Monday 24th February 2025
(1 day, 12 hours ago)
Grand CommitteeNon-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 View all Non-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 61-I(b) Amendments for Grand Committee (Supplementary to the Marshalled List) - (24 Feb 2025)
“PurposeThe purpose of this Act is to vary some non-domestic rating multipliers and to remove the charitable exemption from private schools.”Member’s explanatory statement
This amendment sets out the purpose of this Act and is intended to invite the House to consider whether the Bill meets the Government's stated aims of protecting the high street and encouraging investment.
Lord Fox (LD)
My Lords, I welcome the Minister back to his place and say that the whole House was sorry to hear of his family’s loss.
We on these Benches welcome this Bill as a narrow tinkering of a broken system. It may have some beneficial effects, but I remind your Lordships that the non-domestic rates system has been broken for years, and if this tinkering distracts from a full and proper review of the system, then it is a malign influence rather than a benefit.
From scrutinising the Commons debate on this Bill, it seems that the Government sought to limit debate by asserting that its purpose was to use multipliers to manipulate the non-domestic rates of a subset of businesses in what it calls high streets. This measure is focused on retail, hospitality and leisure hereditaments. Having done this, the broad government claim is that our high streets will somehow be protected and that investment will be encouraged. In wording Amendment 1, we attempted to include words that spelled out the spirit of the Government’s Commons claims, but I have to say that the Public Bill Office resisted all attempts to include the concept of protecting high streets and encouraging investment in the purpose statement. The PBO has confirmed the narrow nature of this Bill.
The Government cannot have it both ways. If they accept the restraints of their own handcuffs and restrict this Bill to varying multipliers for this subset of businesses, the Minister cannot claim to be protecting high streets. There are at least three reasons that make this true. First, high streets are much more than retail, hospitality and leisure, as we will see from various groups of amendments. If the Government’s actual purpose is to protect high streets, they would spread its activity more widely. This will be effectively asserted from these Benches and from those of His Majesty’s loyal Opposition.
Secondly, the Government present no evidence that their claims to be protecting high streets will actually come to pass. As we know, the non-domestic rating system is complex. It is further complicated by the application of reliefs, which will vanish as these multipliers arrive. Increasing the multipliers for larger businesses is another complication. In addition, there is the issue of valuations—this is the elephant in the room that this Bill ignores. They are always up. There are many puts and takes that affect the individual business rates that a business pays and what its competitors pay, yet there has been no attempt at an impact assessment. I have to put it to the Minister that no one actually knows the effects that this Bill will have.
Thirdly, we know that there are some important consequences for activities that fall outside the retail, hospitality and leisure focus that could be badly affected by the consequences of this Bill. My noble friend Lady Pinnock will highlight the issue of medical and health-related premises, and I will seek to demonstrate that an important sector of our creative industry—independent music venues—will be hit hard. In both cases, we need the Minister to confirm that increasing rates for these activities is an unintended, rather than an intended, consequence. Both these activities are important parts of well-functioning high streets, although of course there are other activities that also contribute. This is a consequence of blunt targeting, and it needs to be sorted.
I propose this amendment with a heavy heart, because the narrowness of the purpose allowed by the PBO identifies the limitations and faults of this Bill. But there is hope. First off, the Minister could accept my noble friend’s Amendment 51, when it comes up. That is a good starting point but, otherwise, I am sure that we can work with the Minister to come up with a new Short Title and Long Title that will allow us to properly set about protecting our high streets. My colleagues and I stand ready to help the Minister in this regard. I beg to move.
Lord Thurlow (CB)
My Lords, I stand to introduce the second group, in which, conveniently, there are three amendments, all in my name—
The Deputy Chairman of Committees (Lord Geddes) (Con)
We are still on group 1. We will come to group 2 in the fullness of time.
Baroness Scott of Bybrook (Con)
My Lords, I will speak to Amendment 1 and to my notice opposing the Question that Clause 1 stand part of the Bill. I was pleased and interested to see that the Liberal Democrats had tabled a purpose clause, given that they have criticised purpose clauses tabled by my Conservative colleagues on other Bills. On the purpose clause tabled by my noble friend Lord Davies of Gower—
Lord Fox (LD)
As a point of information, I have proposed purpose clauses for at least six Bills in the last three years.
Baroness Scott of Bybrook (Con)
I will continue. When my noble friend Lord Davies of Gower tabled a purpose clause on the Terrorism (Protection of Premises) Bill, the noble Baroness, Lady Suttie, argued that it was unnecessary because it restated some of the language in the Long Title of the Bill. In contrast to the amendment that we are debating today, my noble friend Lord Davies’s amendment included a legal duty on the Secretary of State, as well as establishing a purpose clause giving it legal effect. This is all water under the bridges, though, and we hope that our friends on the Benches to my left will not criticise our use of purpose clauses when scrutinising future Bills. As I say, we on these Benches are very comfortable with purpose clauses which seek to probe the intentions of the Bills that this Government are bringing forward, so I welcome the noble Lord’s amendment.
As the noble Lord, Lord Fox, says in his explanatory statement, there is a real question mark over the Bill’s impact on the Government’s plan to deliver on their stated aims of protecting our high streets and encouraging investment. Later in this Committee, I will seek to probe the impact of the Bill on larger anchor stores, which are often the key drivers of the footfall on our high streets and keep smaller businesses alive. I will also seek to understand more fully the impact that the Bill will have on the retail and major food shops, including supermarkets, which people across the UK rely on.
We know that the Government’s original intention was to hit international businesses that have large, warehouse-style business premises, such as Amazon and other international tech giants, but it is not clear that the Bill achieves that goal effectively. There is a risk that the increased costs of multipliers will be passed on to consumers in very unexpected ways. The higher multipliers that the Bill will introduce are a tax on business. We need to understand better what impacts this business tax will have on jobs, growth and prices. The impact assessment that the Government have published to date is utterly inadequate. Although I am really very grateful to the Minister for his engagement on the Bill so far, I feel that we will need to hear much more detail from the Dispatch Box on the real-world impact of the Bill if we are to proceed with it.
I turn to my stand-part notice, which seeks to question whether Clause 1 should stand part of the Bill. Clause 1 sets out the Government’s intention to create a system whereby hereditaments over the value of £500,000 pay at a higher multiplier. What they have failed to include in any part of the Bill, or indeed in the Explanatory Notes, is an explanation of why £500,000 was chosen as the threshold for the higher multiplier. Indeed, £500,000 seems entirely arbitrary, and the Government have not explained why that is the number.
As was mentioned by several noble Lords from across the House at Second Reading, the Bill raises more questions than it has answers, and there is a complete lack of clarity. Not only do we not know why the threshold is set at £500,000, but we also do not know what the actual multipliers will be. The Government’s choice of setting the threshold in this way means that many businesses on our high streets will be forced to pay this higher multiplier.
I agree that the business rates system needs reform, but I do not for a second think that this Bill achieves the reforms that our high streets need. There is an understanding across the board that businesses that operate online and occupy out-of-town warehouses should pay a larger amount of business rates, and such reforms have been nicknamed an “Amazon tax”. But the Bill does not achieve that on its own terms. We know that thousands of large shops will be caught by this threshold, and we cannot support a Bill that risks a decimation of our already struggling high streets across the country simply because the Government have failed to do their homework and have got their numbers wrong.
We will be probing the Government’s proposed threshold as the Bill progresses. It is the job of Ministers to get this right, and we will be listening carefully to the Government’s responses to this challenge. The Labour manifesto committed to reforming the business rates system and to
“level the playing field between the high street and the online giants”,
so why does the Bill not do that? The arbitrary threshold set by the Bill will damage many high-street businesses and, coupled with the reduction of retail, hospitality and leisure relief, will not fulfil the Government’s claims that they intend to reduce how much in business rates these businesses actually pay.
Again, the Explanatory Notes reference the higher multiplier as applying to
“distribution warehouses … used by online giants”,
but simply including a cut-off of £500,000, while it will tax online giants, will not protect other businesses. Although the majority of the businesses with a rateable value over £500,000 may be warehouses, not all of them are. Through a failure to target the policy effectively, the Bill is likely to have unintended consequences that will have a ripple effect on other businesses on our high streets.
It is important to look at this Bill in the context of the wider decisions that this Government have made that force businesses to have higher costs. The Government have increased the minimum wage, which we support, and they have increased the employer national insurance contributions—a hidden tax, a job tax, that will hit the retail sector with a bill of £2.3 billion a year. Although this Bill alone may not cripple businesses, when considered with the other taxes that the Government have imposed on businesses, it very well could be the thing that forces businesses to close on high streets up and down the country.
I thank the noble Lord, Lord Fox, who has provided a good contribution to this debate, and I hope that the Minister will consider the concerns that we have both raised.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Lord Khan of Burnley) (Lab)
My Lords, let me start by expressing my gratitude for the kind words from the noble Lord, Lord Fox, in relation to my not being present for the Second Reading because of the tragic loss of my mother, and I extend my gratitude to everyone in the House. I had a good look at the Second Reading, and I appreciate all the tributes that were made during this difficult time of my life.
It has been a lively start to this afternoon’s proceedings, but I thank the noble Lord, Lord Fox, and the noble Baroness, Lady Pinnock, for tabling Amendment 1. It will be appropriate alongside this amendment to consider whether Clause 1 should stand part of the Bill. I understand that there is concern that the Bill before us does not deliver on the Government’s stated intentions. I am grateful for the contributions of the noble Lord, Lord Fox, and the noble Baroness, Lady Scott, but I must disagree with their position.
The Bill delivers on the Government’s commitment, as announced at the Autumn Budget, to introduce from 2026-27 permanently lower tax rates for retail, hospitality and leisure properties and, as also announced at the Autumn Budget, the introduction of a higher tax rate on the most valuable properties—those with a rateable value of £500,000 and above—to fund that permanent tax cut sustainably. Clauses 1 to 4 of the Bill enable this.
Lord Fox (LD)
My Lords, I thank the Minister for his detailed response. The nature of this debate has set the scene for some of the groups that we will debate later—the £500,000 limit will certainly come up shortly, as will the other issues. The overall point suggested by the Minister—that we must have this move, or that this move is a helpful precursor to wider reform—is one that I would question. I do not see why this must happen without the wider reform; it is not needed unless it is in the context of something that is more total around the system. Let me repeat myself: there are so many puts and takes in this system that it is hard to know how individual businesses and their competitors are going to be affected simply on the basis of where they stand on a particular road. There is much to be done but, on that basis, I beg leave to withdraw Amendment 1.
