the cost for each ratepayer of complying with the new system will be more than three times that of doing so under the current system. Will he confirm whether that is correct? The note goes on to accept that the 309 billing authorities in England with responsibility for business rates will be impacted by the measures too, but it says that the
“costs are yet to be quantified.”
Will the Minister confirm when the Government will publish the detail of what those costs are? I look forward to hearing his response to those points in his closing remarks.
As my hon. Friend the Member for Luton North (Sarah Owen), the shadow local government Minister, and I have made clear, we will not be opposing this Bill today. However, although any support for businesses that are struggling may be welcome, it is clear that promises of fundamental reform of the business rates system under this Government are gone. As businesses and their representative bodies have been making clear, even as we debate the Bill, much more needs to be done. Yet it is also clear that after 13 years of economic failure, and with a party now chronically divided by infighting, the Conservatives are incapable of delivering the reform that businesses need. Our country needs a new Government, who are ready to replace business rates with a system fit for the future, ready to work hand in hand with British businesses to succeed, and ready to get our economy growing in every part of the country, making everyone better off.
The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Lee Rowley)
It is a pleasure to close this short but constructive debate on the future of the business rates system. As we have heard, our consumer habits are changing faster than ever before and with that come challenges for high-street businesses. The Government have conducted a review of business rates, as promised, and now, through this Bill, we will continue to reform them to better meet the needs of our economy, while sustaining vital taxpayer subsidy for local government.
In the time available, I wish to address some of today’s contributions. I was grateful for the comments of my hon. Friend the Member for Hastings and Rye (Sally-Ann Hart), who raised the important issue of smaller businesses and those in the hospitality and retail sector. I know, as do many of us across the Chamber, that there have been challenges in the past few years. I have seen that in my constituency, as will every Member in their constituency. That is precisely why the combination of what the Government have outlined in the autumn statement and in this Bill seeks to support businesses that are smaller or in those sectors, along with a wider group of businesses from across the economy. We are talking about 75% relief for retail, hospitality and leisure businesses; the removal of downward caps so that there is immediate relief when business rates reduce; and more than £14 billion-worth of relief. I hope that that goes some way to assuaging her concern.
My hon. Friend also rightly raised the issue of annualised revaluations, as did my hon. Friend the Member for Waveney (Peter Aldous), the Opposition Front-Benchers and the hon. Member for North Shropshire (Helen Morgan). As the Financial Secretary to the Treasury, my hon. Friend the Member for Louth and Horncastle (Victoria Atkins), outlined when opening the debate, we absolutely want to see more frequent revaluations. That is exactly why we have brought forward the proposals to move from a five-year revaluation cycle to a three-year one. We think that is a big step forward in making business rates more effective and closer to the businesses that pay them. We also recognise that this will take time and we need to do it in steps. As has been outlined by colleagues, we will continue to look at it and we hope we will be able to make further progress in the years ahead. The British Retail Consortium was mentioned in a number of speeches. Organisations such as the BRC have welcomed this approach, and I hope that Members from across the House will welcome the move to a three-year revaluation cycle.
Hon. Members have raised a point about data. It is always challenging to make the decision about where to request data and where to require it, and how to get the right balance between ensuring that the tax system is effective—we need data in order to make sure of that—and not creating an undue burden on businesses.
The purpose behind the collection of this data is to ensure both that we have the best information possible to make decisions in the future and that we balance proportionately the information that we collect to make sure that the tax is collected in the right way. I say to my hon. Friend the Member for Waveney that, with regard to the administrative questions, we are committed to a soft launch of the collection of this data. We will not activate the compliance regime until we are satisfied that it works, and we will be piloting it further with a range of users. We accept that we need to get this right, but the principles behind ensuring that we have the most up-to-date system, which requires data to achieve, are sound. It will be through the pilot and the review process, following the Bill hopefully becoming law, that we will be able to review the changes to make sure that they work for businesses in the best way possible.
Briefly, my hon. Friend the Member for Waveney also touched on clause 14, which recognises the particular challenge visible during covid. Of course everybody in this House will have hoped that highly unusual and atypical events such as covid could never happen, but because they have, it is incumbent on us all in this place to make sure that we have considered the situation should—hopefully it will never happen—such atypical events happen again in the future. We are trying through clause 14 to recognise that such things may happen, while hoping that they never will. I am grateful to my hon. Friend for his constructive comments. He says that the Bill is a step in the right direction, and we agree. I hope that my comments now have reassured him about those other steps that he is not yet sure about.
The hon. Member for North Shropshire made a number of important points about the burden of business rates, about ensuring that they are proportionate, and about the challenge of taxation in general. She is absolutely right to do so, but it would have made more sense had the Leader of the Liberal Democrats, the right hon. Member for Kingston and Surbiton (Ed Davey), not been out on the airwaves just a few days ago committing himself to spending more money, which the country does not have, and which taxes such as this have to pay for. There is a consistency problem with the Liberal Democrats. For those of us who are not in the Liberal Democrats, we recognise that consistency is something that they have never shown.
Finally, I welcome the fact that those on the Opposition Front Bench will not be opposing the Bill tonight. I also welcome their generally constructive comments, and I hope that I have been able to answer them, but—there is always a but with the Opposition Front Bench—the hon. Member for Luton North (Sarah Owen) suggested that we were waiting for a Labour Government to fix this issue. The question is what the fix would be, because we have put forward a plan that ensures relief for businesses up and down the land. Was she talking about the fix of 2021, when the right hon. Member for Leeds West (Rachel Reeves) was going to scrap business rates? Is it the fix a few days later, after 2021, when it was to significantly change business rates, but not to scrap them? Or is it the fix of 2022 when business rates were to be modernised but without any clarity as to how that would happen. The Labour party says what it needs to say, but it has no plan on issues such as this.
In front of us today is a Bill that improves and modernises our business rates and makes them more efficient and effective, on top of £14 billion of relief for all businessmen and women and all businesses across the country. It makes sure that those rates are as effective and efficient as they can be and that businesses in this country thrive in the future.
Question put and agreed to.
Bill accordingly read a Second time.
Non-Domestic Rating Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Non-Domestic Rating Bill:
Committal
(1) The Bill shall be committed to a Committee of the whole House.
Proceedings in Committee, on Consideration and on Third Reading
(2) Proceedings in Committee of the whole House shall (so far as not previously concluded) be brought to a conclusion three hours after their commencement.
(3) Any proceedings on Consideration and proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion four hours after the commencement of proceedings in Committee of the whole House.
(4) Standing Order No. 83B (Programming committees) shall not apply to proceedings in Committee of the whole House, to any proceedings on Consideration or to proceedings on Third Reading.
Other proceedings
(5) Any other proceedings on the Bill may be programmed.—(Andrew Stephenson.)
Question agreed to.
Non-Domestic Rating Bill (Money)
King’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Non-Domestic Rating Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Andrew Stephenson.)
Question agreed to.
Non-Domestic Rating Bill (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Non-Domestic Rating Bill, it is expedient to authorise:
(1) the payment of sums to the Secretary of State in respect of non-domestic rating,
(2) the payment of those and other sums into the Consolidated Fund.—(Andrew Stephenson.)
Question agreed to.
Non-Domestic Rating Bill
Monday 22nd May 2023
(1 year, 6 months ago)
Commons ChamberRead Full debate Non-Domestic Rating Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 22 May 2023 - (22 May 2023)
18:09 - The Committee divided: - Ayes: 168 / Noes: 282 - Question accordingly negatived.
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
Before I call the mover of amendment 4, I remind the Committee that, while I am in the Chair, I can be addressed as Madam Chair or Dame Rosie, but not as Madam Deputy Speaker. We always have to remind colleagues of this as we move into Committee.
Peter Aldous (Waveney) (Con)
I beg to move amendment 4, page 1, line 10, at end insert—
“(2A) In section 64 (Hereditaments) of the Act—
(a) omit subsection (2), and
(b) in subsection 4(3), after “subsection” omit “(2)”.
(2B) In section 65 (Owners and occupiers) of the Act—
(a) omit subsection (8), and
(b) omit subsection (8A).”
The intention of this amendment is to abolish liability to non-domestic rates of advertising when a right is granted permitting the use of land for advertising (section 64) or when land is used for advertising or the erection of an advertising structure (section 65).
The First Deputy Chairman of Ways and Means
With this it will be convenient to consider the following:
Amendment 5, page 3, line 3, leave out “one year” and insert “five years”.
The intention of this amendment is to extend the delay in uplifts to business rate bills.
Clauses 1 to 4 stand part.
Amendment 1, in clause 5, page 16, line 3, leave out from “(b),” to end of line 4 and insert “omit “fifth””.
This amendment would require local non-domestic rating lists to be compiled every year.
Amendment 6, in clause 5, page 16, leave out line 4 and insert “in every fifth” substitute
“no less frequently than in every third”.
The intention of this amendment is to move towards revaluations on local non-domestic rating lists at no more than three-yearly intervals.
Amendment 7, in clause 5, page 16, leave out line 4 and insert
“”on 1 April in every fifth year afterwards”
substitute
“on 1 April 2026 and on 1 April in every year afterwards””.
The intention of this amendment is to move towards annual revaluations on local non-domestic rating lists from April 2026 onwards.
Amendment 2, in clause 5, page 16, leave out line 6 and insert “omit “fifth””.
This amendment would require central non-domestic rating lists to be compiled every year.
Amendment 8, in clause 5, page 16, leave out line 6 and insert ““in every fifth” substitute
“no less frequently than in every third””.
The intention of this amendment is to move towards revaluations on central non-domestic rating lists at no more than three-yearly intervals.
Amendment 9, in clause 5, page 16, leave out line 6 and insert
““on 1 April in every fifth year afterwards”
substitute
“on 1 April 2026 and on 1 April in every year afterwards””.
The intention of this amendment is to move towards annual revaluations on central non-domestic rating lists from April 2026 onwards.
Amendment 3, in clause 5, page 16, leave out lines 12 and 13 and insert—
“(ii) the year beginning on 1 April 2023 and each year beginning 1 April after that date”.
This amendment would make every year from now on a relevant period for transitional provision under the 1988 Act.
Amendment 10, in clause 5, page 16, leave out lines 12 and 13 and insert—
“(ii) the period of three years beginning on 1 April 2023 and each year beginning on 1 April from 1 April 2026 onwards.”
The intention of this amendment is to move towards each single year being the relevant period for transitional provision under the 1988 Act.
Clause 5 stand part.
Amendment 11, in clause 6, page 16, line 15, at end insert—
“(za) in subsection (4), for “different from what it would be” substitute “less than it would be””.
The intention of this amendment is to effectively abolish downwards transition.
Amendment 12, in clause 6, page 16, line 17, at end insert—
“(c) in making these regulations the Secretary of State shall ensure that no ratepayer pays a higher amount in business rates than the amount derived from multiplying the uniform business rate by the property’s rateable value.”
The intention of this amendment is to remove downward transitional phasing.
Clauses 6 to 12 stand part.
Amendment 13, in clause 13, page 21, line 31, leave out “paragraph 4G” and insert “paragraphs 4FA and 4G”.
This is a paving amendment for Amendment 14.
Amendment 14, in clause 13, page 22, line 26, at end insert—
“4FA The definition of a person (“P”) for the purpose of paragraphs 4C to 4E does not include a person who is in receipt of relief of 100 per cent with a chargeable amount of nil.”
The intention of this amendment is exclude businesses who have nothing to pay from the duty to notify HMRC and the VOA.
Amendment 20, in clause 13, page 23, line 35, at end insert—
“4LA Paragraphs 4K and 4L do not apply if P is eligible for small business rate relief (for example, because the rateable value of the hereditament for which P is or would be a ratepayer is less than £15,000).”
This amendment would exempt businesses in receipt of Small Business Rate Relief Exemption from annual reporting if there is no change to report.
Amendment 15, in clause 13, page 27, line 44, at end insert—
“(5A) After paragraph 5ZF (inserted by subsection (5)) insert—
“Rebate in case of failure by valuation officer to provide confirmation
5ZG Where the valuation officer has not provided confirmation to P of a change following a notification by P that will affect the valuation of a hereditament within 60 days of the valuation officer receiving that notification, the total amount of non-domestic rates payable on that hereditament is reduced by—
(a) £100, and
(b) (b) a further £60 for each day until the confirmation is received by P, up to a maximum of £1,800.””
The intention of this amendment is to impose reciprocal penalties on the VOA for failure to notify ratepayers on changes in their rate assessments.
Clause 13 stand part.
Amendment 17, in clause 14, page 32, line 37, at end insert—
“(e) after paragraph 2C insert—
“2D(1) This paragraph applies where—
(a) a hereditament consists wholly or in part of land on which an advertising right is exercisable; and
(b) the right is not severed from the occupation of the land.
(2) For the purposes of determining the rateable values of the hereditament under paragraph 2 above, the rent at which the hereditament might reasonably be expected to be let shall be estimated as if the adverting right did not exist.
(3) In this paragraph “advertising right” means a right to use any land for the purpose of exhibiting advertisements.””
The intention of this amendment is to provide that the rateable value of hereditaments which consist wholly or in part of land on which an advertising right is exercisable to be calculated as though the advertising right does not exist.
Clauses 14 to 18 stand part.
Amendment 18, in clause 19, page 39, line 11, at beginning insert “Subject to subsection (4A)”.
This is a paving amendment for Amendment 19.
Amendment 19, in clause 19, page 39, line 17, at end insert—
“(4A) Section 13 may not be brought into force until at least 6 months after guidance has been published by the Valuation Office Agency on the requirement this Act will place on business ratepayers.”
This amendment is to ensure that guidance is made available to business ratepayers before the duty to notify comes into effect.
Clauses 19 and 20 stand part.
New clause 1—Valuation Office Agency performance targets—
“(1) The Secretary of State must within three months of the date on which this Act is passed prescribe by regulations performance targets for the Valuation Office Agency to respond to requests for updates to the central and local non-domestic rating lists and to challenges to the valuations on those lists.
(2) The Secretary of State may by regulations require the Valuation Office Agency to report at least annually on its performance in such detail as the Secretary of State may require in or by virtue of those regulations.
(3) The Secretary of State must lay before Parliament any reports made under subsection (2).
(4) Any regulations made under this section must be made by statutory instrument and are subject to negative procedure (annulment by either House of Parliament).
(5) Regulations under subsection (1) may not come into force until an impact assessment has been laid before Parliament.”
This new clause would require annual reports from the VOA on its performance against targets to be set by the Secretary of State.
New clause 2— Non-domestic rating: retail sector review—
“(1) The Secretary of State must conduct a review of the effect of non-domestic rateable values on the retail sector.
(2) The review must be commissioned no later than 6 weeks after the date on which this Act is passed.
(3) The review must assess the impact of non-domestic rateable values on competition between different parts of the retail sector, for example—
(a) stand-alone businesses operating from a single shop premises in a village, town or suburban high street setting,
(b) chain stores with multiple premises in city centres and out-of-centre shopping malls, or
(c) mainly online operations based on making deliveries from very large warehouses or fulfilment centres.
(4) The report of the review must be laid before Parliament no later than 1 May 2024.”
This new clause would require a review of the differential impact of business rates on different parts of the retail sector.
New clause 3—Non-domestic rating: hospitality sector review—
“(1) The Secretary of State must conduct a review of the effect of non-domestic rateable values on the hospitality sector.
(2) The review must be commissioned no later than 6 weeks after the date on which this Act is passed.
(3) The review must assess the consistency of approach to setting of non-domestic rateable values between hospitality businesses occupying premises of similar size and trading style, including—
(a) public houses,
(b) restaurants
(c) live performance theatres, and
(d) exhibition spaces.
(4) The report of the review must be laid before Parliament no later than 1 May 2024.”
This new clause would require a review of the differential impact of business rates on different parts of the hospitality sector.
Amendment 25, in schedule, page 47, line 2, at end, insert —
“18A In the Non-Domestic Rating (Alteration of List and Appeals) (England) Regulations 2009 (S.I. 2009/2268), omit regulation 15 (Advertising rights).
18B In the Non-Domestic Rating (Alteration of List and Appeals) (Wales) Regulations 2009 (S.I. 2005/758), omit regulation 15 (Advertising rights).
18C In the Non-Domestic Rating (Miscellaneous Provisions) (No. 2) Regulations 1989 (S.I. 1989/2303), omit regulation 4 (Advertising rights).”
These consequential amendments would be required to remove references to advertising rights following the abolition of liability to non-domestic rating in respect of advertising rights effected by Amendment 4 to Clause 1 of this Bill.
Government amendments 21 to 24.
That the schedule be the schedule to the Bill.
Peter Aldous
I shall start off where I left off in the Bill’s Second Reading debate. By way of background, the Bill is to be welcomed, although it is important that it is viewed as the start of the process of fundamentally reforming business rates and not the endgame. It probably would have been preferable to have heeded the advice of the Chartered Institute of Taxation and for the Government to have brought forward a new consolidated business rates Bill, rather than to amend the Local Government Finance Act 1988. That would have sent the message to businesses both large and small that real change was on the way. However, we are where we are and we must ensure that, ultimately, this Bill paves the way to reducing business rates to an affordable level, putting the business rates system on a long-term, more easily understood footing and removing those barriers to regional growth.
We must have in mind the ultimate end goal, which should be to get the uniform business rate multiplier back down from in excess of 50p in the pound to the more affordable 30p in the pound, which is where we started when the system came in in the early ’90s. To get to that, we need annual valuations, the abolition of the multitude of complicated reliefs and to digitalise the Valuation Office Agency. The Bill moves us in that direction—although perhaps a little too tentatively. Moreover, the duty to notify, which takes up much of the Bill, adds a bureaucratic burden on businesses and there are some unintended consequences that we should avoid. We must have in mind the need at all times for increased transparency. The amendments that I tabled have those considerations in mind.
Any adjustments to the business rates system should be guided by two principles: reducing the regulatory burden on businesses and, as I said, reducing the uniform business rate multiplier. We should look at the Bill with those considerations in mind and aim to move towards a sustainable system that provides a long-term revenue stream that businesses can find bearable, which has not been the case so often in recent years.
A properly functioning property tax system is critical to achieving a vibrant and sustainable economy. For most of this century, an outdated and unresponsive business rates system has placed enormous strain on many businesses, particularly those in the retail and hospitality sectors. Moreover, that strain has not been shared equally across the country. That illustrates how the current system is a hindrance—a logjam—to levelling up. We need non-domestic rates to be more responsive to changes in the economy so as to ensure that the system does not place an undue and unfair strain on businesses. If we can achieve that, we shall be more able to attract long-term investment into our towns and cities, and we shall be better placed to meet other vital policy objectives such as revitalising our high streets and achieving our net zero aims and goals.
Clause 5 relates to the frequency at which revaluations take place.
As I have mentioned, we need to move to the end goal of annual valuations, so that business rates are more in line with the economic outlook. I have tabled amendments 6, 7, 8, 9 and 10 with that objective in mind. To achieve a responsive business rates system, valuations should be carried out as regularly as possible. The Bill is a good first step, and increases valuations from every five to every three years, but it should provide the flexibility for a future Government to require more frequent valuations —ultimately, every year. Annual revaluation could bring bills more in line with commercial property values, rather than lagging many years behind. Even with a three-year list and a two-year antecedent valuation date, occupiers will be paying business rates bills in early 2026 that are based on valuations from nearly five years beforehand.
Annual revaluations are essential if the Government are serious about modernising the business rates system. They take place in countries as diverse as Hong Kong and the Netherlands, and thus there is no reason why they should not take place in England and Wales. To conclude on this issue, the enormous administrative burden placed on ratepayers by the new duty to notify would certainly not be worth the distress and inconvenience it will cause if it does not ultimately result in the introduction of annual revaluations. In that context, I urge the Government to give full consideration to these amendments.
Clause 13 sets out the requirement for ratepayers to provide information—this is the new duty to notify, which, as drafted, places an unnecessary burden on businesses. Amendments 13, 14 and 15 have the objective of reducing that burden and imposing penalties on the Valuation Office Agency.
Amendments 18 and 19 relate to clause 19, and would ensure that guidance is made available to business ratepayers before the duty to notify comes into effect. The new duty to notify will place an onus on all ratepayers to provide the Valuation Office Agency with any information that they reasonably believe could impact on the business rates valuation. This is an enormous additional ask, not least for the 700,000 businesses which, up to now, have not been subject to business rates and might be completely unaware of what is proposed. The duty requires ratepayers to notify the VOA of changes to their properties within a 60-day window, and carries the risk of financial sanctions and even imprisonment if they fail to comply.
As a former chartered surveyor, I cannot see how such a burdensome duty on all commercial property occupiers—including, as I have said, current non-ratepayers—can be justified as necessary to administer a move to three-yearly revaluations. This duty might be bearable for businesses if it assisted the VOA in administering the move to annual revaluations. For small businesses, it will cause more pain than the gain that will be derived from moving to three-yearly valuations.
The new duty will leave many ratepayers wondering what might qualify as a notifiable change. The VOA is yet to publish any guidance; thus many businesses will take no chances and will notify the VOA of any changes to their properties. The VOA will hence be hoist with its own petard, as it will be flooded with paperwork.
As I mentioned on Second Reading, many businesses, particularly small and medium-sized enterprises without any rating expertise, will turn to rogue rating advisers for help. Business rates advisers do not require a licence to practise, and many unscrupulous operators will see the new duty to notify as an opportunity to take advantage of small businesses.
While the ratepayer has a short period in which to notify the VOA of any changes to the property, as the Bill stands, the VOA has no such obligation. It can, in effect, respond to notifications at its leisure. I therefore propose a reciprocal provision that places on the VOA a 60-day timeframe in which to respond to notifications, with rebates to the ratepayer equivalent to the fines set out in clause 13 that accompany a failure to comply.
Clause 6 is a short and simple but nevertheless extremely important clause, which gives effect to the removal of downwards transitional phasing, as announced by my right hon. Friend the Chancellor on 17 November last year in his autumn statement. That was a positive step, but clause 6 as drafted does not permanently remove the threat of downwards phasing, which is a punitive tax that unfairly penalises occupiers whose rateable values have fallen. It is wrong to force those whose property values have fallen to subsidise those whose property values have risen.
The clause as it stands simply removes the requirement for transitional phasing mechanisms to be revenue-neutral. That means that the Government no longer need to fund any upwards transitional mechanism with a corresponding downwards transitional mechanism. However, that means that a downwards mechanism can be easily introduced by a future Government without any parliamentary scrutiny. Amendments 11 and 12 would plug that loophole and permanently abolish downwards transitional phasing. If any future Government want to reintroduce it, they should come to Parliament and make the case for it, rather than bringing it in through the back door.
Amendment 16 would delete clause 14, which, from my perspective, is inequitable and unfair to businesses. As it stands, clause 14 exempts Government legislation from qualifying for the pursuit of a material change of circumstances. That would remove a vital check on Government and would allow future Governments to legislate with impunity at the expense of businesses right across the country, leaving them no recourse to challenge legislation that interferes with their ability to do business.
A material change in circumstances gives ratepayers recourse to pursue relief on their business rates when circumstances outside their control hinder their ability to do business. Clause 14 exempts Government legislation from being a qualifying reason for a material change in circumstances. I anticipate that the Government have included this clause because they want business rates to be a predictable source of revenue, even if their own legislation or action undermines the very rateable value of the properties occupied by businesses.
During the covid lockdown, to prevent the spread of the virus, the Government forced a number of businesses to cease trading. However, instead of accepting that there had been a material change of circumstances for those occupiers and allowing appeals to be launched, the Government introduced a locally administered compensation scheme. With clause 14, the Government are seeking the freedom to introduce any legislation at any time that might alter the rateable value of a property. That is both unprecedented and wrong.
Clause 14 can be viewed as a power grab that sets a dangerous precedent and tells occupiers that they will have to accept the detrimental impact of legislation on their ability to do business, with no legal recourse. Amendment 16 would delete clause 14, restoring the ability of ratepayers to claim a material change of circumstances, regardless of how the change in circumstances arose.
Amendments 4, 5, 17 and 25 would amend and add to clauses 1 and 14 and part 1 of the schedule. They address a niche issue, albeit an extremely important one. The out-of-home advertising industry includes adverts on billboards, walls, digital posters, street furniture, bus shelters, buses and railway stations, which we see every day as we go about our lives and probably take for granted. The industry provides an important form of income for local authorities, and it is estimated that almost half the revenue generated goes back into local communities. These amendments would abolish the liability to non-domestic rating in respect of advertising rights.
The removal of business rates on advertising rights from the rating lists would have three advantages. First, it would increase the value and level of services provided by local authorities. Secondly, it would remove a competitive disadvantage to growth that impacts the out-of-home advertising industry, but that does not apply to its rivals—broadcast, print and online media. Thirdly, it would reduce the high level of inefficiencies relating to advertising rights applied through the Valuation Office Agency, local authorities and the out-of-home advertising industry.
As drafted, the Bill will directly and adversely impact the industry’s ability to invest in local communities. That runs contrary to the Bill’s objective of reducing barriers to business investment. In 2023, business rates charged on advertising rights are an antiquated, out-of-date and ineffective tax. Advertising rights are the only remaining right attracting liability for non-domestic rating. The liability to non-domestic rating in respect of sporting rights was abolished by the Local Government and Rating Act 1997. Amendments 4, 5, 17 and 25 would remove that anomaly.
In conclusion, I have enormous respect for the Minister and for his co-sponsor of the Bill, my hon. Friend the Financial Secretary to the Treasury. Although Treasury Ministers are not currently present on the Front Bench, I am mindful that the Bill has been drafted from a Treasury perspective, gathering in all that money. That is incredibly important—don’t get me wrong—but I suggest we also need to look at the issue through the prism of business.
Whether large, medium-sized or small, businesses need confidence, certainty and a fully reformed business rates system that takes on board some of the amendments I have put forward. A fully reformed system will mean that businesses will know where they stand, and business rates will not be the elephant in the room. People will be able to invest in, build on and expand their businesses with a degree of confidence, leading to increased profits. What that will do—joy to the Treasury—is increase taxation. The Bill makes a start and provides an opportunity for us to turn the vicious circle of business rates into a virtuous circle.
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
I call the shadow Minister.
Sarah Owen (Luton North) (Lab)
As I stated on Second Reading, the Opposition support the measures in the Bill overall because it is crucial that local authorities and businesses have clarity as soon as possible so that they can prepare for what is to come. We have worked constructively to improve the legislation before it gets to them, but the Bill is still lacking in areas that small businesses are crying out for help with.
On Second Reading, I raised the matter of the pressures that small businesses, particularly small chains such as convenience stores, will be under as a result of the intensified reporting requirements. Although it is certainly important to increase accountability for businesses submitting their finances, stakeholder groups such as the Association of Convenience Stores and the Shopkeepers’ Campaign have drawn attention to the stifling impact that the new requirements could have on their businesses. Some small and medium-sized enterprises may resort to outsourcing their account reporting, risking another financial hit in return. We have yet to see the Government addressing those concerns or considering any alternatives.
Helen Morgan (North Shropshire) (LD)
I rise to speak to amendments 1, 2, 3 and 20, as well as new clauses 1 and 2, tabled in my name. I note the excellent speech by the hon. Member for Waveney (Peter Aldous), who tabled amendments with very similar objectives to my own. This Bill is a disappointment to all businesses who are struggling through tough financial conditions. Not only are prices going up for every single purchase that they make, but many small businesses were forced to lock into gas and electricity contracts at astronomical rates last year and are no longer receiving any meaningful support with those energy costs. They may also be struggling with interest rate rises on their borrowings following the period of economic chaos caused by the Government last autumn.
This Government committed to reviewing the system of business rates fundamentally in their 2019 manifesto, but this Bill offers only peripheral changes to an outdated system that does not work for a modern economy. The Bill offers to change the timescale of revaluations from every five years to every three years. This is a welcome reduction, but Liberal Democrats believe that it does not go far enough. The reality for businesses is that a three-year gap between revaluations means that they will continue to pay rates that are far from reflective of the real economic conditions they are operating in. Amendments 1, 2 and 3 would require non-domestic rating lists to be compiled every year and make every year from now on a relevant period for transitional provision under the Local Government Finance Act 1988. Annual revaluations are possible. We only need to look to the Netherlands, where they have been taking place since 1995. There, rateable values are allowed to move with the local economy. This means the tax that businesses are required to pay better reflects the conditions that they face.
I also want to spend a little time on amendment 20, tabled in my name. It is estimated that as a result of the Bill as it stands, 700,000 small businesses who currently pay no business rates at all will need to submit annual reports to the Valuation Office Agency, even when there has been no change to the premises they occupy. These small businesses, like many in North Shropshire, are already plagued by seemingly endless monthly and quarterly Office for National Statistics returns, along with their ongoing tax and financial reporting requirements.
The Bill adds yet another administrative hoop for these businesses to jump through and threatens hefty penalties if forms are completed incorrectly. This piles unnecessary pressure on to small businesses and it will not raise any more tax for public services. These businesses already receive a notification to inform the VOA if there is a material change in their premises, so there is nothing to be gained from this element of the Bill. Amendment 20 attempts to deal with this problem by removing the requirement for annual reporting of no change for those businesses in receipt of small business rate relief. I urge the Minister to support amendment 20, which I intend to push to a vote, and to cut unnecessary red tape for the small businesses we desperately need to help, in order to drive economic growth and breathe new life into the high streets of our historic market towns.
I also wish to speak to new clause 1, tabled in my name. It seems very one-sided to impose punitive fines on businesses for failing to report updates to the VOA on time, without any reciprocal expectations of that agency. As I outlined on Second Reading, dealing with the VOA over changes to a premises can be a protracted affair, and all the time that that is going on, businesses face uncertainty about their rates liability and, critically, cannot plan their cash flow. New clause 1 would require the VOA to report to the Secretary of State on its performance in detail at least once a year. This report should correspond to targets to be set by the Secretary of State. The new clause also calls for the findings of these reports to be laid before Parliament. I have suggested targets, rather than legally binding levels of service, to reflect the fact that no two premises are the same and that updates can be complex and can be challenged, but those targets would at least set an expectation of performance and ensure some accountability for the VOA.
Lastly, I wish to draw attention to new clause 2. I think there is general agreement on both sides of the Committee that we want to see our high streets and market towns thrive. This is especially true in places such as the five historic towns in my North Shropshire constituency, where the local high street is not just a practical place to go to but a social lifeline for many residents. Those high street shops are in competition with online retailers whose warehouse premises have a much lower rateable value per metre squared, putting the high street at a disadvantage. This was confirmed in the Treasury Committee’s “Impact of business rates on business” report in 2019.
Disappointingly, however, the Bill does not take this discrepancy into consideration. Instead, the Government will continue to drain physical retailers through rates that do not reflect the challenges they are already facing, leaving many at a tipping point and struggling to compete on an unfair playing field. New clause 2 would require a review of the impact of non-domestic rateable values on competition in different parts of the retail sector, so that Members could understand the true scale of the issue and inform policy accordingly. This review should be commissioned within six weeks after the date this Act is passed. Overall, I urge Ministers to support these amendments and new clauses in order to improve the Bill, which is just not ambitious enough in fundamentally reforming an out-of-date tax system.
