Commercial Rent (Coronavirus) Bill
Wednesday 24th November 2021
(3 years ago)
Commons ChamberCommercial Rent (Coronavirus) Bill 2021-22 View all Commercial Rent (Coronavirus) Bill 2021-22 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
I beg to move, That the Bill be now read a Second time.
We have made some incredibly difficult decisions, including closing certain businesses, to stop the spread of the virus during the covid pandemic. To minimise the impact on businesses, we have put in place temporary measures to stop evictions of commercial tenants for unpaid rent, restrict landlords’ ability to seize goods to recover rent owed, and prevent landlords and other creditors from instigating certain insolvency proceedings. While those measures offered much-needed protections, they also meant that in many cases rent on commercial premises went unpaid and businesses accrued significant rent debt, estimated to be £6.97 billion across the UK over the pandemic.
We are already seeing the economy bounce back, but now we need to begin the work of preparing for a new economy post covid. We cannot draw a line under covid, however. Understandably, it has not been possible for many businesses to pay the rent debt that accumulated during the pandemic. Over the past year, we have therefore worked closely with business leaders to find a solution to that accumulated debt.
In June 2020, the Ministry of Housing, Communities and Local Government published a voluntary code of practice that encouraged landlords and tenants to work together to negotiate and resolve that unpaid rent. I am reassured by the fact that many tenants and landlords have used the code. The indications are that overall rent collection is increasing but remains below average levels, especially in certain sectors.
There are cases in which negotiation is not working. The Bill will support landlords and tenants who cannot otherwise agree in resolving disputes relating to the rent owed. It will protect rent debts built up by businesses required to close during the pandemic. It will establish a new binding arbitration process that aims to find a proportionate solution that will provide commercial tenants and landlords with the clarity and certainty that they need to plan ahead and recover from the pandemic.
The Government have published an updated code of practice that sets out what the arbitration process will look like, the kind of evidence that will be considered and the key principles to which the process will adhere. The code can be used by any business to help it to negotiate and resolve rent disputes, even if it falls outside the scope of the Bill.
The Bill will protect jobs and enable a swift return to normal market operation. I make it clear that it covers only rent debt that it is attributable to the period from 21 March 2020, when restrictions on business began, until restrictions for the relevant sector were lifted, which generally happened over the spring and summer of 2021.
We believe that it is important that the Bill is targeted to support the businesses that most need it and provide swift resolution to remaining disputes, so it applies only to those tenant businesses that were mandated to close during the pandemic. They are the parts of our economy that were hit hardest, including restaurants, pubs and high street shops; the rent collected from those sectors is still lagging behind other parts of the economy. The income from many businesses in those sectors, even after they have opened their doors again, will not yet be back to normal. Many businesses will therefore have been unable to build up the cash reserves needed to pay off rent debt.
These efforts to support businesses, largely in the hospitality, personal care and non-essential retail sectors, will particularly benefit women, young people and people from ethnic minority backgrounds because of the higher ratio of persons from those groups who work in those sectors.
The primary purpose of the Bill is to implement a simple, binding arbitration system to resolve those outstanding rent debts. A tenant or a landlord can refer a case to arbitration at any time within six months of the Bill’s coming into force, and propose a solution to the protected rent debt. Arbitrators appointed by arbitration bodies approved by the Secretary of State will review proposals and then assess evidence from both parties to determine whether any relief from payment of the debt is appropriate. That could include a reduction from the total amount to be paid, cancellation of the debt, or an extension of the time period in which it should be repaid. The arbitrator will make an award, and if granting relief from payment of a protected rent debt is appropriate, the award will set out the terms.
The arbitrator must follow the principles established by the Bill. One key principle is that awards should only be made for viable businesses, or those that would become viable with an award of relief from payment. For example, a business could be granted an award that reduced the amount of debt owed if that reduction would allow it to become viable again. In this way, we are actively supporting businesses that will continue to prosper and grow, will provide jobs and will help the UK to build back better.
Mr Toby Perkins (Chesterfield) (Lab)
Will the Minister expand a little on how he expects the viability test to be met? It is obviously extremely important. During the pandemic, many businesses that applied for bounce-back loans and the like were told they could not have the loans because they were potentially unviable owing to the coronavirus. How is the arbitrator meant to assess whether a business is viable?
Paul Scully
I know that the hon. Gentleman is a champion of pubs throughout the country. We will be looking at those and at the hospitality sector in general.
The arbitrator will be able to take evidence from both sides—the Government will not be taking a doctrinal approach—and look carefully at the books and the profit to establish whether this is just the rent debt that occurred during that period of closure, rather than any other debts that the business might have. He or she will have a narrow focus.
Mr Perkins
I welcome the Bill—it is important that action is taken, even if it is retrospective—but often the very fact that the rent had to be found will have had impacts on other parts of a business’s funds. As the Minister works through the Bill, will he look carefully at the guidance to ensure that it does not shut out many businesses that could benefit?
Paul Scully
Throughout the Bill’s progress, we will continue to engage with Members on both sides of the House, but also with landlords and tenants. We want to make this work, and to resolve these issues speedily but in the most appropriate way. That is in the interests of landlords and tenants. We hope that the fact that the legislation has been announced and we are taking it through the House will send a strong signal to landlords and tenants and they will not have to rely on this in the first place; we would love it if people had the conversations and resolved the issues. Landlords want their units to be filled, and tenants want to ensure that they can continue in a reasonable way, and if they can pay they should do so, as they are at the moment, because the Bill relates only to a particular period of closure.
