Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Bill

(Limited Text - Ministerial Extracts only)

2nd reading (Hansard): House of Lords
Monday 4th June 2018 Lords Chamber

Moved by

[Lord Bourne of Aberystwyth]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)]

I am grateful to the noble Lords who have given up their time to discuss the Bill. Their engagement is a recognition of how important these measures will be for people across the country. I am looking forward to hearing the considered and expert views of the House. These views are always welcome, as we work together to ensure our laws are both fair and robust. The Bill is much needed, something recognised in the Commons, where it passed without amendment. We have moved quickly to introduce it, to ensure that ratepayers receive the urgent help that it will provide, and it is designed to address two basic needs. First, it restores previous valuation practice for those hard-working business ratepayers affected by the so-called staircase tax. Secondly, it aims to reduce the number of empty and unused homes, helping those who are struggling to find a place to live.

I turn to the detail of the Bill’s first measure, which relates to the so-called staircase tax. Clause 1 provides clarification to the rates bill for businesses that occupy or own several adjoining properties. Noble Lords will be aware that, for more than 50 years, businesses operating in adjoining units or rooms—accessed from a common corridor or staircase—were assessed as a single property for business rates. This practice was widely understood and accepted by the Valuation Office Agency and rating surveyors. A 2015 Supreme Court decision, in Woolway v Mazars, found this rule to lack a legal basis. Instead, it found that each unit of a property accessed from common areas should have its own rating assessment, regardless of whether the properties are adjoining or part of the same business.

The unexpected consequences of the 2015 judgment have brought unwelcome change and uncertainty for business ratepayers. Some businesses which previously had one rating bill now receive several. In most cases, this has not led to a change in what businesses pay overall, but in two circumstances bills have increased, leading to what has been described by some as a staircase tax. First, when some properties were broken down into individual units, the total rateable value of their holdings also increased as a result. This led to an unexpected increase in bills, which was backdated to 2010 in some cases. Secondly, the change saw some ratepayers lose their small business rate relief, which helps ratepayers who own properties with rateable values of up to £15,000. It ensures that over 600,000 small businesses pay no business rates at all. To ensure that it only helps small businesses, it is targeted at ratepayers with only one property. However, with businesses operating in adjoining units or rooms now receiving two or more rates bills, some ratepayers also lost some or all of their relief. We estimate that the numbers affected are relatively low—fewer than 1,000—but they deserve to have their relief reinstated.

Therefore, Clause 1 restores the widely accepted and understood practice of the Valuation Office Agency, and those affected will be assessed as a single property once again. This will ensure that these businesses, which have already paid their fair share, do not continue to suffer from the unexpected burden imposed by that judgment. This will be a key outcome of Clause 1, and we are implementing change retrospectively—to as far back as 1 April 2010—to ensure that the earlier provision remains throughout. We have been able to bring forward this measure without amendment because of the support we have received in drafting the clause from the Rating Surveyors Association, the Royal Institution of Chartered Surveyors and the Institute of Revenues Rating and Valuation. Their expertise has been invaluable and I am grateful for their assistance, as are the Government.

The second measure of the Bill relates to empty dwellings. A shortage of housing continues to be a barrier to progress in this country, at a time when the average house price in England is almost eight times the average income, and when over 1 million households are on social housing waiting lists. For this reason, the Government are taking action on many fronts. Tackling empty homes is essential to bring more properties on to the market so that we make the best use of the homes we already have.

Clause 2 follows the commitment we made in last year’s housing White Paper to continue to support councils as they encourage efficient use of existing housing stock. As announced in the Autumn Budget, the Bill increases the maximum level of council tax premium that local authorities can charge on long-term empty homes from 50% to 100%. This means that local authorities will have the discretion to double the council tax bills of properties that have been empty for two years or more. This measure adds to existing powers we have given to local authorities to bring homes back into use. These include the 50% council tax premium, the new homes bonus scheme and the ability of councils to charge the full rate of council tax on empty homes.