The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Lee Rowley)
I am grateful to all colleagues across the Committee for their contributions today. I think all of us spoke on the Bill’s Second Reading, and we have rehearsed the arguments on a number of these points already. It is important to reiterate from the Government Front Bench that this Bill delivers significant reforms for the business rate system. It increases the frequency of revaluations, which I think has been generally welcomed across the Committee today. It also modernises the administration of the tax and it provides new reliefs to support things such as property improvements. Taken along with the nearly £14 billion-worth of taxpayer subsidy for businesses this year, it helps to manage the tax burden amid the ongoing pressures that the hon. Member for North Shropshire (Helen Morgan) mentioned.
I will now turn to the contributions that hon. Members and hon. Friends have made today. My hon. Friend the Member for Waveney (Peter Aldous) made an incredibly constructive set of comments, and I completely understand the sentiments behind many of the amendments he has tabled. He set a challenge at the outset of his speech, saying that he is looking to move towards annual valuations, the removal of complications and the adoption of digitalisation. We are making progress in two of those three areas, which I hope is not bad, and he has indicated that, overall, this is a step in the right direction. We are moving from five-yearly valuations—in reality, they have happened every seven or eight years in some instances in recent years, for good reason—to three-yearly valuations. We are moving towards the collection of further digital data, and we are continuing to support businesses, where we can, through the reliefs we have put in place.
Lee Rowley
The hon. Lady is going to tell me exactly where she would find several hundred billion pounds to fill her black hole.
Helen Morgan
Amendment 20 is about cutting red tape for small businesses. Does the Minister agree that he is talking about policy objectives that are not relevant to the Bill?
Lee Rowley
That tells us everything we need to know about the Liberal Democrats. They want to talk about only this Bill, ignoring every other policy. They look one way when talking to one part of the country, and the other way when talking to the other part of the country. That shows the Liberal Democrats’ lack of seriousness in understanding how taxation actually works, in understanding how to run a modern, dynamic market economy and in understanding how we need to pay our way to make sure our economy is successful in the long term. It is for those reasons that we oppose amendment 20.
Peter Aldous
The points I made were genuine. I think this Bill needs to be changed, and I hope the Government will have an open mind in considering whether to do so in the other place. We may well review this situation again.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 ordered to stand part of the Bill.
Clauses 2 to 12 ordered to stand part of the Bill.
Clause 13
Requirements for ratepayers etc to provide information
Amendment proposed: 20, on page 23, line 35, at end insert—
“4LA Paragraphs 4K and 4L do not apply if P is eligible for small business rate relief (for example, because the rateable value of the hereditament for which P is or would be a ratepayer is less than £15,000).”—(Helen Morgan.)
This amendment would exempt businesses in receipt of Small Business Rate Relief Exemption from annual reporting if there is no change to report.
Question put, That the amendment be made.
Lee Rowley
I beg to move, That the Bill be now read the Third time.
It has been a pleasure to support the progress of this Bill through the House. I do not seek to detain the House for long, but let me say briefly that the Bill offers some of the most substantial reform to the business rates system since its inception in 1990 and meets our commitment to reform and reduce the burden of the tax on business. By moving to more frequent revaluations from 2026, we are delivering on a key ask of business. We have been up-front with the House and with businesses that meeting this commitment is a major ask, which is why we have made some changes to the way ratepayers interact with the Valuation Office Agency. That principle was accepted by respondents to the review that predated this legislation.
Our approach has been to listen and to take appropriate action. I have already mentioned the evidence-based approach that we adopted in that review and the close dialogue that we foster with our partners in business and local government. We are also taking action to reform transitional relief, which was the No. 1 one ask from stakeholders on business rates ahead of the 2023 revaluation. That is a major commitment, a major step to supporting fairness and a major improvement in the credibility of our business rates system.
Finally, we are happy to have agreed to the Welsh Government’s request for various measures to be extended to Wales, and also to be supporting Northern Ireland with a data sharing measure.
I conclude by expressing my thanks to all Members for their contributions on Second Reading and in today’s debates. Although we have not agreed on everything, this has been a useful and constructive session. I am grateful to the Clerks of the House for supporting the smooth running of the Bill and to all of the teams across the Department and those in the Treasury, His Majesty’s Revenue and Customs and the Valuation Office Agency for their help in preparing the Bill. I look forward to watching the Bill’s progress in the other place, and I commend it to the House.
Sarah Owen
Throughout the condensed debate on this Bill, it has become clear that, although well meant, this was a missed opportunity to do better—to do more for businesses across the country. Yet again, the Government have managed to miss the point, despite multiple people, even from their own Benches, trying to guide this legislation into a better place.
A step in the right direction could and should have been a leap. This was a chance to provide businesses with more than short-term sticking plaster fixes. Instead, we see small businesses worrying over the administrative burden of meeting the new duty to notify requirements and questioning what hefty punishments will be handed down for any genuine errors. The hon. Member for Waveney (Peter Aldous) quite rightly pointed out that they include even imprisonment.
The Federation of Small Businesses, the shopkeepers, the corner shops, the Association of Convenience Stores—the backbone of many of our urban and rural communities —have all voiced their concerns. Those concerns have been echoed by Members from all parts of the House, but have sadly fallen on the deaf ears of this Government.
However, there has been some agreement in these debates—that the current outdated, dysfunctional business rates system is not fit for purpose. The only difference is that the Government continue to tinker around the edges while Labour would scrap it root and branch. That is what small and medium-sized enterprises have spent years lobbying for.
Labour has a plan for British business. We will support entrepreneurs to turn their ideas into reality. We will ensure that bricks and mortar businesses stay on our high street by making their tax contributions proportionate. Labour will make online tech giants finally pay their fair share of tax—something that Conservative Ministers have had neither the will nor the ability to do. By raising the digital services tax paid by the likes of Amazon, we will be able to raise the threshold for small business rates relief, helping more home-grown small and medium-sized businesses to thrive in our retail sector.
Among the common-sense reforms that we put forward was to provide short-term support by raising the threshold for small business rates relief this financial year. As I have said previously, raising the threshold to £25,000 would save our high streets more than £1 billion. This support is not only what small local businesses need, but what our high streets and towns are crying out for.
I know that Small Business Saturday takes place just once a year nationally, but it is something I do in Luton North nearly every Saturday. I meet entrepreneurs, small businesses, innovators and creators in my town who are doing amazing things in our community, with our community and for the good of our community. Every Small Business Saturday shout-out that I do is to celebrate them and their contribution to our local economy. I know the very real difference it would make to them and to every small business across the country if we raised the threshold of business rates relief to £25,000 now, and ultimately if we did away with the outdated and unfair current business rates system altogether.
I genuinely hope that that the small steps in the right direction made today can be built on and improved in the future by a Government of whatever political stripe—hopefully a red one. We must stem the decline of our high streets and tip the tax balance between digital and physical businesses. We cannot continue to see high street shops boarding up their windows while online giants get away without paying their fair share.
Lastly, I thank every hon. Member who has spoken, including the Minister, I thank the Clerks and I thank the stakeholders, who have briefed well and lobbied fairly on behalf of their members’ interests.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Strikes (Minimum Service Levels) Bill (Programme) (No. 2)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Strikes (Minimum Service Levels) Bill for the purpose of supplementing the Order of 16 January 2023 (Strikes (Minimum Service Levels) Bill: Programme):
(1) Proceedings on Consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion two hours after their commencement.
(2) The Lords Amendments shall be considered in the following order: 1, 2, 4, 5, 6, 7, 3.
Subsequent stages
(3) Any further Message from the Lords may be considered forthwith without any Question being put.
(4) The proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.—(Mike Wood.)
Question agreed to.
Non-Domestic Rating Bill
Tuesday 23rd May 2023
(1 year, 6 months ago)
Lords ChamberRead Full debate Non-Domestic Rating Act 2023 Read Hansard Text Amendment Paper: Committee of the whole House Amendments as at 22 May 2023 - (22 May 2023)
Non-Domestic Rating Bill
Monday 19th June 2023
(1 year, 5 months ago)
Lords ChamberRead Full debate Non-Domestic Rating Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 22 May 2023 - (22 May 2023)
Baroness Scott of Bybrook
That the Bill be now read a second time.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, this Bill delivers important changes to the business rates system. Business rates are a key component of the way in which local services are funded and are set to raise almost £25 billion this year. However, in recent years, concerns have been raised about the fairness of the tax and its impact on a competitive business environment.
Taking on board these concerns, the Government committed to reviewing the business rates system. We completed this process in October 2021, following extensive engagement with businesses, councils and others. The conclusions were clear: like any tax, the business rates system has flaws but it also has significant advantages that are important to protect. These include the tax’s relative stability, how easy it is to collect, how hard it is to avoid and its clear links to the locations where its revenue is spent. The majority of respondents to our review supported the continuation of business rates and did not support the disruption of a major overhaul. Overwhelmingly, they favoured measures to modernise the tax—especially moving to more frequent revaluations, which I will turn to shortly.
At the conclusion of the review in 2021, the Government announced a £7 billion package of support for businesses over five years, alongside a package of reforms. Since then, the Valuation Office Agency has delivered a revaluation, completing valuations for around 2 million properties in England, which reflects changes in the property market since 2015. Revaluations are crucial to ensuring a fairer distribution of rates bills. This revaluation, for example, rebalanced the burden between online and physical retail: on average, bricks and mortar retailers saw decreases of around 20%.
We made sure that the revaluation was manageable for businesses by introducing a £13.6 billion package of business support, which included freezing the business rates multiplier at a cost of £9.3 billion over the next five years. The Government have therefore provided considerable support into the business rates system while balancing the needs of local communities, which rely on funding for local services. However, we remain focused on the need for longer-term reform.
Throughout our review, businesses expressed their desire to keep business rates as accurate and responsive as possible. The Bill therefore delivers a more frequent revaluation cycle for business rates, moving from five-yearly to three-yearly. Following the revaluation that took effect this April, the next will occur in April 2026 and every three years thereafter. This is a positive step for business as it will ensure that the tax is fairly distributed more frequently. It is a major reform of the system, responding to the calls of many stakeholders, and is deliverable in the short term.
However, I recognise that there have been calls for greater ambition. Let me be clear: we are prepared to explore how we can go further in future. In particular, we wish to reduce the gap between the date against which rateable values are assessed and when they come into force, which has been set at two years for the 2026 revaluation. We will also carefully consider the case for an annual revaluations cycle in the longer term. However, we must take these steps sequentially. To deliver a revaluation, the VOA must carry out 2 million valuations in the time available—a major endeavour. Moving to more frequent revaluations means that other changes are necessary to enable the Valuation Office Agency to compile more accurate valuations at greater speed.
We have heard repeatedly from businesses that getting these valuations right is vital to sustaining public confidence in the tax. We also heard concerns that moving to an annual cycle would increase the volatility of bills and potentially damage the accuracy of valuations. It is therefore right that we monitor the implementation of the first three-yearly revaluation cycle and the supporting reforms before taking further action.
Delivering three-yearly revaluations on a sustainable basis will rely on the VOA having access to more timely and complete information. The Bill therefore introduces new obligations on ratepayers to provide the VOA with relevant information. This will bring business rates in line with other taxes, where self-declaration is absolutely the norm.
As part of our wider modernisation of the business rates system, the Bill also introduces a new requirement on ratepayers to provide a taxpayer reference number to His Majesty’s Revenue & Customs. This small extra step will connect the business rates information held locally by councils with HMRC tax data, delivering benefits such as better targeting of and improved compliance with rates relief schemes. Ratepayers will also be able to provide relevant information to the VOA, and their taxpayer reference number to HMRC, through a single straightforward online service on GOV.UK.
It is entirely right that we consider the potential burden on businesses of new administrative requirements. The Government have taken steps to minimise these burdens, have published estimates of the expected costs and will provide guidance for ratepayers.
I want to address some specific concerns about the VOA duty to notify that have been raised with me. First, on what information the Government are asking ratepayers to provide, the duty is not limited to information that the Valuation Office Agency needs to do its job and no more; it is also explicit on the face of the Bill that ratepayers will be expected to provide to the Valuation Office Agency only information that is within their “possession or control” and which they could reasonably be expected to know would assist the valuation office. The VOA will continue to make use of supplementary sources of evidence in order to minimise the burden on ratepayers.
Secondly, let me provide some reassurance about whether this will be complex for ratepayers. To comply with the duty, in practice a ratepayer will only have to visit GOV.UK, use the online service and answer all the questions asked of them. They will receive multiple reminders to support them in providing the right information.
Thirdly, to ensure that the VOA has the most complete set of information to deliver more frequent revaluations, it will be necessary for ratepayers to confirm each year that the information that the VOA holds on their property is correct. For ratepayers whose information is up to date, this step should take only a few minutes. For those who have not remembered to keep their information up to date, this stage will serve as a further reminder to rectify that.
Finally, we will continue to design the new processes in partnership with businesses and interested parties, and we will not activate the duty until we are satisfied that ratepayers can reasonably and efficiently comply. I thank those noble Lords who came to the drop-in sessions. That gave me the ability to answer those questions up front, although I am of course happy to pick up anything further in winding up.
As we move to more frequent revaluations, the Government have considered how to improve the support that we provide to businesses adapting to changing bills. At last year’s Autumn Statement, the Chancellor announced that he would permanently remove the requirement for revenue neutrality from transitional relief. That change is given effect by this Bill. This means that for the 2023 revaluation, there are no downward caps, which previously restricted falls in bills. Businesses have therefore seen the full benefit of falling bills immediately. As a result, the 300,000 properties with falls in rateable value at the revaluation have seen the full benefit of that reduction in their new business rates bill from April 2023. Going forward, we will use that freedom to permanently fund all future transitional relief schemes without recourse to downward caps. I am happy to give that commitment in the House.
It is also important that we protect the integrity of revaluations. Between revaluations, rateable values should change only for a material change in circumstances, or MCC. MCC challenges are designed for cases such as roadworks outside a shop causing access difficulties. This Bill will preserve that principle by providing that changes in legislation, advice or guidance by a public body are not a material change in circumstances. We consider that such matters are related to the general conditions of the market and so belong in the revaluation process.
Interestingly, the noble Earl, Lord Lytton, identified the scenario of a vaping ban as an example of how this measure could have unwarranted consequences. In fact, his example underlines why we need to clarify the law concerning MCCs. Without this clarity, over recent years the Valuation Office Agency has been forced to consider whether legislation changes such as smoking bans or the introduction of the congestion charge should affect rateable values. The result was uncertainty for the ratepayer and for local government.
In the future, we will have clarity in Clause 14, ensuring that changes in legislation such as that, which clearly concern the general economic conditions and level of rents, are reflected for all at the next revaluation. These revaluations will of course be happening more frequently under this Bill, and any physical consequences of new legislation on a property will continue to be reflected as and when they arise.
This Bill also introduces an important new relief to support businesses investing in their properties, responding to another key stakeholder ask during the review. Currently, our business rates are a tax on the value of the property, so businesses may see an immediate increase in their rates bill for any improvements that they make to their property. From 1 April 2024, this Bill will mean that no business will face higher business rates bills for 12 months as a result of qualifying improvements to a property that they occupy. The Bill prescribes powers for Ministers to set conditions for the availability of the relief, and the Government’s policy on this has been set out in our earlier technical consultation. My department has published draft regulations for consultation so that noble Lords may review how the Government intend to exercise these powers.
Finally, the Bill makes changes to the calculation of business rates multipliers—or tax rates. In recent years, government policy has been to uprate the lower multiplier each year by the consumer price index rather than the higher retail price index. The Bill ensures that the CPI is the default uprating for both multipliers, reducing the potential inflationary burden on businesses. The Bill also provides a power to uprate at a level lower than CPI, and to directly set which properties are subject to which multiplier, allowing the Treasury greater flexibility in the support it can provide.
In conclusion, this Bill modernises the business rates system by bringing valuations more in line with the property market, improving the data underpinning the system, removing barriers to investment and improving fairness. I look forward to hearing the contributions of noble Lords on this important subject. Many of your Lordships have called for reform of this tax for some time, and I am confident that this Bill delivers it. I beg to move.
Lord Shipley (LD)
My Lords, I declare my interest as vice-president of the Local Government Association. I am very grateful to the Minister for her introduction to this Bill. It had a speedy and uncontroversial passage in the House of Commons, but there are several matters which this House will need to discuss in Committee. I will identify some of them.
There has been a lot of concern about the business rates system in recent years. That relates partly to Covid, partly to the rise in internet purchasing and partly to the very high cost of business rates. There have been several reviews. Some of the conclusions of the recent one by the Government are now part of the Bill, which I welcome. I concede that business rating is not an easy issue. Business rates form a substantial element in a business’s costs and in a council’s income. There is a balance to be struck. I remember that when business rates were decided locally there was a campaign by major businesses—particularly high street retailers, notably John Lewis—for a national system. At the time, things were so chaotic, with some councils trying to increase business rates to make up a shortfall in government grant, that I supported that change. But that was 30 years ago and times have changed.
The Government have a proposal to lower the period between valuations from five years to three years, which certainly is better than the current five-year rule. I would prefer two years, and I look forward to seeing whether any other Members of your Lordships’ House feel similarly. Maybe we need to discuss this in Committee, but in an ideal world it might be better to have a one-year revaluation. However, for the time being I prefer two years. I hope that the Minister agrees that, even if we end up with three years, we could look in the medium term at that reduction. That would help.
The 2019 Conservative manifesto promised to reduce the burden of business rates by
“a fundamental review of the system”.
There has not really been a fundamental review of the system, and I suspect that is because any fundamental reform is inevitably long-term. The aim of the review started in March 2020 was to reduce the overall burden on businesses, improve the business rates system and consider more fundamental reform in the medium to long term. It is true that there have been reductions in the overall burden for some businesses and that, in some cases, what is being proposed in the Bill will improve the business rates system, but I do not think that the more fundamental reform is being delivered in the medium to long term.
Currently, local authorities keep 50% of business rates. Some have 100% retention and there are various pilots of different amounts taking place. As we know from the recent announcement, the West Midlands will retain its business rates for 10 years and that trend towards a return to devolved responsibility for business rates as a fiscal policy is welcome.
I have always felt that rentable value—and, hence, rateable value—is a sound method for assessing value. For the time being at least, it is important that it stays, because it seems to be the preference of all those who were recently consulted. I support rates relief for improvements to property and for heat networks, and welcome what the Minister said about that. I support the proposal to give businesses the immediate benefit of a rate reduction while keeping transitional relief for increases; that is helpful.
I wonder about the thresholds, and again we might test this in Committee. Business rates are not paid on properties with a rateable value of less than £12,000, and there are tapered reductions up to £15,000. I wonder why those figures are not being raised and whether the Minister, when she replies, could tell us what assessment has been made of increasing the threshold level. That could be very helpful to a large number of small businesses.
The Minister and the Bill say that there are all kinds of increased powers for the Valuation Office Agency. There is a question of whether businesses should have to notify the valuation office of changes that could impact a property’s rateable value, and my view is that they should. If it is simply as the Minister described a few minutes ago—taking a moment or two to sign off that nothing has changed—I cannot see a problem with it. As long as the publicity around that requirement is effective, all should be well. But, if it is not done that way, the Government need to be very careful about penalising businesses that have not understood the rule.
When I read the Bill and the relevant briefings on it, notably the Library briefing, it occurred to me that everybody else paying business rates had all kinds of obligations being placed on them, but I did not see many obligations being placed on the Valuation Office Agency to respond effectively within time limits and by doing the right thing by the person inquiring. I would like the Minister to confirm that the Government have plans to impose standards of performance on the Valuation Office Agency, because there have been complaints about it in the past, particularly about notifications of valuation level and the transparency of the decisions it has made. It is very important to be able to have a quick dialogue with a business rate payer. We need to test that the Valuation Office Agency is being open and transparent, and is applying quality standards. I hope the Minister agrees that that would be useful.
The Minister might also wish to comment on the small business multiplier, which is 49.9p in the pound at the moment. I wonder whether there is a case for having a slightly lower multiplier for small businesses. Taken in the round, that relates to the £12,000 threshold. In the end, the aim would be to encourage small businesses to thrive, and to generate jobs and greater economic activity. I would be interested to know how the Minister feels about that.
I read a suggestion that there should be a licensing, or maybe a regulatory, system for business rate advisers. There are apparently some setting themselves up to give business rates advice to small businesses. What steps might the Government take to license or regulate such advisers?
In conclusion—almost—I believe in the business rates system being composed of three elements, at least for the short to medium term. One is property, because a building may attract the fire service or police support if it were to be burgled, so property is one element. The second element is the value of the land on which a building is built, which is lower in some places than others, and this should be reflected in the business rate levy. The third element is online sales. I believe that that has been understated for some considerable time. I would like a high street retail outlet to pay equivalent business rate levels to an online company because, in 2019-20, only 5% of retail sector income was raised by online retailers; 95% was, broadly speaking, from high street locations. The Government said that they would make a fundamental change to the business rate system in the medium to long term; that is one of the fundamental changes that I think should be investigated.
I wonder whether we need a comprehensive register of freehold property ownership. Without it, it is difficult to locate ownership. I do not know what the Government think about that.
My last point relates to material change of circumstance. There is a debate about whether, if the Government legislate on something, that can or cannot be a material change of circumstance. As I understand it, that debate derives from the Covid pandemic. I have thought about it and think we need to test this in Committee, because there is a case for saying that, if the Government legislate on something, it may force some business rate payers to face a material change of circumstances. We need to understand better the Government’s thinking on an MCC. Overall, I welcome this move and what is happening, and all of what I have said is an attempt to make the Bill even better.
The Earl of Lytton (CB)
My Lords, it is always a pleasure to have another go at business rate legislation. As I always do, I inform the House that I am a fellow of the Royal Institution of Chartered Surveyors, and a member of the Institute of Revenues Rating and Valuation and of the Rating Surveyors’ Association. I am also a co-owner of a non-domestic hereditament that benefits from small business exemption, and I used to work in the Inland Revenue valuation office.
With those declarations, I thank the Minister for reaching out and arranging a meeting with her and her officials, and for the follow-up information provided. I am extremely grateful for that. I agree with many of her overarching statements on what is happening here.
When I asked what impact assessments had been carried out—a matter to which the noble Lord, Lord Shipley, referred—I was told that it is not customary to undertake them for tax-related purposes and I was offered a rather less detailed impact note. I feel that business rate payers must not be used as a beta test bed for emerging ideas and that the repeated suggestions that the Valuation Office Agency will see how things progress are, arguably, destabilising in their own right.
I have said before in this House that, to some extent, this is another attempt to make an old steam loco do what it was never designed to do in terms of the burdens imposed and the reliability of the system. At a levied rate of more than 50% of the assessed annual value of every business property, this remains a tax that is objectively excessive to the point that it imperils its own stability. It is also out of kilter with international comparators. It burdens businesses disproportionately by reference to property value and, most particularly, as to the use and benefit of local services in which they have no formal voice and certainly no vote. Worse, it discourages a certain amount of investment and entrepreneurial activity. Complexity and new burdens continue to be added because HMRC can do so without responsibility for outcomes or risk of push-back. Council tax payers, by contrast, have for many years been protected from any comparable increase in their level of local financial contribution.
Short-termism and modal shift are the outcomes of changes in economics and are, to some extent, propelled further by the business rates environment. Firms that would once have been high street operators now function from cheaper industrial sites, where the shop window is on the internet or social media, the stockroom is the white van on the highway network, and the cash desk is a web-based payment system. Former shopping streets are populated with eateries and charity shops—I should add that many charity shops do not pay business rates. Shorter leases and break clauses are part and parcel of the landscape. Many and varied reliefs have had to be given to address the problems, and the rules relating to them have become ever-more complex. That apart, the Minister is right that a property-based business tax is an effective system provided it is used correctly, and that is a very important proviso.
On the detail, I start with Clause 1, which inserts new Schedule 4ZA into the 1988 Act, and Part 3 of that new schedule relating to the proposed improvement relief. I have already expressed to the Minister in a private meeting my surprise that improvements which may have a lifespan of 20 years or more will benefit from only a single year’s disapplication of any rental value uplift they create. While I understand that it is specifically intended that the relief should not benefit investors or developers, I cannot disentangle this from standard commercial lease terms in which the landlord’s consent and co-operation may be required. The architecture here is, to some extent, misconceived. Although I am informed that substantial funds are earmarked for this, I fail to see any incentive likely to overcome the narrow qualification criteria for this relief. Meanwhile, we still have the situation where heavy industry is obliged, in many cases, to put in at additional expense complex emission controls and other measures, adding nothing to the productive capacity of the property but where the plant and machinery element represented by those improvements is increased thereby and the rateable value with it. This is nonsense and should not continue.
In Clause 5, I welcome the general direction of travel towards shorter revaluation cycles, but they need to be more frequent still. If Scotland can do it, so can we in England. As the rate of mercantile change accelerates, it is clear the non-domestic rating system has not kept up, has been slow to adapt, and has created a large measure of injustice and inequality, damaging confidence in the tax and, to some extent, the credibility of those responsible for its management. This is regrettable.
Clause 6, on transitional relief, is a welcome shift. I simply ask whether it is the Government’s intention to abolish downward phasing altogether—an arrangement in which those who should be paying lower business rates gain only on some never-never principle because this funds transitional relief for those who should be paying more. In terms of natural justice, I would be glad to see it gone and the principles of fiscal neutrality become more elastic. The Minister’s assurances given a few moments ago are welcome.
Clause 10 is welcome because it has long been a complaint that, while the Valuation Office Agency demands information from ratepayers’ representatives to justify valuations, VOA officers can effectively ignore similar requests from ratepayers. On transparency grounds, this has long needed rectification. We will have to see how this turns out or whether the confidentiality arguments that have been put forward in the past will continue to be fielded as a reason for the VOA not honouring the spirit of this provision. However, I welcome it for what it is thus far.
Clause 13 is a new reporting obligation. I thought the rationale behind the frequency of making declarations of changes—an event date plus 60 days, in addition to a financial year end plus 60 days’ reporting—was that if ratepayers had to make a disclosure with that frequency then reviews of the valuation list should match that. That seems logical. That was my reading of the message from the consultation process. Requiring virtual real-time data, which is in effect what this Bill asks for, was the corollary of having annual—or at any rate, much more frequent—valuation list updates. Given this asymmetry, I welcome the Minister’s comments about the potential for further shortening the revaluation frequency and the antecedent date gap between the date of valuation and the date of coming into force of the list.
On the detail of the declarations required, there are in fact two separate circumstances. The first is the information to be provided to HMRC, as set out in Clause 13(2) which inserts new paragraphs into Schedule 9 of the 1988 Act. New paragraph 4F spells out that it is a change in any of three instances of taxpayer reference, VAT registration and national insurance number. However, I remain unclear how the tax bit in particular works for a sole trader operating as an incorporated business. The proposition seems needlessly fussy.
The reporting arrangement for this is set out in the previous paragraph 4E and is to HMRC’s portal. All the information required by paragraph 4F will already be known to central government departments—hey ho. But secondly, at paragraph 4J, there is a separate requirement to report any notifiable information within the ratepayer’s possession or control, including, at paragraph 4J(2)(a) and (b), any changes in the ratepayer identity or, as we have heard, anything,
“that would or might affect the existence, extent or rateable value of the hereditament”.
This is not just physical change. Many ratepayers do not understand what constitutes a “hereditament”, let alone what may be deemed in the view of the VOA to affect it. Although I take the point made by the Minister that this extends at paragraph 4J(3) to what the ratepayer
“knows, or could reasonably be expected to know, that it would assist a valuation officer in carrying out functions”,
I hope we are going to get a clearer definition at some stage and an explanation of the apparent lack of impact analysis, especially as regards small businesses at one end of the spectrum and a retailer with hundreds of hereditaments at the other.
Furthermore, the reporting arrangement under paragraph 4J is not, as one might expect, to HMRC as before but potentially via a different system to be set up by the VOA, using an online facility referred to at paragraph 4L. There will potentially be two different portal routes. I understand that there is to be a pilot, and that the reporting arrangements are to be consolidated via one portal, and that this will not be implemented unless the VOA is satisfied it is fully functional. That is very welcome in what otherwise could be unnecessary duplication.
I remind your Lordships that the barriers to accessing the check, challenge and appeal system under the business rates process were put in place deliberately to deter the so-called rating agent cowboys. I hope there will be some guarantee that, under this new data-harvesting exercise, small unrepresented businesses will not fall into the hands of precisely the same charlatans, or indeed the complex access arrangements intended to defeat them that plagued the appeal system.
None of this negates the ongoing obligation to respond to a more specific demand for information which VOA can make of a ratepayer at any time during the year. Nor is the beneficiary of small business exemption exempt from all the same requirements, even though they pay no rates. Processing tens of thousands of additional annual returns, as I am told is the likely outcome, has not obviously been factored into all this, and the impact note’s suggestion of a £15 a pop cost to businesses seems to me a significant underassessment.
Picking up a point made by the noble Lord, Lord Shipley, there is also no guarantee that the VOA will act promptly either to advise of the likely implications of any change or, indeed, to implement them by changing the rateable value. To my mind, this is still an unnecessarily one-sided and open-ended arrangement, prone to arbitrary redefinition and, potentially, to equally arbitrary determination of claimed infractions. I do not see it as a necessary light touch; rather, as an additional and potentially burdensome obligation, possibly—although I hope not—involving two different gateways for reporting. That is what is actually set out in the Bill.
Clause 14 deals with the redefinition of material change of circumstances. Here, I am bound to say that I do not follow the logic: namely, that changes in statutory or regulatory measures should be taken as part of general market changes and reflected only at revaluations, although I note that the clause does not preclude taking account of changes of a physical nature or the state or locality of the hereditament meantime.
First, just about anything done by dint of administrative powers is by definition a child of statute. If, for instance, a vaping ban—which the Minister referred to and which I raised with her—renders a specific category of business unviable overnight, or, more typically, a low-emission zone, diesel vehicle ban or traffic management scheme is introduced that reduces retail footfall and mercantile activity at a stroke, is it right that this should be excluded from a definition of material change of circumstances?
For such matters to be disregarded, they should, first, apply to all businesses and, secondly, be disregarded only where a significant adjustment period has been allowed for business rate payers to take this into account. In all other cases save national emergency, the consequences for business rate yields should immediately be felt by the public sector that imposes them and not via this free-bet measure that transfers the entire risk on to businesses. I would be grateful if the Minister could elaborate on that point.
The Explanatory Notes’ suggestion at paragraph 37, that this will
“restore the law to its originally intended extent”,
is, I am afraid, simply not something I recognise. Plus, in my professional lifetime we have managed for over 50 years without there ever being an issue requiring such negation of materiality.
I will end my detailed points at this juncture, but I may well return at later stages of this Bill with amendments. I am bound to say that, whatever imagination may have been applied by the architects of this Bill, it has not been viewed from the standpoint of business, particularly as I perceive it from the briefing of the Shopkeepers’ Campaign and from professionals to whom I have talked.
If businesses need to count their fingers every time they figuratively shake hands with the Government on some taxation matter, we are in very negative territory. When the Government continue to claim that the postponement of the 2015 revaluation was “to give business certainty”, as repeated at paragraph 7 of the Explanatory Notes, it makes me cringe. Patently, it was all to do with maintaining tax yield. Businesses did get certainty—that is to say, the guarantee of continuing to pay business rates based on the peak value levels of 2008—but on sharply fallen values, reduced business activity and with substantially increased costs of trading. This was a misrepresentation, and everybody knows it. It is time for an attitude change.
