Non-Domestic Rating (Chargeable Amounts) (England) Regulations 2022
(Limited Text - Ministerial Extracts only)
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Baroness Scott of Bybrook
That the draft Regulations laid before the House on 23 November be approved.
The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)
My Lords, this statutory instrument delivers a transitional relief scheme to protect businesses from large increases in their business rates bill when new property valuations come into effect on 1 April 2023. This will help around 700,000 properties with £1.6 billion of relief over the next three years.
The scheme, which is a significant part of the measures on business rates announced by my right honourable friend the Chancellor at the Autumn Statement, will cap bill increases after the revaluation by a set percentage each year. This will give certainty to businesses and, for the first time, ensure that 300,000 properties with falls in rateable value will see a full and immediate fall in their bills on 1 April.
As the Chancellor set out in his Autumn Statement, revaluations are an important and necessary part of the proper administration of the business rates system. By updating valuations so that they reflect market conditions, we make sure that the tax burden is fairly distributed. The new set of rateable values, which were published in draft last month and will be applied from 1 April, will therefore produce a fairer business rates system in which rates bills follow the up-to-date valuation of the property. The revaluation will build on measures we already have in the system to help ratepayers. Noble Lords will likely be aware that there is already a substantial amount of support through, for example, small business rate relief, which ensures that about 700,000 of England’s 2 million business properties pay nothing at all.
This scheme, at £1.6 billion of the total £13.6 billion package, will help around 700,000 properties transition to their new bills. Unlike previous schemes, it will not require ratepayers to wait years to see the benefits of falling valuations. The results of the Government’s recent transitional relief consultation were published alongside the Autumn Statement and clearly show businesses’ preference for the type of scheme we are putting in place.
The Government have listened to ratepayers and are delivering significant reform to transitional relief by removing the system of downward transition under which caps on increases were funded by restricting falls in bills. By scrapping the caps on the annual reduction in bills, some 300,000 properties with falls in rateable value will see a full and immediate fall in their bills on 1 April 2023.
Nevertheless, under current law—the Local Government Finance Act 1988—we are required, when making these regulations, to have regard to the object of ensuring that they are self-financing. To meet this legal requirement, we have included in the regulations a supplement of 3.3p on every £1 of rateable value to be paid by ratepayers in 2027-28. If, as we are currently required to do, we must include funding within the regulations, we consider this to be the fairest and most reasonable option as it allows businesses five years to recover from the current economic circumstances before having to meet the costs of transitional relief. But it is the Government’s intention—subject, of course, to the will and approval of Parliament—that no business will ever have to pay that supplement. We intend to bring forward primary legislation to reform the transitional relief, allowing us to remove the supplement so that the Exchequer shoulders the cost of capping bill increases after a revaluation.
Revaluations are important. They rebalance the burden of business rates across the tax base, making sure that they are a fair distribution. But, clearly, given the economic climate we are in, some ratepayers need support to transition to their new bills. This instrument, along with the wider support package announced by the Chancellor, provides the support that businesses need to manage the revaluation with greater certainty. I commend the regulations to the House.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the Minister for her introduction. As we heard from her and other noble Lords, the SI gives relief to businesses, particularly to help them cope with next April’s increase in business rates. We know that many businesses have been struggling following the pandemic, and this, combined with rising energy bills and high inflation, means that they need further support.
While we very much welcome the Government’s provision of relief, we do not think that the regulations go far enough. The Labour Party has been calling for an increase in the threshold for small business rates relief from £15,000 to at least £25,000, because the burden of business rates is disproportionately heavy on small businesses, as we have heard from other noble Lords. Having said that, we do not want to impede the passage of the instrument going forward.
I will ask the Minister a couple of specific questions. Part 10 of the draft Explanatory Memorandum considers the consultation outcome. It says that:
“A total of 102 responses were received”—
despite the instrument intending to help around 700,000 businesses—and that only “16 local authorities” responded. Can the Minister say whether the department feels that there is a reason for such a low response to the consultation? Because of that low response, what further steps have the Government taken, or are intending to take, to engage with those who are affected? We may hear, in broader terms, many of the concerns that have been raised by noble Lords previously in the debate.
The noble Baroness, Lady McIntosh of Pickering, asked about timescales; similarly, I will ask about the fact that we are debating the instrument only today. The instrument comes into force on 31 December, which means that it needs to receive parliamentary approval before the Christmas Recess. But given that the consultation finished in the summer, why has it been left so late to approve it? The Local Government Association made it clear in its response to the consultation that any transitional arrangements for 2023, whether part of the formal scheme or supplementary, should be announced no later than the autumn that has just gone, when the draft list of provisional multipliers was announced. We are debating this on the penultimate day before the Recess, so can the Minister shed any light on why the House has not been given the opportunity to scrutinise it any sooner?
I will make some brief comments on the points made by other noble Lords. The noble Earl, Lord Lytton, and the noble Lord, Lord Shipley, made very pertinent points; I will not repeat them, but we need to consider much of what has been said here, particularly when we consider the pressures on our high streets. I have seen so many shops close down in my local high street since the pandemic, and there is a real worry about how high streets will get back on their feet again. On that point, the noble Lord, Lord Thurlow, talked about competition, looking, for example, at the costs that Amazon has compared with our retailers on the high street. Those are really serious matters, and, if we are serious about rejuvenating our high streets, we must look at how we manage that through the way they are charged and operated under the business rates system.
Baroness Scott of Bybrook (Con)
I thank noble Lords for their thoughtful contributions and for the cross-party support—although there were some questions that they probably want me to answer.
The statutory instrument delivers a key part of the business rates support package, providing much-needed protection for businesses and delivering the fairness rate payers have been calling for. By limiting bill increases each year, we will protect 700,000 properties from uncertainty and give years for them to adapt to their new bills. Without that measure, hundreds of thousands of taxpayers would face significant and immediate bill increases in just a few months’ time. We are providing this protection in a new way that allows bills to fall immediately and in full on 1 April, benefiting 300,000 properties. With the statutory instrument, businesses will have the certainty they need and the fairness they expect from their Government.
A number of questions and themes came up, the first of which, about the reform of the whole system, was brought up by the noble Earl, Lord Lytton, and mentioned by my noble friend Lady McIntosh of Pickering and the noble Lords, Lord Shipley and Lord Thurlow. The Government remain committed to implementing the outcomes of the business rates review and will bring forward legislation as soon as parliamentary time allows—that is all I can say on timing.
The Government consider a tax on the use and value of non-domestic property an important part of a balanced business tax system, alongside taxes on profits and consumption, and it is a common feature of tax systems internationally. Business rates raise over £20 billion a year in England to fund vital local services, and there is no alternative with widespread support that would raise sufficient revenue to replace them. Trying to raise that money elsewhere in the tax system would create significant trade-offs against the current fiscal background. More generally, there is no merit in radically overhauling or abolishing a tax with such benefits, as has been suggested by what is, I have to say, a minority of stakeholders.
Baroness McIntosh of Pickering (Con)
My Lords, will my noble friend write to me about the 3p? Also, if two-thirds of the hospitality sector will see a reduction, does that mean that one-third will see an increase?
Baroness Scott of Bybrook (Con)
No, I am not saying that. The whole hospitality sector will have special consideration, as was said in the Chancellor’s speech and the Autumn Statement. On the 3.3p in the pound, that is what will have to be paid by 2027-28 if we do not change primary legislation in the meantime.
I think that is everything and I hope that noble Lords will join me in supporting these regulations. I beg to move.