Non-Domestic Rating (Alteration of Lists and Appeals) (England) (Amendment) Regulations 2017
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The Parliamentary Under-Secretary of State, Department for Communities and Local Government and Northern Ireland Office (Lord Bourne of Aberystwyth) (Con)
My Lords, I thank noble Lords who have participated in this debate and particularly the noble Earl, Lord Lytton, for tabling the Motion on this important topic. I am grateful for the contributions that he and other noble Lords made. I also thank the noble Earl for the helpful discussions we had prior to today’s debate. He is of course a considerable expert in this field and I am very grateful for his views and input.
It is important that we keep this in perspective and do not indulge in what could be interpreted as slightly wild hyperbole in terms of one or two matters that have been referred to. For example, reference was made to a “damning report” from the Secondary Legislation Scrutiny Committee. There are criticisms there, but it states:
“We understand the sequence of events that preceded the laying of the Regulations”.
It is important that we keep these things within acceptable bounds when we look at them.
Perhaps I may deal first with the context of the debate, because much comment was made in relation not to the content of the statutory instruments but to the wider issue of the possible rebalancing of the business rating system. I understand the point made by all noble Lords who participated about online retail and the high street—I pay particular tribute to my noble friend Lord Naseby, who I know has championed this issue well ahead of other people and has been a pioneer in the field. It presents serious challenges. There is an international aspect to it. We are leading with the OECD and the G20 on this matter and have been active in the debate on it. We look forward to receiving a report on it by spring 2018. That may well provide the context that we need to look at this issue. I accept that it needs to be looked at.
I hope noble Lords are in agreement that we need to look at the basis on which we tackle the whole issue of appeals. Under the previous system, large numbers of speculative appeals were made, accompanied by little or no supporting evidence—that is a fact and I see the noble Lord, Lord Beecham, acknowledging it, for which I am grateful. Almost 1.1 million challenges have been made to the 2010 list, covering a huge proportion of the total number of rateable properties, yet 72% of those challenges led to no change to the ratings list, with a large proportion eventually withdrawn. It cannot be right that appeals are made as a matter of routine, often backed by little or no supporting evidence. It clearly cannot be right that a significant number of appeals began with entirely spurious claims that the valuation of a property should be reduced to £1. More importantly, this huge volume of appeals served only to clog up the system—reference was made to that. That has an effect on genuine cases—there are some, of course—delaying receipt of any backdated refunds that they may be due.
The Valuation Office Agency has cleared on average 45,000 appeals per quarter over the past nine months and continues to clear outstanding appeals at a steady rate. The number of outstanding appeals partly reflects the large number of speculative appeals made with limited evidence, and shows why the system was in need of reform.
The noble Lord, Lord Beecham, quite fairly asked whether the Government would introduce a time limit for appeals. The Government’s response to the consultation stated that there are clear benefits to introducing a cut-off point for appeals. We intend to review the early implementation of the new system before bringing forward proposals before April 2018 for setting a fixed time limit for appeals.
It is not just ratepayers who suffer from speculative appeals. Such appeals and the delays that result from them waste public resources in the Valuation Office Agency and Valuation Tribunal, and cause uncertainty for local authorities—a point made very fairly by the noble Baroness, Lady Pinnock—which are heavily reliant on business rates to help fund local services.
The reforms introduced in April this year were an important and necessary step to deal with some of the serious flaws in the previous system. Through the three-stage check, challenge and appeal framework, they provide a more structured process to promote early engagement between the parties and help genuine cases to be resolved more efficiently. This will provide a clear framework for the exchange of evidence between the Valuation Office Agency and the ratepayer so that, where possible, cases can be resolved before reaching tribunal.
Quite rightly, the Government have sought to raise the bar in terms of the need for challenges to be backed by clear arguments and evidence. While there is no charge for engaging with the Valuation Office Agency, the reforms introduce small fees for making an appeal to the Valuation Tribunal—£300 is the standard, with a £150 fee for smaller businesses—to incentivise early engagement and help tackle the speculative appeals driven by the no-win no-fee end of the ratings market. The fees are refundable upon a successful appeal and are reduced from £300 to £150 for smaller businesses.
Regarding the supposedly no-win no-fee sector of the market, noble Lords may be interested in a recent case where an agent claimed a fee from a small business following a reduction in its bill that was entirely a result of the national revaluation. Having signed the ratepayer up to a complex and confusing contract, the agent is now seeking payment of £400, for having done little to no actual work, I expect. These are important reforms that aim to improve the system for all involved.