Lord Etherton (CB)
My Lords, I declare my interest as the owner of investment retail property in the high street. I am extremely grateful to the Minister for her clear and illuminating introduction to the Bill, and to the noble Lord, Lord Shipley, and the noble Earl, Lord Lytton, who have covered a wide range of the issues. Many of us, including myself, have spoken about this issue of business rates in the context of the Levelling-up and Regeneration Bill, so I will keep my comments very brief.
As the Minister has outlined, there are good provisions in this Bill. A reduction of time between revaluations from five years to three is a good move. Indexing non-domestic rating multipliers to the consumer prices index rather than RPI is obviously welcome. Introducing rates reliefs for improvements to property and heat networks is also desirable, and allowing the Treasury to give businesses the immediate benefit of rates reductions while maintaining transitional relief for rates increases is good. Undoubtedly, a great number of positive things have come from the Bill.
However, as noble Lords have pointed out, there are significant flaws and omissions, and I want to deal with them briefly. First, I take up the question of the obligation to notify the VOA of any changes affecting a property’s retail value. This is separate from the annual return, and its effect is to extend a reporting obligation to businesses that currently pay no business rates due to reliefs. They will have to send information to the VOA—a purely bureaucratic exercise that will not result in any increase in the business rates receipts. It is, for them, just a bureaucratic headache, and they will have to do this within 60 days of the change or face a penalty. I question whether this is an appropriate obligation for the people I have mentioned, who pay no business rates and would not pay any, despite the change I have indicated. It has been suggested that an additional 700,000 businesses may have to send such information, pursuant to that duty to notify.
So far as the material change of circumstances is concerned, I agree with both noble Lords who have spoken before me. I can see no good reason why legislation or other public body advice that may impact on rateable value should not be taken into account as a material change of circumstance. The Minister referred to vaping, but many other circumstances could indeed have an impact on rateable values through legislation. We cannot predict this, but simply banning outright any possibility of that sort of change through legislation having an impact on rateable values seems to me to be quite wrong. One suggestion from one of the people who briefed us was that changes in the laws relating to energy protection certificates might have an impact.
The next matter is annual revaluations. I would certainly support the suggestion of the noble Lord, Lord Shipley, that, if we cannot have annual revaluations, we should at least go for two-yearly revaluations in the interim. Getting as near as you can to the actual date in respect of valuation and payment is obviously of great value to everybody, and particularly to businesses operating through retail trade.
I also support both noble Lords’ view that consideration should be given to changing the antecedent valuation date, which is normally two years before the list is applied. Property values are already two years out of date before the first rates bill is set according to the valuation appeal. That antecedent valuation date should be set at one year, as in Scotland, as has been referred to, to bring valuations as close to current market conditions as possible.
I think the noble Earl, Lord Lytton, mentioned that limiting the new improvement relief to 12 months does not seem to make much sense. It will certainly do little to encourage long-term investment. There should be a permanent abolition of downwards transitional phasing but we do not currently find that in the Bill.
At the end of the day, the point I want to emphasise is that the problem here is, quite simply, that business rates are too high. The background for this discussion is that the Centre for Retail Research has found that more than 17,000 shops closed in 2022 and more than 5% of retail staff—150,000—lost their jobs last year through insolvencies and store closures, and there is no doubt that a major contributing factor to that is the business rates system in England. The current rates have been referred to; the standard multiplier for 2023-24 is 51.2p in the pound. We can contrast that with the uniform business rate multiplier of 34p at its introduction in 1990. Again, I agree with the noble Lord, Lord Shipley, that the 49.9p in the pound business multiplier for small businesses is too high.
In both the Conservative Party’s 2019 election manifesto and the December 2019 Queen’s Speech, there was a commitment to
“protecting your high street and community from excessive tax hikes and keeping town centres vibrant”
and to make sure that the business rates revaluations and valuations achieved that. The Levelling-up and Regeneration Bill focuses on failing high streets and town centres, and there is no doubt that to a large extent that is due to one of the only overheads that retailers cannot negotiate away or down—the rates.
The failure to reduce the uniform business rates significantly is all the more surprising bearing in mind the Office for Budget Responsibility’s forecasting that income from business rates will rise to nearly £36 billion by 2027-28 from its current level of £28.5 billion. We must do something much more dramatic about this than we currently find in the Bill.
Baroness Thornhill (LD)
My Lords, I regret that I was unable to attend the Minister’s meeting last week due to a prior medical appointment. She has partly answered some of my concerns, and I will read her contribution in Hansard to check my understanding.
Business rates are an excellent source of funding for the Treasury. They are easy to collect and reasonably difficult to avoid, and they contribute 5% of the country’s tax receipts. While mayor, I was frequently lobbied by local businesses for which the first eye-opening piece of information was that the council did not get to keep all our business rates—far from it. There was a time when I would say, “We collect £60 million but get back only £6 million”. That will have changed now with 50% retention, but the sector continues to lobby for 100% retention while understanding and acknowledging the need for equalisation.
An issue of wider concern for me is that there remain no incentives for local authorities to really invest in business and economic growth under the current system, yet the economic health of a council area, regardless of whether it is rural or urban, is the critical factor in its prosperity and all that flows from living in a prosperous place. The converse is also true—the poorest regions have the worst outcomes of whatever you care to measure—but that is a debate for another day.
It has to be said that these have been a tough few years for businesses. The pandemic has faded in the memory but not in its impact. Many businesses have failed, and many are still attempting to get back to pre-pandemic levels. Then there has been Brexit. Both in itself and in the Government’s mishandling of, it is yet another hurdle or barrier, as are rising energy costs, the highest inflation for a generation and the unbelievable mini-Budget mess back in October, the impact of which was far from mini.
It is against that backdrop that we get this Bill, so I hope the Minister will forgive us if we are not dancing in the high street saying that it is going to be a game-changer. To be fair, though, the measures in the Bill have to be set against other measures, such as those in the levelling-up Bill and the impact of the business rates retention pilots that are currently taking place.
It is also true to say that businesses on the whole have welcomed the Bill, but they lament that it is a far cry from full business-rate reform. If there is one part of the system that is hit hardest, it is retail, because it is a tax on existence, not profit. Shops are property-based, reliant on having a physical presence in the most profitable and therefore most expensive locations. Internet-based businesses or those which have more warehousing in out-of-town centres are not penalised to the same extent. These discrepancies are not addressed by the Bill. I note the Minister’s remarks regarding recent revaluations and I think we should perhaps look specifically at the reduction in high street properties to see what kinds of shops have been affected.
As the noble and learned Lord, Lord Etherton, has said, the situation is serious. The Centre for Retail Research found that 17,000 shops closed last year—that is 47 shops a day, the highest annual total in five years. More than 5% of retail staff lost their jobs last year, and hospitality suffered a similar fate. Not all these failures are because of business rates, of course, but I am sure they are a contributing factor.
Anyone working with their chambers of commerce will know that the number one concern of businesses—and we should not forget that these are often the small and medium-sized businesses in an area—is always business rates. Business rates are a fixed cost that business cannot escape. Businesses have to pay this tax before they have turned a penny in profit. The reality for our high streets specifically is that high rates discourage casual lettings of vacant properties, and in general they disincentivise improvement or expansion, let alone innovation.
So we believe the Bill is not going to solve issues in our high streets. Regrettably, it appears to increase bureaucracy rather than cutting red tape. Many businesses will now have to send in their annual notification, with significant penalties in place if they get it wrong. The noble and learned Lord, Lord Etherton, said that 700,000 businesses could be affected, and I would welcome some clarification on that. Ultimately the Bill will not reduce the burden of tax on business, which, as several noble Lords have said, is too high.
My general overarching concern, and my question to the Minister, is: what assessment have the Government made of the capability of both local government and the VOA to deal with the changes in the Bill, knowing as we do of the resource cuts and staff shortages over recent years? Have the Government taken into account the current backlog in dealing with appeals, and other causes of delay, within the VOA?
From the speeches of other noble Lords and the excellent briefings that we have received, we can see that the concerns of business focus on several clear-cut aspects. The Bill proposes a move to three-year valuations. It was clear that we needed to move to more frequent valuations, but the feeling is that three years is not enough to keep up with the sudden changes that business can experience in difficult times. Perhaps annually might be too tight and onerous, but why not two—or is this the Government’s realistic response to the recognition that the VOA would not cope with annual valuations?
The Bill includes a duty to notify; it requires ratepayers to notify the agency of changes made within 60 days or face what seem to be punitive fines. I would be interested to hear the rationale for why a corresponding duty to respond is not made on the VOA. The Government could impose a reciprocal duty to respond and the ratepayer might get a rebate if that was the case.
It is also noted that the Conservative Party’s manifesto for 2019 contained a promise to
“cut the burden of tax on business by reducing business rates”
yet the uniform business rate multiplier has risen from 34p to 51p. Now, I struggle with the technicality of business rates, which might be apparent, but can the Minister explain how linking the uniform business rate to the consumer prices index will reduce the burden on business? Is the aim of government to reduce the UBR progressively over time or not?
There are valid fears about the levels of new fines that will be brought to bear through small businesses not knowing when, or about what, to update the valuation office. Please can the Minister assure us that the relevant associations have been consulted, to bring greater clarity to this new requirement, as it is surely not the Government’s intention to make matters worse for small businesses? These significant aspects and the other specific technical matters mentioned will certainly ensure there is work to do in Committee; around that, there seems to be a consensus.
Lord Thurlow (CB)
My Lords, perhaps I may introduce my remarks with the fact that I am floating high on a cocktail of painkillers, in advance of dental surgery tomorrow. If I start mumbling, dribbling or reading out the order of business by mistake—or indeed, if I keel over—I apologise in advance, and please move on gracefully to the next speaker.
I declare my interests as on the register. I am a former chartered surveyor and responsible for property that is subjected to non-domestic rates—but it is in Scotland, which is out of scope.
I fear that the Bill is a missed opportunity. I believe that it passed quietly through the other place, as the noble Lord, Lord Shipley, explained, so it had little scrutiny there. Yet the current system is not fit for purpose: it is clunky, out of date and difficult for ratepayers to navigate. It is also inequitable, because some people pay too much and some too little. The Bill is a start in a number of ways, but why not finish the job? How many more non-domestic rating Bills can we expect?
The Bill addresses some of the concerns but the focus of what is substantially a technical Bill fails to consider major current injustices, which the Government seem reluctant or unwilling to grapple with. I am going to address just four of these headings quickly today. In doing so, I thank the RICS for its help and the Minister and her Bill team for the briefing conversations last week.
My first point is on transparency. The subject of valuation for rating is quite a dark art. Rateable value is assessed by the VOA, as we have heard, and is meant to reflect the estimated rental value of commercial property. Yet, on receiving one’s rating assessment, one sees no reference whatever to the evidence upon which that assessment is based. To probe this opaque state of affairs, where all the cards lie in the hands of the state, it becomes necessary to lodge an appeal—an expensive and time-consuming process. There are thousands of appeals in the queue. Further, small businesses simply cannot afford the cost of an appeal. As we have heard already, they are unlikely to understand the process and will simply accept the assessment. In these difficult times, this pushes their businesses nearer and nearer to closure. As we just heard from the noble Baroness, Lady Thornhill, 47 businesses are going bust in the high street every day. There should be clear transparency as to the evidence used by the VOA.
My second point is about rogue advisers. I beg your Lordships’ pardon; it is on public interest. Small businesses are the backbone of the rural economy, encouraged in so many ways by the Government. The simple example is high street shops. In the hundreds of smaller market towns throughout this country, those small shops now compete with Amazon and others in a fight that they cannot win, certainly not when they are paying rent twice, or certainly another 50%-plus in commercial rates. High streets are the heart of these small communities. Combining shopping with social contact is really the essence of a thriving small society. People bump into each other; they stop to chat, and might go and have a cup of coffee together. This is a vital antidote to loneliness and the mental health risks that are so trumpeted by government. Rates are pushing these small shops out of business. Retailers can control so many of their costs: their labour costs, their inventories and supply lines, their energy use and opening hours. They cannot control rent or rates—but they can negotiate with their landlord.
On rogue surveyors, which has been touched on already, the Bill is changing dramatically the system of non-domestic rates. The resulting fear and misunderstanding from SMEs will almost certainly lead to a major opportunity for these rogue agents. Rating is a very specialised, professional skill and it is essential that those seeking advice do so from the right people. These people should be, as we heard from the noble Earl, Lord Lytton, from the RICS, from the Institute of Revenues Rating and Valuation or from the Rating Surveyors’ Association. That is what they do. What efforts will the Government make to ensure that rogue surveyors are sidelined from this process? Those organisations I mentioned provide standards and governance to their members. There is no point in chasing a rogue surveyor for bad advice. There will be thousands of appeals, possibly tens of thousands.
Finally, I would like to mention the internet threat. Why, oh why, have the Government ducked this issue? It is the elephant in the room in any non-domestic rating discussion. The phenomenal growth and success of the low-cost internet sales model is rendering traditional retailers uncompetitive, as is well known. They of course must evolve too, but not against unfair odds. The Bill does nothing to address the valuation imbalance between these two very different business retailing models. It is almost as though the Government deny that this threat exists. The Bill is the perfect opportunity to deal with this and make it fair. Our high streets are dying and the Government know it. Yet they are missing the golden opportunity to right this wrong, and to improve the rating system to meet the user changes taking place in commerce today.
Many SMEs are too big for the small business reliefs, yet too small to have cash reserves or access to competitive sources of capital. I conclude by reminding the Government that simply throwing taxpayers’ money at the SME sector does not fix the problem. I believe it is some £2 billion a year at the moment, which does not even address the problem. This is a great opportunity missed—so much for the fundamental review. We will return to these subjects in Committee.
Baroness Pinnock (LD)
My Lords, I remind the House of my relevant interests as a councillor and as a vice-president of the Local Government Association.
This Bill is one in a long line of recent Bills making important amendments to business rates. I reckon that, for at least 35 years, there has been no fundamental reform of the non-domestic rating system, whereas business practice, as we have been hearing, latterly from the noble Lord, Lord Thurlow, has been revolutionised by the growth of online retailers.
The Minister stated in opening that the Government are focused on longer-term reform, but being focused on longer-term reform is not the same as implementing it. All noble Lords who have spoken so far have brought the Minister’s attention to the fact that online retailers are benefiting at the expense of our high streets, despite the fact that the levelling-up Bill is trying to remedy that. Here is an opportunity to do something about it, and it has been missed.
The current system creates fundamental inequalities. Out-of-town online retailers pay significantly less than high street retailers because of the way business rates are worked out. Many times in this House I have given the example of a famous online retailer in a town near me. It pays £45 per square metre in business rates, whereas a small shop in my own local market town pays £250 per square metre. That is the extent of the inequality. It is one of the reasons high streets are finding it difficult to continue. That is why 47 shops a day are closing. The Government have a responsibility to address this relative decline of our high streets by creating a level playing field for our town centre retailers.
Having said that, this Bill introduces some improvements to the system. We on these Benches welcome Clause 5, which introduces the shortening of the period between valuations from five years to three years. This will help the rating system to respond in a more timely way to changes in economic circumstances. My noble friend Lord Shipley and the noble and learned Lord, Lord Etherton, have asked the question: why every three years? Why not every two years or even annually so that there is greater sensitivity to changes for businesses?
In their review of non-domestic rates, the Government stated:
“Annual revaluations would provide for the fastest updating of values, ensuring a highly responsive and up-to-date system, and this would mean tax liabilities would be closely reflective of economic conditions, economy wide or localised economic slowdowns would more quickly feed through into lower rateable values”.
That was posed by the Government, and we agree. Yet, in this Bill, they are failing to implement that very same thing. I hope the Minister can explain that for us.
Clause 1 makes changes to unoccupied hereditaments. This is a complicated part of the Bill. Can the Minister confirm that this will mean the continuation of the three months’ total relief from business rates for a property that is unoccupied? It seems that the proposal in the Bill is for an option for small business rates to be levied, as opposed to the standard business rates, after the three months. Can the Minister explain how this will encourage owners of empty high street shops, for instance, to relet or find a new use? It is almost the opposite to the way the council tax levy is used to encourage domestic properties back into use as homes. It will be interesting to hear what the Minister has to say on that. The Local Government Association’s briefing draws attention to the fact that, somehow, large vacant sites may not pay business rates at all. This appears to be an anomaly, and perhaps the Minister can throw some light on that as well
These Benches support the grace period for improvements, especially those designed to decarbonise or promote net zero, and the changes applied in this Bill to low-carbon heat networks. All that is very positive. However, we have concerns about the Valuation Office Agency’s responsiveness and accountability to ratepayers. My noble friend Lord Shipley has voiced concern about this, as has my noble friend Lady Thornhill, who asked about reciprocal responsibilities for the Valuation Office Agency alongside those in the Bill. There are new, very considerable burdens on ratepayers to provide more detailed information, so why not for the Valuation Office Agency as well? Can the Minister say how the work of the Valuation Office Agency is accountable to ratepayers? The only example I have is that it produces an annual report, which is a statement of fact rather than an opportunity for accountability to the business community.
I turn to the issue of business rate income. The changes to the existing system will mean a potential reduction in overall income as a result of the Bill removing the duty to be revenue neutral. As we know, local government depends on business rates for a large part of its funding. The Bill makes it clear that all business rate income has to be allocated to local government funding. However, where there is a reduction in income as a result of the Bill, the reference is only to compensation. It does not explicitly state there will be full compensation for loss of income. This is very important to local government, which is under huge financial pressure at the moment and cannot sustain any further loss of income. I look to the Minister, who has local government at her heart, to give us the assurance that any loss of income will result in full compensation.
In this context, I welcome the Government’s promise—I think to the Local Government Association—to consult on avoidance and evasion, along the lines of measures already introduced by the Welsh Senedd and the Scottish Government.
I support what my noble friend Lord Shipley raised about the devolution to councils of business rates, as has been done in the West Midlands. I thank the Local Government Association again for its briefing, which also includes the idea of devolution of more powers over income from business rates. The LGA’s asks include:
“Giving councils more flexibility on business rates reliefs such as charitable and empty property relief”
and
“Giving councils the ability to set its own business rates multiplier—
that would be interesting—
“or at the very least be able to set a multiplier above and below the nationally set multiplier”.
Finally, the Local Government Association underlines what all of us have said about the need for
“Consideration of alternative forms of income … including an e-commerce levy with the funding retained by local government”.
This has been an interesting debate, enhanced by the expert contributions of the noble Earl, Lord Lytton, the noble Lord, Lord Thurlow, and the noble and learned Lord, Lord Etherton. I look forward very much to the Minister’s response.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the Minister for her thorough introduction and all noble Lords for their participation. Having been doing the levelling-up Bill, I have to say that it is nice have a Bill that is very focused. We broadly support the measures in the Bill. Clearly, business rates need modernising, as we heard, and some of the measures in the Bill will provide much-needed support for struggling businesses. But, like others who spoke in the debate, we believe that it is still lacking in areas where small businesses need support, so it is a bit of a missed opportunity as well.
Small businesses are a critical part of our economy and communities, and, as we have heard, they are the heart of our high street and of local employment. On these Benches, we believe that it is necessary to cut business rates for small businesses by raising the threshold for small business rate relief. We would pay for this by raising the digital services tax paid by online giants such as Amazon.
The noble Lord, Lord Shipley, and others mentioned the increase in online shopping, partly brought about by what happened during Covid, when many more people began to shop online. But, as the noble Lord, Lord Thurlow, said, nothing seems to have been done about this. So can the Minister provide further information about any progress at all, if any, that the Government have made on implementing fair taxes on the major online businesses?
The Savills analysis of recent business rates revaluation noted considerable variations in outcomes between different billing authority areas. It notes that retail units in some city centres will see an overall reduction in rateable value, but those in some small towns will see considerable increases—the noble Baroness, Lady Pinnock, referred to this. So, if the Government do not think that an impact assessment on the revaluation for smaller businesses, high streets and towns is needed, how do the Government see this benefiting levelling up if they do not have this information?
The noble Baroness, Lady Thornhill, and the noble and learned Lord, Lord Etherton, talked about the serious challenges facing our high streets and smaller businesses. I particularly mention concerns that were drawn to my attention by the British Beer and Pub Association, which has concerns about certain aspects of the Bill, particularly around the proposals for improvement relief. Of course, it is important to have the improvement relief proposals in here—it is a good step forward—but the British Beer and Pub Association said that improvements made by landlords in a period between tenants, who are the ratepayers, or with any change in tenant during the relief period, will not be eligible for relief. The main concern here is that improvements made by landlords on behalf of tenants who then move on while the property remains owned by the landlord would not be eligible.
In practice, this means that pubs that are not directly owned and managed by the ratepayer—namely, those in tied or leased arrangements, which is apparently around 30% of UK pubs—become a much less attractive proposition for investment, as improvement relief can be guaranteed only on directly managed pubs. A change to the Bill to this end would mean that leased and tenanted pubs could then be on an equal footing with directly managed pubs, in terms of the likelihood of receiving investment. Will the Minister take note of these concerns and look, ahead of Committee, to see whether the Bill could be improved in this respect?
Retailers have expressed concerns that the Bill will significantly increase the overall administrative burden through the new duty to notify procedures—this was a central concern in the debate. It would be helpful if the Minister could confirm whether every ratepayer will now have to fill in a new return for the Valuation Office Agency every year and every time there is a change to the property. Does she think that the new duty to notify will put increased burdens on smaller businesses, potentially forcing them into the hands of rogue rating advisers, as we heard from other noble Lords, particularly the noble Lord, Lord Thurlow?
The noble and learned Lord, Lord Etherton, mentioned his concerns about the extra 750,000-odd business-property occupiers who do not currently pay rates. They would have to return forms to the VOA, and they will have to cope with the huge administrative challenges of this. As well as businesses, this will have an impact on local authorities. So I would be interested to hear the Minister’s response to the noble and learned Lord’s concerns. Will local authorities have extra resources to deal with this administrative burden?
Noble Lords mentioned how promptly the VOA will act, as no similar obligations have been placed on it to produce its assessments quickly, and there have been no further measures to increase transparency—the noble Lord, Lord Thurlow, in particular talked about the importance of transparency. I am not aware that anything about speeding up the appeals system has been stated, so perhaps the Minister could provide further information about this.
We heard about the review of valuations changing from five-yearly to three-yearly intervals, and we are pleased that this has been reduced. But, bearing in mind that the VOA already has a significant backlog of appeals, are there sufficient resources within the VOA to deal with these proposed changes? What will happen to disparities in valuations between the VOA and the property owner or agent? Of course, in the audit world, this has caused major problems between local authorities and their auditors.
Currently, the new rateable values set at a revaluation are based on the situation two years previously, which, again, noble Lords have raised concerns about. Ministers have said that reducing the length of time between the AVD and a revaluation taking place remains
“an aspiration once the new 3-yearly cycle and supporting changes are fully bedded in”.
Can the Minister update us on what progress the department is making on this?
The noble Earl, Lord Lytton, and the noble Baroness, Lady Thornhill, talked about incentives for business to invest. Do the Government intend to do anything about tariffs and top-ups? So many areas have little incentive to improve their business base because the tariffs can be so fierce.
The Bill is an opportunity to give businesses a clearer incentive to improve energy efficiency, freeing up funds for business investments to enhance competitiveness while supporting net zero. We very much support the Government’s and the Bill’s proposals in this area. Strengthening the provisions on business rates in relation to energy-efficiency improvements is certainly an important step.
The Government have already made welcome steps to address these issues by exempting renewable energy generation and storage from rateable value, through regulations introduced last year. But these regulations did not cover energy-efficiency works, and the Government have made much more limited steps on energy efficiency more broadly, proposing just one year of business rate relief against the increase in rateable value in the Bill.
The introduction of heat network relief, mentioned by noble Lords and in Clause 1, is welcome, but it would be helpful to understand why it has been proposed to expire in 2035. The exemption of renewable energy plant and machinery is permanent, so why is there a difference here? Could we not take a similar approach?
Finally, the charity sector has raised concerns that its exemptions will be affected. Can the Minister provide reassurance that this will not be the case? Conversely, will the Government then use the Bill to tackle the fraudulent exemptions claimed when non-charity businesses let a charity occupy a small part of their premises, just so that they can then claim that charity exemption?
In conclusion, we believe that the Bill should go further, as I think do all noble Lords who took part in this debate. I am pleased to hear the Minister say in her introduction that there will be longer-term reforms, such as a commitment to explore further reforms, including the potential for annual revaluations in future. That is something that the Labour Party has been calling for. We welcome and support the Government’s ambitions in this respect but we need something to happen as well. These should not just be commitments to explore; we need to see what the outcomes will be and to learn when we will see them.
I apologise for the large number of questions I asked. I will be very happy for the Minister to write to me ahead of Committee on any that she cannot respond to today. We have quite a lot of issues to explore further.
Baroness Scott of Bybrook (Con)
My Lords, it is a pleasure to close the debate, and it has been a pleasure to listen to such thoughtful contributions. The noble Baroness opposite is absolutely right: I have got a lot of questions. I am bound not to remember all of them, but I will write a letter afterwards to make sure that everything is set. I will also offer more meetings, if noble Lords would like them, before Committee.
It is right that we strive towards the best possible business rates system: one that balances the needs of the taxpayer with the importance of sustainable services in local communities. It has to be a balance. A lot has been said about business rates being too high, but, as we know, if business rates go down, so does the money that local authorities get. We need to get the balance right.
The Government’s review of business rates considered how to improve the tax from a range of angles, and this Bill makes a series of significant improvements which will have considerable benefits for those who pay the tax and those who rely on it. As I said, I am very grateful for the contributions that have been made. I will try to answer as many of the questions as I possibly can, with my many bits of paper.
The noble Lord, Lord Shipley, the noble and learned Lord, Lord Etherton, and many others have suggested that we adopt a short evaluation cycle of one or two years. As I set out in my opening speech, we are happy to consider this carefully in future, once the reforms in the Bill have been implemented. However, it is vital that we approach these changes sequentially to ensure that we can deliver more frequent revaluations and avoid destabilising the tax. If we go too fast, that is what might happen.
The noble Lord, Lord Shipley, asked whether we could increase the threshold in the small business rate relief scheme or otherwise reduce the multiplier. The Government’s generous small business rate relief scheme already sees over a third of properties pay no business rates at all, and that is worth £2.1 billion per year. Further increases in the threshold for the SBRR would be a broad-based and indiscriminate way to provide support, and would therefore be a poorly targeted type of relief. However, the noble Lord welcomed the considerable support we are providing to businesses under the existing schemes, and obviously we will keep them under review.
The noble Lord, Lord Shipley, the noble Earl, Lord Lytton, and the noble Baronesses, Lady Pinnock and Lady Thornhill, and others asked about the transparency and performance of the VOA. If there are any changes, it is important that it can take those changes, work with them and deliver. I assure noble Lords that the VOA will continue to publish targets for its timeliness under the new system and measure performance against them. Current targets cover timeliness on maintenance reports and the check stage of the appeals process. While the new targets will be informed by the development of the new system, the Government are very clear that these must be both ambitious and deliverable. The VOA must deliver on those targets.
The noble Lord, Lord Shipley, referred to the role of land values in the tax such as it is. The Government consider that the arguments in favour of a land value tax are not supported by the evidence. A land value tax would also inevitably increase the tax burden for properties on large pieces of land, such as golf courses or farms, whereas densely developed land, such as that of the Shard, would see lower bills. I understand that he indicated his support for the tax based on rates, which is how business rates work, and I welcome that observation from him.
The noble Earl, Lord Lytton, the noble and learned Lord, Lord Etherton, the noble Baroness, Lady Thornhill, and others asked how we have framed improvement relief and whether it will in fact provide the incentive for property investment—this is very important. The relief is designed to help occupiers make improvements to their existing premises, rather than subsidising general commercial property development. The Government consider that a 12-month relief will allow time for the benefits of the property investments to flow through into businesses. We will keep this under review; in particular, we will review this scheme in 2028.
The noble Earl, Lord Lytton, asked whether we had assessed the impacts of the new duties. We have carefully considered the impact of the duties on businesses and published two impact notes to outline the estimated costs of complying with the new duty. The VOA estimates the cost of the new information duty to be £35 per ratepayer each year. The current system costs ratepayers £15, so this is an increase of £20 each year. The HMRC duty for tax reference number is estimated to be about £2 for most businesses, and no more than £6 in those cases where finding a suitable tax reference number takes a bit longer.
The noble Earl, Lord Lytton, asked whether guidance will be available to help ratepayers comply with these duties. As I said, the Government will not formally activate the VOA duty until we are absolutely satisfied that ratepayers can reasonably and efficiently comply with it through the online service. Guidance and support will be offered to those engaged in the soft launch of the system. As is the purpose of the soft launch, the guidance will be developed as we learn from engagement with users.
The noble and learned Lord, Lord Etherton, raised concerns about those eligible for the 100% relief and whether they should be subject to these duties. Information collected by the VOA on a specific property is often used in the valuation of other comparable properties, many of which may not receive 100% relief. For instance, a small independently owned shop which pays no rates would have to pay business rates if it were occupied by a large chain, such as Co-op. It is important that we have all that information collected for all properties. However, as I said, we will not formally active the duty until we are absolutely satisfied that all ratepayers, including those getting 100% relief, can reasonably and efficiently comply with it.
The noble and learned Lord, Lord Etherton, the noble Baroness, Lady Thornhill, and others set out why the level of business rates is considered too high. As I said, business rates are an essential form of funding for local government, providing vital public services and supporting the Government’s levelling-up agenda. The Government have taken action to hold the tax rate steady over the last three years, protecting businesses from inflationary pressures at a cost of around £3 billion each year from 2023-24. Given the difficult fiscal position, it would not be responsible to cut the rate further, with a 1p cut costing approximately £600 million per year.
The noble Baroness, Lady Thornhill, asked whether the VOA would be able to cope with the reforms. The VOA has plans in place to enable the delivery of the reforms in the Bill; the Government have invested to make that change a reality, with £0.5 billion for the VOA as part of the spending review; this includes funding for important changes to upgrade IT infrastructure and digital capabilities.
The noble Lord, Lord Thurlow, spoke about the transparency of the VOA’s work. The Government committed in the 2020 business rates review to reforming the VOA’s processes to make them more transparent. The duty contained in the Bill is essential for the VOA to implement its offer of improving transparency, and we remain committed to that aim.
The noble Lord also raised important points about the danger of rogue agents, as did other noble Lords. I can assure him that we will be consulting on agent behaviour as part of the avoidance and evasion consultation. As he notes, the majority of agents are legitimate organisations that are typically registered with one of the main professional bodies that he mentioned and provide a valuable service to their clients. Nevertheless, some agents seek to take advantage of their clients or actively to promote rate mitigation strategies. The consultation will, therefore, seek to understand the nature and scale of these issues and identify potential actions that the Government can take to help address these practices. While I am on this subject, I wish the noble Lord a very good day tomorrow. I hope that he will feel much better after it.