An arbitrator should not make an award if it would make the landlord insolvent. This works for both tenants and landlords, and support for businesses must not be to the detriment of a landlord’s solvency. The Bill also makes it clear that, if commercial tenants can afford to pay the rent debt without becoming unviable, they should pay. The arbitrator will consider financial records, and any other evidence considered appropriate to determine the viability of a business or the solvency of a landlord. We have engaged with arbitration bodies to develop this approach, and I am confident that it will deliver swift resolution for tenants and landlords locked in disputes. Officials’ engagements with potential arbitration bodies has also raised awareness of our proposals, with the intention that, if Members of both Houses approve the Bill, the system will be set up and ready to go quickly.
I have already mentioned the protections that the Government rightly provide to stop commercial tenants being evicted or their businesses being wound up owing to rent debt during the pandemic. The measures introduced during the pandemic were designed to be temporary, offering much-needed respite to businesses unable to trade. We have already extended protections to continue to support businesses as needed, and to provide the time required to draft the legislation and put it before both Houses for consideration. In place of those measures, the Bill establishes a targeted intervention.
While parties are able to refer cases to arbitration within six months of the Bill’s coming into force, and while arbitration is in progress, there will be restrictions on evictions, seizing of property and other measures of enforcement, and certain insolvency proceedings in respect of protected rent debt. That ensures that the parties who cannot agree have a chance to use this arbitration system to resolve protected rent debt before resorting to other legal remedies. I am confident that six months is enough time to allow tenants and landlords to apply for arbitration, but the Bill allows for the period to be extended if there is evidence that it is not long enough.
Throughout the development of the Bill, the Government have engaged extensively with tenant and landlord representatives. We launched a call for evidence in April, which gathered the views of tenants and landlords on the current protections and the voluntary negotiation approach, and asked for preferences on options for further solutions. The feedback was that while negotiations were taking place their voluntary nature was actually hindering progress in some cases, and nearly half the respondents said they agreed that a system of binding adjudication would resolve the outstanding rent debt. Since those findings, we have continued to work closely with business and landlord representatives to help shape the Bill and support negotiations, and, as I said to the hon. Member for Chesterfield (Mr Perkins), we will continue to do so throughout the Bill’s passage.
I have regularly met businesses and landlord representatives to discuss these proposals, and the issue of rent debt in the affected sectors in general. Following the Bill’s introduction, we have received support from several bodies representing commercial tenants and landlords. They recognise the efforts the Government are making to encourage continued negotiations, and that a system must be in place to be used when negotiations fail.
We have also had productive engagement with colleagues from the Welsh and Scottish Governments and the Northern Ireland Executive, and I thank them for their continued input and support. I have written to the Ministers from the devolved Administrations to inform them of the relevant aspects of the Bill and seek legislative consent where it is required.
The Bill provides a solution that should be used only when parties have been unable to reach agreement between themselves. We are still adamant that tenants and landlords should negotiate where possible, but we recognise that some may never reach agreement on what is owed and how it should be repaid. The protections that the Government implemented during the pandemic have been extended to give the time needed for these negotiations. They have offered much-needed respite for businesses fearing eviction and bankruptcy, but they cannot continue forever, and we must act to help the market get back to normal.
I am sure the House agrees that leaving this rent debt unresolved would be detrimental to UK businesses and landlords, and indeed to communities. I am glad to see that the economy is bouncing back, but it is unreasonable to expect all businesses to be able to pay off immediately all the rent debt that they accrued when they were closed. We have heard from businesses and from landlord representative groups that the voluntary approach will only get so far, and that a binding arbitration system will work to unblock this issue. The Bill will put an end to the temporary protections and clear up the unpaid rent debt that is stalling commercial tenants and landlords and preventing them from prospering. I commend it to the House.
Ruth Cadbury (Brentford and Isleworth) (Lab)
I thank the Minister for his speech and for introducing the Bill. Let me reassure the House that I hope to make a slightly more cohesive speech then the Prime Minister managed on Monday when he spoke to the CBI about the Government’s approach to business, but Members are welcome to intervene if I do start making car noises or talking about Peppa Pig.
We generally welcome the Bill, and it will be welcomed by retail businesses up and down the country, because it creates an arbitration process for disputes between landlords and commercial tenants on rent arrears caused by enforced closure during the lockdowns, and also the subsequent impact on businesses’ income and their ability to meet their outstanding rent demands, including outstanding service charges. It also restricts enforcement action for the recovery of rent arrears debt through the county courts for six months.
We accept the need for a fair arbitration process that deals with commercial rent arrears, and the need to ensure that that process works. There are some aspects on which we will seek further information, but before I come to them, I want to address the context in which this short and specific Bill is being introduced. Until this morning, we understood that it was to be a joint Bill between two Departments. It will not surprise the House to know that, as a shadow Levelling Up, Communities and Housing Minister, I shall be responding to the Minister as though he were the Communities Minister, because there are a number of aspects of communities and levelling up that I wish to address.
Janet Daby (Lewisham East) (Lab)
My Lewisham East constituency has among the largest number of small businesses in London. Brilliant councils such as mine, the Borough of Lewisham, can only go so far in supporting small businesses, especially when their budget has been cut by the huge amount of 63% since 2010. What businesses across our country really need is the Government to see them through this very difficult ongoing period, and they need a recovery plan in place.
Ruth Cadbury
My hon. Friend is absolutely right. This Bill is specific and closely drawn and, as I will go on to say, there are a lot of other challenges still outstanding for businesses and the communities in which they sit that the Government need to be working on as well.