While I hope that we can agree that change was necessary, I am grateful to the noble Earl, Lord Lytton, and other noble Lords for sharing their views about the new system in this debate. Before turning to some of the themes and issues raised, I should address the specific points raised by his Motion. He contends that the reforms were introduced without adequate regard for the concerns of experts in rating appeals. I take issue with that. I should reassure noble Lords that the policy was developed through an extensive process of engagement with stakeholders. The Government have run and responded to two formal consultations, one on the overall policy approach and one specifically on the draft regulations. In parallel, officials in my department have held a number of formal and informal meetings with groups of business representatives, local authorities and ratings experts. This has included, for example, direct discussions with the CBI, the Federation for Small Businesses, the Local Government Association and numerous major surveying and property firms.
While I accept that there may be matters on which the Government and some representatives of the ratings sector have not reached full agreement, I reassure noble Lords that their views have been given due regard. I do not intend to repeat the detail of all these matters but refer noble Lords to the formal published responses to consultations that clearly set out the Government’s decisions and the reasons for them. I will write to noble Lords with links to the relevant publications.
Secondly, the Motion of the noble Earl, Lord Lytton, suggests that the new system was introduced without adequate testing. I reassure noble Lords that the Valuation Office Agency carried out user research with large and small businesses, and with agents, when building the service. The functionality of the systems was tested prior to launch. However, while pre-launch testing was carried out, I fully accept that there have been some challenges around the online portal of the new system.
As well as these technical IT problems, I understand that there were concerns that the system could work more effectively for some users, particularly ratepayers with large property portfolios represented by agents. The Government’s overriding priority is to make sure the system works and businesses pay the right rates. For smaller businesses, I understand that the system operates effectively to enable them to check their detailed valuation. However, I recognise that there may be scope for further improvements to better support agents acting for larger ratepayers. The Valuation Office Agency is working closely with business leaders and the rating industries to understand their priorities for improving the system. The department and I will keep a close watch on this. The VOA also brought in additional IT expertise from HMRC to assist with the development of solutions and to ensure that they are delivered as quickly as possible. I am happy to engage with the noble Earl on this matter and to ensure that any messages are passed on to the VOA.
Following discussions with rating agents and businesses, noble Lords will be reassured to know that the Valuation Office Agency has now also provided them with a clear plan setting out key improvements over the coming year. This includes, for example, work to develop the necessary software to enable rating agents with large portfolios to exchange information more efficiently with the Valuation Office Agency. As I said, the Government will continue to monitor progress in implementing the new system and expect the Valuation Office Agency to continue to engage with stakeholders to identify and speedily address any delivery issues.
The noble Earl’s Motion refers to the introduction of regulations to a truncated timescale. I expect this is a reference to the breach of the 21-day rule. I do not intend to dwell on this point, given the detailed explanation for the breach provided in the Explanatory Memorandum accompanying the regulations. In summary, however, in the context of significant scrutiny of the business rates system in March, the Government considered it necessary to consider carefully the views and issues raised before finalising the regulations.
It may be helpful if I turn to some of the main themes of the debate and the concerns around the system highlighted by noble Lords. One was the issue in relation to “online”, if I may put it that way, which I have dealt with. It is worth stating in this context that the Government made available £435 million to deal with some of the transitional difficulties and other difficulties experienced by particular industries. I accept that there remain concerns.
On other issues raised, the first relates to the transparency of the information on which valuations are based and an appetite, particularly from the rating agents sector, for much greater disclosure of information held by the VOA. I am entirely sympathetic to the need for businesses to understand their valuation. Under the new system, ratepayers are able to check the valuation of their property online and obtain a detailed breakdown of how that valuation has been made, including the valuation of different parts of the property and any relevant adjustments. They are able to obtain this information without having to make a formal appeal or to incur any fees.
On a specific point about freedom of information raised by the noble Lord, Lord Kennedy, we have of course made the consultation documents available. I am very happy to pick up with the noble Lord if he thinks other matters relating to freedom of information have not been dealt with but I think that answers his point.