I move on to important points raised by the noble Baroness, Lady Pinnock, and all other noble Lords. All brought up the issue that the Government have not addressed the imbalanced treatment of the high street and online businesses. We recognise the concerns that people have raised and we have taken significant steps to tackle this. The Government looked at the case for taxing businesses differently, through our review of business rates and through a separate consultation on an online sales tax. Our review made it clear that people were not supportive of penalising specific sectors or properties through business rates. The Government reviewed the feedback that they received from stakeholders over the online sales tax consultation period and announced at the Autumn Statement of 2022 their decision not to proceed with such a tax.
In summary, the evidence received suggested that an online sales tax would have been extremely complex to design and implement and would create undue administrative burdens for businesses. This includes challenges of defining the boundaries between what is online and what is instore retail, including the knotty issue of click and collect, which came up. Rather than penalising innovative online businesses, we have chosen to focus on supporting those high street businesses most in need, with an improved relief for retail, hospitality and leisure businesses, worth £2.1 billion this year, offering 75% off bills up to a cash cap. That is the way we have decided to do it.
The noble Baroness, Lady Pinnock, also brought up the issue of business rate consultation on avoidance. At the Spring Budget, the Chancellor announced that the Government would consult on business rate avoidance and evasion, and that the consultation will look at the three or six-month period of relief available for empty properties. Our concern is to ensure that landlords are not avoiding paying rates, which I hope gives some reassurance. The noble Baroness also asked about the Government reforming empty property rates. As I said, we will consult on business rates avoidance and evasion and look at that issue further. Our concern is to ensure at all times that landlords are not avoiding paying rates—that is the important part.
The noble Baronesses, Lady Pinnock and Lady Hayman of Ullock, brought up the issue of the cost to local authorities, as did the noble Baroness, Lady Thornhill. I am not sure about this, but I am pretty sure that local authorities will get new burdens, if there are new burdens—but I shall check exactly how that is going to happen and write it in my following letter.
That is as much as I have, but I shall look at Hansard tomorrow. I shall answer all the questions and put the answers that I have already given in writing as well. As I said, we can meet again if any noble Lords would like to before Committee. The changes that the Government are making to the business rates system will help businesses grow and prosper, and I thank noble Lords for their basic welcome of the Bill. The Bill reforms rates so that they more accurately reflect the property market—and we are also addressing the perception that tax is a barrier to investment. The changes in this Bill will lead to fairer and more accurate bills and a more adaptive system, capable of keeping up with the changing modern economy.
Baroness Scott of Bybrook
That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order: Clauses 1 to 17, Schedule, Clauses 18 to 20, Title.
Non-Domestic Rating Bill
Monday 3rd July 2023
(1 year, 4 months ago)
Grand CommitteeRead Full debate Non-Domestic Rating Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 140-I(a) Amendment for Grand Committee (Supplementary to the Marshalled List) - (30 Jun 2023)
Lord Ravensdale
“(za) the chargeable day falls after the day on which qualifying energy efficiency improvements are completed,”Member's explanatory statement
This amendment, and others to Clause 1 in the name of Lord Ravensdale, would allow qualifying energy efficiency improvements a time-unlimited level of improvement rate relief.
Lord Ravensdale (CB)
My Lords, I will speak to my Amendments 1, 3 and 4. I apologise to noble Lords for not being present for the opening speeches of Second Reading and therefore being unable to make my points then. However, I was present for the rest of the debate and wrote to the Minister with the points I would have made, so I hope that I may be forgiven. I declare my interests as a project director for Atkins and as a director of Peers for the Planet. I certainly support the aims of the Bill and the measures contained within it, which will support businesses and high streets across our country and the economy.
My amendments in this group are very straightforward. They relate to the application of improvement relief. I listened with great interest at Second Reading to the remarks on this topic from noble Lords and the Minister, who said:
“The Government consider that a 12-month relief will allow time for the benefits of the property investments to flow through into businesses. We will keep this under review”.—[Official Report, 19/6/23; cols. 83-84.]
Although the 12-month relief is very welcome, there is a strong case for the Government to remove such constraints from a specific class of improvement—energy-efficiency improvements. I will explain why.
The Government have already made the great move of exempting renewable energy generation and storage from rateable value through regulations introduced in 2022. However, energy efficiency does not receive a matching exemption, despite the efficacy of energy- efficiency measures in increasing the energy security of the UK and reducing carbon emissions, not to mention in reducing costs for businesses and supporting economic growth. Energy efficiency has been raised many times recently in your Lordships’ House, so I will not bore the Minister and other noble Lords with an extended analysis of why we need to do more in this area.
As to the effect of the Bill as written, we know that all but the simplest energy-efficiency measures have longer payback periods, so it is likely that a 12-month exemption will continue to disincentivise improvements. To be adopted by business, energy-efficiency measures must make clear financial sense and have a low net cost. As a simple illustration, it is unlikely that a household would contemplate insulating their home if there was a risk that the savings would be outweighed by the introduction of a higher council tax band after only a year of relief.
My amendments seek simply to align energy-efficiency measures more closely with the existing reliefs for renewable energy generation and storage so that we have a coherent approach in this area. They represent a great opportunity for the Government to help increase investment in energy-efficiency improvements across business and to contribute to critical national goals in energy security and net zero, as well as lowering bills for businesses at a time when this is needed more than ever. Fatih Birol of the International Energy Agency warned recently that we may see another surge in gas prices this winter. The amendments would extend improvement rate relief for energy efficiency to 1 April 2029; the Government could then decide whether to extend any reliefs beyond then. I beg to move Amendment 1.
The Earl of Lytton (CB)
My Lords, I have two amendments in this group, to which the noble and learned Lord, Lord Etherton, who cannot be with us because he is arguing his case across the way in the Chamber, has added his name. I declare that I am a member of the Rating Surveyors’ Association, which, together with Luke Wilcox, barrister of Landmark Chambers, has been helping me formulate my views on these amendments.
The purpose of the two amendments in my name in this group, Amendments 2 and 6, is to extend the application of improvement relief, so, to some extent, they follow the lead of the noble Lord, Lord Ravensdale. Without discussing it with him, I opted for extending the application to works carried out within a five-year period. The amendments follow up on the comments made at Second Reading.
The expected lifespan of the many types of improvement may extend to decades. If, as one supposes, the relief is intended to incentivise improvements—not just mandatory compliance works but those which add materially to utility, convenience and annual value—it needs to be an altogether bigger quantum; otherwise, as matters stand at the moment, we will be in a situation where, maybe 13 months after the work is carried out, the rateable value will increase by some 50% of the additional annual value of the works. This may not be so much for the purposes of adding value as of preserving value in the face of decline, so this dynamic needs to be whittled down.
We have issues with the definition of “relief” and whether it will count for anything at all in practice, and of “improvement”, of which other noble Lords may seek to define certain aspects more clearly—I agree with that. Unfortunately, the Government’s protestations about the sums they claim to have earmarked for this relief do not disguise the fact that the design of these things is often such that none of it is ever called on in practice. I will leave that bit of cynicism to one side, but if this relief is to mean anything beyond a fig leaf, it has to be large enough in quantum and long enough in duration to be commercially noticeable and relevant. Some types of improvement may take a considerable time to translate into a business benefit.
Although I understand, for instance, not including developers in the benefits of this measure, I maintain that the net effect of excluding any otherwise qualifying works carried out by landlords for the tenant, for which there may be a higher rent payable, is based mainly on groupthink rather than objective balance. That is the reason behind Amendments 2 and 6.
Baroness Hayman of Ullock (Lab)
My Lords, I have Amendment 5 in this group. Its purpose is to probe the expiration date for heat network relief. For example, why have the Government come up with 2030 in this respect? As I said at Second Reading, we very much welcome the introduction of heat network relief but, as I asked then, as the exemption of renewable energy plant machinery is permanent, why has a similar approach not been taken to heat networks?
Also, the heat network relief applies only to what are described as “occupied” heat networks, so it would be helpful to have some clarification of the definition of “occupied”. For example, if the networks apply as a mix of properties, some of which are traditionally occupied and others are unoccupied, is that still considered to be an occupied property, or does the whole property have to be occupied?
More broadly, the aims of this amendment are also to do with the fact that we believe that the reform of business rates as a whole should have the underlying principle and aim to encourage green improvements to business properties, if, as the noble Lord, Lord Ravensdale, talked about, the targets are around net zero and emissions. We feel that all the proposals should have as their aim—at their centre—ways of meeting those targets.
I thank the noble Lord, Lord Ravensdale, for his introduction of this group of amendments. His amendments are very sensible, and I hope that the Minister will look at them carefully. I also take this opportunity to thank the Minister for her letter to all Peers following Second Reading, in which she gave quite detailed clarification of a number of issues, which I am sure we will discuss further today. I put on record that that was extremely helpful.
As for the other amendments in the group, clearly, improvement relief has been designed so that no business will face higher business rate bills for 12 months following qualifying improvements. We also heard from the Minister in her letter and at Second Reading that the Government consider 12 months sufficient for the benefits to flow through but, clearly, noble Lords who have spoken previously have reservations about this—in particular the noble Earl, Lord Lytton.
Baroness Pinnock (LD)
My Lords, at the outset of the debate I remind the Committee that I have relevant interests as a councillor and as a vice-president of the Local Government Association.
This group of amendments is significant because it focuses our attention on energy efficiency and on how the business rates system could be adjusted to encourage more businesses to improve the energy efficiency of their premises. Amendment 1, in the name of the noble Lord, Lord Ravensdale, is important in that regard. As he said, an earlier Bill on non-domestic rating focused on relief for energy generation and storage, but not energy efficiency. Energy efficiency is the non-glamorous side of getting to net zero. It is about improving the general energy efficiency of buildings through loft and cavity wall insulation, putting in more efficient heating systems and so on.
I have a high regard for Amendment 1 for the reason that the noble Lord outlined, which is that the payback period for energy-efficiency improvements can be very long. Therefore, giving just one year’s relief is a drop in the ocean. If we want to encourage businesses to make these improvements and to invest in their property by improving their energy efficiency, there must be relief on business rates. This is a positive amendment and, if the noble Lord, Lord Ravensdale, wants to pursue it on Report, I am sure that we will give it positive consideration.
The other amendments in this group, in the name of the noble Earl, Lord Lytton, suggest five years of relief. That is another way forward. I think that we will have to debate five years of relief or unlimited relief. If we are really concerned about getting to net zero, there has to be a real incentive to do so.
I co-signed Amendment 5, in the name of the noble Baroness, Lady Hayman of Ullock, about heat networks because I thought that it was important in itself. The Government have a scheme—the heat network efficiency scheme—which gives grant funding to communal heat networks or district heating schemes. This amendment matches well with that. If the Government are giving with the one hand but taking with the other, that seems a negative approach to encouraging heat network schemes. That is why I very much support Amendment 5 in particular.
Maybe when we get to Report the amendment will not say “2050” but will be unlimited, matching the other amendments in this group, which are making a positive push towards getting businesses, via the relief through the business rates system, to become more energy efficient. These are all good, probing amendments. I know that the Minister is supportive of energy-efficiency schemes and moving towards net zero, so I look forward to her positive response to this group of amendments.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, I start by welcoming our new Deputy Chairman of Committees on his first outing today. I think that I am allowed to say that—anyway, I have said it.
These amendments from the noble Lord, Lord Ravensdale, the noble Earl, Lord Lytton, the noble and learned Lord, Lord Etherton, and the noble Baronesses, Lady Hayman and Lady Pinnock, concern the two new business rate reliefs introduced by the Bill: the new improvement relief and a relief for low-carbon heat networks.
First, on the improvement relief, during the review of business rates a key ask from ratepayers was support for those businesses looking to improve their property. Clause 1 delivers on that ask by introducing the improvement relief. The noble Earl, Lord Lytton, asked about the definitions of “improvement” and “relief”. These definitions are in the draft regulations, on which we are consulting. We will consider those matters following consultation.
Clause 1 will ensure that from 1 April 2024 no business will face higher business rates bills as a result of qualifying improvements it makes to a property it occupies, in the 12 months following those improvements. When a ratepayer makes improvements to the rateable part of their property, that is likely to increase its rateable value and, therefore, the rates bill. To deliver the relief, Clause 1 will ensure that, where that happens and the qualifying conditions for improvement relief have been met, that increase in the rateable value will be delayed for 12 months. Clause 3 does the same for the central rating list.
As is common for business rate reliefs, the detailed rules will be in regulations made under the powers in these clauses. My department has published those regulations in draft so that the House may see during the passage of the Bill how we intend to use these powers.
The amendments we are considering in relation to improvement relief, from the noble Lord, Lord Ravensdale, the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, seek to extend the period of relief from one year to five years and to allow unlimited relief for energy-efficiency improvements.
Of course, I understand the concerns we have heard and why some consider that the relief should be extended. It is a question we face when we come to consider and review all the reliefs in the business rates system. We recognise the importance of energy-efficiency improvements to properties. We have already ensured that eligible plant and machinery used in onsite renewable energy generation and storage, such as rooftop solar panels, wind turbines and battery storage, are exempt from business rates from 1 April 2022 until 31 March 2035. Onsite storage used with electric vehicle charging points is also exempt. We have done this using existing powers.
However, as with all tax breaks, we must balance the need for support with the need to fund the vital public services that those taxes support. In the case of improvement relief, we considered these matters at length during our review and, following extensive engagement with business groups, settled on a 12-month relief.
Under the current system, as one would expect for a tax based on the value of property, businesses may see an immediate increase in their rates bill for improvements they make to their property, where those improvements increase the value of the property, but they may see a lag in the return or income that flows from that investment.
Baroness Scott of Bybrook (Con)
My Lords, I will continue. The 12-month relief will provide a breathing space for the investment to start to generate returns before business rates have to be paid. I know that some feel that 12 months is not long enough to incentivise the types of major refurbishment and improvement often made to properties by landlords and developers. However, as I explained to the House at Second Reading, this relief is designed to help occupiers make improvements to their existing premises rather than subsidising general commercial property development.
The noble Baroness, Lady Hayman of Ullock, asked what “occupied” meant. We already have a current discretionary heat network scheme that we have worked up with full guidance in partnership with the heat network sector and local government. That guidance is already published. Once the Bill receives Royal Assent, we intend to translate that guidance into regulations and to make those in good time to ensure a seamless transition between the current discretionary scheme and the new mandatory scheme. I suggest that noble Lords look now at the guidance as it will make it clear what will go forward. In the meantime, we will work with the heat network sector on the regulations in case they need any tweaking.
Nevertheless, as this is a new relief, it is right that the Government evaluate whether it is working and delivers value for money. Therefore, the Bill as currently drafted includes powers to extend the duration of the improvement relief and in 2028 the Government will review the scheme. That will be the appropriate time to consider whether to continue with the scheme and how effectively the relief is operating. As part of that review, we will consider whether 12 months remains the correct duration for the relief. We have, however, allowed for a longer period of relief for low-carbon heat networks, given the particular role that they play in reducing our dependence on natural gas. That relief runs until 2035. Amendment 5, from the noble Baronesses, Lady Hayman and Lady Pinnock, would extend that to 2050. As with improvement relief, we have to balance the need for support with maintaining the services funded from the tax, as I have said. The end date in the Bill aligns with our ambition to phase out new natural gas boilers by 2035. By that date, new low-carbon heat networks will no longer have to compete with natural gas alternatives. Under those circumstances, we hope that the relief will no longer be necessary and, therefore, 2035 will be the right time to end the relief. However, as with the improvement relief, we will keep this under review and the Bill includes powers for us to extend the 2035 date, if it is necessary at the time.
I hope I have given noble Lords the explanations and assurances that they were seeking and that the noble Lord is able to consider withdrawing his amendment.
The Earl of Lytton (CB)
The Minister mentioned regulations following Royal Assent and I am happy with that, but could she confirm that this will have a consultation process attached to it? She also referred to something that I interpreted as a post-legislative review. What is the framework for that in this instance?
Baroness Scott of Bybrook (Con)
On the regulations, we are consulting at the moment and that will be discussed afterwards. If noble Lords want to put anything in, I suggest they look on GOV.UK. I shall sit down so that the noble Earl can ask his second question because I did not quite pick it up.
The Earl of Lytton (CB)
It was about the post-legislative review and its framework, in so far as it would apply to the workings of the Bill once it gets Royal Assent.
Baroness Scott of Bybrook (Con)
As far as I know, we do not have a framework yet, but as soon as we have—I assume it will go out to some sort of consultation—I shall make sure that noble Lords are aware of when it is issued.
Lord Ravensdale (CB)
My Lords, the noble Earl, Lord Lytton, made a compelling argument for a general extension of improvement relief, as did the noble Baronesses, Lady Pinnock and Lady Hayman, for extending heat network relief. For me, this is all about joining the dots across the legislation, so that we have a coherent picture. As the Minister said, we already have a permanent exemption for renewable energy and storage. All these factors feed into our overall strategic targets, so we need a coherent picture across the legislation. The Minister rightly talked about fiscal responsibility and the need to bear it in mind.
The other side of the picture, to counter that, are all the benefits to increasing private investment—in the case of energy efficiency, lower bills—and the benefits from overall economic growth that would flow from that. I look forward to further discussions with the Minister leading up to Report, but for now I beg leave to withdraw my amendment.
Baroness Pinnock
Member’s explanatory statement
This amendment would require central non-domestic rating lists to be compiled every two years.
Baroness Pinnock (LD)
My Lords, my noble friend Lord Shipley and I have Amendments 7, 9 and 11 in this group, all of which seek to achieve the same end; namely, that the revaluation period be reduced to two years. The Minister and the Bill team have been very generous with their time and that has enabled a discussion of the time gap between revaluations. The Government have decided on a three-year gap. We are suggesting that a shorter gap may enable a valuation that more closely reflects business confidence and thus rental values.
There is a revaluation this year, which will be based on rental values in 2021. Under the Government’s proposal, the next revaluation will be in 2026 and based, therefore, on rental values in 2024. In the Government’s own business rate review of 2020, respondents wanted a shorter gap between the assessment of revaluations and implementation. Hence the amendments to Clause 5, which reduce the three-year gap to two years, as this will result in a closer alignment between business confidence and the revaluation. Businesses, as we are all very aware, are facing considerable challenges as a result of factors well outside their control. The significant fluctuation in economic outlook, reflected, for instance, in the level of inflation and the rise in interest rates, creates uncertainty for businesses. A narrower gap between revaluations is one step that will help businesses.
In our discussions with the Minister, it became clear that there are no administrative barriers to a two-year gap. Indeed, the Netherlands has for many years managed a similar system with annual revaluations. Other amendments in this group are designed to achieve the same outcome and come from noble Lords who have considerable experience in these matters. The noble Earl, Lord Lytton, the noble and learned Lord, Lord Etherton, and the noble Lord, Lord Thurlow, all have considerable expertise and knowledge in practice and have picked up the same issue of the period between revaluations.
It seems to me, an amateur in these things, having read the reports from businesses asking for a shorter period between revaluations, that the Government should go back and go for two-yearly revaluations. It would be better for everybody. If we have, as the Government say they have, a priority to support businesses and give them greater certainty and confidence in the system, I am sure the Minister will again respond positively to this set of amendments. I beg to move.
The Earl of Lytton (CB)
My Lords, I have four amendments in this group, of which Amendments 8, 10 and 13 relate to the matter explained by the noble Baroness, Lady Pinnock. Amendment 14 is a little different and to do with downward-only transition.
Before I go any further, I should have thanked the Minister earlier for her drop-in sessions and her willingness to engage on the Bill. To some extent, it is a joint venture between business, professions and the Government in trying to wrestle with the issues of local government revenues. I understand that.
The purpose of Amendments 8, 10 and 13 is to create an ability for the Secretary of State to adopt a shorter cycle, be it of one year or two years, but they are not prescriptive as to what that might be. That is simply because, having considered the situation and how things have bedded in, the Government should at least have the ability to do so without then seeking a legislative slot later. Although it is counterintuitive to suggest anything that might smack of a Henry VIII clause, this is a sort of Henry VIII clause that I think might be useful in this particular instance.
I pick up something that the Minister said at Second Reading, which the noble Baroness, Lady Pinnock, mentioned, namely the potential instability of more frequent revaluations. However, this does not seem to be a problem in Hong Kong or Scotland; why should it be here? The noble Baroness, Lady Pinnock, alluded to my next point, which is that the stability of the system is within the gift of the Government in terms of their wider policies. I would argue that it is the level of business rates—levied at around 50p in the pound at the assessed rateable value—that is itself the harbinger and cause of a degree of instability. Professionals and businesses just need to feel that there is a better commitment—a more bankable expression of intent—about this. That is why these amendments would serve to allow the shortening of the revaluation gap and, of course, its attendant antecedent date.
I now turn to Amendment 14, which, had I spotted it before, I might have disaggregated from this group because it relates to downward-only transition. Although the Minister made some hopeful noises at Second Reading, I have not yet persuaded her to signpost the permanence of what is otherwise a very welcome item in this Bill; namely, the removal for the next revaluation of downward transition. It always seemed to me invidious that those whose rateable values were reduced should see the benefit only by such minimal and curmudgeonly means as to deprive them of the effect of a significant reduction, not just for many years but, sometimes, for many revaluations. Now that the principle is established that the transition no longer has to equal and offset the transitional phasing of increases by those who should be paying, it is time to confine this rather dishonourable measure to oblivion, if I may so suggest.
Let us not forget that, for every measure of palpable unfairness, perceived or actual, in the business rates, there will be an unknown number of potential entrepreneurs who simply will not lay themselves open to such practices because they see the system as unfair and operating unfairly against them. To that extent, the system is not as elastic an economic function as may be supposed. That is the background to my amendments.
Lord Thurlow (CB)
I take a slightly different position. I support these amendments, but I want to introduce a brief note of caution. The case for a reduction in the frequency of updating rateable values has been extremely well made, but I think experts should have a voice in the proposal. I think we should wait until the three-year review process has bedded in and all interested parties should then be free to comment, before reducing that interval further from three to two years, or even one year. Clearly, the VOA has a central role—the most important role—but ordinary ratepayers have a role too. It is possible that an annual or biannual revaluation will become unworkable. That is unlikely with digitisation and the wider use of technology, but any period longer than one year between revaluations is, by definition, quickly out of date. We saw that in high relief with volatile rental markets during and following Covid.
My amendment suggests that the Government listen to the view of the VOA, of course, but also to the RICS, the Rating Surveyors’ Association and the Institute of Revenues Rating and Valuation, together with other accredited advisory groups, before making a decision on these further reductions. I ask the Government to write into the Bill that they will listen to the voices of these experts before further reductions are agreed to.
Lord Shipley (LD)
My name appears on three of the amendments in this group. I think that the case made by the noble Lord, Lord Thurlow, is very strong. We have to be certain. I believe a reduction from three years to two years—and, in an ideal world, to one year—would be the right thing to do.
I should state for the Committee stage, however long that lasts, that I am a vice-president of the Local Government Association.
I am convinced that currently revaluations are too infrequent. The Government have accepted that case. We are going to three years, and that is indeed better, but to reduce appeals and to ensure a fairer system requires two years or fewer. Like my noble friend Lady Pinnock, I will be very interested to know why we cannot draw on the comparator of the Netherlands since it does a revaluation every year.
There are clearly advantages to more frequent revaluations. We will have fewer appeals because the valuation would be more accurate. It would be fairer to businesses and reduce complaints about the system. I read very carefully the letter the Minister wrote after Second Reading, but it is not clear to me that there are any administrative barriers to moving from three years to two years.
We support Amendments 8 and 10, which suggest that the Government introduce a change to two-year revaluation or to one-year revaluation by order, as long as the affirmative procedure is used. As I said a moment ago, I think the points made by the noble Lord, Lord Thurlow, matter. I hope the Government will pay particular attention to Amendment 12 because it would enable us to be certain that it would not be a mistake to move to two years. We are sufficiently open to say that we want to go to two years and would like to go to one year, but we are very happy to build in a timescale which enables that to happen securely.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the noble Baroness, Lady Pinnock, for introducing this group with Amendment 7, which seeks to change the Bill so that lists must be produced every two years instead of three. Today’s discussion has demonstrated that noble Lords think that this needs to be revisited and that perhaps three years is too long.
I am quite interested in Amendment 9 in the name of the noble Earl, Lord Lytton, which would allow SIs to be introduced to change it to one or two years. Bringing in flexibility to adopt a shorter cycle without that kind of prescription is a really interesting idea and approach. In principle, we would support that; my only concern is that the SI procedure has not exactly gone entirely smoothly in recent years. To get our full support to move in that direction, we would need to ensure that SIs are managed better than they have been recently.
The noble Baroness, Lady Pinnock, made some important points about the need for business confidence regarding valuations. That is incredibly important, particularly given the uncertainty resulting from inflation, various costs—of energy, for example—going through the roof, the challenges following the pandemic, the business rate holidays that have moved or not moved, and the differences resulting from where in the country you may be. None of that helps with certainty for businesses, particularly those that have retail in different parts of the country.
Another really good point was made about the fact that a small but perfect group is taking part in these discussions. Here we have noble Lords with real and practical experience and knowledge, which I hope will be helpful as we move through Committee.
The Chartered Institute of Taxation has agreed that moving initially to three-year revaluations would provide a balance between the administrative costs and the need for regular revaluation to reflect the economic conditions of business. But it also said that, given the rapidity of changes in business and shopping practices, the Government should consider a phased approach to achieving more frequent revaluations, and that this should remain under evaluation. Given the different amendments we have today and the discussions that we have had, will the Minister consider taking back to her department the introduction of a phased approach? I know that in the letter to noble Lords following Second Reading, she said that the Government will
“carefully consider the case for even greater frequency of revaluations once the new system changes have bedded in”.
That brings us to the point made by the noble Lord, Lord Thurlow, who suggested that waiting for that three-year cycle to bed in might be very helpful. He made the point that we need to listen to the experts and advisory groups and make sure that we get this right, because anything over two years goes out of date very quickly. The Labour Party position is that we should have more frequent valuations. We have talked about them being annual, but of course this has to be right, and it has to work for business.
Finally, on Amendment 14, tabled by the noble Earl, Lord Lytton, on the abolition of downward caps, it is concerning that the downward caps can prevent savings being passed on to businesses and could mean that they unnecessarily pay more in business rates. It is an important amendment, and I would be interested to hear what reassurances the Minister can give the noble Earl.
Baroness Scott of Bybrook (Con)
My Lords, this group of amendments takes us to the heart of the Bill; namely, our commitment to modernise the business rates system through more frequent revaluations. Amendments 7 to 13, from the noble Baroness, Lady Pinnock, the noble Lords, Lord Shipley and Lord Thurlow, the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, are concerned with the frequency of revaluations. They provide for either the revaluation cycle to move to every two years or for the Government to adopt a two-year cycle by order. The Government fully understand the desire to keep business rates as accurate and responsive as possible. That is why the frequency of revaluations was a key part of our review.
Regular revaluations update rateable values, and so rates bills, to reflect changes in the property market. During the business rates review, we heard from businesses that they overwhelmingly favoured more frequent revaluations. Interestingly, a majority of respondents to the review supported a three-year revaluation cycle. The noble Earl, Lord Lytton, mentioned countries that had annual revaluations, but it is not straightforward or accurate to simply compare our revaluation cycles with places such as the Netherlands. Evidently, a single property tax there covers both residential and commercial properties, so it is a very different system from the one in this country. We also considered annual revaluations, but some stakeholders raised concerns about an annual cycle, such as the increased volatility of bills and potential impacts on valuation accuracy. We therefore concluded that we should move to a three-year cycle of revaluations, and the Bill provides for that, with the next one to take place on 1 April 2026.
The Earl of Lytton (CB)
I am delighted about what the Minister has just said. I thank her for that and apologise for making her say it twice, if I did. It is my understanding that this is now a permanent abolition of downward relief, which is extremely welcome.
Baroness Pinnock (LD)
My Lords, I thank the Minister for her response. As she rightly said, this is at the heart of the changes being introduced in the Bill. I thank her for recognising that there could indeed be a further review to reduce the gap between revaluations. However, although I may have misheard her, I thought that the Minister said that the review conducted by the Treasury was—
Baroness Pinnock (LD)
I shall try to pick up from where I left off. I may or may not have heard the Minister aright so this is just to check. The very good Library briefing on the Bill references the Treasury review into business rates. I shall refer to the Library briefing, then the Minister can say whether or not I have misunderstood. It says:
“On the longer-term proposals, most respondents stated that … revaluations should happen more often”—
we agree with that. But then it says that
“the gap between when the revaluations were assessed and when they came into force should be shorter than the current two years”,
which was one of the points that I was trying to make.
I may have misheard the Minister—if I have, I apologise—but the point that the review was making was to say yes to a shorter gap than five years, and the Government have pitched on to three. At the same time, the assessment year should be shorter than the two years that it currently is—that is what I think the review was saying, and I was trying to say that part of the argument for reducing the gap between the assessment year and the revaluation year is to make it narrower.
Baroness Scott of Bybrook (Con)
The response was three years, because of the reasons that I put forward—but, yes, we have aspirations to squeeze that to two years. That is the issue that we are discussing, and it is absolutely right that we are trying to do that. It is where we would like to get to, but it will take the changes that we are making to the Valuation Office Agency to do that—and then there is the digital aspect, and things like that, which we have already talked about.
Lord Thurlow
“(2) V must disclose the information to P without delay if requested by P.”Member's explanatory statement
This adds an obligation on the Valuation Office Agency to reveal their rental comparables/evidence used in arriving at a Rateable Value when challenged in the interests of transparency. This may satisfy ratepayer concerns at fairness early in the process and reduce the numbers resorting to appeal.
Lord Thurlow (CB)
I declare my interest as a former chartered surveyor. I should have done so earlier, and I apologise. I, too, join in the chorus of thanks to the Minister and her Bill team for the help and meetings a week ago. I also thank the noble and learned Lord, Lord Etherton, who is absent, for adding his name to my amendments in this group. I am sorry that he is not here to add his voice. This group of amendments is focused on the operation of the VOA and rooted in the desire for transparency for the ratepayer. It is a matter of simple public interest.
The current arrangements require registration for the check, challenge, appeal process before the VOA reveals the evidence it relied upon in assessing rental value. Amendment 15 questions why the VOA should be so secretive. There is no need for it. On appeal, the evidence is revealed, so why not admit it on first inquiry without the need for the CCA registration process? We all hope that the VOA’s figures are correct when assessing new rateable values and that its assumptions in arriving at them are well founded. It is hoped that, by the evidence being shown at the outset of any inquiry, most ratepayers would agree with the VOA’s evidence and accept its valuation. This would avoid the cost, resourcing and administration of the CCA process for the VOA and ratepayers.
With the help of the RICS, I have looked at some of the statistics for recent check, challenge, appeal numbers. In the quarter to March this year, more than 10,000 CCA notices were received. This is the first stage in the appeal process. Fortunately, 90% of them came from interested persons, and I believe that means ordinary people, not agents acting on behalf of ratepayers, so the leaseholder or the freeholder. It is a good thing in the absence of a requirement to use accredited agents, which we will come on to. But 10,000 registrations is an unusually high number. It is to some extent the result of the publication of the latest business rates revaluation. It must put great pressure on VOA resources.