We of course recognise how tough the last 20 months have been for so many businesses and the pain of the pandemic has impacted across the economy, but it has been particularly hard on small businesses, especially family-owned businesses which are anchored in their communities—businesses that have spent years, even decades, doing the right thing such as supporting their staff and investing in their skills, and putting back into the local area. There are countless examples of businesses who have always done the right thing, and who saw a downturn after they followed public health regulations and they closed.
I of course acknowledge the support that the Government provided for businesses during the pandemic —bounce back loans, VAT deferrals, rates relief, the furlough scheme, and the rents-based schemes—but too many businesses missed out on many of these schemes: those refused loans because their bank was not on the Government-approved list; or supply-chain businesses to sectors such as hospitality whose customers were required to close but they were not. They missed out.
Despite the relief schemes, many are still struggling; loans and VAT deferrals still have to be repaid, and those not yet making a profit are still required to pay their bounce back loan. Labour has sought to amend the rules so that a business has to repay its loan only when it is making money. The pain has been particularly hard on small independent businesses and family-owned businesses, which are anchored in their communities, and many sectors—such as the arts and events, and, particularly in the constituency of my hon. Friend the Member for Feltham and Heston (Seema Malhotra), travel and tourism—still face great uncertainty for months and years ahead.
On businesses that could not cope and had to close, in too many areas there are now vacant windows; there is no demand to take on the vacant premises. Of course the pandemic is not solely to blame for retail premises remaining vacant for long; the change in our shopping habits towards more online and less in-person has a major part to play, and in areas where a large proportion of people are impacted by the triple whammy of rising costs of living, the cuts to universal credit and the permanent or temporary loss of jobs, it is no wonder that retail businesses are particularly struggling when too many people have not enough money left over in their pockets at the end of the month.
The commercial rent arrears built up for businesses that had to close during the lockdowns are only one part of the challenge facing businesses across the country, so although we welcome the Government’s taking action through this Bill, there is still so much more that they could do. For a start, they must address our outdated business rates system, under which similar sized shops pay vastly different rates and revaluations.
Mr Perkins
I am grateful to my hon. Friend for talking about the fact that although we support the Bill in its narrow terms, it could have offered much more, and particularly grateful for her making the point about business rates. I remember being in the shadow business Department team back in 2014, and the Government were promising to change the business rates system back then. We have had any number of talks about it since, and so many businesses on the high streets know how unfair the regime is, yet we still have not had that action. Does my hon. Friend welcome the announcement of my right hon. and learned Friend the Member for Holborn and St Pancras (Keir Starmer) that a future Labour Government will address this unfairness?
Ruth Cadbury
My hon. Friend anticipates what I am about to say: this is about not just similar sized shops paying vastly different rents, but revaluations that result in exorbitant rises—by 200% for a business in Brentford in my constituency. Yet again the Chancellor has kicked the can down the road on business rates reform, as his predecessors have done before him. Businesses cannot afford the further dither and delay that we keep seeing from this Government, and of course I welcome the announcement by my right hon. and learned Friend the Member for Holborn and St Pancras (Keir Starmer) and my hon. Friend the Member for Leeds West (Rachel Reeves) that Labour will abolish the outdated business rates system and replace it with a fairer system that creates a more level playing field and breathes life into our high streets.
Then there is the Chancellor’s latest tax hike, a 1.25% increase in national insurance contributions, a double-whammy attack on our businesses; just when they need support, this Government decide it is time for a tax hike.
Then there is the permitted development rights changes and the impact that they will have, and in some cases already have had, on our town and village centres. The geographical hearts of our communities are threatened, particularly with the most recent changes brought in on 1 August that will make it easier for high street shops and businesses to be converted into poor-quality slum housing, with local communities and councils powerless to stop it.
I will finish by touching on a few areas where we would want to ensure further scrutiny of this proposed legislation as it moves forward. First, on the levels of arbitration fees, we know how tough things have been for businesses and want to ensure that they are not pushed over the edge with excessive fees in the new system. Secondly, as has been mentioned, there is the question of the viability of businesses and how they are assessed. Many businesses, especially those reliant on international travel and in other sectors that have been impacted in the long term by coronavirus, are still facing business slowdown even today. So I hope the Government will put in place a fair and reasonable assessment of viability, ensuring no business that can survive is left behind.
Thirdly, there is the issue of transparency and consistency in the arbitration and appeals process and how we can ensure a fair balance in the system between landlords and tenants. Finally, we seek assurance on whether a brand new, fully operational arbitration process can be in place by March next year. These are all areas that need more scrutiny and where the Opposition will make sure the Bill as it progresses works for businesses up and down the country.
To conclude, I reaffirm that we welcome the Bill and the arbitration process it creates for businesses who were in rent arrears through the pandemic closures, but the Government must not see this as the only action they still need to take: businesses up and down the country have had such a difficult 20 months that they need a Government prepared to do more to support them.
Matt Rodda (Reading East) (Lab)
It is a pleasure to speak in this important debate. I welcome the Bill but want to echo the words of my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) by raising a series of important questions about how it will operate, in particular whether the Government’s desire to set up the arbitration work so quickly is realistic given the pressure on the business and public sectors at this time. I also want to draw the Minister’s attention to a number of related points that I wish were dealt with in the Bill, in particular physical retail businesses being treated fairly in comparison with online businesses.
At the outset, I want to put on record my support for our small businesses: they are the lifeblood of our economy and it is vital that all political parties support them. As the Reading and Woodley MP, I am currently running a campaign asking our residents to nominate their favourite small business, and I encourage other colleagues to do the same, because it is important for us to show our support for the small—and indeed the large—business sector after what the country and the world have just been through.