Where a business makes a challenge to the valuation, there are then clear legal duties for the Valuation Office Agency to provide the ratepayer with relevant information that it holds. I hope noble Lords would agree that the provision of information needs to be proportionate and balanced with the interests of other taxpayers, whose information may be used to assess values. There is that issue about disclosing other people’s information. That is why the system provides for a structured process of engagement, the disclosure of information relevant to the case in hand and a registration process intended to ensure that information is provided only to those with a valid interest.
Lord Kennedy of Southwark
I made some general comments about consultation with respect to the Minister’s department, which perhaps he could address. I also refer him to paragraph 10 in the report of the Secondary Legislation Scrutiny Committee. It said:
“It is clear that many business ratepayers continue to have serious concerns about the nature of the reforms to the business rates appeals system made by these Regulations, despite the consultation processes which”,
the DCLG,
“has pursued over the last 18 months. The degree of controversy about these reforms may well explain why the Department was unable to lay the Regulations by the end of last year, as it undertook to do seven months ago, and indeed why it considered it necessary to allow only two weeks between the dates of laying and coming into force”.
The committee went on to say:
“We understand the sequence of events that preceded the laying of the Regulations, but we find it very regrettable that the Government have curtailed the opportunity for effective Parliamentary scrutiny in order to salvage their own timetable”.
That may not be damning but it certainly is not good.
Lord Bourne of Aberystwyth
My Lords, I am not sure whether that was a question or just an observation on what I said. But if the noble Lord is asking whether I will look at that report and take it seriously then, as he rightly says, it is a respected committee and of course we take its views very seriously, as indeed we do the views of noble Lords around the House.
Lord Beecham
My Lords, the Minister did not respond to my request about the funding of the VOA. It seems at the moment unlikely to have sufficient resources to carry out the job that the Government wish it to do.
Lord Bourne of Aberystwyth
My Lords, I apologise for missing that point. I am not sure whether it was made when I slipped out—it conceivably was—but it is a fair point anyway. If I may, I will write to the noble Lord about it and copy that to other noble Lords who participated in the debate.
The Earl of Lytton
My Lords, I am extremely grateful to the Minister for the comprehensive answer he has given to the Motion. I am also most grateful to all other noble Lords who have spoken in this short debate. I would never go so far as to try to question matters of reasonableness and accuracy, or to cross swords with the noble and learned Lord, Lord Hope, especially as he is the Convenor of our Cross-Bench group—and a much cherished and honoured Convener as well.
However, two things come out of this. First, there is an urgent need to sort out CCA online. I am particularly grateful to the Minister for inviting me to discuss the process issues, because they are numerous. If I could arrange to come and see him with a team of people who could explain what the issues are and why they are so grindingly irritating to ratepayers, and give such a bad impression of the whole thing, then trying to clear the air on that would be very good.
Secondly, yes, the overall system needs fixing and there is to some degree a focus on these SIs in that context. But various things follow from that: there has to be proper finance for it overall—a point mentioned by the noble Lord, Lord Beecham; there has to be a justification of the impost in absolute and relative terms, compared with other things, and we have lost sight of that a little; and there has to be in the change in the style of management. We are to some extent in this together and if the Government are serious in saying, “We are pro-business”, we cannot have a situation where businesses are set on edge by such a system. It is entirely negative and unnecessary, so there has to be a change in the style of management.
Part of the key to this is the transparency of information. As soon as people start thinking that information is being concealed from them, they become suspicious that there is some malevolence hiding behind it. The proof of the pudding will obviously be in the eating here. The whole point about a non-domestic tax, particularly since it affects so many businesses, is that it must rest on the taxpayer’s confidence that it is being dealt with efficiently, expeditiously and, above all, fairly. We should bear in mind that business rates have a long and cherished heritage. When I started dealing with rating matters back in 1975, it was one of the lowest cost and most efficient means of collecting money for local government purposes. If we do not get that right, the alternative is mounting further appeals. If this provision eliminates individual appeals and starts giving rise to a whole series of class actions, the impediment—the drag—that it will cause in the system will be the same.
This has been a very welcome opportunity to air these views. There are certain things that I dare say the Minister and I are probably destined never quite to agree on. It would be almost inconceivable if that were the case. I appreciate that an effort is being made here, but we need the financial resource and manpower to go into that to try to sort this out. If it is not sorted out, it will continue to cause us problems. Having said that, and with thanks to all noble Lords who have spoken and to the Minister, I beg leave to withdraw the Motion.