If I am reading the VOA’s published data correctly, in the rating list period 2017-23, 30% of challenges resulted in a reduction. That is far too high. It suggests that the VOA may be taking a bullish view of estimated rental value, rather than an objective one. The VOA translates from estimated rental value to rateable value. This is very likely to lead to a growing trend towards challenges of the fairness of assessments, which is a concern. I do not want to overlook the fact that 70% of CCAs were found in the VOA’s favour, but 30% is still too high for successful appeals. My amendment seeks to reduce the volume of CCAs by thousands of appeals through applicants withdrawing at an early stage in the process.
My other amendment in his group is Amendment 17. It is a simple matter concerning confidentiality of information. Occasionally there is a confidentiality clause in a rent review or a new letting. There may be a means by which the VOA can obtain that detail but the ratepayer cannot. There may be other reasons for confidentiality. Why should the VOA be allowed to factor this evidence into its assessment if the ratepayer may not? It is akin to the VOA informing the ratepayer that it has information it cannot reveal which supports its figures. My amendment does not dispute the reasons for confidentiality being protected—not a bit—but requires simply that any information which cannot be shared with the ratepayer must be disregarded. The ratepayer must be empowered to challenge all the evidence used against them. I beg to move.
The Earl of Lytton (CB)
My Lords, I have five amendments in this group. I support the noble Lord, Lord Thurlow, in what he has just said in relation to Amendments 15 and 17. My Amendment 16 follows on from that, and for that reason I will be quite brief about it. The amendments tabled by the noble Lord, Lord Thurlow, and my Amendment 16 seek to provide a duty on the Valuation Office Agency to provide such information, subject only to data protection legislation.
This addresses something that has been a bone of contention for many years, namely that a target and tax revenue focus in HMRC seems to have affected areas of Valuation Office Agency practice to the point where—or where the appearance has been that—evidence has been withheld, right up to tribunal-stage appeals. Over the years, as I have monitored the updates from the Rating Surveyors’ Association and others, I have noted with alarm some examples—I hope these instances are few and far between—of appalling and unprofessional practice, not, as one might suppose, from rating agents of an indifferent moral persuasion and possibly no professional training at all, but from the VOA itself. I worked for the VOA’s predecessor body, the Inland Revenue Valuation Office, for nearly seven years. Then, it was held in universally high esteem for its ethical and professional principles. It would be highly regrettable if, as time has gone on, that were no longer a given—I want to stress that.
This amendment does no more than insist on the same standards for disclosure and candour from the VOA that it requires of private sector agents acting for ratepayers. If this or something similar is not agreed to, there will be not only a rising tide of criticism within the profession but some sort of backlash from the First-tier Tribunal and Upper Tribunal, which will ultimately force the issue. We need to deal with that at this stage.
I move on to Amendments 18 to 20 in my name. Again, I can deal with these quite briefly. All three interlinked amendments try to remove the requirement for an annual return. The principle is that the requirement for notification arises only when there is a change in that status requiring the notification. At Second Reading, there was some consensus that the proposed volume and frequency of making returns to the Valuation Office Agency in relation to changes was misconceived. We heard that it would bring into scope some 700,000 hereditaments on which an additional return-making duty will fall—we are talking about a return per hereditament, not a blanket return per operator. If you are, for instance, an outdoor advertising company—that trade body has been in touch with me, as it has with many other noble Lords—with thousands of billboards, or an operator of cashpoints, this starts to matter. I do not know whether the latter is a good or bad example.
I accept that, if we move to two-yearly or yearly valuation, the real-time provision of data capture becomes that much more important. But why, in all logic and seriousness, if a return is required for a change within 60 days after the event, is it also necessary to make an end-of-year return in addition for the same hereditament, especially as a form of return can be requested at any time by the VOA? To put it another way: the desire for real-time notification and coherence of VOA record-keeping cannot be a justification for unnecessary duplication of duties on the ratepayer. I really do not think that this should be a matter for negotiation; it is a matter of straightforward common sense.
I move on to Amendment 21 in my name. It seeks to ensure that ratepayers do not receive retrospective increases in their rating liabilities where the Valuation Office Agency has not acted promptly on the receipt of ratepayer-provided information. It is to prevent retrospectivity where there is delay in acting on the ratepayer’s provision of information on a notifiable event. Its intention is to cover all situations where the rateable value is likely to be affected, including entering a new hereditament into the rating list. I think it is basically self-explanatory, but it is the counterpart to the duties on the ratepayer to furnish information in a timely manner and, of course, the penalties for failing to do so—about which more in due course.
Lord Shipley (LD)
My Lords, my name is on Amendments 28, 33 and 34 in this group. I will come to the accreditation of rating advisers in a moment.
There are a range of issues here which relate to the performance of the Valuation Office Agency. I agree entirely with all that the noble Earl, Lord Lytton, has said about the amendment to which his name is attached and with Amendment 15 in the name of the noble Lord, Lord Thurlow, which is about the proposed requirement on the Valuation Office Agency to reveal rental comparables and the evidence used in arriving at a rateable value. A lot of these issues meet the test of reasonable common sense. If I were challenging a business rates bill or valuation, I would want to be certain that it was at the correct level.
The amendments in my name relate to annual reporting and, jointly with the noble Baroness, Lady Hayman of Ullock, to whether the Valuation Office Agency has a problem with its resourcing. We need to be clear whether it has a problem and cannot do things because it does not have the resources. However, the principle that this group of amendments tries to establish is that the Valuation Office Agency should meet the same performance standards that it requires of business rate payers. It should have a duty to provide information requested, in particular comparable evidence on valuations, as I said earlier. That comment relates to Amendments 15 and 16.
It is very important that the burden of the regulatory requirements on business rate payers is re-examined to make sure that all that business rate payers are now being asked to do is valid. It is said that all the proposed increases in workload are required because of the reduction of the valuation time period from five years to three. I am unconvinced by that and I hope that the Minister might be able to explain why that statement applies. Maybe, as I said a moment ago, it relates to resources. However, the Valuation Office Agency should meet the same performance standards that it requires of business rate payers. That is a very important principle.
My Amendment 34 relates to the Secretary of State being required to consult on the benefits and practicability of a system of accreditation for rating advisers. It seeks to explore an avenue for combating the rogue and unprofessional practices of some rating advisers. It is a simple issue. The new duty to notify will give rise to demand for professional help among business rate payers and, therefore, a serious risk of there being a rise in unqualified advisers offering services, so I conclude that there should be a licensing or accreditation system. At the very least, the Government should consult on that.
The context is simple: there is to be more work for business rate payers, the system is more complex, more will seek professional help and, when they do so, they will expect expert advice. If they do not get expert advice and mistakes are made which perhaps cost the business rate payer a substantial sum as a consequence, whose fault will that be? Of course, the immediate fault will not lie with the Government or the Valuation Office Agency, but behind that failure will be the fact that the Government could have done something to ensure that those who are giving advice are competent to do so.
This is simply a proposal that the Government set up a consultation for a system of accreditation. I hope that the Minister will take it seriously; it is a big issue. The changes in the Bill are welcome in so many ways but, as the noble Earl, Lord Lytton, said a moment ago, there is a danger of unintended consequences, which will cause some to feel that they have not been properly attended to. Setting up a consultation on the issue of accreditation of advisers seems an appropriate measure that the Government could take.
Baroness Hayman of Ullock (Lab)
My Lords, as we have just heard, I have Amendment 28 in this group. I thank the noble Lord, Lord Shipley, for his support for my amendment. We tabled this because we are concerned that the VOA may not be sufficiently resourced, particularly as the Bill gives the agency additional responsibilities. The noble Lord, Lord Shipley, has clearly expressed many of the concerns behind the amendment.
I looked at some recent data about the number of staff employed by the agency. The latest figures that I could find showed that it has a full-time equivalent of 3,698 staff, which is not huge, to be honest, particularly as a large number of new responsibilities is being brought its way. The global property consultancy, Colliers International, has described the Government’s plan to reduce the number of VOA offices from 56 to 26 as “a shambles”, and said that it will be a
“nightmare for businesses wanting to appeal their business rates”.
That is another reason why I was concerned enough to table this amendment.
We also know that there have been problems with the VOA managing the number of appeals and the time taken for resolution. I very much support what the noble Lord, Lord Thurlow, said in his excellent introduction to this debate, about the importance of transparency. He also talked about the number of challenges—30%—resulting in reduction. Clearly, that is too high and needs to be addressed—and the VOA needs sufficient resources to be able to do so.
We also know that, often, the number of challenges and the time taken for resolution relate to the number of rogue agents, many of which want to make a fast buck out of this. That is why we support Amendment 34 in the name of the noble Lord, Lord Shipley, which looks to address this. Again, we had discussions about it at Second Reading. We support his amendment and that of the noble Baroness, Lady Pinnock, in this group. In the letter that the Minister sent to noble Lords after Second Reading, she acknowledged that rogue agents need to be looked at and that this would be part of a government consultation. I hope that the Government will take this seriously enough to consider action on this following the consultation, because it seems genuinely to be a problem.
We very much support what Amendments 15 and 17, in the name of the noble Lord, Lord Thurlow, are trying to do to increase transparency in the revaluation process. We hope that that transparency would also reduce the number of appeals, as the noble Lord so eloquently said. Amendment 16, tabled by the noble Earl, Lord Lytton, would also increase transparency, and we would be happy to support it. Clearly, increasing transparency is important, but we have to be careful that amendments we put down on transparency do not have the unintended consequence of adding to the valuation office’s workload without it having sufficient resources—this comes back full circle to what I said at the beginning.
There is also the risk of a major bottleneck in the system, through the new online portal. It would be good to have reassurances from the Minister about how that will be resourced and managed. It is human nature that a large proportion of ratepayers will put in requests for their rental evidence soon after the 1 April date, when the new rating system is published. It would be helpful if the Minister could give assurances that the VOA will be able to respond in time to allow ratepayers and their agents to construct and submit challenges by 30 September—the six-month deadline—because that six-month window for a challenge is a fundamental change to the rating system. We need greater clarity and certainty about exactly how that window will operate, particularly in relation to new tenants and the changes in the list that occur during and after the six-month window. Where is that flexibility?
The Bill states that a ratepayer must provide “annual confirmation” that they have, first, provided “all notifiable information required” or, secondly, that they are “not required to provide” any such notifiable information. Is this confirmation likely to be digital, to fit in with the online system? Will accessible formats be reduced, and will any mitigating circumstances be considered, if a person is unable to complete that confirmation?
As the noble Earl, Lord Lytton, described it, his Amendments 18 to 20 remove the requirements for the annual return. He talked about duplication and unnecessary returns, and it would be helpful if the Minister could provide clarification on that, because a number of changes to how this is done are coming in, and it is important that it works smoothly from the start.
Baroness Scott of Bybrook (Con)
My Lords, group 3 concerns information sharing between the Valuation Office Agency and ratepayers, the performance and capacity of the VOA, and the behaviour of some of our rating agents. Central to this part of the Bill is our commitment to move to more frequent revaluations, delivered by Clause 5. As we have discussed, sustainably delivering this important goal is contingent on increasing the timeliness and quality of the information received by the VOA.
To ensure that the VOA has that timely and complete flow of information, Clause 13 introduces a duty on ratepayers to provide notifiable information to the VOA and to confirm each year that they have met their obligations under that duty. In return, Clause 10 provides the means for ratepayers to access an analysis of evidence used to set the rateable value for their property, which should reduce the need for ratepayers to make a challenge. Ratepayers will be able to access guidance from the VOA, provide information on their property and request evidence on their own valuations, all through an online service. This will be the same online portal through which ratepayers will also be able to provide their taxpayer reference number to meet the other duty introduced by Clause 13.
The noble Earl, Lord Lytton, asked about information if you have more than one property. The VOA will seek to enable ratepayers with multiple properties to provide information about their properties at the same time every 30 days, to limit their administrative burden. We have listened to requests from stakeholders for this functionality, and we recognise that there is also a benefit for the VOA from receiving information in this way. We will work with businesses, agents and software suppliers to rebuild a robust and effective system for ratepayers. The deadline for notification of the underlying changes will remain at the now-increased 60 days, and the same deadline will apply to all, regardless of the means of notification.
I turn to Amendments 18 to 20. As I have set out, Clause 13 includes a requirement on the ratepayers to confirm once a year that they have provided the information required of them—this will be digitally, to respond to the noble Baroness, Lady Hayman—under the VOA duty. Amendments 18, 19 and 20 from the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, would remove that requirement. I shall explain why this part of the duty is necessary.
Baroness Pinnock (LD)
I think that I have listened very carefully but, on the digitisation of business rates, which I support, did the Minister explain the arrangements that could be made for businesses in remote locations where there is little or no mobile signal and where broadband has yet to reach them, despite what I accept are the Government’s best intentions that that should be the case? I live in the upper Pennines region, where there are businesses and remote farming communities. So far, they do not have either. Ditto in the Yorkshire Dales; I know of businesses there with neither a mobile signal—one that works, anyway—or a broadband connection. What arrangements will be made for such businesses?
Baroness Scott of Bybrook (Con)
I am told that there will be a non-digital availability. I will get all the details for the noble Baroness and I will write a letter, which will also go to the Library.
The Earl of Lytton (CB)
I would like to tease out a little more information following the Minister’s response on Amendment 17. What happens, in effect, is that the evidence is part of an adjudication process. In my professional line of business, there are various stipulations about surveyors acting as expert witnesses and the way in which these things are to be handled. Amendment 17 is particularly important because, when one gets into a situation where there is an appeal pending, there is this little thing about equality of arms. If one party is able to use information that is held confidentially, to the exclusion of the other party, I do not think that equality—that transparency standard—is met. We are talking about what is ultimately something that leads to an appeal before the valuation tribunal.
Can the Minister say whether I have got it right that the VOA can have a protected category of evidence, as it were, that it is not prepared to share? This is something that has come up on my radar when looking at some of the blogs that have come out of the rating surveying world. It is a matter of fundamental importance in terms of the administration of any sort of justice system and adjudication, which is what this is. I would therefore like to pin down the Minister a little more on that point.
Baroness Scott of Bybrook (Con)
I think we made it very clear that the information that can be shared is the information that does not affect the data protection. Therefore, there will be information that cannot be shared because it will affect data protection. Because this is quite a legal issue, I will offer noble Lords a further, in-depth meeting, with lawyers there. If we are to get to the bottom of this, it is better to do that with a lawyer with us talking about the data protection law. Would the noble Earl be happy with that?
Lord Thurlow (CB)
I thank all noble Lords who have taken part in this group. I thought that the reference made by the noble Earl, Lord Lytton, to a timely VOA response was particularly apt, and I was grateful for his support just now on Amendment 17 on confidentiality. I thank the Minister for the offer to follow up.
The comment from the noble Lord, Lord Shipley, that the amendments in this group are simple common sense was one of the most powerful pieces of oratory that I have heard this afternoon, and I hope that it materialises very soon. I admired his well-made comments about the rogue agents, and once again I thank the Minister for her comments in that regard, as to how the Government intend to protect the public. I thank the noble Baroness, Lady Hayman, for identifying a number of concerns over the VOA’s resourcing, which tie in directly.
The Earl of Lytton
“(3A) No penalty notice may be imposed pursuant to paragraph 5ZC(1) or (3), and no offence is committed pursuant to paragraph 5ZC(2) (as the case may be), where P’s failure to comply, or P’s provision of false information, was made in reasonable reliance on any relevant guidance published by or on behalf of the valuation officer, or any advice provided to P by or on behalf of the valuation officer.”Member's explanatory statement
This would prevent the imposition of penalties where ratepayers’ errors or omissions are the result of reasonable reliance on VOA guidance or advice.
The Earl of Lytton (CB)
My Lords, this is the first of a series of amendments relating to penalties. Amendment 22 tries to create a defence to a penalty. I say straightaway that I do not have any principled objection to penalties as such, but the amendment tries to make sure that, when a penalty demand is made, if the ratepayer had reasonably relied on published Valuation Office Agency guidance or specific advice given about what was not relevant, that should be a relevant defence.
The Earl of Lytton (CB)
My Lords, I was making the point that it should be a defence for a business rate payer to say that they had reasonably relied on published VOA or other guidance in respect of anything to do with being made liable for a penalty. Failure by a ratepayer to notify carries with it a number of penalties, at least one of which is entirely open-ended—more of that in a minute. The implementation of this will depend very much on the extent and quality of the guidance issued, especially as it is supposed that this will be comprehensible to unrepresented ratepayers. I particularly make that point because we are trying to make sure that this does not trigger a requirement across the board for more ratepayers to seek professional advice.
I appreciate that the VOA will not bring in notification and penalty measures until it is satisfied that they work smoothly and seamlessly. That is my understanding—my words, I stress, not necessarily the ones that the Minister would use. My submission is that no government body should be at liberty to state one thing in guidance and then do something quite different or to reinterpret established understandings at its own whim and caprice to the detriment, in this instance, of a ratepayer.
I shall deal with Amendments 23 to 26 as a job lot because their purpose is to fix a number of issues that appear to me to be typos or errors of construction or perception to do with the way in which the penalty regime will work. First, the fixed penalty minimums for incorrect information provided to the VOA appear to be the wrong way round and Amendments 23 and 24 serve to remedy that. I think the figures have just been transposed.
Secondly, unlike the penalties in relation to the provision of information to HMRC as opposed to the VOA, there is no cap whatever for non-compliance on the VOA notification. This seems contrary to legal principle in general and at odds with non-compliance with, for instance, the form of return under Schedule 9 to the 1988 Act, which is subject to a cap, so Amendment 25 seeks to address that.
Finally, there is the question of the Valuation Tribunal for England’s—VTE’s—determination of penalties, which the VOA has imposed in lieu of prosecution for false information. As drafted in the Bill, the burden of criminal proof is inverted, with the ratepayer having to prove “beyond reasonable doubt” that they did not commit the offence. That cannot be right or reasonable. I suspect that it is not intended, either—I hope I am correct. Amendment 26 seeks to deal with that.
That summarises my amendments in this group. I beg to move.
Baroness Pinnock (LD)
My Lords, the noble Earl, Lord Lytton, has raised an important group of issues regarding the penalties that could be imposed on ratepayers who do not provide accurate, timely information. I hope that the Minister will be able to respond to that and explain how ratepayers seem to have more and more imposed on them. They must provide the information annually to the VOA—in the last group we debated the VOA’s transparency in relation to that—and the noble Earl has just raised the quite significant penalties imposed if the information is not accurate, even if, as he pointed out, there is a genuine error. It seems that, in the previous group and this one, we do not have the right balance of responsibilities between the VOA requiring information, what business rate payers are required to provide and where the final duty lies.
The VOA is serving two masters: the Treasury on one hand and business rate payers on the other. It seems that the VOA is responding to its Treasury master and is not giving sufficient cognisance to the customers—the business rate payers. The noble Earl raised some important points regarding that. We must get this balance right. The VOA needs to be more transparent and responsive to business rate payers. It also needs to be accountable to them—and the reverse is also true, as the noble Earl said. The VOA demands penalties if the ratepayer gets the information wrong but—hang on—the VOA makes errors all the time. Where is the accountability and compensation to business rate payers for those errors? The noble Earl raised that issue and I hope that the Minister will be able to get the balance right when she responds.
Baroness Hayman of Ullock (Lab)
I thank the noble Earl, Lord Lytton, for bringing the amendments on penalties forward because a number of questions around compliance and the penalties regime have been drawn to our attention. One is how it aligns with the wider UK tax regime generally. Another is that a new criminal offence is being created here, but is that actually necessary? Is this not covered by existing legislation and existing criminal charges, for example? I am more broadly probing why we need a new offence here.
Baroness Scott of Bybrook (Con)
Group 4 consists of Amendments 22 to 26, tabled by the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton. They are concerned with the application of penalties for non-compliance with the VOA duty. As we have said, we will not initiate the VOA duty until we are satisfied that all ratepayers can reasonably and efficiently comply. There will be a soft launch of the duty, during which time no penalties for non-compliance will be issued and the VOA will raise awareness and expand its engagement with sector bodies and businesses of all sizes. As was said, issuing penalties will be the last resort. The VOA and HMRC will ensure that the new online service is simple to use and will take multiple steps to encourage ratepayers to comply, through reminders and warnings, before issuing a penalty.
Amendment 22 seeks to prevent the imposition of penalties where ratepayers’ errors or omissions are the result of reasonable reliance on VOA guidance. However, it is already the case that the VOA is able to apply penalties only where the ratepayer could reasonably be expected to know that the information would assist the VOA. All ratepayers will need to do to ensure that they are complying is follow guided steps on GOV.UK. If the ratepayer follows this guidance, the VOA will not, under the existing provisions of the Bill, be able to apply penalties. Thus, we do not think that this amendment adds anything of substance to the position as it already stands. If a penalty is issued in error where a ratepayer has relied on VOA guidance, the Bill gives the VOA the power to remit it. Ratepayers will also be able to appeal any penalty applied, and this will be independently reviewed by the valuation tribunal.
Amendments 23 to 25 are designed to address the penalty tariffs applicable to instances where a ratepayer has either failed to notify the VOA or provided false information. I will briefly explain the Government’s approach here. The Bill sets out the maximum level of penalty which the VOA may apply depending on the nature of the failure to comply. Our intention, as set out in our response to the technical consultation, is for the VOA sometimes to levy lower penalties than are set out by the framework of the Bill. Penalties will be levied as a percentage of the change in the rateable value rather than the entire rateable value and, where penalties are issued for a failure to provide information, the minimum penalty will be reduced for those on lower rateable values.
The Bill also introduces an offence where a ratepayer has knowingly or recklessly made a false statement. In these cases, a ratepayer could be subject to criminal sanction. Alternatively, making a false statement will lead to a civil penalty, the amount of which is provided by new paragraph 5ZD. Where the civil penalty is applied, in practice the maximum penalty will be 3% of the change in the property’s rateable value plus a fixed penalty of £500. To address the amendment, the Bill rightly provides a more severe penalty for knowingly or recklessly providing false information.
The point has been made that there should be a cap on daily penalties following an initial instance of failure to provide information. This information can have a direct impact on tax liability, so it is crucial that the duty is underpinned by a fair and proportionate but robust compliance regime. However, I can provide the reassurance that, even after the initial 60-day deadline, ratepayers will receive a reminder, warning and final warning before a penalty is applied. Only after an additional 30 days would the first daily penalty of £60 be issued. Ratepayers will be able to request a review and appeal of any penalties imposed. The daily penalties will be stopped when the ratepayer provides the required information, so as soon as the ratepayer complies, the penalties are effectively capped.
Applying daily penalties in this way is not an uncommon feature of taxation penalty regimes. For example, Schedule 36 to the Finance Act 2008 deals with powers for HMRC to request information from taxpayers and imposes penalties for a failure to provide such information. It includes penalties of up to £60 per day for as long as the non-compliance continues, without an overall cap on liability.
Amendment 26 seeks to alter the burden of proof which the valuation tribunal should apply when deciding whether to uphold a penalty decision. Of course, when considering a higher penalty for a ratepayer who has provided false information, the VOA must in the first place be satisfied beyond reasonable doubt that the information was provided knowingly or recklessly. There is considerable protection for ratepayers already.
Nevertheless, I am grateful to the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, for raising questions about the appeals process. We will of course review the relevant text. I hope that, given that I have explained why the system of penalties is designed as it is, noble Lords will agree the amendments are not necessary.
The Earl of Lytton (CB)
My Lords, I thank the noble Baronesses, Lady Pinnock and Lady Hayman, for their contributions on this group of amendments. The noble Baroness, Lady Pinnock, referred to the necessary balance here, and I agree. The noble Baroness, Lady Hayman, queried whether the application of criminal charges is properly introduced here, whether the Valuation Office Agency is the right outfit to make that call and whether it will be given the necessary guidance and assistance to make consistent rulings in that respect.
It seems to me that the question is about the discretion of the VOA to do things—its ability to do or not do—as opposed to a legal duty. It seems to me that some sort of duty on the VOA is part and parcel of its overarching statutory duty to, for instance, maintain a correct valuation list. It also seems to me that those duties should mirror the obligations and penalties imposed on the ratepayer, otherwise it is a very asymmetric situation. That is, to some extent, what I was trying to deal with in Amendment 16.
The Minister has given various explanations of the Government’s position here. On Amendment 22 and the question of “reasonably be expected to know”, she said that this covers the guidance given and therefore the amendment does not add anything of substance and that there is a right of appeal. I think I will have to consider carefully what she said. With regard to Amendments 23 and 25, I felt that I had detected a series of typographical errors, but I understand the Minister to have said that they are not errors and that the Bill is deliberately worded that way. I am not sure that on a fair reading that is likely to be the case, so I hope they may be looked into at some stage or other.
On the cap or no cap, I have already pointed out that there is a degree of asymmetry between the approach that has been adopted in the Bill in this respect and what happens with failure to deal with the form of return. I appreciate that there is the “knowingly or recklessly” test, but we have a rather circular argument here because, if the VOA is again the sole arbiter of “knowingly or recklessly” and the thing then proceeds to a tribunal that says something different, I would hope that we could have got to a situation well before then where the ground rules were understood. Is the Minister saying that the wording of the Bill is in all respects what was intended and that there are no typographical errors in it as I had supposed? Will she please clarify that point?
Baroness Scott of Bybrook (Con)
No, there are no typographical errors in the Bill. I think the noble Earl asked that question earlier, and there were none.
Just to be clear on criminal offences and why they are necessary, there is already a criminal offence for providing false information in response to a request for information by the VOA. So we are not putting in a criminal offence—there is already one there as it stands now. It is interesting that criminal charges will be only for “knowingly or recklessly” giving false information. If it is just a false statement, for whatever reason, that would still be a civil penalty.
The Earl of Lytton (CB)
My Lords, I see a point here, and I shall have to reflect further on what the Minister has said in this respect and may well need to return to the issue at a later stage of the Bill. For the time being, I beg leave to withdraw the amendment.
The Earl of Lytton
Member's explanatory statement
This would delay the commencement of the alteration to the reality principle until the 2026 List enters force.
The Earl of Lytton (CB)
My Lords, I must admit that this amendment is something of a stalking horse—a bit like asking a Prime Minister on a Wednesday morning what is in the diary for the coming week. What I am really saying is that Clause 14 should be deleted and I thought that, rather than moving that the clause do not stand part, it was better to seek an explanation. That is why it has been done this way.
The amendment relates to material changes in circumstances of hereditament. This is not the same as physical alteration to the hereditament itself. A standard alteration to its extent, and an extension to or improvement of the physical fabric, will continue to be taken into account, as I understand it, as and when it occurs. There is no attempt in the Bill, as I read it, to fetter that—rather, this is to do with matters that do not change the measurable physical attributes of the hereditament itself but none the less patently affect its physical enjoyment.
I am particularly indebted to Luke Wilcox of Landmark Chambers for some very pertinent guidance on this issue. I have a note from him that he has given me permission to share with other noble Lords, and I may well do that, as it goes into more detail about what I am trying to explain.
In non-domestic rating, there is a hypothetical landlord and tenant and a hypothetical lease between the two as well as an assumed obligation for certain states of repair, none of which necessarily mirrors the actual state of affairs relating to the property. However, the hereditament itself is real, measurable and a physically determinable entity, and how it is to be regarded has always been subject to what in legal jargon used to be referred to as the rebus sic stantibus principle. In simple terms, that means that one had to value the hereditament and its environment as it physically is. That is in essence what is now known as the reality principle.
There are two legs to the reality principle. The first is the physical extent—the construction, age, layout and other physical characteristics, fixtures and fittings and general suitability and fitness of purpose of the hereditament for its intended or actual use. The second relates to the local circumstances affecting the area where the physical hereditament is situated. Put another way, it is the local business environment that underpins its physical enjoyment, as distinct from its physical extent. This could be location in relation to other complementary trades, whether there is or is not good customer accessibility, the relevance of parking restrictions, proximity to public transport, levels of shopper footfall and all those sorts of things, which are not related to the physical nature of the hereditament itself but are part of its market environment and, therefore, its rental value.
The current position is that, where there is a change in a matter affecting the physical enjoyment of the property, such as a regulatory change to its planning status or a change in a matter which is physically manifest in the locality—in the past, Government Ministers referred to changed bus routes; I would add a change in road layout to that category—those matters, to the extent that they are evident and quantifiable, are material changes in circumstances, or MCCs, and can trigger a mid-list change in rateable value. Such factors are a part of the reality principle, which is one of the most fundamental concepts in rating law and, to my certain knowledge, has been so for over five decades.
What is proposed here is that Clause 14 would amend the rules that govern when a mid-list alteration to a property’s rating assessment is permitted by changing the definition of what may constitute “material changes of circumstances”. Under the Government’s proposals, those matters, even though manifestly affecting physical enjoyment, would no longer be MCCs, wherever and whenever they are directly or indirectly attributable to legislation or official guidance. Under the relevant portion of the Bill, new paragraph 2ZA(2)(a) of Schedule 6, inserted by Clause 14, an MCC is something that is
“directly or indirectly attributable to a relevant factor”.
New paragraph 2ZA(3) goes on to say what the relevant factors are:
“legislation of any country or territory … provision that … is made under, and given effect by, legislation of any country or territory … advice or guidance given by a public authority of any country or territory … anything done by a person with a view to compliance with anything within paragraph (a), (b) or (c)”.
New paragraph 2ZA(5) states that
“‘legislation’ includes any provision of a legislative character … ‘public authority’ includes any person exercising functions of a public nature”.
This, to my mind, is a substantial change to what has long been understood. What is proposed here is that this category of what has always been understood to be a material change in circumstances should be removed.
It appears that this is a response to matters that arose during Covid. The various Covid lockdown regulations significantly altered the way in which occupiers could occupy their premises. This in turn gave rise to a number of requests for mid-list alterations, since the regulations affected the ability of occupiers physically to enjoy their properties. The Government considered that general legislation should be part of the general market conditions considered at revaluations—this is the case being made—and so should not count as MCCs. However, the Government’s view in this regard differs not only from their own internal guidance, which I checked only yesterday on their website, but from that of the Valuation Office Agency, which regarded, and still regards, legislative changes as MCCs where they are physically manifest. That much is evident from the paperwork.
The Government passed the Coronavirus Act 2020, which prevented matters directly or indirectly attributable to the coronavirus regulations from being MCCs. This was a very specific and nationwide response to an emergency situation and was promoted as such. Clause 14, however, seeks to extend that principle to all events arising from legislation or regulation of all kinds and in all normal times, which is a very different construct.
The Government claim that Clause 14 is intended to restore the law to its originally intended state and condition and that its purpose is to require general legislation and guidance to be treated as part of the general market conditions which are thought to be considered only when a new list is compiled—which, under the Bill, would be every three years. However, under Clause 14 we are considering not necessarily nationwide or even emergency situations but much more mundane changes, often of a local or per-property specific nature. Some are harmless and insignificant but others would have significant effects on individual businesses and the physical enjoyment of the premises. These measures could deny a beneficial use which underpins the operation being run from a hereditament. Clause 14 is not the same thing at all as restoring the situation to what was always understood in rating practice but, in fact, a material departure from it.