I would like to raise the issue of retail in Reading, and to encourage the Minister to look into the wider issue of the balance of Government policy in favour of online retail versus physical retail. As a London MP, he might know that Reading is the retail centre for central southern England. Retail generates thousands of jobs in our community, many of which are highly skilled, long-term jobs. People enjoy their work deeply and are passionately committed to retail. As my hon. Friend the Member for Brentford and Isleworth rightly said, the role of retail in place-making and establishing vibrant town and city centres is fundamental. I would like to ask the Minister, when he responds to the debate and in his further consideration of the Bill, to remind the House of the work that the Government are doing to level the playing field between online businesses, which seem to have so many advantages these days, and physical businesses. Physical businesses are referred to in the Bill, which deals with the issue of rent arrears, but I believe that there is much more work to be done and I urge him to address that when he speaks.
In particular, I would like to draw the Minister’s attention to an issue that I have mentioned to him before, and for which I believe he has some sympathy. That is the need to have physical bank branches in local centres. This issue has been raised in relation to rural communities, but it is also an issue in many urban and suburban areas and in larger villages.
Janet Daby
My hon. Friend’s comments are also pertinent to my area, where we have seen so many local banks close. That has caused a great issue for people in my local community, because they now need to travel further to different parts of the constituency and the borough, and the queues are longer. For older people and people who find it difficult to move around freely, this adds an additional burden, as well as having to wait longer in the queue. I am really frustrated by it. It is a serious issue when local banks have to close, because it has such an impact on so many people in our community. The Government really need to see what more they can do to support local banks. I really hope that local banks are listening to my hon. Friend’s speech and to what I have just said.
Matt Rodda
I thank my hon. Friend for her comments. She has stolen part of my speech, but she has done so very graciously.
Branch closures are an issue in suburban areas, as the Minister knows well. Travel times can be considerable at busy times of the day, and there are access issues for elderly and disabled people. Another important point that I am sure my hon. Friend the Member for Lewisham East (Janet Daby) would have made had she had the chance is that many small businesses are still receiving their takings in cash and they need to bank that cash safely. They want to be able to go to a physical bank to do that. I understand that the Department is doing some interesting work looking at pilots for shared services for banks in rural areas, and indeed there is a pilot in Essex. Perhaps the Minister can update the House later when he speaks on this important issue. It is of great concern to many local small and medium-sized enterprises in Reading, Woodley and many other areas across the country and I hope that he will be able to address it. I also hope that he will encourage the banks to work together to ensure that there is interoperability of IT systems and other back-office functions so that they can support each other and support our small businesses. They really should be focusing on this important issue at this time.
I would also like to draw the Minister’s attention to some related points, some of which have been mentioned by my hon. Friend the Member for Brentford and Isleworth. It is important, as we consider how to support small businesses at this difficult time, to look at the issue in the round and consider other aspects of support that the Government should in my view be offering. First and foremost, there are small businesses, many of which are micro-businesses, that missed out during the pandemic, and I would like the Government to look again at the issue of those businesses that were left behind. They include those that were set up in all good faith at the start of the pandemic but did not have three years of accounts and were therefore unable to claim any support. There are a number of other worthy and worthwhile groups that deserve further attention from the Government, and I ask the Minister to address the matter when he speaks later. This is a matter of huge significance to many of my constituents. I have had constituents in tears while speaking to me about this issue on the telephone, but unfortunately I was unable to offer them any help because of the limitations of Government policy.
In addition, I would like the Minister to speed up the work on business rates. We are calling for the current system to be scrapped. My hon. Friend the Member for Leeds West (Rachel Reeves) has spoken powerfully on this issue. It is deeply unfair that physical businesses are being asked to pay high levels of business rates while other competitor businesses in out-of-town locations or online are not being asked to pay the same level of business rates. That cannot be right, and it is not fair. I hope that the Government will address this point, and that the Minister will address it later today.
I would also like to pick up on the importance of rail and other transport infrastructure. The area that I represent is very lucky to be the western terminus for Crossrail, and we are already seeing enormous transformational change across the Thames Valley—and, I am sure, in Kent and Essex as well—as better rail connectivity brings people into town and city centres. Many towns and cities are being rebuilt significantly because of this investment, and if this is good enough for the south of England, I hope the Minister will urge his colleagues to think again about HS2 and the number of cities and towns that have been left on one side as a result of the Government’s announcements earlier this week.
We can see the benefits of the infrastructure in our parts of the country, and we would like other towns and cities around the country to share in the regeneration renaissance that comes from sound investment in public transport leading to better connectivity. That investment spurs retail and the leisure and hospitality industry, and it is also crucial to sectors such as IT and other knowledge-based sectors of the economy. We have huge growth in that area in the Thames Valley, with businesses relocating to Reading purely because of its connectivity, and I urge the Minister to treat the north of England in the same way that previous Governments, including the Labour Government prior to 2010, treated the south.
Sarah Olney (Richmond Park) (LD)
The Liberal Democrats welcome the Bill and we hope it will be passed swiftly in order to protect struggling businesses. I have spoken to many businesses in my community that have really struggled with rent bills over the past 20 months. This is been a significant issue for many. As the Minister said, many landlords and tenants have been able to come to terms and make arrangements for how rent payments will be made, but a number have not been able to do so. I am thinking in particular of Don Fernando’s restaurant in Richmond High Street, a legendary Spanish restaurant right by the railway station that has been there 30 years. It was unable to make such an arrangement and it is still getting rent demands from its landlord, which is registered in Jersey, unfortunately. This is a significant issue for the restaurant. Only the stay of execution allowed by the moratorium on evictions has enabled it to carry on trading. It is still open and I was there a few weeks ago. It is doing well, but it has significant concerns about its rent debts, so on its behalf I very much welcome the steps that the Business Department is taking.
