Non-Domestic Rating Bill

Committee of the whole House
Monday 22nd May 2023 Commons Chamber

Considered in Committee

[Dame Rosie Winterton in the Chair]

Clause 1

Local rating: liability and mandatory reliefs for occupied hereditaments

17:24

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

Before I call the mover of amendment 4, I remind the Committee that, while I am in the Chair, I can be addressed as Madam Chair or Dame Rosie, but not as Madam Deputy Speaker. We always have to remind colleagues of this as we move into Committee.

[Peter Aldous (Waveney) (Con)]

I beg to move amendment 4, page 1, line 10, at end insert—

“(2A) In section 64 (Hereditaments) of the Act—

(a) omit subsection (2), and

(b) in subsection 4(3), after “subsection” omit “(2)”.

(2B) In section 65 (Owners and occupiers) of the Act—

(a) omit subsection (8), and

(b) omit subsection (8A).”

The intention of this amendment is to abolish liability to non-domestic rates of advertising when a right is granted permitting the use of land for advertising (section 64) or when land is used for advertising or the erection of an advertising structure (section 65).

[The First Deputy Chairman of Ways and Means]

With this it will be convenient to consider the following:

Amendment 5, page 3, line 3, leave out “one year” and insert “five years”.

The intention of this amendment is to extend the delay in uplifts to business rate bills.

Clauses 1 to 4 stand part.

Amendment 1, in clause 5, page 16, line 3, leave out from “(b),” to end of line 4 and insert “omit “fifth””.

This amendment would require local non-domestic rating lists to be compiled every year.

Amendment 6, in clause 5, page 16, leave out line 4 and insert “in every fifth” substitute

“no less frequently than in every third”.

The intention of this amendment is to move towards revaluations on local non-domestic rating lists at no more than three-yearly intervals.

Amendment 7, in clause 5, page 16, leave out line 4 and insert

“”on 1 April in every fifth year afterwards”

substitute

“on 1 April 2026 and on 1 April in every year afterwards””.

The intention of this amendment is to move towards annual revaluations on local non-domestic rating lists from April 2026 onwards.

Amendment 2, in clause 5, page 16, leave out line 6 and insert “omit “fifth””.

This amendment would require central non-domestic rating lists to be compiled every year.

Amendment 8, in clause 5, page 16, leave out line 6 and insert ““in every fifth” substitute

“no less frequently than in every third””.

The intention of this amendment is to move towards revaluations on central non-domestic rating lists at no more than three-yearly intervals.

Amendment 9, in clause 5, page 16, leave out line 6 and insert

““on 1 April in every fifth year afterwards”

substitute

“on 1 April 2026 and on 1 April in every year afterwards””.

The intention of this amendment is to move towards annual revaluations on central non-domestic rating lists from April 2026 onwards.

Amendment 3, in clause 5, page 16, leave out lines 12 and 13 and insert—

“(ii) the year beginning on 1 April 2023 and each year beginning 1 April after that date”.

This amendment would make every year from now on a relevant period for transitional provision under the 1988 Act.

Amendment 10, in clause 5, page 16, leave out lines 12 and 13 and insert—

“(ii) the period of three years beginning on 1 April 2023 and each year beginning on 1 April from 1 April 2026 onwards.”

The intention of this amendment is to move towards each single year being the relevant period for transitional provision under the 1988 Act.

Clause 5 stand part.

Amendment 11, in clause 6, page 16, line 15, at end insert—

“(za) in subsection (4), for “different from what it would be” substitute “less than it would be””.

The intention of this amendment is to effectively abolish downwards transition.

Amendment 12, in clause 6, page 16, line 17, at end insert—

“(c) in making these regulations the Secretary of State shall ensure that no ratepayer pays a higher amount in business rates than the amount derived from multiplying the uniform business rate by the property’s rateable value.”

The intention of this amendment is to remove downward transitional phasing.

Clauses 6 to 12 stand part.

Amendment 13, in clause 13, page 21, line 31, leave out “paragraph 4G” and insert “paragraphs 4FA and 4G”.

This is a paving amendment for Amendment 14.

Amendment 14, in clause 13, page 22, line 26, at end insert—

“4FA The definition of a person (“P”) for the purpose of paragraphs 4C to 4E does not include a person who is in receipt of relief of 100 per cent with a chargeable amount of nil.”

The intention of this amendment is exclude businesses who have nothing to pay from the duty to notify HMRC and the VOA.

Amendment 20, in clause 13, page 23, line 35, at end insert—

“4LA Paragraphs 4K and 4L do not apply if P is eligible for small business rate relief (for example, because the rateable value of the hereditament for which P is or would be a ratepayer is less than £15,000).”

This amendment would exempt businesses in receipt of Small Business Rate Relief Exemption from annual reporting if there is no change to report.

Amendment 15, in clause 13, page 27, line 44, at end insert—

“(5A) After paragraph 5ZF (inserted by subsection (5)) insert—

“Rebate in case of failure by valuation officer to provide confirmation

5ZG Where the valuation officer has not provided confirmation to P of a change following a notification by P that will affect the valuation of a hereditament within 60 days of the valuation officer receiving that notification, the total amount of non-domestic rates payable on that hereditament is reduced by—

(a) £100, and

(b) (b) a further £60 for each day until the confirmation is received by P, up to a maximum of £1,800.””