Lord Thurlow
Member’s explanatory statement
This amendment, connected to another in the name of Lord Thurlow, seeks to remove the power to introduce higher multipliers for more valuable properties.
Lord Thurlow (CB)
My Lords, after my practice run, for which I apologise, I rise to address this second group. Conveniently, it consists of three amendments, all in my name. Before doing so, I should mention that I was formerly a chartered surveyor and spent several decades working in the realms of commercial property. This included a certain amount of rating, so I have considerable experience. I also beg the Committee’s leave inasmuch as I was unable to take part at Second Reading, but I have read Hansard and spoken to colleagues.
The purpose of Amendments 2 and 4—the latter is consequential on the former—is to remove the power to introduce higher multipliers for the more valuable RHL properties on the valuation list. There is a fundamental flaw in the Government’s proposal to pay for the reduced multiplier, hereditament or—I cannot remember what it used to be called—poundage by taxing the larger organisations. To understand this, we must look for a moment at what characterises a successful high street and distinguishes it from one that withers and fades. Although a high street that has withered will continue trading, it will have lost its heart as a retail centre and lost the social cohesion that it provides to the community. There is a gradual decline in the presence of national multiples, which are the key to high streets’ economic health.
A key presence in a successful high street are the anchor retailers, as we have heard. These may be department stores—though, sadly, few remain—other large retailers, such as Marks & Spencer, or possibly a leisure centre. Importantly, nowadays, it may also be a large supermarket. Most larger towns now have a town centre shopping scheme, of course. These are developments that have been carried out behind the retail frontage, usually, but with one or two shopping units providing access to the prime section of that high street. They are anchored by a large retailing presence: the department store or the supermarket in the shopping centre. They also frequently have the advantage of providing car parking and bus station services to the high street, which are particularly important these days with traffic restrictions and general congestion.
It is important to understand that anchor retailers are the lifeblood of our high streets, many of which are pedestrianised to improve the experience and safety of pedestrian traffic. The proposal to charge the larger retailers or RHL traders premium rates will cause yet more of these anchors to close down. This will structurally destabilise the complementary nature of a balanced retail offer. These anchors, including supermarkets, are already under extreme financial pressure.
It is no accident that the large department stores are fast disappearing from our high streets. To ask the higher NDR companies to pay this extra tax is punishment in the extreme. British Home Stores has gone, as has Binns in the north-east. C&A, which many of us will remember, is a good example of another that was forced to close by its parent because it could not afford all the costs, yet it trades healthily and thrives across continental Europe and in other countries around the world. It closed in this country because it could not afford to trade any longer; there was nothing wrong with its product.
Ironically, the only retailers that can afford the high street costs are the mail order giants, and the Government know who they are. Yet we must tread carefully in taxing the fulfilment centres, which are linked to the remaining high street operators and which, by managing to operate away from the high street, can control their costs and keep operating. They are a very different category from the Amazon generic, if I may use that phrase, which the noble Baroness, Lady Scott of Bybrook, already mentioned.
Amendment 45 probes the wisdom of asking the large ratepayers—£500,000-plus is proposed—to subsidise the RHL discount for smaller traders. As already mentioned, the sweeping and inclusive size-related premium will impact many high street retailers attempting to stay afloat by resourcing their mail order businesses elsewhere. They are not the Amazon generic. Asking the larger retailers to subsidise the smaller ones is robbing Peter to pay Paul. The unintended consequence is that the larger retailers will find it harder to continue. It will be another financial burden for them to bear, and it is too much. High street shops will then close to save costs, impacting in turn the economic health of the town.
The key to all this is to separate the fulfilment centres operating behind the scenes of the high street retailers—the big organisations—from the Amazon generic. Dealing with this is complicated and difficult, and it is a matter of definitions. The solution is to ask the experts. There has been consultation on the Bill, but there has been no impact study of this aspect. There needs to be a simple invitation to the experts in the field—the Rating Surveyors’ Association, the RICS and one or two others—whose profession is focused on these subjects, to come up with proposals, ideas and suggestions that can then be refined and considered as a satisfactory solution to funding the discount that the small RHL players will enjoy. Amendment 45 addresses that funding problem. It should not be the highest ratepayers; they suffer enough. I beg to move.
The Earl of Lytton (CB)
My Lords, I am very grateful to my noble friend Lord Thurlow for introducing this point. I support the general thrust of what he said, although I do not see any great likelihood that this will move the government position at all.
Baroness Pinnock (LD)
My Lords, at this point in our first day in Committee, I ought to remind the Committee of my relevant interests as a councillor—we are reliant on business rates for what we do—and as a vice-president of the Local Government Association. I also remind the Committee, given the further amendment that I have, that I am a vice-chair of the University of Huddersfield’s council.
I very much thank the noble Lord, Lord Thurlow, and the noble Earl, Lord Lytton, for speaking to this group of amendments. The thrust of the amendment in the name of the noble Lord, Lord Thurlow, is to remove the higher multiplier. Without really understanding the combination of potential higher multipliers and the loss of what we could call the Covid business relief, because we do not have an impact assessment from the Government, it is difficult to understand the financial impact on businesses of both those changes. I will urge the Minister at every opportunity to provide for the Committee the financial impact on businesses; otherwise, we are debating in the dark a bit because we do not know exactly what the totality of the impact will be on different sectors of the business community.
One of the comments from the noble Earl, Lord Lytton, concerned the lack of targeting of specific businesses in the whole range of proposals in this Bill. It is really difficult to see how the current valuation assessments will result in a fair share of property taxation. I say “fair share” because, in his response to the first group of amendments, the Minister talked about the purpose of this Bill—I quote him—as being to create a fairer system. As we will come to understand in our debates on later groups, this Bill fails to do that because it fails to target businesses except on the basis of valuation. The purpose is ostensibly—I think it was the noble Baroness, Lady Scott, who called it the “Amazon tax”—to try to extract a fairer share of property taxation from distribution warehouses.
At this point, I shall quote what I have, I think, quoted before. The Valuation Office Agency has a figure for an Amazon warehouse near where I live in Yorkshire of £25 per square metre, whereas, in my own small town, a local shop is valued at £250 per square metre. That is at the heart of the problem, which this Bill does not address; it is fundamental. What is absolutely essential to getting a fairer system is a total rethink about property taxation.
Things have changed enormously since the non-domestic business rates regime was introduced. There are now significant out-of-town developments in warehouse distribution which did not exist 20 years ago, and large out-of-town retail parks, which did not exist 25 or 30 years ago. However, they do now, and they are benefiting from the way property is valued by the criteria set by the Valuation Office Agency, and they are benefiting at the expense of high streets. If the Government are certain in their aim to provide a fairer system for our high streets, then absolutely essential is this fundamental change to the way properties are valued, so that taxation can be fairly shared between out-of-town distribution centres, which currently benefit from very low rental values, as opposed to city and town centres, where rental values are high and landlords want to keep them high, because that is important for their income.
We will achieve nothing in this Bill unless that basis of the system is addressed. I agree with the thrust of what is being said, though I do not see how you can let people off a high multiplier if you introduce a lower one without losing that taxation take. I also agree with the final point that both the noble Lord, Lord Thurlow, and the noble Earl, Lord Lytton, made, which is that this arbitrary £500,000 figure as a cut-off between the lower and higher rates will lead to appeals. If I ran a business which had a rateable value of £510,000, I know what I would do: I would do my best to make it come up for £499,000.
I look forward to what the Minister has to say in response, but I hope it will be thoughtful.
The Earl of Lytton (CB)
My Lords, if I may, I will intervene a second time, first with an apology because I should have properly declared my interests as a chartered surveyor and a member of the Rating Surveyors’ Association and of the Institute of Revenues, Rating & Valuation.
That apart, I will follow up on what the noble Baroness, Lady Pinnock, has said. First, we are of course dealing with either the rental or the imputed rental value of properties. I get that point that this is reflecting much lower figures per square foot for some giant distribution centre somewhere upcountry, as opposed to a high-value shop in a sought-after city centre location. However, if that is not the right basis, then we cannot go on slavishly following that. We then have to start thinking about how we split the basis, so that the rental value forms one part of the thing only and something else happens to top the thing up. It cannot be beyond the wit of man to do that, and it cannot be beyond the wit of the Labour Party in opposition to have thought of something when it said in its manifesto commitment that it would replace business rates and
“level the playing field between the high street and online giants”—
and I think I have that verbatim.
More recently, the description of the Bill has been a “rebalancing”. The other way you deal with the whole question of imbalances is to look at the scope of the tax base. The Government have looked at the scope of the tax base; they have decided to take certain private schools out of the exemption and that has increased the tax base. However, that tax base is not retained at all in the business rates pool on a fiscal-neutrality wicket; no, it will be split between government and local authorities for other purposes altogether, so there is a net attrition from the system by that means. What could have been an improvement of the tax base resulting in a reduction across the board will not be there. We have to look carefully at what Governments and the Treasury think they are using business rates for. If they are to go on, bluntly, flogging this poor donkey to death, then things might well start unravelling quite quickly within the timeframe of a valuation list.
Lord Fox (LD)
The noble Earl alluded to a balloon being squeezed; we should remind ourselves that this is an expanding balloon. The costs faced by local authorities, of which a huge proportion—well over 50% and approaching 80% in some areas—is adult social care, are a rapidly expanding balloon that we are seeking to get our hands around and fill. This has enormous ramifications for not just high streets but the other services that local authorities are required and able to deliver on the budgets they get from rates and central government.
Baroness Scott of Bybrook (Con)
My Lords, I will speak to all the amendments in the name of the noble Lord, Lord Thurlow. I understand that he may be concerned by the lack of transparency surrounding the higher multipliers. We share this concern. We need to hear more detail from the Government. They are wrong to seek legislative powers to implement the higher multipliers without giving Parliament—and, more importantly, businesses—any clarity on what they are likely to be. We do not have an estimate of the revenue from the new multipliers. This is clearly not a satisfactory situation.
In principle, we are open to and understand the big concerns surrounding online giants, but more details are needed on this Bill, which we do not believe meets the policy aims. The principle of higher multipliers for certain ratepayers is a sensible idea when done well, so I cannot support the noble Lord’s Amendments 2 and 4. This Bill does not do it well with its arbitrary £500,000 threshold, but the principle of a higher multiplier for businesses that tend to pay less of other taxes can benefit small independent shops.