The audit trail of legislation that brought in what is now Section 2(7) of the Local Government Finance Act 1988 does not support the Government’s claim either. In fact, it reveals quite a different narrative, and an examination of Addis Ltd v Clement (VO), which has long been and remains the benchmark legal decision that the 1988 Act sought to enshrine, demonstrates this. Not only that but its antecedents go back to the 1920s and have been reaffirmed at senior judicial level as recently as 2020. I repeat: the Government’s guidance on their website and the guidance issued by the VOA make it clear that changes which affect the physical enjoyment of the hereditament, as distinct from changes to the physical hereditament itself, are indeed in scope of material change of circumstances.
This means that Clause 14 will have a far wider effect than the Government’s stated intention. That is because, if something can be so loosely defined as being “indirectly attributable” to a change in legislation, and thereby no longer treated as a material change of circumstances of the relevant type, this opens up a vast array of circumstances in which the causative measure and the non-MCC status may apply. Many things would come into play which affect perhaps only one property or a discrete group, such as a change in planning permission, a premises licence or a road layout change. These are changes which in many cases—in fact, almost invariably—can be made only by dint of legislative authority but none the less would henceforward be “indirectly attributable” to legislation, and thus no longer material changes of circumstances.
There is no sense in which a change in, say, the planning status of an individual property or the exercise of administrative authority resulting in something which patently affects the physical enjoyment of a single property or a locally identifiable property type, can be regarded as part of general market conditions, falling to be dealt with only at revaluation, yet those changes will be excluded under Clause 14 as currently drafted. I do not think that such an approach could ever be justified even on an annual revaluation basis. They are not general market shifts but the result of specific, conscious measures by an authority exercising powers.
Why is this a problem? If the planning or licensing position of a property, or its accessibility or commercial standing in its locality, have changed early in the life of a list, under Clause 14 the ratepayer will continue to pay rates on what would be an incorrect valuation, possibly for almost three years. This gives rise to clear unfairness and inequity. On my reading of the Bill, a billing authority would presumably be in no position to require the rateable value to be reviewed if it implements a scheme under a statutory power which could increase the rateable value of a hereditament in like circumstances.
Lord Shipley (LD)
My Lords, I think the wise course of action now would be to listen to what the Minister has to say. I am very supportive of what the noble Earl, Lord Lytton, has said. He called this amendment a stalking horse; we clearly need a definition of the Government’s intention and there is clearly a legal question that must be sorted out. I said at Second Reading that I had concerns about material change of circumstances being altered in the way the Government are proposing, not least to exclude legislation such as licensing laws and guidance from public bodies. As a layman, in legal terms, in this area, it seems to me that legislation can cause a material change in circumstance, particularly if licensing or planning laws are altered. There is a case for that to be considered. These Benches would very much like to hear the Minister’s justification for what is being proposed. If that requires a letter to explain the legal issues involved, that would be helpful. The noble Earl has raised a set of very important questions.
Baroness Hayman of Ullock (Lab)
My Lords, I will be very brief. The noble Earl, Lord Lytton, has laid out his concerns very clearly and in great detail. At the least, we need clarification. We have talked about the problems around licensing conditions; the hospitality sector in particular is very concerned about the implications of being stuck with a valuation for three years that, bluntly, may not be correct. It would be very helpful to hear what the Minister has to say and for her to give reassurances to the licensing sector that its circumstances will be taken into account.
Baroness Scott of Bybrook (Con)
My Lords, I am grateful to the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, for their amendment. I understand the concerns around this clause; I will take the opportunity to explain why we consider this measure to be necessary and to set out the limits of its application.
As we have heard throughout the passage of the Bill, more frequent revaluations and the measures we are introducing to support them are central to the reform of the business rates system. It is through those revaluations that the rating system is able to track and reflect changing economic circumstances. In property valuation terms, rateable values are updated at revaluations to reflect changes in economic factors, market conditions and changes in the general level of rents.
Of course, that does not mean that rateable values never change between revaluations. It would hardly be fair if, for example, a ratepayer demolished part of their property but this was not reflected until the next revaluation, or if a new property were built but escaped rates until the next revaluation. Therefore, some changes are reflected in rateable values as and when they happen. Examples include changes to the physical state of the property, the mode or category of occupation of the property or matters affecting the physical state of the locality. These matters, reflected as and when they occur, are called material changes of circumstances—MCCs.
The MCC system has been operating in this way for many years, but, during the coronavirus pandemic, we found that it was not working as intended. Large numbers of challenges were made, seeking reductions between revaluations for the effects of the pandemic, which by their nature were part of the general market conditions. Such general market matters should be considered at general revaluations.
Therefore, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 clarified the law to ensure that coronavirus and the Government’s response to it were not an appropriate use of MCC provisions. Specifically, that Act ensured that anything done to comply with legislation, advice or guidance given by a public authority and attributable to coronavirus should not be an MCC, subject to some exclusions. The principle in that Act was approved by both Houses, and it received Royal Assent on 15 December 2021.
Clause 14 of the Bill merely takes that principle, clarified and accepted by this House in the 2021 Act in relation to coronavirus, and applies it more generally to all legislation, guidance and advice from public bodies. Changes in such matters are part of the economic factors and market conditions for a property and should be reflected at a general revaluation. This clause will protect the integrity of the rating system and ensure that more frequent revaluations can proceed smoothly. It will protect the system not just for central government but for local government, which relies on the revenue from business rates. The Local Government Association supports this clause and agrees that these matters should be reflected at general revaluations. But this does not mean that these matters are not reflected in rateable values; it just means that they are reflected only at the set date of each revaluation, along with all other economic and general market factors present at that date.
Furthermore, we have limited the scope of Clause 14 to three aspects of the MCC system to ensure that it operates fairly. This is to ensure that physical changes to the property or the state of the locality are still reflected. Therefore, Clause 14 will bite on only three types of MCCs. First, it will catch matters affecting the physical enjoyment of the property but not the physical state. This might include changes in how the property can be used following new legislation or guidance. Secondly, it will catch matters that are physically manifest in the locality but not matters affecting the physical state of the locality. This might include changes to traffic flows and bus or transport services. Thirdly, it will catch the use or occupation of other premises in the locality, which might include the change in use of a nearby property where, for example, the original use has been prohibited by new legislation.
Clause 14 will ensure that matters such as physical changes to a property or to the state of the locality continue to be immediately reflected in valuations, even if they are a result of new legislation or guidance. Clause 14 will also not bite on whether the property is non-domestic or domestic or whether it is exempt. Overall, Clause 14 will preserve a long-established principle by ensuring that matters that go more to the market conditions and general level of rents of a property belong in the general revaluation process. Of course, with more frequent revaluations, these factors will still be updated more often than ever before.
The clause will provide important stability and certainty to the rating list and, therefore, to the vital revenue for local government that flows from the list. Therefore, it would not be prudent to delay the introduction of the clause, as this amendment seeks. I know that the noble Earl will be disappointed that we are unable to agree to this, but I hope that I have set out the basis for taking this measure and also given him some assurances regarding its scope. I will look at Hansard tomorrow and will write to noble Lords with further explanations if I feel that they are required.
The Earl of Lytton (CB)
My Lords, I thank the noble Lord, Lord Shipley, and the noble Baroness, Lady Hayman, for their support in connection with this. Although I understand what the Minister says is the intention of Clause 14, having been taken through it in some detail by more than one expert, I am bound to say that I do not agree with her about the effect of the clause. There is a difference in understanding, and I wonder whether it could be dealt with by a further discussion—the Minister is nodding, which I am grateful for. It is very difficult if somebody reads this in one way and says, “This could cover a multitude of things that could be excluded”, and the Minister says, “Actually, it is not intended to do that and these are the safeguards that we have built in”.
All I can say at this juncture is that I will certainly return to this on Report. I hope that there can be a meaningful dialogue on this in the meantime. It would be wrong for me to go into a detailed unpicking of what the Minister said at this hour and given the other pressures on us. To that end, I beg leave to withdraw the amendment.
Baroness Hayman of Ullock
“Threshold for small business rate relief adjustment: impact assessmentWithin 90 days of this Act receiving Royal Assent, a Minister of the Crown must lay before Parliament an assessment of the impact of reducing the threshold for small business rate relief on the future of the high streets.”Member’s explanatory statement
This is intended to probe the possibility of reducing the threshold for small business rate relief.
Baroness Hayman of Ullock (Lab)
My Lords, Amendment 29 was tabled just to probe the possibility of reducing the threshold for small business rate relief, particularly in consideration of our high streets. We know that business rates remain one of the largest fixed costs for retailers and that they fundamentally impact business planning and investment decisions; for example, the convenience sector’s business rates liabilities are over £274 million, despite the small business rate relief. We also know that retailers are facing a particularly difficult time at the moment: we have increased commodity prices, skyrocketing energy bills and structural changes to the labour market—there is an awful lot going on and a lot of instability.
We are concerned that the current revaluation of business rates, which was implemented in April this year, will hit smaller high street stores in particular. They struggled during the pandemic and afterwards, and, combining that with a winter ahead with higher energy bills, we have particular concerns. We have called for short-term support through an increase in the threshold for the small business rate relief. We suggested that the current threshold of £15,000 be increased to £20,000 in order to give SMEs a discount on their business rate bill for 2023-24.
Baroness Pinnock (LD)
My Lords, Amendments 30, 32 and 35 are in my name in this group. They cover two issues. One is reform and the other is review. The reform amendment is Amendment 30 because, as many of us said at Second Reading, we are tinkering at the edges of business rate reform and change. What is needed is, in fact, what the Conservative manifesto promised in 2019—a fundamental review of the system. Amendment 30 asks for a review and reform of the non-domestic rateable value system between different parts of the retail sector. It focuses particularly on the retail sector.
In Amendment 30, paragraphs (a), (b) and (c) of proposed new subsection (3) identify the different sectors: single-shop businesses in high streets,
“chain stores with multiple premises in city centres and out-of-centre shopping malls”
and “mainly online operations” by global businesses, which do not pay their fair share of taxation in any case and seem to be taxed very lightly in business rates compared to the sectors mentioned in proposed new paragraphs (a) and (b).
I would like the Government to agree to the amendment, as they already recognise that the system is not fair and equitable. For example, the current system acknowledges that small businesses are overtaxed by the existing system of assessment and responds to that by creating a plethora of business rate reliefs, such as small business rate relief, charitable relief and so on. The Treasury funds those reliefs, but how much better would it be if the system was designed from the outset to be more equitable between different parts of the retail sector? It would encourage more activity on our high streets, which benefits local businesses and the communities that they serve, and would also extract more money from those who have most and who have avoided taxation the best—global online retail businesses.
At this point I shall say, for brevity, that Amendment 36 in the name of the noble Lord, Lord Thurlow, is an excellent expression of what I have just tried to achieve with my Amendment 30, so I obviously totally support that and look forward to the noble Lord describing exactly how it will be achieved.
Lord Thurlow (CB)
That was an impressive introduction. I apologise for bringing this up so late. I was not going to table it, as it was too difficult, but I just could not not do so. I give great thanks to the Table Office for drafting and help.
This group is listed as reliefs and reviews, and I feel strongly that we should dwell more on reviews than reliefs. While injustices should be addressed in the short term with financial relief, the non-domestic rating system is broken, and it seems that the attempts to fix it have become too difficult and it has become easier to throw taxpayers’ money at reliefs than to review it. I believe that the attempts to resolve the injustices in the system have simply been considered too difficult—as I did until last night, or Friday—and have been kicked into the long grass. I would like nothing more at all than to hear from the Minister that action is expected very soon.
One particular injustice, perhaps the most trumpeted, is that of the small high street retailers we have heard about, struggling to survive against the onslaught of internet shopping. In ordinary business terms, the free-market economy dictates the survival rate of businesses, but in this case there is an important further dimension—so much more important—which is the public interest case for healthy high streets. They provide a social necessity to our communities, a valuable asset in the social fabric. We know the subject is complex. A number of high street retailers and major supermarkets have websites; some SMEs may rely on them. These and other good reasons simply complicate the matter; they do not make it impossible.
There is a fiscal irony here. The growing turnover and profitability of internet retail is directly felt in the high street by falling demand. Falling demand translates as falling rental value. It follows that the rateable value will fall. Without this amendment or something similar to it, net tax receipts will also fall. Introducing fairness to the rates paid by internet retailers will go some way—possibly a very long way—to making up for the loss of high street rate contributions.
The solution lies in a new property use class for the purposes of assessing NDR—not to overlap with use classes in the planning Acts; I would run a mile from that. This would be purely for rating. It would correct the current major imbalance between retailers paying warehouse rates and high street retailers paying high street rates. Warehouse rates are a fraction of high street equivalents. Internet retailers know this, and their profits swell by the artificial discount the system supports.
The amendment proposes that the Government conduct a review to make recommendations for a new rating use class. It would harness expertise from the commercial property sector. The amendment gives the Government 12 months to bring a new Bill before Parliament with recommendations to correct this widely recognised injustice.
The Earl of Lytton (CB)
My Lords, I support the amendments in this group. At one of my meetings with the Minister and her Bill team I was told that it was not HMRC—or they may have said Treasury—practice to produce an impact assessment as such, and I was directed to a series of notes in lieu. But business rates have an impact on business, employment, entrepreneurial activity and the health of our high streets, and have long seemed a substantial tipping point in decisions about taking on premises, where the tax levied is 50% of the determined market rental value. That puts into shade the collective cost of things such as insurance service charges and other occupational outgoings.
There is a basic imbalance here; I have said so on many occasions in the House and elsewhere. Upfront impact assessments and post-legislative review are exactly what is missing here. I agree with the noble Baroness, Lady Pinnock, that small business relief and small business exemptions are almost an admission of the failure of the system we have.
Turning to Amendment 36, tabled by the noble Lord, Lord Thurlow, I totally agree with its underlying principle that the tax base for local government finance needs to be broadened, with proportionately less of a burden falling on what we might call the traditional business rate payer. This is becoming an impediment. What are termed fundamental reviews have been a great deal less fundamental than they ought to have been. The system has been creaking for some time and one should take notice when things start to creak; it usually means that something is wrong. I very much relate to these amendments, and I look forward to the Minister’s comments.
Lord Shipley (LD)
My Lords, my name appears on two of the amendments in this group. Underlying the whole group is a major issue: the Treasury now sees business rates as a source of general income to government, but many small businesses see them as a contribution to local services. That has got out of balance.
I strongly support Amendment 36, in the name of the noble Lord, Lord Thurlow, who has just spoken. He talked about the impact of online shopping on small high street outlets and said that there was a public interest case to be made. Indeed, Amendment 29, moved by the noble Baroness, Lady Hayman of Ullock, probes the possibility of reducing the threshold for small business rate relief on high streets. A number of us raised that issue at Second Reading.
A number of issues are raised in this group. I have an amendment on the hospitality sector. It is not clear to me what reason there would be for not having a hospitality sector review, as I propose. It is about assessing the consistency of approach; we have spoken a lot about high streets, but this applies to the hospitality sector as well. There needs to be an assessment of whether there is a consistent approach for setting non-domestic rateable values between hospitality businesses occupying premises of similar size and trading style. I cite public houses, restaurants, live performance theatres and exhibition spaces as examples. This is the kind of thing that government should be doing anyway, but there is a huge policy issue now around what business rates are for and how we make sure that they are being fairly charged.
Baroness Scott of Bybrook (Con)
My Lords, group 6 covers several amendments probing the Government’s support for high street businesses and the wider impact of the Bill. I am grateful for the useful discussions that I have had with noble Lords on what are, undoubtedly, significant issues.
Amendments 30 and 31, from the noble Baroness, Lady Pinnock, and the noble Lord, Lord Shipley, seek a review of the effect of business rates on the retail and hospitality sectors. I recognise that the conditions for businesses in town centres and high streets are concerning for many noble Lords. The Government take these concerns seriously and recognise the impact that increased competition from online businesses, changing consumer behaviour and Covid-19 has had on the fortunes of some high street businesses.
That is why the Government have taken decisive action to ensure that business rates are manageable for ratepayers on the high street. First, 720,000 properties, including many smaller retailers, pay no rates as a result of small business rates relief. Additional support has also been provided for those that do have rates bills: at the Autumn Statement, the Chancellor announced a package of business rates measures worth £13.6 billion. This included a general freeze of the multipliers for all properties, as well as increased support—from 50% to 75% relief—for retail, hospitality and leisure properties, which is worth over £2.1 billion. As we heard, the Government also scrapped downward caps and, as we move to more frequent revaluations through the Bill, we will see a business rates system that better reflects real market values, which was the leading ask of businesses in our review.
I understand that the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, tabled Amendment 26 to encourage the Government to more actively intervene in how different types of property used in the retail sector are valued. Valuation is, of course, conducted independently by the VOA. All properties subject to business rates are assessed to the same standard of rateable value, which is, broadly speaking, the annual rental value. Properties are valued by reference to the evidence on the level of rents, which is agreed by landlords and tenants for that specific property class. If, at the most recent revaluation, the evidence shows that those open market rental values have increased, rateable values will change with them. Nevertheless, in all cases, the method must result in the common standard of rateable values.
In our review of business rates, the Government sought views on many different ways in which the valuation system could be changed. However, there was strong majority support for retaining the existing basis of rateable value. Therefore, we do not support significant changes to the industry-recognised valuation methodology, as was suggested.
Baroness Hayman of Ullock (Lab)
I thank noble Lords for the debate we have had on this, and I thank the Minister for her thorough response to the debate. I thank her particularly for her assurances regarding the impact of the revaluation on local authorities. It is important that that is taken into account. There are still outstanding issues in this area, particularly around the impact on the hospitality industry and other specific groups that will be affected and how we manage online versus high street and get an equitable position. I should have mentioned in my opening speech that we support the amendment tabled by the noble Lord, Lord Thurlow, and I thank him for his introduction to it. I beg leave to withdraw the amendment.
Non-Domestic Rating Bill
Tuesday 19th September 2023
(1 year, 2 months ago)
Lords ChamberRead Full debate Non-Domestic Rating Act 2023 Read Hansard Text Amendment Paper: HL Bill 140-R-I Marshalled list for Report - (15 Sep 2023)
Baroness Hayman of Ullock
“(za) the chargeable day falls after the day on which qualifying energy efficiency improvements are completed,”Member’s explanatory statement
This amendment, and others to Clause 1 in the name of Lord Ravensdale, would allow qualifying energy efficiency improvements improvement rate relief until at least 1 April 2029.
Baroness Hayman of Ullock (Lab)
My Lords, the noble Lord, Lord Ravensdale, is unable to join your Lordships’ House today due to work commitments, so he has asked me to introduce his amendments in the first group as I have added my name to them. Amendments 1, 2 and 3 in this group all relate to rate relief for energy efficiency improvements. Specifically, they allow qualifying energy efficiency improvements improvement rate relief until at least 1 April 2029. That contrasts with the current position of the Government, who have previously made it clear that they intend to offer improvement relief for only one year.
I understand from the noble Lord, Lord Ravensdale, that he has had constructive meetings with the Minister, but that during those meetings she raised two particular concerns about the implementation of his amendments, if the Government were to accept them. First, she raised the issue of the reduction in rates revenue that would come if the amendments were passed. The noble Lord asked me to draw attention to the fact that that would be offset by the increased investment in energy efficiency that would therefore result, including a reduction in the cost of bills, as well as the ensuing energy security and sustainability benefits that would come from the introduction of his amendments.
The second concern the Minister raised was about the classification of energy efficiency measures for valuation purposes when compared with renewables and energy storage. The argument here is that this would mean that almost any building works could potentially qualify: for example, replacement windows and anything to do with the fabric of the building itself. We understand what the Minister is saying about this and why she raised that point, but we would add that, while an insulated extension might have an incidental efficiency benefit, we believe—as does the noble Lord, Lord Ravensdale—that it should be possible to distinguish between changes that are mainly or wholly for the purpose of improving energy efficiency and those where the improvement is incidental. We should be able to differentiate between the two. The suggestion the noble Lord made is that the Government could look at tweaking the draft regulations on which they have recently consulted. It would be very constructive for the Government to discuss this further with the noble Lord to see whether this is an option going forward and whether it could actually be achieved.
We support the steps that the noble Lord is suggesting to encourage businesses to carry out energy-efficiency improvements. They are important because that would not only align with the UK’s climate and emissions targets but lead to long-term savings for ratepayers and bring about efficiencies all round. The recent increases in energy bills have created enormous uncertainties —very much so for high street retailers, who have been in a volatile market for some time since Covid—and the Government should explore incentives such as this. I beg to move.
Lord Stunell (LD)
My Lords, I listened carefully to what the noble Baroness, Lady Hayman of Ullock, said in support of the amendments tabled by the noble Lord, Lord Ravensdale. Looking at those amendments and their context, I think they present a viable option for the Minister to examine and respond to. It is important to consider where the benefit is likely to fall should these amendments be accepted. As I see it, it will primarily benefit SMEs above the small business rate relief threshold. That is not a guaranteed threshold, by the way; it is at the discretion of the Government of the day, from time to time.
For many of those smaller SMEs above that threshold, business rate costs easily exceed energy costs, even in this day and age. Therefore, for many of those businesses, their focus is on getting their rates down and getting the Government to do that, perhaps overlooking the need to make energy improvements, which they perhaps do not see as central to their business operation, nor producing a dividend that they can cash in good time. This amendment skilfully joins those two things. It offers, to those who find the rates burden excessive—and perhaps we could add “Who doesn’t?”—a mechanism for reducing them by investing in energy performance measures. I certainly agree with what the noble Baroness said about the shape of the guidelines, which would obviously be produced if these amendments were passed, and what those energy improvement measures should be and how they might be properly measured.
There is a clear incentive mechanism here, which is clearly needed because there is no doubt that businesses in that sector in particular are lagging behind on energy efficiency—for the reasons I have outlined: they have other business pressures on them and it is certainly not at the top of their to-do list. Also, they probably do not have an ESG policy or a policy statement committing their enterprise to getting to zero carbon by 2050. These are a band of enterprises which are core to the British economy, but they are not exactly headline-making businesses when it comes to developing their social and environmental policies. They need a nudge. To give them a nudge which reduces their rates bill seems a mechanism which merits careful exploration.
The measures in these amendments would be helpful in that hard-to-reach SME sector, often occupying hard-to-improve premises. To join those two things up would be very worth while. We cannot rely on reaching our 2050 targets for the built environment purely on the good will and common sense of hard-pressed SMEs, which have so much else to do.
There is a greater public good to be achieved. If the Government feel that there is any element of giving money away that they do not need to do, I would simply argue that this is, or could be, an important step in delivering that public good, which is reaching zero carbon by 2050—reducing our carbon emissions and avoiding climate extinction. I very much look forward to what the Minister has to say by way of response on behalf of the Government.
The Earl of Lytton (CB)
My Lords, I support these amendments. As we are at this stage of the Bill, I declare that I am a chartered surveyor, a registered valuer and a member of the Rating Surveyors’ Association. It is some time since my bread and butter was generated from dealing with non-domestic ratings; the concepts are well trod, but I will not claim to have any up-to-date knowledge on some of the finer points.
The noble Baroness, Lady Hayman of Ullock, mentioned some of the concerns that the Minister has put forward. My ears pricked up a bit, as they always do when I hear about ministerial concerns. The first was a reduction in revenue. Let us be clear: we are talking about not making an increase—not actually losing something that was there before. It is the increase created in value that is discounted under the Government’s proposals, for no more than one year. The purpose of these amendments is that the increase should not bite for a longer period. That is important, because the work to improve energy efficiency of buildings is sometimes only really justifiable over quite a long period of time. There is no instant fix. In the meantime, it has to be funded, by a loan or an imputed opportunity cost of money for that period. As I said at an earlier stage of the Bill, one year is simply too short and would be no incentive. The other question about the reduction in revenue is: what is better, not to be able to charge the increase in rates, or someone not to do the work at all because they consider that they should defer the evil day for doing it? There has to be some incentive all round.
The second point that the noble Baroness referred to about what the Minister had said was on the classification of energy-efficiency works in valuation terms. I really do not see that there is any particular difficulty with that. Valuers are dealing with these sorts of things all the time, whether they be tenants’ improvements that are disregarded for rental value purposes, which is actually the nearest open-market analogy to what one is dealing with in business rates valuation, or whether it be for some other purpose—the cost-benefit of some scheme or other. One obviously has to look at these things in the round. If somebody is just replacing the windows and nothing else, clearly they are doing a bit to the U-value to make it more efficient, but it is not a holistic approach. Alternately, if they are part of any type of scheme that one would put forward—that may come out of the further guidance that was referred to by the noble Lord, Lord Stunell—they will have to look at these things on a holistic basis, because you cannot just put a draught-proof strip on a door and expect your bills to go down. It does not happen like that.
These amendments are very important. I do not see the difficulties that the Minister raised in discussions with the noble Lord, Lord Ravensdale, so I wholeheartedly support this. The Government could afford to be a little more generous-minded over the whole thing. I encourage the Minister, when she is replying, to perhaps apply that metric.
Baroness Swinburne (Con)
My Lords, I am grateful for the amendments in this group presented by the noble Baroness, Lady Hayman of Ullock, and tabled by the noble Lord, Lord Ravensdale. They give us the opportunity to discuss this important matter again.
Baroness Hayman of Ullock (Lab)
My Lords, I thank noble Lords who took part in this debate and gave their strong support for the amendments of the noble Lord, Lord Ravensdale. It is much appreciated.
I feel that the Minister gave the reasons for the Government not doing this that I mentioned at the beginning, when I explained why we thought that they could, so I am not hugely convinced. It is good that the Government are looking at energy efficiency—it is really important and has not been taken seriously enough in the past—but, as the other areas that the Minister mentioned have been included, why not expand this to include the amendments from the noble Lord, Lord Ravensdale, and what they would achieve? Anything that improves energy efficiency should be encouraged, in a nutshell.
I hear what the Minister has said and I am sure that the noble Lord, Lord Ravensdale, will look carefully at Hansard, but I think it would be good if the door to discussion could be kept open. On that note, I withdraw the amendment.
Lord Shipley
“(4) Omit subsections (8A) and (9).”Member's explanatory statement
The intention of this amendment is to remove the prohibition on a billing authority giving relief on a hereditament occupied by a billing authority, a precepting authority or a GLA functional body.
Lord Shipley (LD)
My Lords, now that we have begun Report, I remind the House that I am a vice-president of the Local Government Association.
I have said previously that there are many good things in this Bill. When we have moved amendments, as we are doing today, the aim is to make it a better Bill. The Government—any Government—face huge challenges with business rates. Inflation-linked rises in the cost of business rates is one challenge, and I think it is generally acknowledged that business rates have simply got too high for many businesses to cope with. Proportionately, when you go back one or two decades, business rates are indeed very high.
A second problem lies with internet sales, which, frankly, are destroying the high street. One-third of retail sales are now online, and that is having a devastating effect. Just two days ago, the British Retail Consortium wrote to the Chancellor, calling on him to freeze property taxes in order to prevent further high-street closures. As the consortium said, a rise would have the impact of
“threatening the viability of many shops and hindering the industry’s capacity to invest”.
I subscribe to that view, and I hope that when we come to the Autumn Statement some indication will be given that that will be the Government’s intention.
As I said in Committee, while I welcome revaluations moving to every three years, I would prefer them to be every two years, because valuations that are more up to date reduce costs and confusion and make life easier for lots of businesses. I see this Bill as a staging post to getting to two years—we shall look at that in a future group. I would also prefer locally set multipliers and would like to think that the Government would look at greater fiscal powers for local government over the next two or three years. That said, this Bill makes positive changes, and I would now like to address the amendments that I have put down to make the Bill even better.
In moving Amendment 4, I will also speak to Amendments 16, 17 and 18. The intention of Amendment 4 is to remove the prohibition on a billing authority giving relief on a hereditament occupied by a billing authority, precepting authority or GLA functional body. These prohibitions prevent authorities awarding relief to premises such as markets which they own. This was a particular issue in the 2020 retail, leisure and hospitality relief, where billing authorities found that they could not give relief to premises of which they, or a precepting authority, were the occupier—including, for example, local authority markets. My amendment, which is supported by the Local Government Association and by the National Association of British Market Authorities, would address this problem.
There are in the country some 1,150 markets, of which 84% are operated or controlled by local authorities. They perform a vital role in the retail sector and our community infrastructure, and many have long histories. During the recent Covid pandemic, however, these markets were unable to enjoy the substantial financial help provided by the Government on business rates because of a restriction in Section 47 of the Local Government Finance Act 1988 that prevents a local authority giving relief to itself or to a precepting authority. Local authority markets were obliged to bear the full burden of business rates while many businesses and, indeed, markets operated by private and community organisations were able to take advantage of the substantial help provided by the Government.
In 2022, the National Association of British Market Authorities carried out a major survey of our markets. Stall occupation in many markets has fallen significantly from 2018, when the last survey took place. The number of traders continues to fall: five years ago, there were 32,000 market traders; last year, the number had fallen below 30,000. Many local authorities report having to subsidise their markets to enable them to continue operating. With the many demands on local authority budgets, there is a prospect of these subsidies being withdrawn to protect front-line services, which could threaten the continued existence of many markets, many of which are a venue for information on a wide range of public services, making available banking, library and health services where such services are no longer represented at other venues in the area.
The Government have previously changed their position on this general issue as they granted a specific exemption to Section 47, providing that local authority public conveniences should no longer be liable for business rates. This earlier concession provides added support for the amendment now being sought.
Amendment 16 would require the Secretary of State to consult on the benefits and practicality of a system of accreditation for rating advisers. This amendment seeks to explore an avenue to combat the rogue and unprofessional practices of some rating advisers. It is about having a consultation, because the new system defined in the Bill will get more complex, with new reporting requirements and demands for greater accuracy. There will be greater demand for rating advisers. In my view, such rating advisers should be accredited and maintain professional standards if they offer commercial services. Therefore, I advocate a consultation on what steps should be taken.
Amendment 17, supported by the noble Lord, Lord Black of Brentwood, who is unable to be here today but whom I thank for his support, provides that advertising rights in respect of social infrastructure sites, including bus shelters, other advertising rights granted by contracting authorities and public telephone kiosks shall be exempt from local non-domestic rating. The current business rates system is challenging the viability of advertising-funded social infrastructure and community services. It is now increasingly at risk. Yet these sites return value to local communities through rental payments, service provision, their installation, their very existence, their cleaning and their maintenance, as well as any other social investment, including living roofs, air quality sensors and solar panels, all of which help local authorities meet their net-zero targets. If a business rates exemption applied, it could lead to higher investment directly into local communities. Councils can benefit from rent, revenue and profit sharing currently amounting to around £143 million a year, paid directly to them, but it is claimed that the new legislation that the Bill represents puts this at risk.
The Earl of Lytton (CB)
My Lords, I want briefly to address some of the amendments in this group, so ably moved and spoken to by the noble Lord, Lord Shipley. I note that in his Amendment 4—and to some extent in the question of social advertising—he is referring to the purposes for which a hereditament is occupied. We already have this situation in the sense that if a charity occupies a shop for charitable purposes, it gets a degree of mandatory relief. Possibly the only difference is that the charity must have a Charity Commission registration number, and therefore its whole constitution, terms of engagement and memorandum and articles of association are clearly laid out.
The only thing I would say about Amendment 4 is that it is important to make sure that some sort of asymmetry does not come in as a result of using the purposes of occupation approach; otherwise, I can see that there might be accusations of unfair competition. I therefore see no reason to object to the billing authority’s discretion being exercised in its own favour, subject to there being a properly laid out policy that makes it clear to everybody what it is doing and is possibly subject to democratic processes.