Following these important interventions, I am pleased to report to the House that the number of properties empty for six months or longer has dropped by a third since 2010, from 300,000 to just over 200,000. In addition, the power to charge a 50% council tax premium has been taken up by nearly nine out of 10 councils, all but three of which applied the full 50% rate in 2017. Where councils have used the power every year since 2013, the number of properties subject to a premium has fallen by 9%. This is welcome, but we can do more. That is why, through the Bill, we are allowing local authorities to strengthen the incentive to bring empty homes back into use.

It is right that decisions on whether to apply a premium and at what rate remain with the local authority concerned. We are not changing these arrangements. Councils know their areas best and will take local priorities into account when deciding whether a premium would be appropriate. There will of course be individual circumstances where to apply a premium would not be right. Under current arrangements, homes that are empty due to the occupant living in Armed Forces accommodation for job-related purposes, for example, are not subject to these rules. They may also be exempt due to annexes being used as part of the main property, as they cannot be separately let.

There are statutory exemptions for properties left empty for a specific purpose, such as the owner going into care. Councils can also apply discretionary discounts as they see fit in cases such as hardship, fire or flooding. Where home owners are struggling to rent or sell a property in a challenging market, I do not doubt that local authorities will wish to reflect carefully when deciding whether to issue a determination, and then to reflect on what that determination should be. Our guidance on this issue, published in 2013, made it clear that the premium should not be used to penalise owners of homes that are genuinely on the market. Only properties that would already have been potentially liable for a premium will be affected by this clause. It will not bring any additional properties within the scope of the premium; it merely increases the potential of the premium.

The Bill is about fairness for business affected by the so-called staircase tax, and about increasing the incentive to bring long-term empty homes back into productive use. I look forward to hearing from noble Lords and I beg to move.

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[Lord Campbell-Savours (Lab)]

My Lords, in the gap I want to embroider a comment made by the noble Earl, Lord Lytton. As I understand it, since 2013 local authorities in England have had the power to charge a council tax premium of up to 50% on long-term empty dwellings—that is, homes which have been unoccupied and substantially unfurnished for two years or more. This premium is in addition to the usual council tax charges applied to such a property.

I want to go to the mathematics of this. If the council tax is £1,500, at the moment the charge would be £2,250 if the local authority took the option up. If the charge was at 100%, it would be £3,000 and if it was at 200% it would be £4,500, so we would be talking about the tripling of council tax on a property—from £1,500 to £4,500. I wonder whether the Government have thought through the consequences of that.

Many home owners, or people who own property, will think, “I’m not going to pay £4,500 whereas at the moment I’m paying £2,250”—if it has been declared, because obviously, local authorities will be quite diligent in gathering this revenue—“I’ll turn my property into a second home. All I have to do is meet the term ‘substantially unfurnished’”, which two Members of this House have asked to be qualified. Is there not a danger that a very large number of people owning property that is empty will say, “My property is no longer unoccupied; it is a second home property”? They have a real incentive because the full council tax payment at the moment is going to be tripled. I see the Minister is shaking his head. I asked one of my colleagues on this side of the House, and he agreed with me that it would be tripled. That is how the mathematics work out because of the word “premium”. It is a premium over and above the existing council tax rate, so 200% takes us from £1,500 to £4,500. I am perfectly prepared to be corrected.

[Lord Bourne of Aberystwyth]

The noble Lord is right that it is a premium but it is a 100% premium, not 200%.

[Lord Campbell-Savours]

I think that should be clarified because that is the way it is going to be read outside the House. Anyone listening to the debate, given the reference to 200%, would think that it was going to be tripled. If the consequence is property being turned over to second homes, does that not mean that local authorities need clarification as to what “substantially unfurnished” means in law? Otherwise, there may well be a major shift of property from unoccupied to second homes.