I cannot support the noble Lord’s Amendment 45—although I understand the sentiment—because, in the way the Bill is structured, high street businesses will be supporting other high street businesses through the higher multiplier. This is not sufficient reform. If we are to engage with the Bill on its own terms and seek to make it effective, the threshold will need changing the most. If the online giants were to pay a larger proportion of tax to enable a tax reduction for high street businesses, I would be inclined to support the Bill.
Before I finish, I thank both the noble Lord, Lord Thurlow, and the noble Earl, Lord Lytton, because, when you hear them talking, you will understand this sector of our economy. They understand what businesses know and think. The noble Lord, Lord Thurlow, is right to say that there should have been a much more in-depth consultation with all types of businesses, but it is difficult to do that when you do not know the effects on those businesses then or cannot give any indication whatever of that.
I also thank the noble Baroness, Lady Pinnock, because I have heard her stories of online giants in Yorkshire. I was pleased when I saw this coming, as perhaps the Government were going to deal with that issue for her. Sadly, I think they are dealing with part of it while, at the same time, putting our high streets in danger.
I am sorry that I disagree with the noble Lord that the Treasury should fund this reduction, but these are important points that the Government should consider carefully and answer fully. I hope the Minister will respond with much more clarity than so far.
Lord Khan of Burnley (Lab)
My Lords, I will address Amendments 2, 4 and 45 from the noble Lord, Lord Thurlow, which concern provisions relating to the new higher multiplier and the funding of the new lower multipliers.
At the Autumn Budget 2024, the Chancellor set out a Budget to fix the foundations—a Budget that took the difficult but necessary decisions on tax, spending and welfare to repair public finances, to increase investment in public services and the economy, to rebuild Britain and to unlock long-term growth. Part of that agenda included transformation of the non-domestic rating or business rates system, including delivering on the Government’s manifesto pledge to support the high street.
Support for the high street is an area on which I know that the noble Lord, Lord Thurlow, and others in this House have spoken passionately in prior debates on business rates legislation. I appreciate the depth of knowledge and experience that both he and the noble Earl, Lord Lytton, bring to these debates.
The Government have made clear that supporting the high streets is a priority. They are a focal point of economic activity and a point of local pride, and they can often reflect the unique character of a community. Yet, as they are property-intensive sectors, the Government are aware that they shoulder a significant business rates burden. Since the Covid-19 pandemic, a one-year relief has been repeatedly rolled over for retail, hospitality and leisure properties as a temporary stopgap. However, this has meant uncertainty for businesses about their business rates bills from one year to the next, and it has created a significant fiscal pressure for the Government.
The Bill will enable the Government to provide a permanent tax cut for qualifying retail, hospitality and leisure properties and, in doing so, better ensure the ongoing vibrancy of high streets up and down the country. However, against the challenging fiscal position that the Government inherited, we have been clear that we must take difficult choices to ensure that this support is delivered in a sustainable way. I repeat: the system should work in a sustainable way.
Specifically, this is why, at the Autumn Budget 2024, the Government announced our intention to introduce a higher tax rate on the most valuable properties. The amendments proposed by the noble Lord, Lord Thurlow, go to the heart of this element of the Bill. They serve to prevent the Government funding the support that the noble Lord would agree is critical for the high street from within the business rates system.
Baroness Pinnock (LD)
Several times already we have queried the decision to make the dividing line £500,000. It would be good to know why that number was chosen. Why not £600,000 or £400,000?
Lord Khan of Burnley (Lab)
I will come to the noble Baroness’s points when I come back to the valuations, rest assured.
The Government have been clear that they intend to fund new lower multipliers by raising revenue within the business rates system. The lower multipliers are a necessary tax cut, but a tax cut that must be funded. By limiting it to properties with a rateable value of £500,000 and above, the Government are asking those with the most valuable 1% of properties to pay more to support the viability of high streets. Moreover, by including all sectors within this group, they are doing so equitably and will capture the majority of large distribution warehouses, including those used by online giants—a cohort that I know the noble Lord, Lord Thurlow, has previously raised in relation to imbalances in the business rates system. We are trying to make sure that we have prudent financial management of the economy and a system that is sustainable.
I come back to some particular points. First, the noble Earl, Lord Lytton, spoke in relation to the potential rise of £39 billion, as indicated by the OBR’s Budget report. The OBR forecast assumes that business rates income will vary in line with forecast CPI inflation, estimated growth in the tax base and the change to business rates relief. The main business rates forecast is gross rates yield, net reliefs, net collection costs and other reductions to contributions. The forecast is higher for future years as it assumes that retail, hospitality and leisure relief is removed. The business rates forecast considers measures only after they have been announced at fiscal events. As in normal practice, forecasts beyond 2025-26 are based on a number of assumptions, as the Government have not yet set out their policy beyond that year. This will take place at the Budget later this year: the main business rates forecast will then be updated to reflect it.
As I have highlighted today, the Bill includes constraints that I hope will reassure Members of this Committee. In addition to limiting it to the most valuable properties, the Government cannot set the higher multiplier more than 10 pence above the standard multiplier. The Government have also been clear that this is not the intended rate. It is there to provide flexibility to adapt to outcomes in 2026 following the next revaluation, while acting as a guardrail against concern about excessive increases.
As the noble Lord, Lord Thurlow, will also be aware, the Government keep all taxes under review, including rates and thresholds. As such, I can assure the Committee that the Government will, as a matter of course, actively consider whether the £500,000 threshold should be amended at the 2029 revaluation, as they approach that revaluation.
Lord Fox (LD)
Coming back immediately on that point, what criteria will the Government be using for that revaluation? In other words, what are they seeking to confirm or otherwise from it? Can the Minister recognise that the point made by my noble friend, which I am sure will be made otherwise, is that when you multiply two numbers together, if one side of the equation is substantially smaller, the sum becomes low? If the valuations are 100 times less out of town, versus those in town, you can mess around with the other number as much as you like, but it will still be a tiny number out of town relative to town centres. Does he recognise that valuations are crucial to this and that, while this is all well and good, until valuations are sorted out, we really are fiddling around?
Lord Khan of Burnley (Lab)
My Lords, on that specific point about criteria, I want to be clear that we have had a one-year ad hoc system and we are trying to build a sustainable system, which will have a three-year rating on non-domestic properties. We want to see how we will get there when we see what the situation is in the fiscal climate; that will be a big part of addressing how the Treasury will set the multipliers. The Bill is not about setting multipliers. It is up to the Treasury to set those. I will come back to the impact in a moment.
In relation to the different level of multipliers, of course it is a complex system. However, the highlight of what we are trying to do is to have a sustainable system that funds itself and, by asking less than 1% of properties to shoulder a bit more, ensures that we support the high street and properties of low valuation. We are trying to have an equitable system that is sustainable and can pay for itself. We recognise that there are different scenarios and situations but, ultimately, we want to ensure that the system is much fairer than it is now and creates more certainty.
Lord Thurlow (CB)
I thank noble Lords who have taken part in this group. The most important takeaway is that it would be too little, too late to postpone until 2027. The acute pain felt in the high street is great enough for there to be substantial loss of retail presence if we do not move more swiftly. We have heard from all sides of the Committee that the lack of impact assessments on the specific, granular issue of definitions is of very serious concern. It needs only another 12-month delay for consultations with experts to take place.
The noble Baroness, Lady Pinnock, revealed with clarity—the noble Lord, Lord Fox, referred to it as well—that there is a harsh difference between an Amazon warehouse with a rental value, on which rateable values are based, of £4.50 per square foot, versus £45 on the high street. That is a massive difference. Amazon are paying 10%. We are tinkering with the deckchairs if the rate poundage is increased for these larger retailers because it cannot be increased—as the noble Lord, Lord Fox, pointed out—to anything near what will be required to provide balance.
The difficulty is one of definitions. I would be grateful if we could speak to the Bill team before the next stage of the Bill. There is scope to introduce a new use class order specifically for the purposes of rating—not for planning, but rating. This would identify the difference between a fulfilment centre for a high street business and an Amazon generic. If that was offered, I would withdraw my amendment.
Lord Jamieson
“(1A) Regulations under subsection (1)(a) must provide discretion for billing authorities with regard to the application of the higher multiplier.” Member's explanatory statement
This amendment seeks to introduce an element of discretion for billing authorities in the application of the higher multiplier.
The Deputy Chairman of Committees (Lord Geddes) (Con)
Amendment 3 leads a substantive group. I suggest that the Opposition might want to move it.
Lord Jamieson (Con)
May I deputise? Before I do, I declare my interest as a councillor in Central Bedfordshire. In moving Amendment 3, I shall speak to Amendments 18, 37 and 43 in the name of my noble friend Lady Scott, and in favour of Amendment 32 in the name of the noble Lord, Lord Thurlow.
Amendment 3 seeks to introduce discretion for billing authorities in the application of the higher multiplier. The other amendments in the name of my noble friend Lady Scott—Amendments 18, 37 and 43—question whether the Treasury is the right authority to define these hereditaments. The purpose of these amendments is to seek the Government’s reaction to the proposal that local authorities should have a role in deciding which businesses pay the newer, higher multiplier. Local authorities are in a unique position to comprehensively understand the challenges and circumstances faced by their local businesses, which a centralised body certainly is not.
For all its strengths, we know that His Majesty’s Treasury does not have the local knowledge and in-depth understanding of the needs of individual high streets to make informed decisions on business rates that work in the best interests of the local areas. Local authorities are on the ground and are intimately familiar with the economic, social and cultural landscape of their high streets and areas. From my own experience in Central Bedfordshire, I know the positive impact that a well-run local authority can deliver for its high streets. We are interested to hear how the Government seek to empower councils in these areas. We have heard a great deal from the party opposite about the value of devolution; this is a good example of where the Government should put these sentiments into action. The amendments in the name of my noble friend Lady Scott look to empower local authorities to tailor policy to best suit their local area’s specific needs.
Fundamentally, policy is about not only implementing rules but creating a framework that works in practice. Therefore, it is essential, even if the Government are unable to accept the amendments in this group, that local authorities are consulted properly before the Bill is passed. Can the Minister set out the consultation process undertaken to date and confirm for the Committee the further steps that his department will take to consult local authority leaders on these changes? Can he also update the Committee on how this change to our business rates system will interact with the Government’s wider plans to reorganise local authorities? We know that the environments in which businesses operate vary dramatically throughout the UK. However, this issue is neglected in the drafting of this legislation.