The intention of this amendment is to impose reciprocal penalties on the VOA for failure to notify ratepayers on changes in their rate assessments.

Clause 13 stand part.

Amendment 17, in clause 14, page 32, line 37, at end insert—

“(e) after paragraph 2C insert—

“2D(1) This paragraph applies where—

(a) a hereditament consists wholly or in part of land on which an advertising right is exercisable; and

(b) the right is not severed from the occupation of the land.

(2) For the purposes of determining the rateable values of the hereditament under paragraph 2 above, the rent at which the hereditament might reasonably be expected to be let shall be estimated as if the adverting right did not exist.

(3) In this paragraph “advertising right” means a right to use any land for the purpose of exhibiting advertisements.””

The intention of this amendment is to provide that the rateable value of hereditaments which consist wholly or in part of land on which an advertising right is exercisable to be calculated as though the advertising right does not exist.

Clauses 14 to 18 stand part.

Amendment 18, in clause 19, page 39, line 11, at beginning insert “Subject to subsection (4A)”.

This is a paving amendment for Amendment 19.

Amendment 19, in clause 19, page 39, line 17, at end insert—

“(4A) Section 13 may not be brought into force until at least 6 months after guidance has been published by the Valuation Office Agency on the requirement this Act will place on business ratepayers.”

This amendment is to ensure that guidance is made available to business ratepayers before the duty to notify comes into effect.

Clauses 19 and 20 stand part.

New clause 1—Valuation Office Agency performance targets—

“(1) The Secretary of State must within three months of the date on which this Act is passed prescribe by regulations performance targets for the Valuation Office Agency to respond to requests for updates to the central and local non-domestic rating lists and to challenges to the valuations on those lists.

(2) The Secretary of State may by regulations require the Valuation Office Agency to report at least annually on its performance in such detail as the Secretary of State may require in or by virtue of those regulations.

(3) The Secretary of State must lay before Parliament any reports made under subsection (2).

(4) Any regulations made under this section must be made by statutory instrument and are subject to negative procedure (annulment by either House of Parliament).

(5) Regulations under subsection (1) may not come into force until an impact assessment has been laid before Parliament.”

This new clause would require annual reports from the VOA on its performance against targets to be set by the Secretary of State.

New clause 2— Non-domestic rating: retail sector review—

“(1) The Secretary of State must conduct a review of the effect of non-domestic rateable values on the retail sector.

(2) The review must be commissioned no later than 6 weeks after the date on which this Act is passed.

(3) The review must assess the impact of non-domestic rateable values on competition between different parts of the retail sector, for example—

(a) stand-alone businesses operating from a single shop premises in a village, town or suburban high street setting,

(b) chain stores with multiple premises in city centres and out-of-centre shopping malls, or

(c) mainly online operations based on making deliveries from very large warehouses or fulfilment centres.

(4) The report of the review must be laid before Parliament no later than 1 May 2024.”

This new clause would require a review of the differential impact of business rates on different parts of the retail sector.

New clause 3—Non-domestic rating: hospitality sector review—

“(1) The Secretary of State must conduct a review of the effect of non-domestic rateable values on the hospitality sector.

(2) The review must be commissioned no later than 6 weeks after the date on which this Act is passed.

(3) The review must assess the consistency of approach to setting of non-domestic rateable values between hospitality businesses occupying premises of similar size and trading style, including—

(a) public houses,

(b) restaurants

(c) live performance theatres, and

(d) exhibition spaces.

(4) The report of the review must be laid before Parliament no later than 1 May 2024.”

This new clause would require a review of the differential impact of business rates on different parts of the hospitality sector.

Amendment 25, in schedule, page 47, line 2, at end, insert —

“18A In the Non-Domestic Rating (Alteration of List and Appeals) (England) Regulations 2009 (S.I. 2009/2268), omit regulation 15 (Advertising rights).

18B In the Non-Domestic Rating (Alteration of List and Appeals) (Wales) Regulations 2009 (S.I. 2005/758), omit regulation 15 (Advertising rights).

18C In the Non-Domestic Rating (Miscellaneous Provisions) (No. 2) Regulations 1989 (S.I. 1989/2303), omit regulation 4 (Advertising rights).”

These consequential amendments would be required to remove references to advertising rights following the abolition of liability to non-domestic rating in respect of advertising rights effected by Amendment 4 to Clause 1 of this Bill.

Government amendments 21 to 24.

That the schedule be the schedule to the Bill.

[Peter Aldous]

I shall start off where I left off in the Bill’s Second Reading debate. By way of background, the Bill is to be welcomed, although it is important that it is viewed as the start of the process of fundamentally reforming business rates and not the endgame. It probably would have been preferable to have heeded the advice of the Chartered Institute of Taxation and for the Government to have brought forward a new consolidated business rates Bill, rather than to amend the Local Government Finance Act 1988. That would have sent the message to businesses both large and small that real change was on the way. However, we are where we are and we must ensure that, ultimately, this Bill paves the way to reducing business rates to an affordable level, putting the business rates system on a long-term, more easily understood footing and removing those barriers to regional growth.

We must have in mind the ultimate end goal, which should be to get the uniform business rate multiplier back down from in excess of 50p in the pound to the more affordable 30p in the pound, which is where we started when the system came in in the early ’90s. To get to that, we need annual valuations, the abolition of the multitude of complicated reliefs and to digitalise the Valuation Office Agency. The Bill moves us in that direction—although perhaps a little too tentatively. Moreover, the duty to notify, which takes up much of the Bill, adds a bureaucratic burden on businesses and there are some unintended consequences that we should avoid. We must have in mind the need at all times for increased transparency. The amendments that I tabled have those considerations in mind.