Of course, this affects not only tenants. I have spoken to landlords as well, including small landlords and landlords of single units. In some cases, where they are letting those units out to large multiples, some of those retail chains are just turning round to those landlords and saying, “We are not paying.” Up to now, there has been no mechanism to enter into a negotiation on this. It is very much the weaker party in these transactions that has to suffer the consequences, and on that basis I am really glad that this arbitration mechanism is being brought in. It will give a voice to both sides, particularly where there are no other mechanisms to resolve the issue.
My only slight grumble is that we could perhaps have passed this Bill sooner. The moratorium has been extended several times, which has been welcome, but bringing this Bill to Parliament more promptly would perhaps have allayed some fears and got the process going sooner for certain tenant-landlord relationships. But better late than never, as they say. It is here now and we certainly plan to support it. I hope that we will use this opportunity, even though we want to pass the Bill swiftly, to scrutinise it a bit further. One of the important points we want to raise is how arbitrators can effectively assess whether a business would have been viable. That is an important point, and we need to see more discussion about it. In the context of the pandemic, many businesses had to close because of Government instructions, but consumer behaviour has also changed radically as a result of the pandemic. As we look back over the past 20 months, I do not know how easy it will be to say which businesses would have been viable if their rent arrears had not built up to such an extent.
There are lots of great businesses in my constituency that came through the pandemic because they changed their way of working, including developing their online offering and doing home deliveries. We see right across our business sector, particularly in our small businesses, that entrepreneurs will always respond to challenges. Many businesses now look quite different from how they looked before, which is an example of how it is difficult to say what would or would not have been viable. Many business owners or their family members have suffered coronavirus infections, and they suffered untold disruption in their personal life that will have affected their ability to run their businesses. Again, how can we judge what would have been viable? How would things have been different? That is a difficult question to answer.
I welcome this further support to help businesses through what we might call the after-effects of lockdown.
Mr Perkins
The hon. Lady raises an important point. From what the Minister said, it sounds like a business will be eligible if the amount it owes in rent is the difference between going bust or not. Many businesses might have major rent payments that take them right to the brink, going through all their savings; other businesses might have debts that are slightly more than their rent, but the support would make a huge difference. I fear we may end up with a huge number of businesses being shut out of this important redress, so I urge her and other colleagues to scrutinise this point in Committee.
Sarah Olney
That is exactly right, and it is the point I am trying to make. Every context and every business is different. The business owners will have faced different challenges, and the environment in which they trade will have faced different challenges. The hon. Gentleman has already spoken about hospitality businesses facing significant challenges, and it is difficult to see how we can have one set of guidance that covers the viability of every kind of business of every size and every sector.
Janet Daby
In that same vein, small businesses, and even large businesses, have seen a surge in energy costs and product costs. Does the hon. Lady agree that there is increasing financial pressure on businesses?
Sarah Olney
I absolutely agree. We see a maelstrom of different pressures on businesses at the moment, and many of my retail businesses are experiencing difficulty in getting stock for a number of different reasons, many of which will be familiar to Members. There are increased energy costs, and we are still facing quite an uncertain Christmas.
Hospitality businesses across the country are keen to open their doors to Christmas parties, but there is still a lot of uncertainty about the public health situation, which will prevent many of them from being able to make the revenue they would expect. That will obviously have an impact on their ability to pay their debts. As the hon. Member for Brentford and Isleworth (Ruth Cadbury) said, it is not just their rent debts; they have VAT bills, rates bills and loans to repay. There are so many different debts mounting up as a result of lockdown, and there is still a great deal of uncertainty, coming from a number of different sources, on whether businesses can count on the revenue to service all those debts. There are a lot of pressures facing businesses.
Matt Rodda
Does the hon. Lady agree that the Government need to get on top of the supply-chain issues, particularly in our ongoing relationship with the European Union, the issues in Northern Ireland and the cross-channel issues? These could potentially have a serious impact on businesses and families this Christmas. It is high time the Government got on with developing a positive relationship with our neighbours.
Sarah Olney
I entirely agree. I would now normally be at the Public Accounts Committee, which is currently looking at the readiness of UK ports for Brexit, how well our port and logistics sectors are dealing with Brexit and how well the Government have prepared them. The picture is mixed, but there is no doubt that there is more disruption to come, because we have not yet implemented all the checks that will be required in due course. Some will come in on 1 January, and there will be others in July 2022. It is fair to say that we are still not through this huge period of uncertainty, and there is a great deal more still to come.
I welcome this Bill, but I would like to see the Government do more to help our retail, hospitality and personal services sectors, and all the other sectors that make up our high-street economy, because of all the positive impacts a thriving high street has on our local communities. I want to see the Government go a bit further to support businesses on our high street.
I am keen for the Government to consider scrapping the upward-only rent review clause that is often in new leases. Richmond High Street, in particular, is suffering from this clause. We now have very high rents for all our retail units, which is a private sector matter but we are finding that it creates a barrier to entry for new retail, hospitality and other businesses that might want to take up a town centre lease.
Leases are based on old-fashioned ways of doing business, and we often find that landlords put an upward-only rent review clause in leases. When the lease terms are renewed, the clause means that a firmly established business that has generated a great deal of business as a result of its location will find that its landlord puts up the rent to such an extent that the business cannot service it with its revenue. I am keen that leases and rent payments should reflect underlying market conditions, which would help a huge amount. More needs to be done. We talk about leasehold reform a lot in this place, but I also want to see it for commercial rents. I would welcome the scrapping of upward-only rent reviews.