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[Lord Bourne of Aberystwyth]

My Lords, I thank noble Lords who have participated in the Second Reading debate on this important, though short and focused, Bill. It seems to me, hearing the productive and helpful speeches from noble Lords around the House, that it has strong support. In so far as there was criticism—there was a little bit—this focused on the things that the Bill does not do. There are an awful lot of things that it does not do, because it is a very short, focused Bill. As the noble Lord, Lord Kennedy, rightly said, it is essentially a three-clause Bill.

I will deal with contributions from noble Lords in the order in which they were made. I will follow up the debate with a letter on points which I have missed—I am sure that there will be some—and where there are things where I do not have the answer to hand. There are some things which we will probably want to develop in Committee and thereafter.

I thank the noble Baroness, Lady Pinnock, for her contribution. I agree that there are some council areas where this will not make any difference to current practice. I bow to her superior knowledge of Kirklees which, based on what she said, is one of those areas. In general terms, there will be many councils in the north of England, though not all of them by any means, that will not see any difference from this and will not want to proceed from a 50% premium to a 100% one. That is a matter for them; this gives discretion. Similarly, there will be many councils in the south of England that do want to use it, but by no means all. This is patchy; there will be parts of southern England where this will not be helpful, just as there will be parts of northern England where it is.

The noble Baroness and other noble Lords referred to the issue of the high street and online businesses. She and others will know, from previous contributions, that the Government are looking at this. Had we sought to bring it into this legislation, it would have made the Bill much later arriving because we would have had to do consultation and so on. This Bill is focused and we want an immediate change. So far as I can gauge, the House is very supportive of that, for which I am grateful.

To clarify a point on which there was some confusion, we are talking about an increase in a premium of 50% to 100%, based on a 100% charge already—it takes it to 200%, not 300%.

[Lord Campbell-Savours]

I got my maths wrong—it was based on an amendment, which I thought had been carried in the Commons but was not. However, the principle still stands on the switch to second homes.

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[Lord Bourne of Aberystwyth]

I thank the noble Lord for his disarming contribution. I fully accept that various figures have been bandied about.

The noble Baroness and other noble Lords asked for information on the definition of “empty home” and “substantially unfurnished”. I will ensure that that is covered in the write-round letter, but the Bill does not alter that—it leaves it as it was. There will be substantial case law on those issues which will have an impact in this area, but it is not changed by this legislation.

I thank my noble friend Lord Patten for his contribution. He is absolutely right that this legislation did command all-party support in the Commons, where no amendment was moved, let alone made to it. He is absolutely right that this is a work in progress. We have got the figure down over six months from 300,000-plus empty dwellings to about 210,000. There is much work to be done. If we can squeeze it further and get more out of that, it would mean additional homes for people: this is the pot of gold. I am not suggesting that this is a silver bullet, but it makes a significant contribution. We can do much better than a 200,000 target. I think we are looking at something like 100,000, but I will cover that in the write-round letter.

My noble friend referred to the possibility of an escalator, depending on how long a property was vacant. Other noble Lords, including the noble Lord, Lord Kennedy, also touched on that, and I have no doubt that we will be coming back to it. I am also grateful to my noble friend for his general encouragement.

I thank the noble Earl, Lord Lytton, for his kind comments about our meetings on broader issues to do with valuation and the valuation office. I reassure him that I also have a meeting coming up with my honourable friend Rishi Sunak to talk to the valuation office about some of those broader issues. He is absolutely right when he referred to the decision in Woolway v Mazars as an aberration—that is how everybody has regarded it. All political parties and all the relevant bodies and practitioners in this area have regarded the decision as an aberration. Against that background, we would say that we have indicated that we will reverse this decision.

On shedloads of money, I do not think that anybody has referred to that. I have been very much at pains to say that a small number are affected, and again, in the write-round letter I will try to address how we can look at the numbers affected. However, we are not looking at shedloads of money, and it will be fairly evenly spread around the country. The noble Baroness, Lady Pinnock, suggested that they might all be in the same constituency. I would be a little surprised if that were the case, but in any case, we will look at that to provide some reassurance on the issue.