Any adjustments to the business rates system should be guided by two principles: reducing the regulatory burden on businesses and, as I said, reducing the uniform business rate multiplier. We should look at the Bill with those considerations in mind and aim to move towards a sustainable system that provides a long-term revenue stream that businesses can find bearable, which has not been the case so often in recent years.

A properly functioning property tax system is critical to achieving a vibrant and sustainable economy. For most of this century, an outdated and unresponsive business rates system has placed enormous strain on many businesses, particularly those in the retail and hospitality sectors. Moreover, that strain has not been shared equally across the country. That illustrates how the current system is a hindrance—a logjam—to levelling up. We need non-domestic rates to be more responsive to changes in the economy so as to ensure that the system does not place an undue and unfair strain on businesses. If we can achieve that, we shall be more able to attract long-term investment into our towns and cities, and we shall be better placed to meet other vital policy objectives such as revitalising our high streets and achieving our net zero aims and goals.

Clause 5 relates to the frequency at which revaluations take place.

As I have mentioned, we need to move to the end goal of annual valuations, so that business rates are more in line with the economic outlook. I have tabled amendments 6, 7, 8, 9 and 10 with that objective in mind. To achieve a responsive business rates system, valuations should be carried out as regularly as possible. The Bill is a good first step, and increases valuations from every five to every three years, but it should provide the flexibility for a future Government to require more frequent valuations —ultimately, every year. Annual revaluation could bring bills more in line with commercial property values, rather than lagging many years behind. Even with a three-year list and a two-year antecedent valuation date, occupiers will be paying business rates bills in early 2026 that are based on valuations from nearly five years beforehand.

Annual revaluations are essential if the Government are serious about modernising the business rates system. They take place in countries as diverse as Hong Kong and the Netherlands, and thus there is no reason why they should not take place in England and Wales. To conclude on this issue, the enormous administrative burden placed on ratepayers by the new duty to notify would certainly not be worth the distress and inconvenience it will cause if it does not ultimately result in the introduction of annual revaluations. In that context, I urge the Government to give full consideration to these amendments.

Clause 13 sets out the requirement for ratepayers to provide information—this is the new duty to notify, which, as drafted, places an unnecessary burden on businesses. Amendments 13, 14 and 15 have the objective of reducing that burden and imposing penalties on the Valuation Office Agency.

Amendments 18 and 19 relate to clause 19, and would ensure that guidance is made available to business ratepayers before the duty to notify comes into effect. The new duty to notify will place an onus on all ratepayers to provide the Valuation Office Agency with any information that they reasonably believe could impact on the business rates valuation. This is an enormous additional ask, not least for the 700,000 businesses which, up to now, have not been subject to business rates and might be completely unaware of what is proposed. The duty requires ratepayers to notify the VOA of changes to their properties within a 60-day window, and carries the risk of financial sanctions and even imprisonment if they fail to comply.

As a former chartered surveyor, I cannot see how such a burdensome duty on all commercial property occupiers—including, as I have said, current non-ratepayers—can be justified as necessary to administer a move to three-yearly revaluations. This duty might be bearable for businesses if it assisted the VOA in administering the move to annual revaluations. For small businesses, it will cause more pain than the gain that will be derived from moving to three-yearly valuations.

The new duty will leave many ratepayers wondering what might qualify as a notifiable change. The VOA is yet to publish any guidance; thus many businesses will take no chances and will notify the VOA of any changes to their properties. The VOA will hence be hoist with its own petard, as it will be flooded with paperwork.

As I mentioned on Second Reading, many businesses, particularly small and medium-sized enterprises without any rating expertise, will turn to rogue rating advisers for help. Business rates advisers do not require a licence to practise, and many unscrupulous operators will see the new duty to notify as an opportunity to take advantage of small businesses.

While the ratepayer has a short period in which to notify the VOA of any changes to the property, as the Bill stands, the VOA has no such obligation. It can, in effect, respond to notifications at its leisure. I therefore propose a reciprocal provision that places on the VOA a 60-day timeframe in which to respond to notifications, with rebates to the ratepayer equivalent to the fines set out in clause 13 that accompany a failure to comply.

Clause 6 is a short and simple but nevertheless extremely important clause, which gives effect to the removal of downwards transitional phasing, as announced by my right hon. Friend the Chancellor on 17 November last year in his autumn statement. That was a positive step, but clause 6 as drafted does not permanently remove the threat of downwards phasing, which is a punitive tax that unfairly penalises occupiers whose rateable values have fallen. It is wrong to force those whose property values have fallen to subsidise those whose property values have risen.

The clause as it stands simply removes the requirement for transitional phasing mechanisms to be revenue-neutral. That means that the Government no longer need to fund any upwards transitional mechanism with a corresponding downwards transitional mechanism. However, that means that a downwards mechanism can be easily introduced by a future Government without any parliamentary scrutiny. Amendments 11 and 12 would plug that loophole and permanently abolish downwards transitional phasing. If any future Government want to reintroduce it, they should come to Parliament and make the case for it, rather than bringing it in through the back door.