It is concerning that the broad applications of the definitions of hereditaments, which will be determined by the Treasury, will not address these regional disparities and enable a focus on what works locally. When created by the Treasury, definitions are designed with an overarching and national perspective and may risk creating unintended consequences for local businesses. They do not account for the nuances of local businesses, which are well understood by local authorities, so we must be cautious about adopting a one-size-fits-all approach when introducing legislation that will undoubtedly have significant implications for local businesses. The Government risk implementing blanket definitions that are disconnected from the realities faced locally.
Finally, I turn to Amendment 32 in the name of the noble Lord, Lord Thurlow, which seeks to remove the power of the Treasury to define a retail, hospitality and leisure property; this addresses the fact that it is local authorities who decide what constitutes a retail, hospitality and leisure relief property, in line with the government guidance. In tabling this amendment, the noble Lord appears to have many of the same concerns as those expressed in my noble friend Lady Scott’s amendments. I look forward to hearing his speech. We did not discuss this matter before Committee so I was pleased to see on the Marshalled List that I have a friend on this issue on the Cross Benches; I thank and offer my support to the noble Lord, Lord Thurlow, and hope that we can work together constructively after Committee.
To conclude, I hope that all noble Lords will listen carefully to the concerns raised in this group of amendments. I look to the Minister to engage proactively with the issues addressed in this amendment. I beg to move.
Lord Thurlow (CB)
My Lords, the noble Lord, Lord Jamieson, has taken the words out of my mouth. I support much of what he has said.
The starting place for my comments on this group is that the Bill seems to reverse the attempts to regionalise power from the centre; it would take the ability to define these hereditaments back to central government. As the noble Lord, Lord Jamieson, said clearly, the definition of RHL properties needs local expertise. There are regional disparities, to which he referred; it is terribly important to understand that. Regional disparities are huge. This measure is a generic product, but it is subject to huge regional variations. One size does not fit all hereditaments. That is an important starting place. It is no accident that the government guidelines allow local authorities to define RHL in accordance with the existing government guidance. That is very sensible. They are the people on the ground. They understand the give and take, as well as the commercial flows, involved.
A large supermarket on a high street may be the only anchor present in that town, being vital to the health of the high street, probably with a car park or a bus stop, and the only source of sufficient turnover of pedestrians to justify its presence in the high street at all. It has to be understood that, if these anchors pack up and leave, high streets really do suffer. There is a terrible price to pay for letting them go and anything that imperils their presence has to be terribly carefully decided, which is why it is a local issue, not a central government one. I strongly urge the Government to allow local authorities to continue to make these decisions.
The Earl of Lytton (CB)
My Lords, it may save time later if I rise to make a comment in the context of these amendments. I can quite see that there is an objection in principle to some of what is being put forward here, because of the Treasury need to predict the yield, if it is going to be able to explain to the Chancellor what announcement has got to be made in the Autumn Budget with regard to the multipliers.
That said, this raises the question of the complication that has arisen from the fact that, by virtue of the Bill, the discretion to define RHL properties, which has rested hitherto with billing authorities, will be taken away under the Bill and, as we have heard, the definition will be set centrally. How will central government make the relevant decisions in applying this as between a small seaside town at one end and a bustling urban metropolis at the other? Will it be by reference to the road name—high street or non-high street, depending on whether you want to dance on that glass pinhead—its predominant use or position vis-à-vis the town itself, never mind the range of uses as between different geographical locations?
I am entirely unsure what the outcome of this shift will be, but I am pretty certain that it will be pretty crude and, to local eyes, fairly insensitive of locational differences. That is because it will have to make one rule that applies across everything, from Bognor to West Bromwich—that is what is going to happen. There is a great deal to be said for some sort of discretion being in the hands of local government, which understands the pitch. That said, I do not know how easy it would be to achieve that, because valuation list analysis does not give you that information; it gives you an address, a postcode, a use category and a rateable value, but it does not go further than that, so there is actually quite a lot of qualitative information that we need before we can actually deal with that.
There are other aspects to this whole question of local government billing authority choice, which I will go into when I get to the group starting with Amendment 5, but I thought it was worth making that comment at this particular juncture.
Baroness Pinnock (LD)
My Lords, I thank the noble Lords, Lord Jamieson—also known as the noble Baroness, Lady Scott—and Lord Thurlow, for the amendments in this group. I have always in principle supported more powers and influence for local authorities. What I have always said should go without saying, but I repeat it.
However, I am nervous about the amendments from the noble Baroness, which seek to enable local authorities to have discretion over whether the higher multiplier should impact on businesses in their area. This is because, if you look at the Valuation Office Agency’s billing lists, you find that the vast majority—I have not worked out the percentage—of businesses in the £500,000-plus bracket are based in the south-east and London. Therefore, the income from the application of the higher multiplier in those areas is essential for the totality of the business rate take, which is then distributed to fund local authorities across the country. Areas of the country where valuations are much lower absolutely depend on the business rates raised from the south-east and London, and that has been the situation for ever.
If I were a London or south-east authority, I would see anything to encourage businesses as an opportunity and I would use that discretion, but it would be at the expense of councils in the north. Those such as mine in Yorkshire and the Minister’s over the Pennines—I dare not say the county—would suffer as a consequence, because the totality of the business rate take would reduce and the distribution of funding, which is vital for local services, would be less. If the noble Baroness comes up with an amendment which counters that, I could support it, because I support more power and discretion to local authorities. However, as we have a national system, we cannot have little local changes to the benefit of places that currently are fairly well funded or have better income already.
On the amendment from the noble Lord, Lord Thurlow, on defining retail, hospitality and leisure properties, there are later groups which try to get at the detail of this, but it seems to me—maybe the Minister can tell me whether I am wrong or right—that this whole business is associated with the removal of the Covid rate reliefs. Currently I think they are at 75%, to be reduced to 40% and then to zero. It will be quite a big hit to RHL properties to find themselves suddenly facing the totality of their business rate bill.
It seems to me that the essence of the Bill is removing that with one hand in order to provide some relief with the other hand; that is what we have got here. I think that is why the Government are in difficulty in helping us as a Committee to understand the purpose of this. It seems to me that it is that rather than trying to extract more from distribution warehouses et cetera, which we see from the lists provided are not many—of the, I think, 16,000 properties in the £500,000-plus bracket, only about 1,400 or 1,500 are large distribution warehouses. So, my plea is again: let us have an understanding of what this is about. If we had an impact assessment, we would be better able to understand it. I will keep repeating it, so perhaps before we get to Report the Minister will have extracted and published an impact assessment so we can make the judgments that we need to make.
Lord Khan of Burnley (Lab)
My Lords, Amendments 3,18, 32 and 37, which were spoken to by the noble Lord, Lord Jamieson, on behalf of the noble Baroness, Lady Scott of Bybrook, and Amendment 43, tabled by the noble Lord, Lord Thurlow, are concerned with the role of local authorities in determining the application of the higher and lower multipliers. Amendment 3 seeks to provide local authorities with discretion over the application of the higher multiplier, and Amendments 18, 32, 37 and 43 are concerned with who sets the definition of a qualifying RHL hereditament.
Currently, the Bill includes a power for qualifying RHL hereditaments to be defined in regulations by the Treasury, as I have said. Our intention is for the definition broadly to follow that currently used in the retail, hospitality and leisure relief scheme. The criteria for the current relief scheme are contained in guidance from this department and are implemented by local authorities. Ultimately, under the current relief scheme, local authorities have the final say over and discretion about who should be awarded the relief. I understand that that is the type of arrangement that the amendments are seeking to reinstate from April 2026 for the lower RHL multipliers.
I should, for completeness, explain to the Committee that Amendment 43 replaces the Treasury’s power to define RHL on the central rating list with the relevant local authority. In fact, the central rating list is operated by the Secretary of State for my department and does not require any local authority involvement. Instead, Amendment 43 would create an unworkable section of the Bill. This would be due to the fact that central list hereditaments cross multiple local authority areas, which would create a lack of clarity around the responsibility. In addition, this amendment would inappropriately insert local authorities into the central list process. I do not think that this is the intention of the noble Baroness. I think it is important to clarify there are currently no eligible properties to be prescribed for the lower multiplier on the central list, and nor would we expect there to be in future.
Moreover, I understand from the helpful explanation provided that Amendment 32, tabled by the noble Lord, Lord Thurlow, is, in a similar way to the amendments tabled by the noble Baroness, Lady Scott of Bybrook, seeking to confer on local authorities the power to determine what is a qualifying retail, hospitality and leisure hereditament. However, as drafted, it does not do that. As drafted, Amendment 32 would completely remove the power to define a qualifying retail, hospitality and leisure hereditament in respect of unoccupied properties from the Bill. In essence, it would mean qualifying RHL for unoccupied properties would remain undefined, as the power would not automatically be granted to local authorities.
However, I understand that these amendments are intended to probe the matter of local decision-making, and that is how I have sought to discuss them here today. As noble Lords would expect from me, I fully support efforts to give local authorities more power and discretion in their areas. The Bill does not disturb the already considerable powers that local authorities have to award relief to ratepayers as set out in Section 47 of the Local Government Finance Act 1988.
However, we have to balance this against the needs of businesses. What we hear from businesses is that they really value certainty. They tell us that the current RHL relief scheme, operated through local discretion, does not give them that certainty. We hear that they do not favour a system where a national relief scheme, such as RHL relief, can be delivered differently by different local authorities. It leaves businesses, especially those with multiple stores, unsure as to where and when they will be awarded relief.
The new lower RHL multipliers will therefore operate through a single set of regulations for all of England, made by the Treasury. Those regulations will still be implemented by local authorities, using their local knowledge, but the definition will be set by the Treasury. This is something that businesses in general would support. We will work with local government over the coming year to prepare these regulations. That goes to the direct question asked by the noble Lord, Lord Jamieson, in relation to our relationships and work with local government; we are doing that already.
Lord Thurlow (CB)
Does the Minister have any comments to make on the possibility of redefining the use classes for the purposes of rating, which would focus on the Amazon generic problem?
Lord Khan of Burnley (Lab)
I forgot to mention this to the noble Lord, Lord Thurlow; it would be helpful for him to sit down with me to discuss that, as well as his previous request, as soon as he has time in his diary. This is a discussion that we should have to engage on that particular point.
Lord Jamieson (Con)
My Lords, I thank all noble Lords who contributed to our debate on this group of amendments, which deals with the role of billing authorities and the definition of hereditaments.