On the point the noble Earl made about cowboys, I very much look forward to joining a posse with him to see how we can deal with that issue, and I am sure that that will be subject to discussion. I come back to the point that this is not a silver bullet but that it will make a difference, which is what we are seeking to do here.

I turn to the noble Baroness, Lady Thornhill, with her experience of Watford and of leading that council. I take seriously what she says, and she was generally supportive of what we are trying to do. She suggested a suite of fiscal measures which, again, I will try to deal with in the write-round. Again, as she will know, that would involve much more engagement with the Treasury and much more consultation. It is therefore well beyond this piece of legislation, as I have no doubt she appreciates, but nevertheless, based on her experience, I take very seriously what she said. In particular, when we all go canvassing, we always come across an example that is very much live in one’s mind. I note what she said about the six years’ probate issue—the Jarndyce v Jarndyce of Watford. We will see whether we can say something in the write-round about how that probate operation works.

I thank the noble Earl, Lord Listowel, very much for his support and his kind words. He reminded us of the late-lamented Lady Farrington and all the work she did in this area. It was indeed considerable and we miss her contributions, as we miss her. I thank him very much for what he said about the importance of noting the impact this will have on families and children, the wider issue of local authority funding of children’s services, and the difference between statutory and non-statutory—which again, I take seriously, and which I will take back.

As always, the noble Lord, Lord Campbell-Savours, comes forward with something incisive about the issue of second homes and the definitions of “substantially furnished” and “empty” properties. As I say, I will seek to cover those in the letter; although it is unaffected by the legislation, it is nevertheless an important issue. On that issue of interaction with second homes, we are not seeking to deal with second homes here. This is somewhat different; indeed, this could be about a building owned by an institution, and essentially, it might not be anybody’s home at all, although empty. In the Commons, my honourable friend Rishi Sunak said that we would make a Statement on the second homes situation, because there is an issue with people using empty homes as something of a tax loophole, so we will want to say something about our future intentions. I hope to say something about that no later than Committee, but it will not affect this legislation. It is the subject of a much broader issue about second homes and how we deal with that issue.

As always, I thank the noble Lord, Lord Shipley, very much for his helpful comments and his indication that this is—to use his words—the right sense of direction. He referred to the question of judgment here about what is the right level of premium. Some people suggested a 300% premium, or I think they did, which would make a 400% charge, as it were, which would be significant. The noble Lord was much more modest in his contribution with regard to what we are looking at here. Again, I am sure that that is something that we will engage in as we go forward to Committee and beyond.

The noble Lord asked for a breakdown of the reduction of approximately 90,000 empty homes in the six-month figure. He will not be surprised to hear that I do not have the figures to hand, but I will seek to provide further information to noble Lords on those issues ahead of Committee.

There was also a question about empty dwelling management orders, which I have no doubt we will also be discussing in Committee.

I thank the noble Lord, Lord Kennedy, very much for his supportive comments and for raising the important question of how these measures will operate. He also talked about what the Bill does not do and about the need to get the level of premium absolutely right—I understand that—as well as the effect of Mazars. As I said, I am sure we will want to come back to those matters in Committee.

[Lord Campbell-Savours]

Perhaps I may raise with the Minister a concern that I have. We are entering a very difficult market in some parts of the country. What will happen when a property has not been sold after two years? If the owner of the property is driven into selling it, they may well end up in negative equity. It might be better for them to retain the property and avoid a substantial loss. Has that sort of problem been thought through in deciding on all this?

[Lord Bourne of Aberystwyth]

I thank the noble Lord for a very helpful intervention. One exemption which currently applies with regard to the 50% premium and will apply similarly with the 100% premium is that a local council does not need to apply the premium to people who are seeking to sell their property. There is considerable discretion as to how local councils can apply the premium, and obviously circumstances will differ from area to area. Therefore, I think that the noble Lord will find that that has been taken account of.

With that, I am very grateful to noble Lords for their contributions.

Bill read a second time and committed to a Committee of the Whole House.