Amendment 16 would delete clause 14, which, from my perspective, is inequitable and unfair to businesses. As it stands, clause 14 exempts Government legislation from qualifying for the pursuit of a material change of circumstances. That would remove a vital check on Government and would allow future Governments to legislate with impunity at the expense of businesses right across the country, leaving them no recourse to challenge legislation that interferes with their ability to do business.

A material change in circumstances gives ratepayers recourse to pursue relief on their business rates when circumstances outside their control hinder their ability to do business. Clause 14 exempts Government legislation from being a qualifying reason for a material change in circumstances. I anticipate that the Government have included this clause because they want business rates to be a predictable source of revenue, even if their own legislation or action undermines the very rateable value of the properties occupied by businesses.

During the covid lockdown, to prevent the spread of the virus, the Government forced a number of businesses to cease trading. However, instead of accepting that there had been a material change of circumstances for those occupiers and allowing appeals to be launched, the Government introduced a locally administered compensation scheme. With clause 14, the Government are seeking the freedom to introduce any legislation at any time that might alter the rateable value of a property. That is both unprecedented and wrong.

Clause 14 can be viewed as a power grab that sets a dangerous precedent and tells occupiers that they will have to accept the detrimental impact of legislation on their ability to do business, with no legal recourse. Amendment 16 would delete clause 14, restoring the ability of ratepayers to claim a material change of circumstances, regardless of how the change in circumstances arose.

Amendments 4, 5, 17 and 25 would amend and add to clauses 1 and 14 and part 1 of the schedule. They address a niche issue, albeit an extremely important one. The out-of-home advertising industry includes adverts on billboards, walls, digital posters, street furniture, bus shelters, buses and railway stations, which we see every day as we go about our lives and probably take for granted. The industry provides an important form of income for local authorities, and it is estimated that almost half the revenue generated goes back into local communities. These amendments would abolish the liability to non-domestic rating in respect of advertising rights.

The removal of business rates on advertising rights from the rating lists would have three advantages. First, it would increase the value and level of services provided by local authorities. Secondly, it would remove a competitive disadvantage to growth that impacts the out-of-home advertising industry, but that does not apply to its rivals—broadcast, print and online media. Thirdly, it would reduce the high level of inefficiencies relating to advertising rights applied through the Valuation Office Agency, local authorities and the out-of-home advertising industry.

As drafted, the Bill will directly and adversely impact the industry’s ability to invest in local communities. That runs contrary to the Bill’s objective of reducing barriers to business investment. In 2023, business rates charged on advertising rights are an antiquated, out-of-date and ineffective tax. Advertising rights are the only remaining right attracting liability for non-domestic rating. The liability to non-domestic rating in respect of sporting rights was abolished by the Local Government and Rating Act 1997. Amendments 4, 5, 17 and 25 would remove that anomaly.

In conclusion, I have enormous respect for the Minister and for his co-sponsor of the Bill, my hon. Friend the Financial Secretary to the Treasury. Although Treasury Ministers are not currently present on the Front Bench, I am mindful that the Bill has been drafted from a Treasury perspective, gathering in all that money. That is incredibly important—don’t get me wrong—but I suggest we also need to look at the issue through the prism of business.

Whether large, medium-sized or small, businesses need confidence, certainty and a fully reformed business rates system that takes on board some of the amendments I have put forward. A fully reformed system will mean that businesses will know where they stand, and business rates will not be the elephant in the room. People will be able to invest in, build on and expand their businesses with a degree of confidence, leading to increased profits. What that will do—joy to the Treasury—is increase taxation. The Bill makes a start and provides an opportunity for us to turn the vicious circle of business rates into a virtuous circle.

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

I call the shadow Minister.

[Sarah Owen (Luton North) (Lab)]

As I stated on Second Reading, the Opposition support the measures in the Bill overall because it is crucial that local authorities and businesses have clarity as soon as possible so that they can prepare for what is to come. We have worked constructively to improve the legislation before it gets to them, but the Bill is still lacking in areas that small businesses are crying out for help with.

On Second Reading, I raised the matter of the pressures that small businesses, particularly small chains such as convenience stores, will be under as a result of the intensified reporting requirements. Although it is certainly important to increase accountability for businesses submitting their finances, stakeholder groups such as the Association of Convenience Stores and the Shopkeepers’ Campaign have drawn attention to the stifling impact that the new requirements could have on their businesses. Some small and medium-sized enterprises may resort to outsourcing their account reporting, risking another financial hit in return. We have yet to see the Government addressing those concerns or considering any alternatives.

17:44

The Bill still does not have enough detail on how new reliefs will be implemented by local authorities, or on how they will be compensated for income forgone. Crucially, the Bill is also missing a crucial assessment of any new administrative burdens that might arise for councils and of how they will be supported in handling them. Need I remind the Committee that local government is already operating on skeletal budgets, trying to do the utmost for residents with declining resources? Since 2010, core funding for councils has reduced by £16 billion. Needs have only risen as we have endured austerity followed by a catastrophic mini-Budget. The funds announced by the Chancellor in the spring Budget do not touch the surface of the challenge that councils currently face.

It is, of course, welcome that the Government have committed to consult local authorities and other stakeholders on how to address business rates avoidance and evasion. When we are asking local authorities to put enhanced resources into new reliefs, we must also ensure that they are getting their fair due back from businesses. The Government could go further in that regard by tightening up the rules around empty properties and charitable reliefs. The Welsh Labour Government may be a good example for the Minister to look into; further thought should also be given to allowing councils to set their own business rates multiplier, tailored to their local economy and to the needs of their businesses.