I suppose that Amendment 16 should warm the cockles of my heart in terms of the accreditation of non-domestic rating advisers. Of course, I come from the background of being a fellow of the Royal Institution of Chartered Surveyors, which is an accreditation body in its own right. Indeed, a large amount of the edifice of “check, challenge and appeal”, which was put in place by the Government to deal with the huge backlog of rating appeals many years ago, was to do with the fact that unqualified people were putting in blanket appeals and clogging up the system. The accusation was that many of these were totally unmeritorious and were simply wasting everyone’s time—so there is a case for doing it. There was a case for doing it instead of going through the malarkey of “check, challenge and appeal” in the first place, and all the powder and shot and grief occasioned thereby—but we are where we are and if it can help streamline the business so that people are bound by codes of conduct and can be called to account for their actions, all well and good.
I shall comment a bit on Amendment 18, which is also in the name of the noble Lord, Lord Shipley. I sent him today—I apologise to him for not having sent it a lot earlier—the consultation that is going on regarding avoidance and evasion. In that is some business about who does rating work and rogue rating surveyors. I believe that the consultation finishes on 28 September. I hope there will be further discussion with the industry and stakeholders about how it is going to formulate—but the point made by the noble Lord is well made, and I am glad to see that something is in progress.
Baroness Hayman of Ullock (Lab)
My Lords, I think the noble Lord, Lord Shipley, for his amendments and for his clear introduction to them. I also thank the noble Earl, Lord Lytton, for his contribution.
As we have heard, these amendments relate to rating agents, anti-avoidance, discretionary relief and viability rights, all of which are really important issues that we need to discuss. Amendment 4 would remove the ban that currently prevents relief being given to certain buildings. We know that the Local Government Association is very supportive of that amendment, because the current rules prevent councils from giving discretionary relief to their own hereditaments. As we have heard, both now and in Committee, this is particularly an issue with local authority markets. It became problematic particularly during Covid-19 because local authorities were unable to give those markets the business rates relief that other businesses were able to benefit from, which meant that many local authorities had to subsidise those rates in order for the markets to continue operating.
I am assuming that the ban is to prevent conflicts of interest; perhaps the Minister could confirm why it is in place. If that is the case, will the Minister consider whether there any added flexibility should brought into this prohibition so that, in times of particular need, councils can be flexible? If the Government are not going to accept the amendment, let us look at what else we could do to help.
Amendment 16 would start the process for accrediting ratings advisers. The reason I want to talk about this amendment in particular is that there seems to be an increasing number of reports of rogue agents claiming that they can help businesses. It seems to be a growing problem. There are concerns that the situation will be further exacerbated when the Government bring in annual returns and the duty to notify in their reforms, partly because that complicates the system.
Our concern is the impact of that on the smaller retail and hospitality businesses in market towns right across the country. They may not be seeing the reductions in their rates bills that they should be in the revaluation from 1 April, making them more vulnerable to approaches by rogue rating surveyors who promise that they will help them negotiate a new revaluation but do not deliver and disappear, leaving the businesses high and dry. That is our particular concern. So do the Government recognise that this is an increasing problem? If so, perhaps we should look at tackling it in the way in which the noble Lord, Lord Shipley, has proposed. We cannot allow this situation to continue and to get worse, because it will affect many small businesses that simply cannot afford it.
Amendment 17 exempts social infrastructure sites—such as bus shelters and telephone boxes—which have advertisements from paying business rates. I am not sure that the Minister will have this figure at his finger- tips, but it would be interesting to know how much is currently generated from this kind of advertising: what impact are we talking about?
Finally, Amendment 18 relates to anti-avoidance. I know that the Government have recently consulted on this, so it would be good to know exactly what action they are looking to take.
The Earl of Courtown (Con)
My Lords, I thank all noble Lords who have contributed to this relatively short and interesting debate on a wide-ranging subject. It is good that the noble Lord, Lord Shipley, has given us the opportunity to look into these matters a little further.
I will go through the amendments, but not necessarily in chronological order, so noble Lords will have to bear with me. I understand that the noble Lord, Lord Shipley, tabled Amendment 16 based on his concerns regarding the conduct and sharp practices of some rating advisers, as mentioned also by the noble Baroness, Lady Hayman of Ullock, and the noble Earl, Lord Lytton. I sympathise with and recognise the concerns behind this amendment and welcome the opportunity to discuss the work the Government are doing to address them.
I reiterate in the clearest terms that most rating agents are legitimate organisations registered with a professional body. Nevertheless, as my noble friend the Minister has said previously, we know that a minority of agents seek to take advantage of their clients through predatory practices and exploitative contracts, or by actively promoting rates-avoidance strategies. The Government have published a wide-ranging consultation, as mentioned by the noble Earl, Lord Lytton, on avoidance and evasion in the business rates system. The consultation includes a specific chapter on those rogue agents with whom this amendment is concerned and seeks views on how the Government could address any issues arising from their conduct. While there is no regulatory regime that covers all rating agents, a set of agent standards has been jointly published by the three professional bodies: the RICS, the Rating Surveyors’ Association and the Institute of Revenues, Rating and Valuation.
Recognising the importance of the professional bodies to the system, the Government will, as a matter of course, take the views of these organisations into account and will be engaging with them through the ongoing consultation process. The Government also provide advice on GOV.UK on how to find a reputable agent and the considerations that businesses should take into account when deciding to appoint an agent. Furthermore, the Valuation Office Agency is currently developing a standard for all rating agents, in alignment with existing HMRC agents’ standards.
The Government are keen to work collaboratively with rating agents to tackle poor practice. Our aim is to find a balanced solution that prevents sharp practice but does not impinge on the legitimate work of agents up and down the country.
Amendment 4 would remove the legislative bar which prevents local authorities awarding discretionary rate relief to their own properties. I understand that the concerns of the noble Lord and the noble Baroness are primarily with the application of business rates to local authority-run markets. The Government fully recognise the contribution that markets make to the vibrancy and diversity of our communities. We are supporting local authority-run markets with access to the £2.6 billion towns deal programme and the £1 billion Future High Streets Fund. We have also made permanent the permitted development rights which enable markets to be held by local authorities for an unlimited number of days.
Lord Shipley (LD)
My Lords, I thank the Minister for his reply, which I found very helpful. I shall withdraw Amendment 4. I hope that all the amendments I have put my name to today will form part of a constant review of business and non-domestic rate structures, because the system is showing serious signs of stress. I do not think it can continue as it currently is. As a consequence, Governments of whatever persuasion will have to address the fact that reform of business rates is increasingly essential. I beg leave to withdraw my amendment.
Lord Shipley
Member's explanatory statement
This amendment would require central non-domestic rating lists to be compiled every two years.
Lord Shipley (LD)
My Lords, I move Amendment 5 in my name, and will speak also to Amendments 6 and 7, which would, in effect, do the same thing. My name also appears on Amendment 15, which is in the name of the noble Baroness, Lady Hayman of Ullock. I will leave her to speak mostly to that amendment. It is about review and the point I made a moment ago—that we have to keep reviewing business rates and how they operate because of the challenges currently faced.
I have tabled these amendments so that we can hear again from the Government the justification for a three-year review, as opposed to the two-year review which I would prefer. I prefer two years because it has many advantages. It would be more efficient and reflect changes in valuations more quickly. It could reduce work and it would be really good if it could be done.
I understand that there is already a reduction to three years and to reduce it further would be pretty hard to do as quickly as it would have to be done. Therefore, I would probably accept the Government’s advice that they are mindful of the need to move to two years, that there are major advantages to it and that that is the sense of the journey they are following. It would be very helpful. I have tabled Amendments 5, 6 and 7 so that the Minister can respond and confirm again that it is the intention to get towards a system that does a business rates review every two years. I beg to move.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the noble Lord, Lord Shipley, for his amendments. This group is all about revaluations and reviews of rates. The first three amendments, which the noble Lord, Lord Shipley, has introduced, would change the timeframe for compiling non-domestic rating lists. I thank the noble Lord, Lord Thurlow, for his support and encouragement for my Amendment 15, and I support his Amendment 19. Those amendments are looking for broader reviews of the business rates policy. The intention is to look at how frequently we should review our business rates.
One reason we have concerns about the current system—and it is good that the Government have looked at this and reduced it to a certain extent—is that if reviews are done only over a certain period, the rest of the system needs to be fit for purpose. We are concerned that the current system makes it extremely hard for businesses to appeal their assessments. If you have an assessment that is high, it is difficult to appeal and to manage that, which creates difficulties, particularly for small businesses. The whole system needs to be much more fit for purpose if it is to work for businesses and for local authorities.
The Labour Party’s policy is to scrap business rates altogether and to replace the current system with one which works to incentivise investment. We think there should be more frequent revaluations. If property values drop for particular reasons outside a business’s control, there should be the ability to do more frequent revaluations. Where businesses are caught out in this way, bills should be reduced. There should be incentives and rewards for businesses which, for example, move into and invest in empty properties. It is about encouragement. Earlier, we talked about green improvements and energy efficiency and how you encourage businesses to invest in this way. The whole system needs to be a bit more nimble and more effective in supporting small businesses. The Government need to work with businesses, people working for those businesses and public bodies in order to get a system that is genuinely fit for purpose and supports local businesses and local authorities in the way it needs to.
Lord Thurlow (CB)
My Lords, I declare my interest as a former chartered surveyor with interests in rating. This amendment and the rest of the amendments in this group clearly call for a review of business rates. I am pleased to add my name to the amendment in the names of the noble Baroness, Lady Hayman of Ullock, and the noble Lord, Lord Shipley.
A change which had been promised and which was long overdue is this review of business rates. It is particularly disappointing that the result of the review will be declared so shortly after the end of the progress of the Bill. It is the wrong way around. A redefinition of use classes—not for planning but for non-domestic rates purposes—is certainly required in order to reflect the changes that have taken place in the real world. Should Airbnb properties which are professionally managed as such be subject to council tax or to non-domestic rates? Likewise, one can follow that thought process through to the high street. Some of the changes of use in the high street to non-retail property do have specific use classes, but this needs to be brought up to date.
Should a sole trader with one or only a handful of outlets receive start-up incentives to boost their chances of survival? As Amendment 15 seeks, small retailers really should have the thresholds for relief purposes reviewed urgently. Dozens and dozens are going bust in the high street every month, on the watch of a Conservative Government whose mantra is to support business, and particularly small businesses. I just do not understand why there has been such neglect.
I turn to Amendment 19 in my name. This is one of several amendments requesting a general review of non-domestic rates. As part of this, I support the reference in Amendment 15 to a two-year review. That is taking it at quite a racy pace compared with the current five-year programme, but I think we should see it as the objective in the process of increasing the frequency of reviews.
We also need the Government to address the imbalance of the rates burden between the high street retailers and the big-box dark retailers—the internet retailers. We know, of course, that many smaller high street retailers operate mail order businesses. That is not what I am referring to; I am referring to enormous warehouses, measuring hundreds of thousands of square feet. We all know of Amazon—this is effectively the Amazon amendment. The small retailers in the high street cannot compete, and rates alone create a massive disadvantage to the high street retailer. What are we doing? We are doing nothing, and we should be doing something about it.
Lord Etherton (CB)
I strongly support Amendment 19 from the noble Lord, Lord Thurlow. I too read the article in the Times yesterday to which he referred. The fact of the matter is that, while rents have decreased substantially due to inflation and other measures, rateable values are very high and the rates payable are now no indication at all of the actual rental value of the properties. That is one of the reasons why, in an unstable market, it is very important to have the valuations done as often as possible, to reflect the actual rental value of properties.
The second point on which I very strongly support the noble Lord, Lord Thurlow, relates to what he has called the Amazon amendment. This is the one critical factor that would bring rates into the modern world. Unless we address this critical issue, we are ignoring the reality of modern-day retail life. It is critical that the Government address this Amazon amendment as soon as they possibly can. If one reads the professional press—such magazines as the Estates Gazette—this is always raised by every retailer as one of the greatest iniquities, and possibly the greatest iniquity, of the current rates system.
The Earl of Lytton (CB)
My Lords, I congratulate the noble Lord, Lord Thurlow, particularly on Amendment 19. It is a pleasure to follow the noble and learned Lord, Lord Etherton, on this because it strikes at the heart of what I have always felt about the rating philosophy. The noble Lord, Lord Shipley, inferred a few minutes ago that rating is demanding too much of the tax base to which it is applied. I have made the same point myself over many years. I remember one eminent rating surveyor telling me, “You know, once the rate in the pound starts to get near to 50%, things start changing. People’s attitudes start changing”.
I am afraid that HMRC, which has global responsibility for this, has been extremely slow to catch up with what is happening and to realise the paradigm shifts created by the increasing burden of business rates. Leaving aside things such as small business relief and so on, I did a calculation—a few years ago, so the analogy is even more potent now—showing that business rate payers in small premises of between 1,000 square feet and 3,000 square feet were paying materially more by reference to property value and square footage occupied, by some considerable factor, than their residential counterparts. I use that because when I first started working in this area, in what was then known as the Valuation Office, all those years ago, there was a common rating system, and residential and commercial had a common base. That is why I got little old ladies in cottages in Lewes High Street in Sussex complaining that the pub next door, which sold all this liquor, had a rating assessment that was half theirs.
What has happened is that, because of the burdens, markets have shifted. The noble Lord, Lord Thurlow, referred to traders who operate from industrial estates— I think that was one of his examples. I used to joke about this, because the archetypal online operation was a stockroom that was a van on the motorway somewhere, a showroom that was a glossy website, a till that was an online payment portal and a communications system that was a pocket mobile and an email address—this was how the thing operated. People have got very slick, because now you have a big industrial shed at the front of which is a retail and trade counter, which occupies quite a small part of the footprint, and the rest is a big storage shed. We all know the names they have. They sell plumbing, electrical equipment, household goods, all of which you can order online. This is one of the difficulties, because seeing the opportunities of online, many of these operators have seen that the two operate very beneficially with the physical hereditament they occupy as well: the two have a synergy that works effectively. This is absolutely a moment when the Government need to take stock.
The amendment of the noble Lord, Lord Thurlow, refers to high streets. I will return to this in a few minutes when I get to amendments of mine. Unless we get this right, the attrition of high streets will continue, and they will change into something that is not a general purpose destination for people wanting to shop for everyday goods. They will become a sort of entertainment centre with restaurants and bars and the night-time economy. That may be a good idea, but there is an area of conflict here. If we want to bring residential property back into town centres, then residential occupiers do not relish the thought of people turning out at eleven o’clock at night, having had a jolly good time at the bar. That is one of the issues. Another issue is that a lot of these places need to be serviced; they need to have their bins emptied. If there is a local authority or contractor refuse lorry turning up at 6 o’clock in the morning, people will get fed up with that.
We have to start getting this right, as to what the complementary uses are and how to deal with them. More particularly, how do we reverse this process of the alienation of people—who are otherwise willing and able traders—from our traditional high streets? This matters because that is how they are designed and built. That is the social construct that led to the buildings being built and appearing the way they are. I shudder at trying to transform them into totally different uses. When I see things like permitted development for change of uses in town centres, I worry about what will happen and whether that is an irreversible change that will produce more of the conflicts that I have referred to.
Although I slightly shudder every time somebody mentions a review of business rates, because we seem to have an awful lot of them, I think that this is a body of work that needs some serious thought from academics, practitioners and particularly from people like valuers and retailers, because that is where this analysis comes in. The valuers are not making the roles; they are simply interpreting how people go about their business and do their trade. The derivative is a value, and whether it is a rateable value, a capital value or for investment purposes, we need not alienate these purposes. I congratulate the noble Lord, Lord Thurlow, because he has raised an absolutely fundamental point in relation to non-domestic rates.
Baroness Swinburne (Con)
I thank noble Lords for their passionate speeches. It is clear to me that we share the same objectives; we may just have slightly different ways of getting there. I hope I can satisfy noble Lords by the end of my speech.
This group of amendments returns to the theme of the effectiveness of the business rates system as a whole. Amendment 15 in the name of the noble Baroness, Lady Hayman of Ullock, and Amendment 19 from the noble Lord, Lord Thurlow, would require a further review of the business rates system to, respectively, expand small business rate relief or rebalance the tax burden between high street and internet retail. Amendments 5, 6 and 7 from the noble Lord, Lord Shipley, concern the frequency of revaluations.
I turn first to whether we should conduct a review of the tax. As noble Lords are aware, the Bill is the product of the Government’s own comprehensive review of the business rates system. That review was delivered in around 18 months in 2020 and 2021, which allowed us to do justice to the significance and complexity of the exercise. The review considered a wide range of evidence and reached clear conclusions about the effectiveness of a tax as a means of funding local services and the limited evidence in support of a fundamental overhaul, but also the opportunities for reform.
The Bill seeks to deliver more frequent revaluations and to enable the abolition of downward transitional relief—two of stakeholders’ key asks—alongside other measures. Making these revaluations more frequent, as we are doing with the new three-yearly cycle, will make the tax more up-to-date and therefore fairer. We agree with noble Lords. I accept that some would like us to go further, but a majority of respondents to the review supported a three-yearly revaluation cycle. Moving from every five to every three years is a major reform of the system, and to do this we must implement significant changes to how ratepayers and the VOA interact, which will take several years to bed in.
Lord Thurlow (CB)
Before the Minister sits down, perhaps I might clarify something I said that, I think, might have been misunderstood. In the context of Amazon—I am sorry to use a particular company, but we all know what I mean by it—I did not say that I wanted to redefine the way in which the non-domestic rating system works; I simply want to redefine the use of the property. A property such as an Amazon warehouse is being used for retail and should therefore be described in the rating register as retail property in some form, not as warehousing: it bears no relation to warehousing use.
Baroness Swinburne (Con)
As the noble Lord will probably appreciate, I am not an expert in this area, unlike him. But I will contact the team and make sure that he has a thorough answer in writing. I believe that some of these issues have already been addressed in this review, but I will confirm that in writing to him.
Lord Shipley (LD)
My Lords, I am grateful to the Minister for her reply, and I was pleased to hear her say that we share the same objectives. I very much hope that we do and that we can continue to do so, because there are some fundamental issues here. Theoretically, I do not regard business rates as a good tax, in the sense that I think there are other ways in which taxation could be raised from businesses. However, it is the system that we have, and altering it would take a large amount of time: it would take several years to get movement on that. For that reason, I ask the Government to look very carefully at some of the suggestions that have been made in your Lordships’ Chamber this afternoon. The point that has been made by the noble Lord, Lord Thurlow, is very important. A warehouse should not be counted as a warehouse for business rates taxation if it is delivering a retail function. That is my first point.
My second point is on Amendment 15, moved by the noble Baroness, Lady Hayman of Ullock. It relates to the possibility of reducing the small business rate relief threshold. I take the point the Minister made about the number of properties that have already qualified for business rate relief, but I think the Government ought to look at that being increased. I thought the point made by the noble Lord, Lord Thurlow, was hugely material: business rates used to be half the rental level but have now become almost 100% of the rental level. This is simply not tenable: we cannot go on with that. As the noble Earl, Lord Lytton said, we are witnessing the continued attrition of our high streets and something has to be done about that.
The third point I make on what the Government could do urgently is not to increase business rates by the current level of inflation. I think the Government may well be willing to consider that—I hope the Chancellor would. All these things matter because business rates have got out of balance. Having said that, I beg leave to withdraw the amendment.
The Earl of Lytton
“(2) Subject to sub-paragraph (4), V must disclose the information to P if V considers it is reasonable to do so.”Member’s explanatory statement
This is to reinforce the need for a reciprocal duty of disclosure on the VO by making disclosure mandatory save for the exceptions in sub-paragraph (4).
The Earl of Lytton (CB)
My Lords, I shall speak also to Amendments 9, 10 and 11 at the same time. All of these cover slightly different things, and I will try and skate through fairly quickly. In each case, I am simply looking for some reassurance from the Government Bench that these matters are in focus and that certain things will be done.
The first is the question of disclosure of information between the Valuation Office and a ratepayer’s surveyor. It may well be that practices have grown up because of these rather unsatisfactory, unqualified surveyors, who have been going around for some time. There are many fewer of them than there used to be. It may well be that the Valuation Office has somehow built a defensive carapace against this, faced with representations that might not have been all they were cracked up to be. But at the end of the day, there is this question, which the noble and learned Lord, Lord Etherton, will understand, of equality of arms: there has to be some common sharing of information and data relating to the value of the hereditament, otherwise negotiations really are in a pretty pickle and, in many cases, will get into worse level of dispute than is absolutely necessary.
As my explanatory statement says, Amendment 8 would reinforce the need for a reciprocal duty of disclosure on the valuation office by making disclosure mandatory, except for the exceptions in sub-paragraph (4), which is basically a data protection exception. I would very much appreciate comment that this will happen and there will be guidance within the Valuation Office Agency to deal with this—to improve transparency and to reinforce confidence.
Amendments 9 and 10 relate to the question of an annual return or confirmation requirement on ratepayers, which is a new provision that the Government are seeking to insert. I had to check my notes from the previous stage of the Bill, but according to the information I had, this would result in some 700,000 hereditaments having to make an additional return or being at risk of making an additional return. The point that was made to me, and that I continue to make, is that this is potentially excessive. In discussions with the Bill team and the Minister, we were given reassurances that there would be piloting and that they would not roll this out unless it was running smoothly and the online system for reporting was robust. I would simply like to have reassurance on that point and that the results of the pilot will be a matter of discussion with stakeholders, so that we do not just have a one-sided arrangement on that. The truth of the matter is that many ratepayers do not understand the terminology because they are traders; they are not people who are involved in getting to understand what a “hereditament” is—as I may have said at an earlier stage of the Bill, it is not a word easily conjured with. There is a great deal that they do not understand about making returns as they are at the moment, so there is a need for a process of general simplification. That deals with Amendments 9 and 10, which are connected.
Amendment 11 relates to something slightly different, which is consequential on this whole reporting business, and that is that, when a business ratepayer advises the Valuation Office Agency that there has been a change, the matter is dealt with promptly, whether it is a reduction or an increase. An increase obviously affects the income from the rating scheme as a whole, but a reduction is something that directly affects the ratepayer. At the moment, I understand there is still quite a considerable backlog within the Valuation Office Agency. The concern is that, unless the backlog is cleared and unless there is better funding and resourcing within the Valuation Office Agency, these things will be held up. The idea here is that ratepayers in particular should not receive retrospective increases in their rating liabilities unless the valuation office acts promptly on receipt of ratepayer-provided information. This is to give an incentive to the valuation office to make a prompt approach and deal with it, but it is all to do with speed of turnaround of necessary changes. Not everything that is advised to the Valuation Office Agency will be relevant, but quite a lot of it may be. If we are going to get into this new era of reporting 60 days after an event has happened and at the end of the year, then we need some reciprocity in relation to that. That is the gist of those amendments.
I just add that, although the Minister has not spoken to them yet, I support government Amendments 12 and 13. They are necessary and appropriate. I have no real views on Amendment 20 either way; it is an administrative consequence of other amendments. I beg to move.
Lord Thurlow (CB)
My Lords, I rise to support Amendment 8, moved by the noble Earl, Lord Lytton, and particularly the reciprocal duty of disclosure by the VOA apart from for data protection reasons, to which the noble Earl referred—although I object to the latter myself. However, I think it is repugnant that, in this country, where we so treasure transparency in the law and all its constituent parts, the government department responsible for non-domestic rates does not have to reveal its evidence to an applicant, which may be a small business struggling to survive, unless the rates are challenged formally. To challenge a rating assessment formally inevitably requires that small business, possibly teetering on the edge of survival, to instruct a rating specialist to advise it at a fee. Only when there has been a challenge is the valuation office required to reveal its evidence. Why on earth do we tolerate this opaque behaviour on the part of a government agency? It is fundamentally wrong, and I congratulate the noble Earl, Lord Lytton, on raising this very important issue. If it did not involve cost in this way and impact those vulnerable smaller businesses particularly—we are talking not just about shops but about businesses, offices and small industrial properties—it would be less sensitive. But I think this is very important, and I hope the Minister will be kind enough to give us a full response.
Lord Etherton (CB)
My Lords, I also support Amendment 8 in the name of the noble Earl, Lord Lytton. Ideally, it is worth avoiding appeals. Appeals can be avoided only if there is confidence that you have the material available. That presupposes a sharing of information that is open and transparent. One of the criticisms that is often made is of the time taken in appeals, the obscurity of the role adopted by the valuation office and its failure to disclose information. It seems to me that it is in everybody’s interests, economically and in terms of management time and stress, to avoid appeals by an early disclosure of information where requested.
Baroness Hayman of Ullock (Lab)
I thank the noble Earl, Lord Lytton, and others for speaking to these quite technical amendments. As the Minister said previously, I would not say that I am an expert on these issues, but it is very important that they have been raised. It is particularly important with valuations and penalties that we properly understand the implications of the Bill.
I have one question for the Minister on government Amendment 12, which limits the daily penalties that are applicable. I wonder where the figure came from and whether the Minister thinks it will be a sufficient deterrent.
Baroness Swinburne (Con)
The noble Earl, Lord Lytton, has tabled a number of amendments related to the provision of valuation evidence to the Valuation Office Agency. I am grateful for the opportunity to address this again, following the earlier debate in Committee, and to explain how the Government have listened to the suggestions heard in that debate.
As has been noted previously, these reforms are essential to securing the sustainable delivery of more frequent revaluations, which I know noble Lords support. Clause 10 consists of a power to allow the VOA to share valuation information with ratepayers. Amendment 8 would make this power a duty, and I will explain why the Government cannot support this. The Government are absolutely committed to providing greater transparency about how rateable values are calculated. The VOA has recently consulted on how, in practice, they intend to use this clause. It is an important part of the reforms and a key plank of our commitment to ratepayers. However, as that consultation reflects, we cannot overstate the importance of privacy rights. The information relied on by the VOA in establishing a valuation will, in some cases, include personal and sensitive data, so it is right that we take an approach which is common among other data gateways; namely, that the gateway is permissive: it permits the VOA to disclose information rather than placing a requirement to do so. This approach safeguards the interests of ratepayers and their data, but I am clear that within the necessary constraints of the clause we are committed to the transparency of valuations.
Amendments 9 and 10 from the noble Earl, Lord Lytton, seek to remove the requirement in Clause 13 for rate- payers to submit an annual confirmation as well as a notification to the VOA when there is a notifiable change related to their property. On this amendment, the Government are mindful of those concerns. Of course, we should not burden businesses where we do not need to. However, we have a safeguard in place for that very purpose. The Bill provides that the annual confirmation can be brought into force later than the other parts of the VOA duty, and the Government have been clear that we will not bring it into force until we have ensured that it will be sufficiently straightforward for ratepayers to complete. We intend that completing the annual confirmation should be a matter of only a few minutes for those who are already up to date with the duty. Moreover, the annual confirmation will serve a valuable purpose for ratepayers, as well as the VOA. By providing a further opportunity to ensure that they have complied with the duty, the annual confirmation will act as a safety net.
Amendment 11 seeks to prevent the VOA backdating changes to the rating list after a certain period. We are aligned on the importance of the VOA acting promptly and accurately on information received about a property. The VOA takes this very seriously and is performing well—it meets its own targets for processing checks within 12 months and challenges within 18 months in 99.9% and 98% of cases respectively. Of course, as we develop these new systems for the VOA duty, we will review the VOA’s operational targets accordingly, but in light of the VOA’s performance on its existing targets we do not see the need for primary legislation in this space. Furthermore, we hope the noble Earl will recognise that the information provided under the duty may vary considerably by type of property. In the view of the Government, that does not point to a one-size-fits-all approach being appropriate. Instead, it requires effective and transparent performance monitoring, which we will continue to provide under the new system.
I shall explain the steps the Government are taking through government Amendments 12 and 13 to improve the penalties regime for the VOA duty following proposals made by the noble Earl, Lord Lytton, in Committee, for which I am grateful. Amendment 12 deals with the daily penalties which the VOA may apply where a ratepayer continues not to comply with the valuation notification requirement 30 days after being served an initial penalty notice. Its purpose is to encourage timely compliance with the duty. However, it has been noted that in the similar provision for the separate duty to provide HMRC with a taxpayer reference number, a cap on daily penalties equivalent to 30 days of the maximum penalty is applied. The Government have decided to extend this protection for ratepayers to the valuation notification duty. Of course, it is vital that the VOA can secure the information it needs to deliver more frequent revaluations, and to do this it needs effective compliance tools. Nevertheless, the Government have reflected on the points raised in Committee and accept that placing a cap on the total amount a ratepayer may be fined is appropriate. I have a note that I hope helps the noble Baroness, Lady Hayman: this is equivalent to 30 days of penalties, each being £60.
Amendment 13 alters the burden of proof that the valuation tribunal should apply when deciding whether to uphold a penalty decision. The penalty decisions with which this is concerned are for the criminal offence of knowingly or recklessly making a false statement. The Bill prescribes that, for a higher penalty to be applied, the VOA must be satisfied beyond reasonable doubt that the ratepayer has made the false statement knowingly or recklessly. That is the correct standard of proof for a criminal offence.
However, the noble Earl, Lord Lytton, identified an issue with the procedure where a ratepayer appeals such a penalty decision to the valuation tribunal. The tribunal would have to be satisfied beyond reasonable doubt that the ratepayer had not committed the offence. The Government wish to amend this to ensure that the proper burden of proof is applied, to the benefit of ratepayers.
Finally, Amendment 20 is a minor and technical change that we think we should make to the 1988 Act as a consequential effect of the provisions in this Bill concerning business rates multipliers. Clause 15 makes changes to the multiplier rules and separates the multiplier provisions relating to England and Wales. Section 140(2)(b) of the Act refers to Ministers making separate estimates of rateable value for England and Wales. As the provisions relating to England and Wales will now be separate, that section is obsolete and can be deleted. This is simply a drafting correction to improve the clarity of the statute book and the Government do not foresee any practical effect.
I thank the noble Earl, Lord Lytton, for his scrutiny of this area of the Bill, which has allowed us to make important improvements. I hope, with those reassurances and our amendments, he will be prepared to consider not pressing his amendments.
The Earl of Lytton (CB)
My Lords, before the noble Baroness sits down, there is something that I probably should have asked her about earlier in connection with her Amendment 12, which is the figure of £1,800. Discussions with her noble colleague and the Bill team made it clear that it is intended to be an aggregate figure. I do not know whether she referred to that but I did not hear; if she could confirm that that is so, just for the record, I would be very grateful.
Baroness Swinburne (Con)
What I can confirm is what I have written on my note, which says that this is 30 days of penalties, which are £60 per day, which comes to the figure of £1,800 that the noble Earl referred to.
The Earl of Lytton (CB)
My Lords, I thank all noble Lords who have spoken on these amendments. I am not going to add much to anything that has been said. On Amendment 8, there is clearly a significant issue in terms of transparency. I had thought that the wording
“V must disclose the information to P if V considers it is reasonable to do so”
was a sufficient get-out-of-jail-free card, but I take it that the Government do not feel able to accept that.