During the debate, I listened closely to the noble Lord, Lord Thurlow, whom I thank for his support in raising yet again the impact on anchor stores on the high street, which is quite fundamental. I fully support the sentiment of Amendment 32 in his name. It seems plainly obvious that we are closely aligned; I hope that we can work collaboratively before and during Report and that the Minister will both listen to this argument carefully and see what can be done to improve the Bill’s provisions on the definition of hereditaments.
I thank the noble Earl, Lord Lytton, for his support for discretion. The noble Baroness, Lady Pinnock, was concerned that it may mean somewhat less funding for councils in the north of England. That is absolutely not the intention; I would be delighted to look at this matter further and have a conversation outside this Room.
The Minister made a couple of points about certainty. All businesses like certainty but they also want equity. Our concern is about equity and what is reasonable and fair. I was slightly puzzled by what the Minister said—I would be grateful if we could have a conversation on it later—about this idea of “centrally set but locally implemented”. That does not feel like local discretion; it feels like local implementation. I would be keen if he could speak more on that point.
Finally, local authorities have the ability for some local discretion. However, my understanding is that that would be funded locally, which is not particularly desirable.
Lord Khan of Burnley (Lab)
I think the noble Lord is saying “Let’s have some conversations to follow this up”. As I have said to all here, I am happy to sit down with any noble Lord or noble Baroness to discuss any point, in particular post Committee, before we get to Report. I would absolutely welcome a conversation with the noble Lord.
Lord Jamieson (Con)
I thank the Minister.
We must steer away from blanket definitions issued centrally by the Treasury, which does not have the thorough oversight of local businesses in all parts of the UK. Local authorities have a particular understanding of the business landscape in their areas, so while the definition of hereditaments introduced by the Treasury may work in some places, it will not work everywhere or be appropriate to others. This can be avoided if local authorities are issued with a power to determine a hereditament or other type of property.
As the noble Lord, Lord Thurlow, rightly pointed out in his Amendment 32, local authorities already determine what constitutes a retail, hospitality and leisure relief property. We must therefore ask why the drafting of this legislation provides complete power to the Treasury to define a retail property or a hereditament. Would it not be more suitable for local authorities to define property types? I would argue that, with their first-hand local knowledge, local authorities are best placed to define terms in a way that reflects the realities and suits the needs of their local areas.
Unsurprisingly, many questions have been raised in the debate on this group of amendments, so I look forward to the Minister—I thank him for his willingness to engage with us—providing more clarity on the matters discussed. I hope we will engage positively on the amendments in the name of my noble friend Lady Scott. With that, I beg leave to withdraw the amendment.
The Earl of Lytton
Member's explanatory statement
This would have the effect of leaving large RHL properties paying the standard multiplier rather than the supplement in line with previous policy intentions.
The Earl of Lytton (CB)
My Lords, in moving Amendment 5, I will also speak to Amendments 13, 19, 22, 30 and 38 in my name. I thank the noble Baroness, Lady Pinnock, for putting her name to Amendments 5 and 22.
The RHL sector was particularly badly hit as a result of Covid and it has been used, quite reasonably, as a proxy for the challenges facing urban core economies and town-centre trading. The previous Government introduced reliefs in the form of financial support to ameliorate rate bills for this sector, but that has been progressively reduced. I think I have it correct that the figure currently stands at 40% until April this year, reducing to 25% thereafter until April 2026. But at that point there is a cliff-edge readjustment to zero, as I understand it.
If I am correct in thinking that Governments past and present still believe that RHL properties should be accorded some relief going forward, because of their function, inter alia, in town-centre and urban core activity economies, it seems odd that hereditaments with a rateable value of £500,000 and over that are none the less in that RHL category and are still challenged by the longer-term changes in spending patterns should not be capable of maintaining, at least for the time being, some element of relief—or at any rate, not being at risk of a surcharge.
We clearly have an issue here with defining RHL. That is going to be a problem, because at the moment it is in the hands of the local authority. I have already referred to the difficulties of dealing with that when you take it all on board and try to decide it centrally. We also have the question of what constitutes a high street—we have touched on that before—and, finally, defining where the surcharges and reduced multipliers should actually apply.
The problem is that predictability for HM Treasury does not equate to certainty for ratepayers. We keep being told that ratepayers want greater certainty, but I do not see it in what this Bill is trying to produce, or in much else that has gone before in business rates legislation.
This amendment, as your Lordships will appreciate, is an attempt to probe what the Government really intend. The intention would have been made a lot easier, as we have heard, if there had been some sort of impact assessment. The Government seem to be unwilling to do any modelling until the draft 2026 valuation list is published later this year. Frankly, I cannot see that this would prevent having some sort of economic impact analysis of discrete subsets by property type and location, even if the actual values remained unknown. However, the point has already been made, and I will look carefully at what the Minister said in answer to it when this was raised earlier. We are getting to the point of having too many moving parts to give us any clear idea of where this is going, including the ability of policymakers in trying to identify outcomes and trends.
Amendment 5 seeks to remove the risk of surcharge from larger RHL properties. It is as simple as that; what it says on the tin is what it tries to do. This would try to deal with issues of larger shops, restaurants, leisure centres, cinemas, museums, hotels and all sorts of things that operate in a town centre which actually give the thing life and purpose and bring people into that economy. That is the sort of thing that this amendment would try to deal with.
Amendment 13 would provide flexibility in the powers under the Bill to apply the lower multipliers to a wider range of property types. That is not giving local government or billing authorities additional powers. It is saying: let us have those powers in this Bill so that the Treasury can bring them in as and when it sees necessary, without coming back to the whole business of having further legislation. This is made necessary because the range of activities represented by the RHL sector, as I have said previously, may differ between locations and for those reasons that I mentioned. Going forward, it may well require some radical rethinking about what actually underpins the type of use. It might not be RHL but RHL-plus, or something else. It might be minus L, or whatever term we want. We need to be careful that we can understand what underpins local economies.
The explanatory statement with Amendment 13 refers to equalising treatment between losers and gainers in terms of the supplemental or “reduced multipliers”. The Bill provides for the possibility of several supplements but only two reduced multipliers, and more flexibility should be brought in there. As I say, I am suggesting something that would give the Government more powers, rather than fewer, but enables them to fine-tune the outcomes. Amendments 19, 30 and 38 are allied to this last amendment. I will not go into detail, but they are consequential and apply the same principles.
Amendment 22 makes a specific allied provision for unoccupied RHL properties, which, as we know, are otherwise subject themselves to empty rates, even though because of the circumstances relating to the local economy they may not be—in all normal senses of the words—beneficially occupiable, because market demand has collapsed. This is a serious problem for getting town centres back up and running. I appreciate that is an argument if the Treasury wants to control the RHL definition for the purposes of accurately calculating multipliers for future years, but I believe that argument holds good only so long as rating and billing authorities are not required to make an up-front return to the Valuation Office Agency of those properties in their area considered to be in scope.
That may be seen as a fairly imperfect thing but, with all the churn of hereditaments being added, taken away, altered or going temporarily out of rate because they are undergoing major works, or whatever, this is never going to be a precise science anyway. It will always be a little hit and miss. I am quite certain the Treasury has a contingency in the workings to deal with that, so I do not see that there can be any real objection to it.
Baroness Pinnock (LD)
My Lords, I have tabled Amendments 7 and 24 in this group and have added my name to Amendments 14, 31 and 41 in the name of my noble friend Lord Fox. I have also added my name in support of Amendments 5 and 22 in the name of the noble Earl, Lord Lytton, to which he has just spoken. This is an important group of amendments because it seeks to expose the problem that the Government have in applying a higher multiplier to some businesses without targeting them, as we heard on an earlier group this afternoon.
Searching through the Valuation Office Agency’s information reveals, for instance, that about 60 civic centres or town halls, and 80 police headquarters or very large city centre police stations, are included in this higher rate. If the top end of the higher multiplier is applied to these properties, that will add 20% to the business rates bills of those local authorities or police authorities, at a time when both have severe problems with their finances and are struggling to make ends meet.
It is not just police headquarters, police stations and town halls: 80 courts, from the Supreme Court at one end to large magistrates’ courts at the other, are included in the rateable values assessed as being above £500,000—this is in the information that the Minister shared with us at the weekend—as, indeed, are 80 prisons. I am not quite sure why the Government are including town halls, civic centres, police HQs, courts, prisons and 630 schools in the higher multiplier. Why would any Government want to impose 20% higher costs, potentially, for business rates on those publicly funded essential institutions? I am sure the Minister will have a reply; whether it is one I will accept is a different matter. It gets worse: 300 further education colleges are included in this.
We just had a skills Bill passed through this House, which purported to increase the advantages of a skills agenda for young people. Most of us know that FE colleges have been consistently undervalued and underfinanced over the last 10 to 14 years—or even more. Adding this to the list of their problems will not help the skills agenda, nor will 360 state schools. Why on earth would you include state schools in this catch-all of the higher multiplier? Within the budgets and funding for state schools there is an element to cover their non-domestic rates costs. Whether that will be increased for those who are caught up in this higher valuation remains to be seen. I am just quoting from the information that the noble Lord shared.
On top of that, 310 universities are caught up. As I declared earlier, I am a vice-chair of the University of Huddersfield. I know how hard the changes that the previous Government made have hit university funding. Across the country, universities are having to close departments—often those that are vital for the future growth agenda that the Government are following. I need to hear from the Minister how the Government will address this non-targeted way of having the higher multiplier. Will all those state-funded institutions that I listed—local government, police, prisons, courts, schools and FE colleges—be compensated for the potential higher rate multiplier and therefore the 20% increase in their business rates? Universities function as businesses now and have very little income that comes directly from government, but they are facing very challenging financial futures, which is absolutely contrary to what the Government want to achieve from their emphasis on R&D. That cannot happen if universities struggle to make ends meet.
The challenge the Government have is to ensure that the changes result in the same income from NDR as previously. Between 30% and 40% of local government funding now comes from business rate income. As well as my earlier questions, can the Minister assure this Committee that local government will have the same total funding pot from business rates as it does now and—because of the way the system works—that no local authority will suffer a loss in income from business rates as a result of these changes? I will not go into the way it works for local government. The Minister will understand that assuring the total funding pot of business rates does not necessarily mean that each local authority will continue to have the same level of funding.
The question is whether the Minister can assure us that schools, colleges and so on—all those publicly funded institutions that may have to pay considerably higher costs in business rates—will have compensatory funding from the Treasury to meet those additional costs. Otherwise, they are giving with one hand and taking away with the other.