I echo the hon. Members for Chesterfield (Mr Perkins), for Reading East (Matt Rodda) and for Brentford and Isleworth (Ruth Cadbury), who mentioned the business rates review, which is urgent because we want to help businesses to have better control of some of the costs of doing business. There is no doubt that business rates are a key part of that, and we are keen to see a review as soon as possible. A review has been promised for many years, and business rates are a fundamental part of the business costs that are continuing to be a deterrent to new entrepreneurs.
We very much support the Bill, which is the right thing to do. We want to support our town centre businesses, and there is more that could be done, particularly on rent and rates. We are keen to support the Bill, but we need to scrutinise the arbitration clauses a little further.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to wind up this debate, although I am sorry that the Minister has both had to open and close.
I want to recognise some of the contributions to this debate. My hon. Friend the Member for Chesterfield (Mr Perkins) and the hon. Member for Richmond Park (Sarah Olney) raised the important definition of viability and the considerations around it. My hon. Friend the Member for Lewisham East (Janet Daby) mentioned how we need to make sure that all our businesses are supported through the pandemic and into the recovery, which will continue at different paces for many businesses. My hon. Friend the Member for Reading East (Matt Rodda) also talked about the wider context and about supporting and championing businesses, which Small Business Saturday will be doing in the run-up to 4 December. It was eye-opening to be out with them in Southampton earlier this week. This is important in the context of what we are discussing today.
As my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) said at the beginning of the debate, Labour supports this important Bill, although we are surprised it has taken this long to introduce it following the announcement in the summer. We need to talk about the context because the growing cost of business will have an impact on how businesses pay back their rent. We have had an important set of contributions on the urgent need for reform of business rates, which the Labour party has also called for, and for it to be considered alongside a much fairer taxation system to bring in a much more level playing field between online businesses and businesses in our communities.
We are having this debate in an important week, as we know that business needs the Government to be on its side—perhaps the Minister will not be able to say anything about that. That is an incredibly important part of how we go forward and work towards the recovery—we are just at the beginning of that. The Prime Minister’s embarrassing speech to the CBI at the start of the week was an issue because confidence in the Government is knocked when the Prime Minister does not give a speech that suggests they understand the challenges businesses are facing and the crucial nature of getting the recovery right to make sure that it is sustainable.
The Bill will legislate for a binding arbitration process to be used where business landlords and tenants cannot agree on how to deal with outstanding rent arrears. It also expands on existing restrictions on enforcing business rent arrears to ensure that they cannot also undermine the arbitration process, which will be in place for six months from Royal Assent. As we have heard from hon. Members, the covid pandemic has hit businesses hard, affecting disproportionately those at the frontline in our high streets and communities, which have been forced to close or restrict trading from March last year.
Labour recognises the need for a fair arbitration process to deal with commercial rent arrears. That is why we will scrutinise the legislation in detail in Committee, having raised some of those broader concerns today, to ensure that the proposals are effective and accessible, and fairly balance the interests of relevant parties. Our principle is that no otherwise viable business should face the significant burden from rent arrears without due arbitration and a burden-sharing process. The guiding principle must also be focused on fairness and on the long-term interests we have in British businesses and supporting them to provide much-needed employment across the country.
Labour has also called for the Government to help ease the covid debt burden faced by firms across the country by creating a British business recovery agency. The reason why we would want to convert the bounce back loan scheme into a student loan-style arrangement is so that businesses would have to start repayments to the British Business Bank only when they are making money. It is important that we have an integrated set of policies on business recovery so that we do not deal with one aspect while there are crises in other areas of life for businesses.
Janet Daby
My hon. Friend is closing this debate brilliantly. Does she agree that this week we have been reminded of how much businesses need a responsible Government, who take speeches to the CBI very seriously?
Seema Malhotra
I thank my hon. Friend for her contribution. I had referenced that and she makes the point powerfully; it is important that we have a Government taking their responsibility to business seriously and showing the nation that they are doing that. The Prime Minister’s speech did more for the sales of Peppa Pig than for supporting business recovery across our country.
Rent debt is a heavy burden for landlords and commercial tenants, and we need a solution that will be in the interests of both. This is a big issue and although we do not know its full scale, the Bill’s impact assessment—the Treasury analysis—notes that the total amount of deferred rent liabilities could be about £9 billion by March next year. That is why we need a policy solution that is fair, fast, trusted, affordable and accessible, so I hope that the Minister will be able to tell us how confident we can be that the system will be in place and what the next steps will be to ensure that.
Labour also called for action on rent debt and the wider business costs in the summer. The Minister will know that before then. I had met UKHospitality, the British Beauty Council, the Federation of Small Business, the Night Time Industries Association and many of those stakeholders to discuss the ongoing commercial impact of covid. Those stories, which he and I still hear, showed the strain on and perseverance of those who have fought against the odds to keep going. As has been highlighted by the 3 million excluded campaign, far too many had been excluded from Government support and still struggle.
Luke Hersheson, a renowned hair stylist who is backing the “Save Our Salons” campaign, said earlier this year:
“In March this year my salons will have been closed for 260 days out of 365. Running a business for more than two thirds of a year with no income at all is incredibly challenging. When the tap is turned off salon businesses are still paying landlords, they’re still paying utility bills, insurance costs and subsidising furlough pay.”
That is a powerful statement about how businesses were struggling and yet were still wanting to do their bit in the community and support, at the frontline, our communities in getting through covid.