We cannot ignore the fact that we desperately need reforms to how we tax online businesses in this country. That has been woefully missing from the strategy from this Government so far. When will we see a serious review of taxing digital giants? The Government are failing—they are failing in their responsibility to tax fairly. While business booms for major online corporations, our bricks and mortar businesses continue to struggle through.

Another failure from the Conservatives is their complete refusal to raise the small business rate relief threshold. Labour’s proposal to raise the threshold to £25,000 would have saved our high streets more than £1 billion. If Ministers will not listen to me, will they please listen to the Federation of Small Businesses? It backs our measure and says that it would lift over 200,000 small businesses out of business rates altogether. Why did the Minister and his colleagues decide that that money was not worth saving? Perhaps it was because they are not the ones footing the bill.

I turn to the amendments. Colleagues have tabled some reasonable amendments to the Bill that would result in some burdens being lifted, particularly for small and medium-sized enterprises, as well as enhancing transparency in local authority processes. However, further thought is needed on the unintended consequences of those alterations.

The hon. Member for Waveney (Peter Aldous) has tabled a range of amendments. With regard to his amendment 4, the Local Government Association rightly points out that a consequence of abolishing liability to non-domestic rates of advertising would be a reduction in income for local authorities.

At a time when councils are more stretched than ever, we cannot seriously consider adding more financial constraints to this already flawed Bill. New clause 1, in the name of the hon. Member for North Shropshire (Helen Morgan), is one such amendment, which is attempting to be constructive but could create difficulties for local authorities further down the line. The Opposition have always been in favour of stronger transparency, so in principle we support the idea of more frequent updating and local non-domestic rating lists. However, the amendment prompts a question about resourcing.

If the Government opt to require annual reporting from the VOA according to targets that they set, they will need to outline how they will support local authorities. Again, this is an added burden on staff time that has not been accounted for. I do not need to remind the Minister that the decline in funds over the past 13 years has led to staff being overstretched, with vacancies high and workloads even higher. Colleagues must agree that adding more pressure on to a diminishing workforce without extra resources is only going to reduce the quality of services.

Amendment 20, also tabled in the name of the hon. Member for North Shropshire, is a more straightforward suggestion. It would ease burdens for small businesses, relinquishing them from the need to report to the VOA in years when there is no change in their business. It would free up valuable resources in those hard-pressed companies and free up time for VOA staff to focus their attention on assessing businesses that have actually had circumstantial changes. We are supportive of this common-sense measure. It would be a welcome change to the Bill, and it would be a welcome change if Ministers were willing to take on this constructive suggestion.

Ultimately, however, what we are attempting to do with this Bill is to make minor improvements to a problematic and outdated business rates policy that, if we are fortunate enough to be in government, Labour would abolish anyway. These discussions might all prove futile if the British people entrust the Labour party to bring in the change that we so desperately need. Labour in power would scrap the dysfunctional system of business rates entirely. No longer would high street businesses be forced to close their shutters due to soaring rents and rates. Online giants would finally pay their dues, paying British taxes on the trading that they do in our country. Small and medium-sized enterprises would be supported from being start-ups to successful national businesses.

All this would take place alongside our promise to abolish the shameful non-domiciled tax status that too many of the super-wealthy in this country exploit. By raising the digital services tax paid by the likes of Amazon, we will be able to raise the threshold of small business rates relief, helping more home-grown SMEs to thrive in our retail sector. Labour is the party of business. We have a plan to make it fairer, easier and safer to trade in our country, after 13 years of crushing economic failure. We will create new green jobs, boosting Britain’s income and therefore our ability to support local businesses. A huge part of that will involve finally addressing the problem that this Bill only skirts around. The current business rates system hinders entrepreneurs and is starving our once-thriving high streets of viable businesses. Over the last 13 years, we have seen managed decline, from village to town to city, and it will take clear thinking and bold action to stop that. Sadly, both are missing from this timid Bill.

[Helen Morgan (North Shropshire) (LD)]

I rise to speak to amendments 1, 2, 3 and 20, as well as new clauses 1 and 2, tabled in my name. I note the excellent speech by the hon. Member for Waveney (Peter Aldous), who tabled amendments with very similar objectives to my own. This Bill is a disappointment to all businesses who are struggling through tough financial conditions. Not only are prices going up for every single purchase that they make, but many small businesses were forced to lock into gas and electricity contracts at astronomical rates last year and are no longer receiving any meaningful support with those energy costs. They may also be struggling with interest rate rises on their borrowings following the period of economic chaos caused by the Government last autumn.

This Government committed to reviewing the system of business rates fundamentally in their 2019 manifesto, but this Bill offers only peripheral changes to an outdated system that does not work for a modern economy. The Bill offers to change the timescale of revaluations from every five years to every three years. This is a welcome reduction, but Liberal Democrats believe that it does not go far enough. The reality for businesses is that a three-year gap between revaluations means that they will continue to pay rates that are far from reflective of the real economic conditions they are operating in. Amendments 1, 2 and 3 would require non-domestic rating lists to be compiled every year and make every year from now on a relevant period for transitional provision under the Local Government Finance Act 1988. Annual revaluations are possible. We only need to look to the Netherlands, where they have been taking place since 1995. There, rateable values are allowed to move with the local economy. This means the tax that businesses are required to pay better reflects the conditions that they face.