I am going to leave my noble friend to talk about the importance of music venues. The noble Earl, Lord Lytton, knows that I support both the amendments he has tabled, to which I have added my name, and I do not wish to add anything further to what he said. I am looking forward to the Minister’s answers to my questions .
Baroness Scott of Bybrook (Con)
My Lords, I rise to speak to my Amendments 12, 15, 29 and 33 and, in doing so, I apologise to the Committee that I omitted to declare my interest as a vice-president of the LGA. I keep forgetting it. My amendments seek to exempt manufacturing businesses from the higher multiplier.
The manufacturing industry is exceptionally important to the British economy, and to place an additional financial burden on this sector is unsatisfactory. In 2023, the total value of UK manufacturers’ product sales was £456 billion, which demonstrates the value of the sector to the UK economy. The sector accounts for 8.1% of UK employment and, in July to September 2024, accounted for 8.8% of the total UK economic output. Ministers never tire of telling us that growth is this Government’s number one mission, so can the Minister give the Committee a cast-iron guarantee that the Bill will not have a negative impact on the growth of our UK manufacturing sector?
Recently, the global political situation demonstrated the importance of being self-reliant with the rise in energy prices we have seen in the wake of Putin’s illegal war in Ukraine. My amendments seek to protect this vital sector, which has an important role to play in growing the UK economy, by allowing manufacturing hereditaments to qualify for the lower multiplier. This Bill, despite promising business rates reform, will put an arbitrary threshold in place and many businesses will be adversely affected. We will listen carefully to the Minister’s response to this group. Given that the manufacturing sector is likely to be included in this bracket, I would be grateful if the Minister would take this opportunity to outline exactly what impact his department expects the changes to business rates will have on the UK manufacturing sector.
This sector is already facing higher costs due to the increase in the cost of labour, and the Government are hitting it with a triple whammy of increasing costs with the increase in the minimum wage, which of course we support, and the increase in employer national insurance contributions, which is a damaging jobs tax. The House will have the opportunity to debate the national insurance measures tomorrow, and we will be speaking up for the number of sectors that will be devastated by this government policy. But why would these businesses invest to increase the value of their business and risk it going over £500,000? Labour-intensive sectors are already paying the cost of a Labour Government, and if businesses are forced to pay the higher multiplier suggested in this Bill that will only worsen their predicament.
Amendments 5 and 22, in the name of the noble Earl, Lord Lytton, seek to exempt retail, hospitality and leisure businesses from the higher multiplier. They are sensible amendments, and several of my amendments touch on very similar issues. I have referred in my amendments to specific types of stores on our high street, which are yet to be debated, but the sentiment of the noble Earl’s amendments is certainly one that I support.
Amendments 14, 31 and 41 are in the name of the noble Baroness, Lady Fox, who I do not see in her seat.
Lord Fox (LD)
They are not from the noble Baroness, Lady Fox. They are in my name.
Baroness Scott of Bybrook (Con)
Once again today, I apologise to the noble Lord.
Lord Fox (LD)
For the Committee’s information, there is a misprint. It should have read “grassroots music venues and larger venues”. If I had spoken before the noble Baroness, I would have explained. The Royal Albert Hall is clearly not a grass-roots venue.
Baroness Scott of Bybrook (Con)
That confused me, but I thank the noble Lord.
Amendments 7, 13, 19, 24, 30 and 38 all seek a similar thing: to allow the Treasury the power to exempt other hereditaments from the higher multiplier as it sees fit. While I understand the desire to introduce flexibility into a Bill that does not seem to have been fully thought through, it is important that we empower local authorities rather than afford the Treasury further powers. I look forward to the Minister’s response.
Lord Fox (LD)
I will speak for myself rather than the noble Baroness. What we have seen in the various themes in this group is the malign effect of a blunt instrument. My noble friend Lady Pinnock raised the important issue of public sector buildings that fall into the trap of high value and therefore the higher multiplier. Clearly, we need to understand the overall financial effects on those organisations. The noble Baroness, Lady Scott, spoke well about manufacturing. We tabled the same amendments in the Commons, where one of the implications of what the Government said was that manufacturing does not have to be in a town centre, on the basis that there is somehow an ability to up sticks and go without huge capital implications and lots of other things.
If we are talking about a mixed economy in town centres, things such as light engineering and printers, as well as other businesses such as accountants, design agencies and all sorts of things, add to their plurality and success. When you remove from a town centre the people who work or live there, you remove a huge proportion of the trade that the sector that the Government are seeking to boost relies on. Not everybody has to come in a car to buy a sandwich from a shop. They might work or live there. That is an important part of trade that this Bill seems to ignore.
I turn to my Amendments 14, 31 and 41. I was going to clarify at the beginning that the explanatory statement should have read that they are to probe the impact of the higher multiplier on large venues and, for other elements of the Bill, on grass-roots venues. There were two issues, and I somehow managed to conflate them into a mess.
I spoke earlier about unintended consequences. This Bill has lots of potential unintended consequences. The Music Venue Trust calculates that just the move from 75% to 40% business tax relief from April 2025 will create a demand for £70 million more in additional premises tax from the GMV sector, as I am going to call grass-roots music venues, that in 2024 returned an entire gross profit across all 810 venues of just £25 million. In other words, the sector will be asked for well over twice—nearly three times, in fact—what it made in profit last year. Some 43% of grass-roots music venues in the UK made a loss in 2024 and, in 2025, they continue to operate an overall profit margin of just 0.5%. This is a very marginal activity. I believe that, given the tone of the Budget and the commitment to consider the culture area of our economy in the spending review, this must have been an unintended consequence or an omission of protection, rather than an intended tax rise. I look to the Minister to confirm this.
As an aside, GMVs have specific space issues in their business characteristics that are not recognised properly in the general rateable value process. That is a separate issue with which a review would, I hope, deal.
I return to the consequences of this Bill. There are two areas. The first is an option for the Government to create multipliers that are designed specifically to encourage activity we wish to see. This goes back to the flexibility point that other noble Lords mentioned. For example, specific multipliers for cultural spaces would go a long way to support creative growth and the regeneration of our high streets, both of which are key elements in the Government’s wider agency, but there is an immediate, separate issue facing cultural spaces that operate in properties over the rateable value threshold of £500,000.
Just like schools and universities, there are big venues around the country, such as the Royal Albert Hall, the Underworld, the Roundhouse and the Royal Festival Hall—there are others, I am sure, but not a huge number—that fall above the £500,000 threshold. For those businesses, there needs to be some differentiation according to their activity. I come back to what my noble friend said about universities. Why are we including them in this measure? Why are we including police stations? Also, why are we including large-scale cultural icons? The idea of flexibility will help with other issues, about which the noble Baroness, Lady Scott, and my noble friend will talk in our debate on a future group of amendments. Without that flexibility, what we have is a blunt instrument, as I have said before.
I come back to music venues: we believe that these venues will be penalised unless something is done. Can the Minister respond to either this debate or some consultation with experts so that we can make sure that that does not happen? Grass-roots music venues are the R&D of our music industry. They are where almost every band starts. Bands start in their bedrooms, they then move to the streets, and then get to a grass-roots music venue. They may end up in the Royal Albert Hall, on television or whatever, but GMVs are where our music industry comes from. That ecosystem also supports wider nightlife and hospitality businesses in the UK, including pubs, food businesses, takeaways, taxis and nightclubs, all of which have physical premises in the community.
There are two issues here. One is the removal or reduction of relief for grass-roots music venues across the country, which will, on average, put them out of profit and into loss. The second is the application of the higher multiple on particularly large venues around this country. I do not think that the Government intended to deliver either of these outcomes for our music industry, but they must intend to improve and change the system in order for these catastrophic issues not to happen. So I hope that the Minister, either now or with consultation, can come back with two different solutions for these two sides of a very important industry.
Lord de Clifford (CB)
I speak in support of this group of amendments. I declare my interest that I do not have the expertise that I have listened to this afternoon, so I will just do my little bit. I thank the Minister for his reply to the questions I sent him on the multiple retail shops that will be affected by this increase due to the larger rate for valued properties.
I support Amendment 5 in the name of the noble Earl, Lord Lytton, and the noble Baroness, Lady Pinnock. There will be 3,260 retail shops affected by these changes, many of which are supermarkets. If the Government increase the multiplier by 0.1%, this would increase costs by about £3.7 million per year on these properties. This would be passed directly on to customers who shop in these shops, supermarkets and hypermarkets, and would also damage the large anchor stores in shopping centres, which are under pressure already from the online warehouses which this Bill tries to target. The noble Lord, Lord Thurlow, has already detailed the value of these large retail stores to the high street and shopping centres much more expertly than I. Therefore, I ask the Minister to consider these amendments urgently, because they will add costs to these businesses.
The Minister also made clear why no detailed impact assessment or calculations have been done. This is due to these rates being set in the Budget, and the revaluation, which will be a disappointment to the noble Baroness, Lady Pinnock. The cost to large businesses is unknown. The Bill could damage these larger businesses just to support smaller ones. As the noble Baroness, Lady Pinnock, stated, we just do not know what the final financial impacts of this will be. I spoke to a leisure business this weekend. It has no idea what its rates will be in 2025-26 and therefore finds it very difficult to budget for what it will have to charge and how it will manage its subscriptions in the coming year.
Regarding Amendment 13, as the noble Lord, Lord Fox, said, the Bill tries to protect the high street. The high street is not only retail, hospitality and leisure, so I support the amendment of the noble Earl, Lord Lytton, to try to ensure some flexibility in the future for these types of businesses to be added in. High street businesses will change in the coming year as high streets need to prosper, with new types of business. These could include veterinary surgeons—a business that I have an interest in—who want to come to the high street and need to be encouraged with possible lower rates.
I support the amendments of the noble Baroness, Lady Pinnock, who spoke with passion about government and local authorities, the noble Baroness, Lady Scott, who spoke in support of the manufacturing industries and the noble Lord, Lord Fox, who spoke in support of music venues—all of which need more clarity and information in this Bill.
Lord Khan of Burnley (Lab)
My Lords, the amendments in this group and the three groups that follow seek to change the Bill in two broad respects. They seek to carve out properties from the higher multiplier and to widen those hereditaments eligible for the lower multipliers. These amendments and those that follow would have a significant impact on the scope of Clauses 1 to 4, the potential cost of the lower multipliers and the revenue flowing from the higher multiplier. They would therefore reduce the Treasury’s ability to set sustainable and worthwhile higher and lower multipliers. As such, it is important that we consider these amendments—and those in the three groups that follow—in the overall context of the wider purpose of Clauses 1 to 4.