I am grateful to the Minister for her reassurances on how the making of returns will function, particularly her comment that one size does not fit all. We have been a bit subjected to one size fits all in some aspects of rating valuation and I am very glad to hear that that will not always be the case. With that, I beg leave to withdraw Amendment 8.
Baroness Swinburne
P’s total liability under sub-paragraph (3) may not exceed £1,800.”Member's explanatory statement
This amendment would limit the daily penalties that a person can be liable to under new paragraph 5ZD(3) of Schedule 9 to the Local Government Finance Act 1988 (inserted by clause 13(5) of the Bill) for a continuing infringement of new paragraph 5ZC(1) of that Schedule (inserted by the same clause) to a maximum of £1,800.
“(3A) On an appeal under this paragraph the valuation tribunal must remit a penalty arising under paragraph 5ZC(3) unless it is satisfied beyond reasonable doubt that P knowingly or recklessly made a false statement (within the meaning of that paragraph).”Member's explanatory statement
This amendment would require the valuation tribunal to remit a penalty imposed on a person under new paragraph 5ZC(3) (inserted by clause 13(5) of the Bill) unless it is satisfied beyond reasonable doubt that the person knowingly recklessly made a false statement (instead of the position under the current drafting which merely permits the tribunal to remit such a penalty in circumstances where it is satisfied beyond reasonable doubt that the person did not knowingly or recklessly make the false statement).
The Earl of Lytton
The Earl of Lytton (CB)
My Lords, I regret to say that in this amendment I am obliged to refer to a rather contentious matter. As I have made clear, I am not going to divide the House, but a serious question needs to be answered. I tabled the amendment to delete Clause 14 because of my concern that what the Government claim Clause 14 does is at material variance with the wording, as I see it, of the Bill. It is also at serious variance with what I understand to be the current assumptions regarding the, as it were, state and condition of the hereditament for valuation purposes not in terms of its individual condition as to the fabric but where it sits in its economic and practical environment.
As I understand it, the Government claim to be restoring matters to those understandings that prevailed previously, but the proof of the pudding shows that is not so or we would not have this clause before us because it would then be unnecessary. In my view, an earlier measure to remove the status of Covid as a material change of circumstances—which is what this is all about—was legitimate. It was deliberately circumstance specific and affected the whole country and so could rightly be described as a pan-national economic event. But the Government now seek to extend that principle to any change affecting the physical enjoyment of the hereditament as a consequence of what is described as an “economic” matter and that that should be disregarded as a material change of circumstances. In other words, it should not be possible if that change occurs for somebody to challenge their assessment.
I dispute that this approach has ever been the test of a material change of circumstances hitherto. Copious cases—Addis Ltd v Clement (VO) in particular—have clarified this. There is an obvious reason: where a public authority takes steps that deny or degrade the benefits of enjoyment of a hereditament, it is offensive that a tax unadjusted to reflect this fact should continue to be levied. This is not just a modern confection but goes to the heart of fair and just administration, the rule of law, confidence in government and the certainty and security of process that affect investment, productivity, and commitment to medium and long-term partnership. It is an essential part of a social and economic contract—unwritten it may be but there all the same. Any Government would be wise to observe these obvious and potent economic factors in administering the needs of the nation. We are talking about an ancient principle.
The Government make a distinction in relation to an economic matter affecting society at large but then go on to define this as any matter directly or indirectly attributable to a “relevant factor”. In fact, these are not economic matters at all but the fiat of some authority exercising powers that are not of general economic application to the nation at large or a significant part of it. The definition of “relevant factors” is set out at Clause 14(l)(d) in new paragraph 2ZA(3)—near the bottom of page 32 for those noble Lords following this astutely. In effect, it means that any legislation, regulation or advice of any country or public authority or steps to comply with these is to be disregarded in terms of what amounts to a material change of circumstances—so much for being ruled by our own laws. It also does not clarify the status of pronouncements from organisations such as the WHO, the UN or International Monetary Fund. So, in future, if a local authority alters the entire geometry of the use and enjoyment of a business premises through, let us say, planning powers, it will not count as an MCC, regardless of how severe the impacts may be. This provides a perverse incentive to disregard negative effects of sudden policy decisions which, as I say, may be nothing to do with economic choices.
I wonder whether when formulating these measures the Government ever considered the growing mistrust of their handling of the business rates regime generally and the effect, along with others no doubt, on high streets from trader and investor confidence, or ever paused to consider off balance sheet indications in any of these respects. The Government in seeking to differentiate general economic changes from direct physical enjoyment at hereditament level do not seem to be able to make a tidy distinction between the two, so they take a line of least resistance and bundle them together. That is Clause 14.
By way of further explanation, there are of course two poles to consider: first, those matters which affect the economy as a whole to be dealt with on revaluations—there is no dispute about that; we accept that as we accepted it in Covid. Then there are other more rapid and acute physical changes to the hereditament itself. Again, there is no dispute on that because they will continue to be treated as material changes of circumstances. In between, there are those immediate and localised regulatory and other measures affecting an individual property or those in a defined location and not shared with the wider economy of a town or a region.
I wanted some further clarity on this, so I sent some examples of queries to the department. I hope it received those and that, in replying, the Minister may be able to throw some light on them. The first one was where a local authority reduces the hours of operation of certain licensed premises to provide better amenity for nearby residents and as a result business is curtailed— I referred to the conflicts earlier today. Secondly, an important town centre car park is closed due to concerns about the concrete frame and as a result footfall for traders in that part of town declines substantially. Thirdly, a small corner convenience store is affected because the large residential block next door is ordered to be evacuated over fire safety concerns and the occupiers are dispersed into other accommodation elsewhere. Fourthly, an authority in a popular holiday area makes licensing of holiday let premises mandatory but then limits or conditions the licences it issues to reduce the impact on local housing availability and as a result the income to certain operators is significantly affected. Finally, a biosecurity exclusion zone is declared in a defined area due to an animal disease outbreak. The public are advised to stay away and traders in the area suffer a sharp downturn in business. As I understand it, every one of those would be ruled out as being a material change of circumstances by virtue of Clause 14. The only qualification is on the last one. Does the geographical extent of the biosecurity exclusion zone alter the degree to which the effects fall to be disregarded as an MCC or does it make no difference?
Let me give an extreme example of what the effects might be. A metropolitan mayor decides to ban all petrol and diesel sales in his or her area under some statutory or regulatory power or perhaps on the advice of health officials concerned about air pollution, but by virtue of Clause 14—and maybe for up to three years until the next revaluation—petrol filling stations in the area would have to continue paying business rates as if nothing had happened. If that is not what the Government intend, they need to revise Clause 14 because that, on the best authority I know, is what it will do. The best authority I have—Members of this House, particularly learned Members, excepted—is rating counsel Luke Wilcox, who provided me with a note which says
“my main concern with clause 14 as it is currently drafted is that its effects will be much wider than the Government’s stated intention. The Government’s intention appears to be to treat general legislation as part of the general market conditions affecting revaluations, rather than as matters capable of being MCCs”.
He goes on to say that
“the phrase ‘indirectly attributable to’, as it appears in para 2ZA(2)(a), is so wide in its scope that matters affecting an individual property or class of properties, such as a planning or licensing decision, will cease to be MCCs (because they are made under a general legislative provision). Such an effect would appear to be beyond the Government’s stated intention. If such a significant alteration is to be made to the established law of rating, then it should be made following proper deliberation, rather than as an unintended consequence of a provision aimed at a different policy effect”.
In all this, there appears to have been little or no discussion with ratepayers or their professional advisers, nor any wider consultation with that class of stakeholders. It is undoubtedly a major departure from what is known as the “reality principle”—namely, that rating should reflect the real circumstances of the hereditament in assessing it for rating purposes. The Valuation Office Agency’s own rating manual does not use the approach now suggested. Whether it is going to be amended, I do not know—I suppose it will be—but, as it clearly states the situation that has commonly been understood for many years, that rather suggests that the Government’s claim of restoring what they say were the previous understandings is unsupported.
Many will feel that this is getting us towards the realms of no-appeals regulations—in other words, “Let’s not have any appeals at all and dispense with them, and the whole thing can be dealt with through by the arbitrary exercise of power through the Valuation Office Agency”. But that would have profound implications for the rules-based system—something that I have referred to before in relation to several government Bills.
This clause cannot go unchallenged. Although I am not proposing to press the amendment, I think it warrants a detailed comment from the Government as to how they think it will work fairly and equitably in the context of the rating system. I beg to move.
Lord Shipley (LD)
My Lords, I support the point of view expressed by the noble Earl, Lord Lytton. He has raised this very issue, I think at Second Reading and certainly in Committee, and I have given him support because I have grave doubts about the definition in the Bill of a “material change of circumstance”.
The noble Earl has given a list of possible examples of where there should be a material change of circumstance because of what happens in the area as a whole—perhaps a planning change or a licensing change undertaken by a local authority. When it comes to the Minister’s reply, it would be extremely helpful if there could be a letter to all of us who have taken part in the debate, but addressed to the noble Earl, Lord Lytton, explaining the Government’s view on each of the examples that the noble Earl has given.
I have another one to add to his list. As it stands, Clause 14 means that material changes of circumstance should relate to physical changes only to a property. That is how I interpret it. However, as the noble Earl has demonstrated, there can be many ways in which that physical property can be impacted upon and have a material change of circumstance because of what somebody else does. My example is that a local authority decides that a bus route will no longer come down one road but will go down a different one. The patronage of the shop—if it is a shop—goes down as a consequence. Is that a “material change of circumstance”? I suggest that it is and that it should qualify. I do not think that Clause 14 can apply only to a physical building. That is my position.
Baroness Hayman of Ullock (Lab)
My Lords, I will say very little, other than to echo what the noble Lord, Lord Shipley, has said. The noble Earl raised this issue in some detail in Committee, but we have not had the answers that he asked for. He is not satisfied that Clause 14 is necessary or designed to do what it wants to do. He has great experience in this area and we need to listen carefully to the concerns that he has raised. We very much support the fact that the noble Earl has brought this back to the House’s attention and look forward to the Minister’s response.
The Earl of Courtown (Con)
My Lords, I thank the noble Earl, Lord Lytton, for this short debate, which has been fascinating. He has quite rightly gone into some detail on this issue, and I hope I will be able to explain part of the thinking behind our inclusion of Clause 14 in the Bill. However, as the noble Lord, Lord Shipley, suggested, once I have read Hansard I will ensure that, if we do not feel we have not gone far enough in explaining our thinking, we will write to the noble Earl, making that available to all noble Lords and placing a copy in the Library.
Amendment 14 gives us the opportunity to consider the reasons behind Clause 14, and I believe the House will have found this debate useful. Where I trust we have agreement is on the role of revaluations, as they have been the main subject of debate on the Bill. Revaluations allow us to reflect in rateable values changes in economic factors, market conditions or the general level of rents for a property. These are familiar terms for describing a revaluation, not just because we have been using them throughout the Bill but because they appear in judgments when the courts have considered this matter.
Clause 14 will therefore ensure that changes in legislation, guidance and advice from public bodies are considered among the economic factors and market conditions for a property and should be reflected at a general revaluation. The noble Earl is concerned that the clause will go further into matters that should not be left until a revaluation and do not concern the general market for a property. However, our view is that the framework of legislation and guidance within which a property is used is in fact a central part of the economic factors and market conditions for that property.
As the noble Earl remarked, he kindly sent a list of examples to the department, and I shall deal with that point now. He raised a number of examples and considered how they should be treated under Clause 14. I hope noble Lords will understand that it is not possible to provide a case-by-case analysis during this debate on these examples, as each will depend on facts. Whether a particular event would result in a material change in circumstances, under the new law in the clause, would depend on whether it was attributable to the relevant factors listed in the clause.
The Government published a technical consultation in 2021 which explained how they intended the law of material changes of circumstances to operate. We also included a section on this in the Explanatory Notes to the Bill. The Valuation Office Agency will of course publish guidance on material changes to circumstances in its rating manual and, as always, it will work closely with professional bodies, with which the noble Earl is familiar, in ensuring that the rules are explained and understood. If, as has been suggested, we allow the matters listed in Clause 14 to be assessed between revaluations as a material change in circumstances, the impact on the rating system may be considerable. It would amount to the Valuation Office Agency conducting a non-stop real-time revaluation, revising large sections of the rating list as and when there were changes in the legislation, guidance or advice concerning how properties can be used.
Such an exercise would jeopardise our objective of moving to more frequent general revaluations. It would also mean some ratepayers benefiting from a set of more favourable economic factors in their valuations than others. The clause will ensure that all ratepayers are assessed against the same economic considerations at a set date—the valuation date for the revaluation—and that is updated for all only at the following revaluation. Clause 14 will therefore maintain the stability of the rating system, and it is not surprising that it is supported by the Local Government Association.
As my noble friend explained in Committee, there are safeguards in the clause. I shall not repeat them but, for example, the clause does not apply to changes in the physical state of the property, which will continue to be reflected as and when they occur.
This is not a step we have taken lightly; we consulted on our intentions in the technical consultation in the business rates review. It is a necessary step, to which I hope the House will agree.
The Earl of Lytton (CB)
My Lords, I thank all noble Lords who have spoken in support of my amendment and the noble Earl for his response. He said that it would depend on the change of rollout of the relevant factors. Let me remind your Lordships what those are; they are in four categories in new paragraph 2ZA(3):
“(a) legislation of any country or territory;
(b) provision that is not within paragraph (a) but is made under, and given effect by, legislation of any country or territory;
(c) advice or guidance given by a public authority of any country or territory;
(d) anything done by a person with a view to compliance with anything”—
covered by the preceding paragraphs. I paraphrase, of course.
I struggle to see what actions would be taken by a municipality or authority dealing with something that makes a substantial change that would not be covered by those criteria and thereby excluded. The noble Earl referred to the difficulties of non-stop revaluation. We have a situation that everyone has been happy with for quite a number of years, and it has not resulted in non-stop revaluation. The noble Earl also referred to the equality of valuation approach, but the tone of the list—the general levels of value, to put it simply—would not be altered; it would simply be that by reference to that general pattern of values, a particular hereditament, if there was a material change of circumstances, had taken a hit. That is what we are trying to deal with.
With the greatest respect to the noble Earl, I find his explanations unconvincing, as I found the explanations of his noble friend when we met her unconvincing, and as I found the explanations of the department officials unconvincing. Although I will withdraw the amendment, I do so with a sense of profound disappointment that the Government have not been able to come up with a better narrative—a better explanation. There is a point behind what they say in getting at what we might call general economic changes, but to extend that to the microcosm of what happens in a locality stretches my credulity beyond breaking point. It does not add up, and I hope that the noble Earl will go away and make it clear to the department that that is what I believe, what a lot of ratepayers believe and what a lot of professionals believe.
For the time being, I beg to withdraw the amendment.
The Earl of Courtown
“67A In section 140(2) of the Act (separate administration in England and Wales)—(a) omit the “, and” at the end of paragraph (a);(b) omit paragraph (b).”Member's explanatory statement
This amendment would omit section 140(2)(b) of the Local Government Finance Act 1988 which is no longer needed as a result of the provision being made by clause 15 of the Bill, which makes separate provision about the calculation of multipliers for England.
Non-Domestic Rating Bill
Monday 16th October 2023
(1 year, 1 month ago)
Lords ChamberRead Full debate Non-Domestic Rating Act 2023 Read Hansard Text Amendment Paper: HL Bill 140-R-I Marshalled list for Report - (15 Sep 2023)
Baroness Swinburne (Con)
My Lords, I am grateful to noble Lords on all Benches for their co-operation on the Bill. The passage of the Bill will be a significant milestone in the reform of business rates, following our manifesto commitment and the subsequent Treasury review. When the Government examined the business rates system, they did so in the context of considerable upheaval due to the pandemic. Nevertheless, several themes emerged from which the conclusions of the review were formed.
The debates in this place have underlined the support for measures to improve the responsiveness of business rates to market changes. This was a key request from businesses during our review, the central achievement of the Bill and something I believe we can all be pleased to support.
With the first three-yearly revaluation cycle having now begun, the Government are already developing the new systems for data sharing that will enable regular three-yearly revaluations beyond 2026. Ratepayers and their representatives are the key stakeholders in these reforms, and the Valuation Office Agency will engage closely with them on the design of the future system. It has been pleasing to note that, while there is understandable appetite among noble Lords for even greater frequency, there is also a recognition that implementing such major changes to a tax requires a careful and incremental approach. I will repeat, then, what I said on Report: the Government will monitor these changes and keep the frequency of revaluations under consideration.
The Government’s review of business rates also identified the opportunity to reduce or remove business rates liability where this would support improvements to business premises or the decarbonisation of buildings.
The Bill enables the remaining parts of this package—namely, mandatory improvement relief and heat network relief—to be delivered from 1 April next year. This is a key part of producing a business rates system that better reflects our national priorities.
The Bill of course will now return to the other place for consideration of the Government’s amendments. As noble Lords are aware, these are of a technical but nevertheless important nature. That is true of much of this Bill, which shows the value of the expertise that we have witnessed in debate. Therefore, I will take the opportunity to repeat my thanks to the noble Earl, Lord Lytton, who identified those improvements and who more generally has offered the benefit of his considerable experience in rating to enrich the debates on this Bill. I also extend similar thanks to the noble Lord, Lord Thurlow, and other expert contributors to those debates, including the noble and learned Lord, Lord Etherton, and the noble Lord, Lord Ravensdale.
I thank the Front-Benchers opposite for their highly constructive and pragmatic approach, especially the noble Baronesses, Lady Hayman of Ullock and Lady Pinnock, and the noble Lord, Lord Shipley. It has been clear that the Bill enjoys broad support, but their probing has opened fruitful areas of discussion and given us the chance to say more about the Government’s work. I am sure noble Lords will join me in thanking members of the Bill team for their engagement. As I have mentioned, this is a complex area, and the preparation and delivery of a Bill such as this rely on the commitment and experience of officials from across the Department for Levelling Up, Housing and Communities, the Treasury, the VOA and HMRC. I also thank parliamentary counsel for their drafting of the Bill and their wider support to the Bill team. With that, I beg to move.
Lord Shipley (LD)
My Lords, I thank the Minister very much for her conclusion to this Bill. I extend our thanks also to the noble Baroness, Lady Scott of Bybrook. As she said, the Bill has broad support in your Lordships’ Chamber. I am grateful for the Minister’s assertion that we have introduced a pragmatic approach to the content of the Bill, for I think it is true—we have done just that. I was particularly pleased to hear the Minister say that the Government have a commitment to monitor what actually happens. I know that, on all sides of the House, that will be very gratefully received.
The Bill has a number of very welcome changes: in particular, more regular revaluations, which will be a big help. However, problems remain. Crucially, the level of business rates is too high. Business rates used to be around half the rental level of a property; they are now almost equal. This financial burden is putting a huge pressure on many businesses, not least in the retail sector. I said on Report and at other stages of the Bill that small business rate relief should be further extended, particularly to assist the high street. I also think the Government should not be increasing the level of business rates next year by the rate of inflation.
I hope the Government will take on board comments made on all sides of the House about the need to review the non-domestic rates valuation process itself for its accuracy, its communications and its explanations to business rate payers. The noble Earl, Lord Lytton, has been particularly concerned about the issue of material change of circumstance. There is a new definition and there is a view that I share with the noble Earl, Lord Lytton, that it is too narrow. I am reconciled to what the Minister has said, which is that they will keep it under review.
Thirdly, the Government need to keep a close eye on the level of payments made by warehouses when those warehouses have a retail purpose.
In conclusion, I think that the NDR system is broken. This Bill is a welcome improvement, but it is not a solution. Business rates cannot just be a means of revenue raising by the Treasury. I hope that this Government, and any future Government, will simply bear in mind that we need a major reform of the business rates system.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the Minister for her opening remarks. I also thank the noble Baroness, Lady Scott, for all her work on the Bill; I wish her well from our Benches and we look forward to seeing her back in her place very shortly.
As others have done, I thank all noble Lords who took part in the debates on the Bill. It is a short Bill, but it is quite complex in areas, so it has been incredibly helpful to have real expertise and insight from noble Lords—such as the noble Lord, Lord Thurlow, and the noble Earl, Lord Lytton, who have been mentioned—not only for Government Ministers but for those of us leading on the Opposition Benches. It was good to be able to understand the implications of the Bill through the expertise noble Lords brought to the House. I agree with the noble Lord, Lord Shipley, that, having had that, the Bill is now in a better place than it was when it began in this House. It is an important Bill, and it is important that we improve the situation of business rates from how they currently stand. However, I also agree with the noble Lord, Lord Shipley, that there are still a few outstanding issues; that is why it is important that the Government keep their commitment to monitoring the outcomes of the Bill, particularly on the timescales of revaluation. As we discussed in Committee, some of us would have liked to see revaluation done more regularly, so it is important that we keep an eye on that.
As we discussed in the debates on the Levelling-up and Regeneration Bill, as well as on this Bill, there are a lot of concerns about our high streets and our small businesses on them—and business rates are a critical part of how they are supported. So, as we are also coming to the end of the Levelling-up and Regeneration Bill, I hope that, going forward, the Government will still consider different ways in which we can continue to support our high streets and small businesses. Having said that, we were pleased to support the Bill and we welcome it moving forward.
Non-Domestic Rating Bill
Wednesday 25th October 2023
(1 year ago)
Commons ChamberRead Full debate Non-Domestic Rating Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 140-R-I Marshalled list for Report - (15 Sep 2023)
Mr Deputy Speaker (Sir Roger Gale)
I must draw the House’s attention to the fact that financial privilege is engaged by Lords amendment 1. If Lords amendment 1 is agreed to, I will cause the customary entry waiving Commons financial privilege to be entered into the Journal.
Clause 13
Requirements for ratepayers etc to provide information
The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Lee Rowley)
I beg to move, That this House agrees with Lords amendment 1.
Mr Deputy Speaker
With this it will be convenient to discuss Lords amendments 2 and 3.
Lee Rowley
It is a pleasure to return this Bill to this place after its positive reception, both here initially and in the other place more recently. Reforming business rates was a manifesto commitment, and having concluded our review of rates, the Bill seeks to deliver a fairer and more effective business rates system.
The amendments that the Government invite the House to support today are minor and do not change the policy intentions of the Bill, which we have debated before in this place. Two amendments deal with the penalties regime for the new duty on ratepayers in clause 13—they are designed to ensure that the penalties system is fairer—and the third is a minor and technical amendment that removes some obsolete wording as a result of another part of the Bill. I will deal with each amendment briefly.
Lords amendment 1 concerns the civil penalties that the Valuation Office Agency can apply if ratepayers do not provide information under the duty. These include an additional daily penalty of £60, which may only be applied if a ratepayer persistently fails to meet their obligations following an initial penalty notice. The Government have listened to the views of the experts in the other place and agreed to create an additional safeguard for ratepayers by capping the financial value of penalties that can be imposed under this provision. Daily penalties will be capped at £1,800, equivalent to 30 days’ worth of penalties. This change will also bring the valuation duty in line with the separate duty to provide His Majesty’s Revenue and Customs with a taxpayer reference number, for which a cap on penalties is already in place.
Lords amendment 2 concerns the penalty for the criminal offence of knowingly or recklessly making a false statement, an offence that is subject to higher penalties than simply failing to comply. The Bill prescribes that for a higher penalty to be applied, the VOA must be satisfied beyond reasonable doubt that the ratepayer has made the false statement knowingly or recklessly. Having reflected, we have recognised that we need to apply the same burden of proof to the procedure on appeal. The amendment therefore provides that the valuation tribunal must remit a penalty unless it is satisfied beyond reasonable doubt that the ratepayer has knowingly or recklessly made a false statement. This provides additional protection for ratepayers.
Finally, Lords amendment 3 is a minor and technical change to the Local Government Finance Act 1988, as a consequential effect of the provisions in the Bill concerning business rates multipliers. This is simply a drafting correction to improve the clarity of the statute book, and the Government do not foresee any practical effect.
The Government invite the House to agree to three minor amendments that were unanimously supported in the other place. Lords amendments 1 and 2 refine and improve the compliance framework for the new information duty, and Lords amendment 3 is a minor consequential change to improve the clarity of the statute book. I commend them to the House.
James Murray (Ealing North) (Lab/Co-op)
I am pleased to respond to these three Lords amendments on behalf of the Opposition. Clause 13 of the Bill introduces new duties on ratepayers to provide information to the Valuation Office Agency in order to support digitisation and a shorter revaluation cycle. It also introduces penalties to promote compliance and establishes an associated appeal system.
Through the Bill, ratepayers will initially face a penalty for failing to comply with the new duties the Bill introduces. If, having received that initial penalty, the ratepayer continues not to comply for a further 30 days, they will be liable for an additional penalty of £60 per day. As we heard from the Minister, Lords amendment 1 caps the total charge arising from that additional penalty at £1,800, equivalent to 30 days’ worth of daily fines. As my hon. Friend the Member for Luton North (Sarah Owen) said on Second Reading, we are aware of concerns relating to the new duty and the associated penalties from those representing shops, and small shops in particular. Although I doubt that all the concerns of those representative organisations and their members have been addressed by the Government, we realise that this limit on the level of the penalty may help to protect ratepayers from much larger charges while still supporting the Valuation Office Agency’s move toward frequent revaluations, which we support. On that basis, we will not be opposing its inclusion in the Bill.
Through clause 13, the Bill also introduces a new criminal penalty, which applies if a person makes a false statement while purporting to comply with the new duties it introduces. The Bill sets out that the Valuation Office Agency will decide whether an offence has been committed, and its decision may be appealed to the Valuation Tribunal for England. As originally drafted, the Bill permits the tribunal to remit such a penalty when it is not satisfied beyond reasonable doubt that the person had knowingly or recklessly made a false statement. Lords amendment 2 would require, rather than merely permit, the tribunal to remit the penalty in such circumstances. We believe that the amendment is sensible, so we will not be opposing its inclusion in the Bill.
Finally, Lords amendment 3 makes a technical change to the Local Government Finance Act 1988, omitting section 140(2)(b) of that Act. That section, which refers to Ministers making separate estimates of rateable value for England and Wales, has become obsolete as a result of clause 15 of the Bill, which makes a separate provision about the calculation of multipliers for England. As this is essentially a drafting amendment, we will not be opposing it either.
I am tempted to talk at much greater length about Labour’s plans to scrap the current system of business rates, replacing it with a system of business property tax that rebalances the burden of business property taxation away from the high street and retail firms towards online tech giants. However, I realise that that may be out of scope and that time is tight, so I will simply confirm our intention not to oppose any of these three amendments.
Peter Aldous (Waveney) (Con)
This Bill, unlike the Levelling-up and Regeneration Bill, on which we considered a further round of Lords amendments yesterday, has progressed through Parliament quickly. Second Reading in this place took place on 24 April, and the Bill will complete its passage today or tomorrow. It was a 2019 Conservative manifesto commitment to carry out a fundamental review of the business rates system. This Bill is the start of that process, but it does not mark its completion, and on its own it cannot be described as fundamental.
The amendments before us are straightforward. Lords amendment 3 is a drafting correction to omit a requirement relating to Wales that is now obsolete. Lords amendments 1 and 2 relate to the new duty to notify. They cap the level of, and increase the burden of proof required for, penalties that will be applied for not complying with the obligation to give required information to the Valuation Office Agency. They are to be welcomed, but as highlighted on Report, this burden should have been much reduced and there should be reciprocal penalties on the VOA.
As I have mentioned, this Bill must mark the beginning of the reform of business rates, not the completion of the task. Business rates remain a heavy and uncertain burden on many businesses. They act as a brake on growth, disincentivise capital investments and are a barrier to levelling up. Reform must be more radical and must be carried out much more quickly.
I urge the Government to strive towards achieving the following goals. First, the uniform business rate multiplier must be reduced to an affordable level. The UBR currently sits at 51p in the pound. At such a high level, it deters investment and ultimately reduces the tax base. It should be reduced to the order of 34p, the level at which it was first introduced in 1990. Lowering the UBR would have the long-term effect of expanding the tax base. A failure to do this will ultimately see the Government increasing the UBR on an ever-shrinking tax base, and in doing so, threatening a vital source of local government revenue.
Secondly, as important as they are to so many businesses, we ultimately need to remove the myriad sticking plaster reliefs that are invariably lobbied for and announced at every spring Budget and autumn statement. They are an implicit admission that the UBR is too high. The Government have been forced to offer many of these reliefs as many businesses are unable to pay a UBR of 51p. By removing these reliefs and reducing the UBR, the Government would simplify the system and reduce the administrative burden on both ratepayers and the VOA. Instead of the annual cliff edges, as businesses lobby for and then nervously wait for a relief to be extended, such a reform would introduce an element of long-term certainty, which would encourage investment.
Finally, while the Government have taken a welcome step in the right direction by moving to three-year revaluations, they must keep going towards the ultimate goal of annual valuations. Shorter valuations are necessary to ensure that business rates respond to the dynamic and increasingly volatile movements of the market. It is vital that rateable values are assessed as frequently as possible to ensure that ratepayers are paying a fair amount.
My last point is to express regret at the curtailment in the definition of a “material change of circumstances”. This is a provision that gives ratepayers recourse to pursue a relief on their business rates bills when circumstances outside their control hinder their ability to run their businesses. Despite the Government’s protestations, the Bill in effect disapplies many common situations of material change that up to now have been acknowledged as such and are even described in the VOA’s own guidance.
In conclusion, this is the start of the reform of business rates, but it is not the finish. There is some way to go before we reach that Magnus Magnusson moment. I thank my hon. Friend the Minister for listening to my concerns during the passage of this Bill, and I am grateful to him for meeting me last month to discuss the situation. I have subsequently written to my hon. Friend the Financial Secretary to the Treasury setting out some ideas as to how this reform process can be continued. I would be grateful if he and she committed to completing the task of the fundamental review of business rates that is so vital for businesses large and small all around the UK.
Lee Rowley
I will not seek to detain the House for any more than a few seconds. I express my gratitude to the shadow Minister, the hon. Member for Ealing North (James Murray), for his constructive comments and his willingness to support the amendments, as well as for resisting the temptation to go over again some of the things we have talked about in previous iterations of this Bill.
I also thank my hon. Friend the Member for Waveney (Peter Aldous), who has been involved since the beginning. He has done the House a significant service in both reviewing the Bill and offering his comments during its passage. As he says, this is a significant change and one that I think everybody accepts is a big leap forward, particularly on the revaluation frequency moving from five to three years. While we are on the subject of late 1990s game shows, although in his view we have not yet finished this matter—I accept that we never finish—we are grateful for his “Mastermind” qualities in looking at this Bill over the past few months.
Lords amendment 1 agreed to.
Lords amendments 2 and 3 agreed to.
Economic Activity of Public Bodies (Overseas Matters) Bill (Programme) (No. 2)
Ordered,
That the Order of 3 July 2023 (Economic Activity of Public Bodies (Overseas Matters) Bill Programme) be varied as follows:
(1) Paragraphs (4) and (5) of the Order shall be omitted.
(2) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion three hours after the commencement of proceedings on the Motion for this Order.
(3) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.—(Julie Marson.)
Royal Assent
Thursday 26th October 2023
(1 year ago)
Lords ChamberRead Full debate Read Hansard Text Amendment Paper: HL Bill 170-I Marshalled list for Consideration of Commons Amendments and Reasons - (18 Sep 2023)