Ensuring that viable businesses are able to survive into the future is part of the responsibility of the Government. Members have discussed how small businesses are the backbone of our economy. We see that in all our constituencies—my constituency has more than 5,000 small businesses. We know that the almost 6 million small businesses across the country account for 99.9% of the business population, three fifths of employment and about half of the turnover in the private sector. As the Minister alluded to, many that will be affected and which may need to draw on the scheme in this Bill may well be women-led businesses and ethnic minority-led businesses. Perhaps he will tell us how he is going to make sure that the opportunities provided by this legislation will be known about by those who might need them. How is the ability to seek a reference for arbitration going to be made known to businesses at the frontline in our communities, so that they do not get to the end of six months of struggle and find that it is too late? It is crucial for our recovery to make sure that that is understood and we have that ongoing partnership between the Government and business large and small. We are going to need that to make sure that our economy starts to fire on all cylinders, which is what we want to see, in a recovery that is sustainable. We want to start to see a recovery that generates the profits and then the taxes to sustain our economy.
The challenge of dealing with rent debt that has accumulated is particularly acute because businesses are also having to deal with a wave of rising costs. Government incompetence led to Britain being harder hit than other countries by the supply chain crisis, ongoing issues and steep rises in energy prices. Those are huge blows to businesses as they approach Christmas, which should be the time when they are hoping to claw back profits in order to make up for stresses earlier in the year. The cost-of-living crisis has also seen consumer confidence knocked, as we know. Last month, it dropped to its lowest level since April, thus reducing consumer spending in all our communities. That has been compounded by the inexplicable decision by the Government to cut universal credit for 6 million families in October—returning just a small part of that was not good enough. In my constituency, this will take £18 million out of the local economy. The Government’s jobs tax, which the Opposition oppose, is also due to come in right at the time when debt protections ease and businesses are expected to pay back costs they could not afford during lockdown.
The Minister will be aware that all of those compounded pressures will cause a potential crisis for businesses come next April. We know that not all sectors of the economy will recover fast. That point was made by my hon. Friend the Member for Brentford and Isleworth. Aviation, travel and tourism, and parts of hospitality will recover at a slower pace. These measures are set to be in place for six months from Royal Assent. It will be helpful to know how Ministers plan to review whether an extension of a further six months will be required and how they will bring those considerations to the House.
The Bill strikes an important balance between the duties of tenants and of landlords and builds on the code of practice for commercial tenancies that was announced in the summer and revised most recently in November. Will the Minister respond to the points raised about how the viability of businesses is to be determined? A key task for arbitrators under the Bill will be to assess how viable businesses are. There are some relevant comments in the code of practice, but the Minister will understand the Opposition’s concern about what qualifications we can expect arbitrators to have so that they can make that assessment. How will the panel of arbitrators be pulled together? What will be the criteria for and what scrutiny will there be of their capabilities? What does the Minister really mean by “a viable business”? Over what time period will viability be assessed, given that different sectors will continue to recover at different rates? Has the Minister considered a simplified appeals system in case there are disagreements about arbitration decisions? Will he comment on the consistency of the arbitration framework? There is currently no great detail on it and there is a risk that different arbitration bodies and arbitrators will take different approaches to cases, resulting in inconsistent decisions.
Businesses are facing a difficult and now costly recovery from the pandemic, with rising costs coming downstream. I am sure the Minister will want to assure the House that he will make sure that the arbitration process is affordable. What plans do the Government have to make sure that the fees do not preclude access for those who need support?
The Bill is welcome, but it is narrow in respect of addressing the overall issues that businesses face and will continue to face as we recover from the pandemic. It will be a slower recovery for some sectors than for others. The Bill provides necessary support for businesses with their rent debt if agreement has not been reached, along with an arbitration process, which must be fair and implemented quickly. If the Conservatives really cared about business health, they would use this opportunity to go much further in the provision of support in respect of business rates reform and the other costs and supply-chain issues that are hitting businesses and consumers hard.
Paul Scully
With the leave of the House, I will speak a second time to sum up the debate. I appreciate and very much value the constructive nature of the debate and the comments and positive notes on the Bill’s purpose. I shall concentrate my remarks on the issues raised that relate directly to the Bill. I do not apologise for the fact that the Bill is narrow.
The hon. Member for Richmond Park (Sarah Olney) asked why legislation did not go through earlier; we extended the moratorium for several months, rather than for just a quarter so that we could get the Bill right. We spent that time working with the arbitration services to make sure that we have the capacity and expertise—on which I shall say a little more later—that we need. We have also worked with landlords and tenants, because we have to strike a really delicate balance: we are, in effect, intervening on a contractual arrangement between two private bodies. A lot of the other support that the Government have given has been in the form of relief on various taxes, including business rates and VAT; through direct grants; or through the guaranteeing of loans. The Bill is very much about the moratorium, and our unwinding from that involves our stepping into private contracts, which we would not do without due care and attention.
The hon. Member for Brentford and Isleworth (Ruth Cadbury) talked about the scope of the Bill and eligibility. By targeting the support, we can be sure to get the arbitration cases through quickly and resolved quickly. We clearly need a solution to the debt and do not want cases to drag on for years. If the scope of the Bill were too wide, capacity would start to be swamped, so in trying to help as many people as possible we would end up helping nobody. It is really delicately balanced.
Nevertheless, I appreciate the fact that over the past 19 months there have been significant difficulties for people we have not been able to support with the £352 billion-worth of financial support we provided as we wrapped our arms, as best we could, around the economy to protect jobs, livelihoods and businesses. By resolving the rent debt for a business within the Bill’s scope, we will help not only that business, but its immediate supply chain and all the individuals who contribute towards its success, by getting that business back on a level footing. I hope Members understand why we have targeted the legislation in the specific way we have and how it will deliver support where it is most needed.