I also want to spend a little time on amendment 20, tabled in my name. It is estimated that as a result of the Bill as it stands, 700,000 small businesses who currently pay no business rates at all will need to submit annual reports to the Valuation Office Agency, even when there has been no change to the premises they occupy. These small businesses, like many in North Shropshire, are already plagued by seemingly endless monthly and quarterly Office for National Statistics returns, along with their ongoing tax and financial reporting requirements.

The Bill adds yet another administrative hoop for these businesses to jump through and threatens hefty penalties if forms are completed incorrectly. This piles unnecessary pressure on to small businesses and it will not raise any more tax for public services. These businesses already receive a notification to inform the VOA if there is a material change in their premises, so there is nothing to be gained from this element of the Bill. Amendment 20 attempts to deal with this problem by removing the requirement for annual reporting of no change for those businesses in receipt of small business rate relief. I urge the Minister to support amendment 20, which I intend to push to a vote, and to cut unnecessary red tape for the small businesses we desperately need to help, in order to drive economic growth and breathe new life into the high streets of our historic market towns.

I also wish to speak to new clause 1, tabled in my name. It seems very one-sided to impose punitive fines on businesses for failing to report updates to the VOA on time, without any reciprocal expectations of that agency. As I outlined on Second Reading, dealing with the VOA over changes to a premises can be a protracted affair, and all the time that that is going on, businesses face uncertainty about their rates liability and, critically, cannot plan their cash flow. New clause 1 would require the VOA to report to the Secretary of State on its performance in detail at least once a year. This report should correspond to targets to be set by the Secretary of State. The new clause also calls for the findings of these reports to be laid before Parliament. I have suggested targets, rather than legally binding levels of service, to reflect the fact that no two premises are the same and that updates can be complex and can be challenged, but those targets would at least set an expectation of performance and ensure some accountability for the VOA.

Lastly, I wish to draw attention to new clause 2. I think there is general agreement on both sides of the Committee that we want to see our high streets and market towns thrive. This is especially true in places such as the five historic towns in my North Shropshire constituency, where the local high street is not just a practical place to go to but a social lifeline for many residents. Those high street shops are in competition with online retailers whose warehouse premises have a much lower rateable value per metre squared, putting the high street at a disadvantage. This was confirmed in the Treasury Committee’s “Impact of business rates on business” report in 2019.

Disappointingly, however, the Bill does not take this discrepancy into consideration. Instead, the Government will continue to drain physical retailers through rates that do not reflect the challenges they are already facing, leaving many at a tipping point and struggling to compete on an unfair playing field. New clause 2 would require a review of the impact of non-domestic rateable values on competition in different parts of the retail sector, so that Members could understand the true scale of the issue and inform policy accordingly. This review should be commissioned within six weeks after the date this Act is passed. Overall, I urge Ministers to support these amendments and new clauses in order to improve the Bill, which is just not ambitious enough in fundamentally reforming an out-of-date tax system.

[The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Lee Rowley)]

I am grateful to all colleagues across the Committee for their contributions today. I think all of us spoke on the Bill’s Second Reading, and we have rehearsed the arguments on a number of these points already. It is important to reiterate from the Government Front Bench that this Bill delivers significant reforms for the business rate system. It increases the frequency of revaluations, which I think has been generally welcomed across the Committee today. It also modernises the administration of the tax and it provides new reliefs to support things such as property improvements. Taken along with the nearly £14 billion-worth of taxpayer subsidy for businesses this year, it helps to manage the tax burden amid the ongoing pressures that the hon. Member for North Shropshire (Helen Morgan) mentioned.

I will now turn to the contributions that hon. Members and hon. Friends have made today. My hon. Friend the Member for Waveney (Peter Aldous) made an incredibly constructive set of comments, and I completely understand the sentiments behind many of the amendments he has tabled. He set a challenge at the outset of his speech, saying that he is looking to move towards annual valuations, the removal of complications and the adoption of digitalisation. We are making progress in two of those three areas, which I hope is not bad, and he has indicated that, overall, this is a step in the right direction. We are moving from five-yearly valuations—in reality, they have happened every seven or eight years in some instances in recent years, for good reason—to three-yearly valuations. We are moving towards the collection of further digital data, and we are continuing to support businesses, where we can, through the reliefs we have put in place.

18:00

My hon. Friend spoke about greater frequency of valuation, and I acknowledge the desire of Members on both sides of the Committee to move towards more frequent valuation. I hope the Government’s move from five years to three years is a step in the right direction. We have said we will look at this again in the coming years, where we are able to do so. That change, which has been mentioned in every speech today, comes alongside the necessity to change how we approach business rates in general.

Fundamental changes to the system would require an extremely significant amount of upheaval, which we do not support, so the country has to look at how we change the collection of data and how we change the processes to make them more effective. We currently have a process of check, challenge and appeal. Our changes, including through the collection of additional data, will help to reduce and remove at least the check process. We have to acknowledge that if we were to move to annual valuations, more data would have to be provided in one way or another, because the 2 million checks in the current process would not work if we moved to a greater frequency.