In the Budget, the Government announced their intention to introduce a permanent tax cut for retail, hospitality and leisure properties from 2026-27 by introducing two permanent lower multipliers for these properties. It is important that any tax cut is sustainably funded, which is why the Government also announced their intention to introduce a higher multiplier for the most valuable properties—those with a rateable value of £500,000 and over—from 2026-27.
Lord Fox (LD)
I think I clarified that there were two issues. If the Minister looks in his data, he will find that the Royal Albert Hall is classed as being over £500,000, and I specifically asked about the Royal Albert Hall, so we require an answer to that. The point about grass-roots venues was not about the £500,000; it is about the loss of the relief, from 70% to 40% in the coming financial year, which will put them below the waterline, on average. That was a specific and different question that the Minister may want to answer separately.
Lord Khan of Burnley (Lab)
I did say that I would come back to the noble Lord on his specific question.
Baroness Scott of Bybrook (Con)
Will the extra burdens on local authority budgets that might come be funded by the new burdens policy?
The Earl of Lytton (CB)
I have just looked up the Royal Albert Hall. It has a £1.9 million rateable value.
Lord Khan of Burnley (Lab)
I thank the noble Earl very much for that clarification, but if he looks at my remarks later, he will see that I said that we do not expect “many”—not any—grass-roots music venues to fall above the £500,000 threshold. As I said, although we do not hold data specifically on music venues, we know, for example, that pubs, which often play an important role in the grass-roots music scene, have an average rateable value of only £16,800.
The noble Earl, Lord Lytton, asked how the lower multipliers will affect vacant property. The Bill allows for the lower multipliers to apply to vacant RHL properties. I assure the noble Earl that we intend to apply these new multipliers to occupied properties in the same way as we do to vacant properties. That will be consistent.
The noble Lord, Lord de Clifford, and the noble Baroness, Lady Pinnock, touched on the important point of why an impact assessment has not been prepared. Let me be absolutely clear and repeat my previous points on this: policies and legislation concerning tax and the administration of tax fall outside the meaning of regulatory provisions and are therefore not required to be accompanied by an impact assessment. However, His Majesty’s Treasury committed to publishing an analysis of the new multipliers at the Budget.
A further set of amendments seeks to expand the set of properties eligible for the lower multipliers. This includes widening the lower multipliers to manufacturing properties. I repeat this for the noble Lord, Lord Fox, and the noble Baroness, Lady Scott, who raised this in particular: a further set of amendments seeks to expand the set of properties eligible for the lower multipliers. This includes widening the lower multipliers to manufacturing properties and, more generally, a power to widen the lower multipliers to other sectors.
I acknowledge the intention of the noble Earl, Lord Lytton, to provide greater flexibility within the Bill, should it be deemed appropriate, in future, to apply the lower multipliers to other types of property. However, the Government were clear at the Budget that the intention is for the permanently lower tax rates to apply to qualifying RHL properties from 2026-27, ending the uncertainty of RHL relief that has been extended year on year. This has been an ad hoc system, and year on year is not the most effective way for businesses to plan.
Lord Fox (LD)
I think I heard the Minister say, on a different group, that this will apply for three years. On that basis, we cannot really expect a root-and-branch change of the system until either the end or beyond the end of this Parliament. Would that be a reasonable assessment?
Lord Khan of Burnley (Lab)
The noble Lord makes an interesting point. This will come into force in 2026-27; we are talking about the revaluation and review being three years after that. Again, this provides more certainty, because we do not want year-on-year unpredictability in an ad hoc system. This is a sustainable process, and it will give us a chance to see what the environment and fiscal climate will be at that time. Again, it is for the Treasury to set the multipliers.
Against the current fiscal backdrop, widening the scope of properties eligible for the lower multipliers would potentially reduce the level of tax cut that could then be provided to that cohort. Similarly, widening the scope may require a higher tax rate on those properties paying the higher multiplier to enable the Government to deliver a permanent tax cut.
The amendments for manufacturing could, of course, widen the lower multipliers somewhere beyond the town-centre and high-street environment. As we have heard from stakeholders, retail, hospitality and leisure businesses tend to occupy properties in higher-value locations with higher footfall, which in turn drives up the rateable value and rates bill. The Bill will rebalance this. The same cannot generally be said for manufacturing, so the case for special treatment for it here is weaker.
The Government are supporting our manufacturing sector through other means. At the Autumn Budget, we announced £975 million for the aerospace sector over five years, over £2 billion for the automotive sector over the same period and up to £520 million for a new life sciences innovative manufacturing fund.
I turn to a point raised by the noble Lord, Lord Fox. Live music venues are currently eligible for the existing RHL relief. The definition of RHL, in terms of the new multipliers, broadly follows the current definition, which will be set later in secondary legislation.
Lord Fox (LD)
I am sorry; I am just trying to process that. Are you saying that, going forward, they would continue to benefit from the lower multiples as RHL-qualified businesses?
Lord Khan of Burnley (Lab)
In terms of over £500,000, we are going to have the same policy applied to all sectors. We are not doing carve-outs, but in terms of any relief that music venues are having below that, the definition of the new multipliers will broadly follow the current definition and will be set out in secondary legislation later this year.
I think I have answered the question asked by the noble Baroness, Lady Pinnock, but I will make a few points again about the impact on the public sector. The fiscal inheritance demands tough choices in order to fix our public services to create long-term growth and investment that will support businesses, but we have sought to mitigate the worst impacts of these choices. It would not be fair on businesses if we excluded the public sector from the higher multiplier.
In relation to the points made by noble Lord, Lord Fox, and the noble Baroness, Lady Pinnock, I repeat, in particular, that the Government will work to ensure that, as far as practically possible, local government income from business rates is unaffected by business rates tax rate changes. The Government are making good on the promise to reform the local government funding system. I talked about this on the previous group. We will pursue a comprehensive set of reforms for public services to fix the foundations of local government in partnership with the sector and with the principle of giving councils early notice.
There has been a wide-ranging debate on this group. For the reasons that I have set out, I hope the Committee will understand, as we consider these amendments and those in the three groups that follow, that we should not seek to carve out certain properties from the higher tax rate or bring other properties into eligibility for the lower multiplier. I hope that the noble Earl will withdraw his amendment.
The Earl of Lytton (CB)
My Lords, I thank all noble Lords who have spoken to this group of amendments for the support, some of it qualified, for the amendments that I have put forward. I do not wish to labour the point, especially as the temperature in this Room seems to continue to drop and my feet are getting extremely cold.
To pick up the point that was made by the noble Lord, Lord Fox—that the size of hereditament does not equate with ability to pay—some of our most marginal and most valuable operations operate right on the limit. I hear what the Minister says about the difficulties of dealing with this; I have to say that I do not share his view. We already have two lists: we have a general rating list, and we have a central rating list, and there is no reason why the Government could not split it into more than that if they chose to do so. As I said earlier, when it comes to a digitised list, one can fiddle around with it in all sorts of ways. We are talking about 16,500, or some such number, of entries with a rateable value of £500,000 and above. I would have liked to have had a pointer that the Government sort of get this and want to move more rapidly to, first, making the present system more flexible and responsive and, secondly, that we can have some pointer to where this is going in terms of reforming the whole business rates system. However, that is clearly an argument for another day.
My last point, an entirely frivolous one, is that the contents of the various groups of amendments gets smaller henceforward. I beg leave to withdraw the amendment.
Baroness Pinnock
Member’s explanatory statement
This amendment, together with Baroness Pinnock’s amendments to page 3, line 37, page 4, line 6, and page 4, line 17, would have the effect of retaining the standard multiplier for hospitals, medical and dental schools, or any other healthcare setting to be determined by regulations.
Baroness Pinnock (LD)
My Lords, this group of amendments focuses on the impact of the higher multiplier on hospitals, clinics and other larger health institutions. Amendment 6 is in my name and that of my noble friend Lord Fox, and the other three amendments, Amendments 20, 23 and 39, are consequential amendments. The Minister has spoken several times this afternoon about being “fair and sustainable” and also, just latterly, about “tough choices”.
I have looked down the list shared by the Minister of those properties with rateable values above £500,000. There are some notable exceptions. I could not find Buckingham Palace. Tough choices? Are Parliament and the Parliamentary Estate exempt? I could not find them in the list. Maybe the list is not complete; if that is the case, it would be good to hear from the Minister how much extra the Government expect the higher multiplier to cost the Parliamentary Estate.
Lord Jamieson (Con)
I thank the noble Baroness, Lady Pinnock, for moving this amendment and outlining the unintended consequences of this Bill. The proposal to exempt healthcare from the higher multiplier is an issue that has sparked considerable debate in the wider community.
The amendments in this group propose two key changes: to exempt healthcare from the higher multiplier; and to expand the definition of healthcare to include hospitals and medical and dental schools. These changes seek to address the concern that critical services in the healthcare sector could be disproportionately affected by the Bill’s provisions. These amendments address very real concerns that services could be disproportionately affected through this legislation, revealing further unintended consequences of this Government’s Bill.
Amendment 6 is particularly important as it seeks to remove healthcare from the higher multiplier, directly responding to concerns raised by hospitals and other healthcare providers that are already under significant financial strain. Exempting healthcare from this additional tax burden could protect vital services, ensuring that they can continue delivering essential care without being further impacted by this Bill’s provisions. The National Pharmacy Association has warned that pharmacies across the country are at risk and may be forced to cut hours because of the Government’s triple whammy of increased business costs this April. It cannot be right that access to healthcare is threatened by the Government’s appalling tax policies. Will the Minister give the Committee a commitment today that the Government will change course on their tax policies if it is proven that access to healthcare will be reduced as a result of their policy?
Amendments 20 and 23 seek to clarify and broaden the definition of healthcare, ensuring that medical and dental schools are included in these protections. Given the importance of these institutions in training future healthcare professionals, it is worth considering whether their exclusion from such protections could affect the quality and sustainability of the healthcare workforce—particularly at a time when the sector is facing increasing demand. I would be grateful if the Minister took this opportunity to outline exactly how the Government will safeguard the future of our healthcare workforce in the light of these concerns.
Finally, Amendment 39 repeats the proposal to exempt healthcare from the higher multiplier, reinforcing the argument that this sector should not bear the weight of a tax system that may further stretch its already-limited resources.
I would like to touch on the cliff-edge nature of the £500,000 threshold; this has been mentioned in previous debates by the noble Earl, Lord Lytton, and my noble friend Lady Scott. A local health facility might want to add one consulting room. If that pushes it over the £500,000 threshold, it may no longer be affordable. We need to think carefully about the cliff-edge nature of this measure; I would be grateful if the Minister could provide some additional thought on it and come back to us.