The hon. Member for Brentford and Isleworth also talked about the availability of arbitrators, as did several other Members. I reassure Members that we have worked closely with the arbitration bodies and the market is ready to deliver. Our engagement with arbitration bodies has raised awareness of the proposals and we will continue to engage with interested bodies so that the system is up and running as soon as the Bill comes into force.
We put out a call in respect of arbitration earlier this month and there have been a number of respondents. The arbitration bodies that have demonstrated an interest in becoming approved bodies are already widely recognised and respected in the field of arbitration for the accreditation services they provide to their arbitrators. That accreditation acts as a quality-assurance service. There is a statutory duty on approved arbitration bodies to ensure that the lists they maintain contain only arbitrators who appear to an arbitration body to be suitable by virtue of their qualifications or experience. An approved arbitration body also has a duty to remove arbitrators from a case on any one of the grounds for removal specified in the Bill—for example, when
“the arbitrator does not possess the qualifications required for the arbitration”.
The Secretary of State also has the statutory power to withdraw approval from a body if it is no longer considered suitable to carry out the functions of an approved arbitration body.
The hon. Member for Feltham and Heston (Seema Malhotra) asked how we are going to communicate the changes. It is important that the parliamentary process has signalled the introduction of legislation and, along with continued conversations between the Government and the Opposition, that will raise its profile, but we will have to do more direct communication through business-representative organisations, banks and accountants—the kind of intermediaries that all businesses tend to have. There is lots of work to be done, but we want to make sure that we get it right on the front foot.
On how much arbitration will cost and whether it will be affordable, the party that puts forward the case for an arbitration will pay an application fee to the arbitral body. If both parties agree, the fee can be split between landlord and tenant at the point of application. When making the award, the arbitrator must require the other party to reimburse half the fees paid or to pay
“such other amount as the arbitrator considers appropriate”.
The price will be set by the arbitration bodies, although the Secretary of State retains delegated powers to set a cap on the fees charged. For similar schemes, there is a £1,250 application fee, with additional costs if the parties choose to progress to a hearing. Our preference—not just about cost, but about speed so that we get things resolved for both parties—is an online, documents-based process to keep costs to a minimum and to ensure that the process is available to all.
The hon. Member for Feltham and Heston also asked about demonstrating viability.
Seema Malhotra
The Minister has given a figure of just over £1,200 as a comparable amount. Given the Secretary of State’s power to introduce a cap, is the Minister signalling the Government’s intention to introduce a cap and the amount it might be set at? If so, what is the assessment of affordability for the context in which the Bill has been introduced?
Paul Scully
I do not want to pre-empt further consideration of the Bill, further discussions with the arbiter or, indeed, the Bill’s passage, but it is clear that tenant businesses will already be struggling financially, given the problem that we are trying to solve with the Bill.
We will make sure that, if we do introduce a cap, that is done at a limit that is consistent with the market, with the overall aim of not preventing small and medium-sized enterprises from accessing the scheme. The cap, though, will be variable. It will be on a sliding scale relative to the amount of protected rent debt that we used to determine the cap should it come in, and we will ensure that it is proportionate for each case. We do expect otherwise viable businesses to be able to afford the cost of arbitration.
On viability, there is no specific definition of what constitutes viability, because, clearly, business models vary hugely. In clause 16, there are factors that arbitrators should consider when assessing the viability of a tenant’s business. Within the wider code of practice, there is also a non-exhaustive list of evidence that could be considered when determining viability and affordability.
Hopefully, that has covered a number of the direct issues. I will not go too heavily into some of the other areas that extend around high streets. Suffice it to say that having put £352 billion-worth of support into the economy—including into those hard-pressed sectors, including retail, hospitality, leisure and personal services —we have 352 billion reasons to get the next bit right to make sure that we can have the Reading East that I remember. Probably some of those businesses have gone since I was at university 30-odd years ago, when I enjoyed far too much hospitality—the Purple Turtle, the After Dark Club, the Turk’s Head, and the Ye Babam Ye kebab shop, he says going down a Ricky Gervais memory lane in Reading East. Indeed, I have also had many a happy meal in Don Fernando’s in Richmond. We want to make sure that we can protect these hard-pressed sectors.
Paul Scully
I will briefly give way to the hon. Gentleman if he tells me whether any of those businesses are still open.
Matt Rodda
They are still open, yes. I am grateful to the Minister for his tour of Reading town centre, and I am also a big supporter of many of those businesses. Will he come and visit Reading with me to look at the specific issues that some of the local businesses face, in particular how some of our small businesses on our local high streets cope when there is no longer a bank?
Paul Scully
The hon. Gentleman is absolutely right about the need for access to cash and access to banking services. I am always happy to come to Reading. It is important that banks—and post offices where banking pilots are under way—remain that cornerstone of social value on the high street.
Finally, I went off track when we started talking about Peppa Pig. Children in 118 countries know about Peppa Pig because it is a hugely important British brand and British export worth £6 billion to the economy—that is just Peppa Pig itself. I dare say, though, that the people behind Peppa Pig probably will not need the Bill. It will be those smaller businesses on our high streets up and down the country that do, and that is what this Bill is here to do.
The Bill provides that resolution for the remaining rent debt accrued by businesses required to close. It will deliver key Government objectives, protect jobs and help to prepare for a new, stronger economy post covid. I look forward to discussing the Bill further in Committee, but for now, I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Commercial Rent (Coronavirus) Bill (Programme)
Motion made, and Question put forthwith (Standing Order No.83A(7)),
That the following provisions shall apply to the Commercial Rent (Coronavirus) Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 16 December 2021.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Rebecca Harris.)
Question agreed to.