Amendments 13 and 14, and other amendments, talk about 100% relief and how ratepayers must still comply with duties. Although I understand the concerns my hon. Friend outlined, the information collected on specific properties is often used in the valuation of other comparable properties, many of which may not receive 100% relief. A small business that occupies a single shop might pay no rates, whereas the same property would be liable for rates if it were used by another business, such as the Co-op. We have to have in mind the broad gamut of business rates when we consider the collection and use of data.

My hon. Friend spoke on Second Reading and in Committee about his concerns on material changes in circumstances. Although I understand his concerns, I reiterate the Government’s position that, subject to the will of the Committee, these changes are being introduced to reflect and respond to the kinds of extraordinary events we saw with covid. Although we hope those extreme circumstances never happen again in our lifetime, we seek to ensure that we have the powers that may be necessary in such circumstances.

The hon. Member for Luton North (Sarah Owen) is my friend everywhere other than in this Chamber. I am grateful for the Opposition’s overall support for the Bill. We have differences on its implementation, which she cogently outlined, but I am grateful for her constructive approach to the Bill. On reforming online sales, I gently remind her that revaluations in recent months have seen around a 20% reduction in average costs for retail and a 27% increase in the average costs for online distribution warehouses. She asked when there will be reform, and that reform is already under way.

I hope I have covered the points raised by the hon. Member for North Shropshire, who spoke of the need for greater frequency of revaluation for business rates and any business taxation. As she indicated, the Liberal Democrats do not believe the Bill goes far enough and believe that annual revaluation is possible. She specifically highlighted the Netherlands. Although comparisons are difficult—the UK and the Netherlands are fundamentally different countries with different populations and different approaches—the Netherlands moved to annual revaluation in stages, and we are moving from five years to three years. We will look to see where we can improve in future, where possible.

Although I accept that the hon. Lady will probably press amendment 20 to a vote, I will gently try to dissuade her from doing so. She rightly outlined the huge importance of small businesses to our economy, and all parties in this House share her concern about ensuring that the viability and vitality of the small business sector can be maintained, grown and improved, but I remind her that, as a result of decisions made by this Conservative Government over the past 13 years, 720,000 business already have 100% small business rate relief and a further 76,000 businesses are within the taper, so they receive partial relief. A 75% discount is being introduced as a result of this year’s revaluation for the hospitality, retail and leisure sectors.

Small businesses want certainty, which they will not get from the Liberal Democrat policy of fundamentally changing the business rates landscape, and they want to know that the Government of the day, who are responsible for such changes, have an understanding of the macroeconomic picture and of the importance of being able to fulfil their promises. The proposals from the Liberal Democrats and Liberal Democrat-supporting reports in recent years would reduce our income from business taxation, which would need to be covered. That means taxes would need to go up elsewhere.

The leader of the Liberal Democrats continues to speak to the media and in this place about tens of billions or hundreds of billions of pounds of additional spending. If we were to remove the income from business rates, the Liberal Democrats would have to ask themselves where they would get that money from and how they would pay for the black holes created in our tax system.

[Helen Morgan]

rose—

[Lee Rowley]

The hon. Lady is going to tell me exactly where she would find several hundred billion pounds to fill her black hole.

[Helen Morgan]

Amendment 20 is about cutting red tape for small businesses. Does the Minister agree that he is talking about policy objectives that are not relevant to the Bill?

[Lee Rowley]

That tells us everything we need to know about the Liberal Democrats. They want to talk about only this Bill, ignoring every other policy. They look one way when talking to one part of the country, and the other way when talking to the other part of the country. That shows the Liberal Democrats’ lack of seriousness in understanding how taxation actually works, in understanding how to run a modern, dynamic market economy and in understanding how we need to pay our way to make sure our economy is successful in the long term. It is for those reasons that we oppose amendment 20.

[Peter Aldous]

The points I made were genuine. I think this Bill needs to be changed, and I hope the Government will have an open mind in considering whether to do so in the other place. We may well review this situation again.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 12 ordered to stand part of the Bill.

Clause 13

Requirements for ratepayers etc to provide information

Amendment proposed: 20, on page 23, line 35, at end insert—

“4LA Paragraphs 4K and 4L do not apply if P is eligible for small business rate relief (for example, because the rateable value of the hereditament for which P is or would be a ratepayer is less than £15,000).”—(Helen Morgan.)

This amendment would exempt businesses in receipt of Small Business Rate Relief Exemption from annual reporting if there is no change to report.

Question put, That the amendment be made.

18:09

Division 234

Ayes: 168

---

Labour: 150
Liberal Democrat: 10
Independent: 4
Conservative: 1
Green Party: 1

Noes: 282

---

Conservative: 276
Independent: 3
Democratic Unionist Party: 2

Clauses 13 ordered to stand part of the Bill.

Clauses 14 to 20 ordered to stand part of the Bill.

Schedule

Consequential Provision

Amendments made: 21, page 50, line 33, leave out “an order” and insert “regulations”.

This amendment and amendments 22 to 24 correct drafting mistakes which refer to “regulations” as “orders”.

Amendment 22, page 50, line 34, leave out “such an order may not” and insert “no such regulations may”.

See the explanatory statement to Amendment 21.

Amendment 23, page 50, line 36, leave out “it” and insert “the regulations”.

See the explanatory statement to Amendment 21.

Amendment 24, page 50, line 38, leave out paragraph (b) and insert—

“(b) in subsection (9AA)—

(i) for “an order under paragraph 5G” substitute “regulations under paragraph 5FB”;

(ii) for “order” in the second place it occurs substitute “regulations”;

(iii) for “it” substitute “the regulations”.”—(Lee Rowley.)

See the explanatory statement to Amendment 21.

Schedule, as amended, agreed to.

The Deputy Speaker resumed the Chair.

Bill, as amended, reported.

Bill, as amended in the Committee, considered.

Third Reading

18:24

[Lee Rowley]

I beg to move, That the Bill be now read the Third time.

It has been a pleasure to support the progress of this Bill through the House. I do not seek to detain the House for long, but let me say briefly that the Bill offers some of the most substantial reform to the business rates system since its inception in 1990 and meets our commitment to reform and reduce the burden of the tax on business. By moving to more frequent revaluations from 2026, we are delivering on a key ask of business. We have been up-front with the House and with businesses that meeting this commitment is a major ask, which is why we have made some changes to the way ratepayers interact with the Valuation Office Agency. That principle was accepted by respondents to the review that predated this legislation.

Our approach has been to listen and to take appropriate action. I have already mentioned the evidence-based approach that we adopted in that review and the close dialogue that we foster with our partners in business and local government. We are also taking action to reform transitional relief, which was the No. 1 one ask from stakeholders on business rates ahead of the 2023 revaluation. That is a major commitment, a major step to supporting fairness and a major improvement in the credibility of our business rates system.

Finally, we are happy to have agreed to the Welsh Government’s request for various measures to be extended to Wales, and also to be supporting Northern Ireland with a data sharing measure.

I conclude by expressing my thanks to all Members for their contributions on Second Reading and in today’s debates. Although we have not agreed on everything, this has been a useful and constructive session. I am grateful to the Clerks of the House for supporting the smooth running of the Bill and to all of the teams across the Department and those in the Treasury, His Majesty’s Revenue and Customs and the Valuation Office Agency for their help in preparing the Bill. I look forward to watching the Bill’s progress in the other place, and I commend it to the House.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I call the shadow Minister.

18:26

[Sarah Owen]

Throughout the condensed debate on this Bill, it has become clear that, although well meant, this was a missed opportunity to do better—to do more for businesses across the country. Yet again, the Government have managed to miss the point, despite multiple people, even from their own Benches, trying to guide this legislation into a better place.

A step in the right direction could and should have been a leap. This was a chance to provide businesses with more than short-term sticking plaster fixes. Instead, we see small businesses worrying over the administrative burden of meeting the new duty to notify requirements and questioning what hefty punishments will be handed down for any genuine errors. The hon. Member for Waveney (Peter Aldous) quite rightly pointed out that they include even imprisonment.

The Federation of Small Businesses, the shopkeepers, the corner shops, the Association of Convenience Stores—the backbone of many of our urban and rural communities —have all voiced their concerns. Those concerns have been echoed by Members from all parts of the House, but have sadly fallen on the deaf ears of this Government.

However, there has been some agreement in these debates—that the current outdated, dysfunctional business rates system is not fit for purpose. The only difference is that the Government continue to tinker around the edges while Labour would scrap it root and branch. That is what small and medium-sized enterprises have spent years lobbying for.

Labour has a plan for British business. We will support entrepreneurs to turn their ideas into reality. We will ensure that bricks and mortar businesses stay on our high street by making their tax contributions proportionate. Labour will make online tech giants finally pay their fair share of tax—something that Conservative Ministers have had neither the will nor the ability to do. By raising the digital services tax paid by the likes of Amazon, we will be able to raise the threshold for small business rates relief, helping more home-grown small and medium-sized businesses to thrive in our retail sector.

Among the common-sense reforms that we put forward was to provide short-term support by raising the threshold for small business rates relief this financial year. As I have said previously, raising the threshold to £25,000 would save our high streets more than £1 billion. This support is not only what small local businesses need, but what our high streets and towns are crying out for.

I know that Small Business Saturday takes place just once a year nationally, but it is something I do in Luton North nearly every Saturday. I meet entrepreneurs, small businesses, innovators and creators in my town who are doing amazing things in our community, with our community and for the good of our community. Every Small Business Saturday shout-out that I do is to celebrate them and their contribution to our local economy. I know the very real difference it would make to them and to every small business across the country if we raised the threshold of business rates relief to £25,000 now, and ultimately if we did away with the outdated and unfair current business rates system altogether.

I genuinely hope that that the small steps in the right direction made today can be built on and improved in the future by a Government of whatever political stripe—hopefully a red one. We must stem the decline of our high streets and tip the tax balance between digital and physical businesses. We cannot continue to see high street shops boarding up their windows while online giants get away without paying their fair share.

Lastly, I thank every hon. Member who has spoken, including the Minister, I thank the Clerks and I thank the stakeholders, who have briefed well and lobbied fairly on behalf of their members’ interests.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Strikes (Minimum Service Levels) Bill (Programme) (No. 2)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Strikes (Minimum Service Levels) Bill for the purpose of supplementing the Order of 16 January 2023 (Strikes (Minimum Service Levels) Bill: Programme):

(1) Proceedings on Consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion two hours after their commencement.

(2) The Lords Amendments shall be considered in the following order: 1, 2, 4, 5, 6, 7, 3.

Subsequent stages

(3) Any further Message from the Lords may be considered forthwith without any Question being put.

(4) The proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.—(Mike Wood.)

Question agreed to.