In conclusion, these amendments ask important questions about the impact of this Bill on healthcare sectors. Although the Bill seeks reform, we must ensure that essential services are not disproportionately affected by the higher multiplier or excluded from necessary protections. The noble Baroness, Lady Pinnock, has brought forward a compelling case for the need to reconsider the treatment of healthcare in the Bill. I would be grateful if the Minister took this opportunity to clarify how the Government plan to address these concerns and ensure that vital healthcare services are not unduly burdened; I look forward to his response.
Lord Khan of Burnley (Lab)
My Lords, these amendments seek to change the Bill to remove healthcare hereditaments from the higher multiplier. In the previous debate on the amendments in group 4, just a few moments ago, I explained why the Government have taken a sector-agnostic approach to the higher multiplier and not excluded any sector or type of property. Of course, the same considerations apply here. This Government fully support the healthcare sector, but it would not be fair to exclude some and not others. To sustainably fund the lower multipliers, we must ensure that we can raise money from higher multipliers; the only fair way to do this is to apply it to all hereditaments at £500,000 and above.
As I said in the debate on the previous group, it is important to look at the facts. The Valuation Office Agency’s statistics show that, of the 16,780 properties caught by the £500,000 threshold, based on the current rating list, only 350 are in the health subsector. Of these, 290 are NHS hospitals and only 30 are doctors’ surgeries or health centres. These numbers are rounded to the nearest 10 and we do not have separate data on medical or dental schools. The impact on this sector is therefore limited and, where it applies, much of it falls on the NHS. The Autumn Budget fixed the spending envelope for phase 2 of the spending review, which will deliver new mission-led, technology-enabled and reform-driven budgets for departments. We will consider the full range of priorities and pressures facing departments in the round, including any impact of the higher multiplier, when setting these budgets.
On the questions about the Bill creating more cliff edges in the system, the new higher-rate multiplier will apply to properties above £500,000, which will fund and support the high street in a sustainable way. However, the discussion paper published at the Autumn Budget highlights that some stakeholders have argued that cliff edges in the system may disincentivise expansion. It committed to explore options for reform. The Government have recently completed an initial stage of engagement to understand stakeholder views and areas of interest for reform, and we are open to receiving written representations in response to the priority areas for reform. That is open until 31 March 2025.
On the specific question about examples of properties that the noble Baroness mentioned, it would be inappropriate for me to discuss the rate bills of specific ratepayers, especially as one of them is a domestic property. To conclude, set in the context of these facts and assurances of how we will approach the issue in the spending review, I hope the noble Baroness is able to withdraw her amendment.
Baroness Pinnock (LD)
My Lords, I thank the noble Lord, Lord Jamieson, for his support for the amendments that I have tabled to try to persuade the Government to think again. The Minister talked about an agnostic approach to the application of the higher multiplier. Now, agnostic approaches are all very well until we see what we catch in the trap. What we have exposed this afternoon is that the Government intend to apply higher costs to the very public services for which they are desperate to have higher funding. They cannot, on the one hand, say that they wish to provide higher funding for some of these important public sector services when, on the other hand, they take some of the funding away. That is the consequence of an ill-considered agnostic approach. I urge the Government to think about having a more targeted approach that includes in its catch more warehouse distribution services and fewer public sector providers of important and valuable public services. At the minute, that is not what is happening.
Baroness Scott of Bybrook
Member's explanatory statement
This amendment, along with another in the name of Baroness Scott of Bybrook, seeks to exempt businesses that open for longer than 18 hours a day because they are often the only retailer in the local area.
Baroness Scott of Bybrook (Con)
My Lords, in moving Amendment 8 I will also speak to the rest of the amendments in this group. They focus on protecting the essential services that are provided up and down the high street.
Amendments 8 and 25 in my name seek to exempt community shops that are open for more than 18 hours a day. Within local communities, there is often a shop that is open for longer hours than general retail premises. Often, this can be a garage forecourt which is open 24 hours and has essential things for people working in the night-time economy, who may be on a different clock to us. These shops provide essential services for those living in that surrounding community. Without them, there may be fewer customers on that high street, which we believe would begin to damage the surrounding shops and businesses. People often rely on these stores with longer opening hours, so exempting them from the higher multiplier would ensure that they can continue to provide a vital service to local people.
My Amendments 9 and 26 seek to exempt hereditaments that have a post office on the premises from qualifying for the higher multiplier. A post office does not make the same level of profit as the shop, but it provides essential services that many people rely on. Does the Minister agree that it would be unacceptable for shops providing these services to close because they are inappropriately hit by the higher multiplier?
Amendments 10, 17, 27 and 35 seek to exempt premises shared with banking hubs. Less than two weeks ago, many in this House discussed the importance of banking hubs in a debate on bank closures and the particular impact on rural communities. The shift to online banking inevitably brings to light issues of accessibility. While digital banking services are convenient for many, they are inaccessible to others, particularly those living in rural areas. The elderly and the disabled are often significantly impacted by the lack of physical banking services. Age UK has found that over 4 million over-65s in the United Kingdom with a bank account did not manage their money online, placing them at a high risk of financial exclusion. Bank closures have also been found to negatively affect those with disabilities, with a Which? survey concluding that 50% of respondents would be negatively impacted by not having access to a physical service.
The previous Conservative Government recognised the detrimental impact of bank closures on groups in our society and collaborated with the banking industry to establish shared banking hubs. Operated by both the Post Office and banks, these hubs offer essential banking services, including cash withdrawals, deposits and in-person consultations. We must continue to look to mitigate cases of financial exclusion, and I draw noble Lords’ attention to my Amendment 26.
This group of amendments deals with a matter of utmost importance for millions of people across the UK who rely on these essential services. I therefore encourage the Minister to listen carefully to the concerns raised in the debate.
Lord Fox (LD)
My Lords, this is another example of the blunt instrument in operation. We have talked about increasing tax on public services, some of which have the ability to recover the money via new burdens, while some do not. But these services are offered by private sector organisations, and we know for a fact that they will not get recompense from the Government for this, which will increase their costs, reduce their profit and may eliminate their viability altogether. When post offices and Crown offices are retreating from the high street, this is not a good time for those businesses.
In a moment we will talk about flagship operations. I put it to noble Lords that banks and post offices are flagship operations. People travel to towns to visit a post office and banks, and then they spend their money on other things, so by denuding or putting in peril those sorts of operations, we are removing the attraction of town centres. We are making sure that they do worse rather than better. That is the first point.
Secondly, I have a relative who owns a shop in a country town—I do not have an interest in that shop—and one of their biggest difficulties is banking their money. They have to drive 20 miles twice a week to take bags of money to bank it because there is no longer a bank. The removal of a banking hub would make that even harder. It also drives shops to go fully digital, which means that people who do not want to use digital and want to keep using cash are no longer facilitated by those businesses. I have seen businesses that can no longer handle cash simply because they no longer have the necessary banking facilities.
Once again, we are looking at the RHL sector, but these businesses serve the RHL sector and make their lives operational. I am happy to support the various amendments in this group in the name of the noble Baroness, Lady Scott, and I look forward to the Minister explaining how taxing post offices and banking hubs will help the RHL sector in our town centres and high streets.
Lord Thurlow (CB)
I will say a few words in support of the excellent Amendments 8, 9 and 10 in the name of the noble Baroness, Lady Scott. It had not occurred to me but is worth saying here that, just as an anchor is critical to the economic health of the high street and the social contribution that comes with it, so are these very small and vital retailers—if that is the right word—for banking facilities, as well as the small facilities open all hours, 18 hours a day or whatever it may be. They are critical. In fact, they should perhaps be considered in a conversation about revising the use classes order because, as we heard with the good examples given, they are essential to the health of the local community.
Lord Khan of Burnley (Lab)
My Lords, in her contribution, the noble Baroness, Lady Scott, said that she hoped the Minister listens very carefully. Just to reassure her, I always listen very carefully and with great interest to everything that the noble Baroness says, as is the case for all noble Lords in this debate.
Six of these eight amendments seek to change the Bill to remove certain high street services from the higher multiplier. In the previous debates on the amendments in groups 4 and 5, I explained why the Government have taken a sector-agnostic approach to the higher multiplier and have not excluded any sector or type of property. The same considerations apply here and I will not repeat them.
As regard detail, it is worth being clear what type of retail properties on the current rating list would be caught in the higher multiplier. The Valuation Office Agency’s published data shows that, of the subsector of shops that are at or above the £500,000 threshold, 72% are supermarkets, large food stores or retail warehouses. That leaves only 900 other shops at or above £500,000 across England, and of these 630 are in London and the south-east. For most regions, the number of shops affected, excluding supermarkets, large food stores and retail warehouses is fewer than 50. These numbers are rounded to the nearest 10.
In particular, the noble Baroness, Lady Scott, mentioned petrol stations, and amendments would support petrol stations but, in reality, from the Valuation Office Agency’s data, the number of petrol stations above the higher multiplier threshold of £500,000 is fewer than five.
The danger with these carve-outs from the higher multiplier is that the benefit could, in part, flow to large businesses in thriving and valuable locations, reducing the ability for us to support smaller businesses and less valuable locations through the lower multiplier. We understand the importance of facilities such as post offices or banking hubs for local communities. The average post office has a rateable value of only £16,000, so we do not anticipate that the higher multiplier will apply to very many premises used by post offices, and post offices are eligible for the existing retail, hospitality and leisure relief.
We understand that Amendments 17 and 35 seek to add to the lower multiplier hereditaments that host banking hubs. In the debate we have just had on group 4, I explained why we feel it necessary to target the lower multiplier on RHL. These amendments could easily widen the lower multiplier to other settings and introduce a loophole to the Bill. I assure the Committee that the Government will continue to work closely with high street banks to ensure that communities and local businesses have access to the banking services they need. I hope the Committee is assured that the Government remain committed to banking hubs. With these facts and assurances, I hope that the noble Baroness, Lady Scott of Bybrook, will withdraw her amendment.
Baroness Scott of Bybrook (Con)
My Lords, I thank all noble Lords who have supported these amendments. This group has dealt with high street services, in particular, post offices and banking hubs. While it goes unnoticed, a post office remains an essential street service, as we heard from the noble Lord, Lord Thurlow. Its use extends well beyond a mail service, and for many, particularly those without internet access, it plays a critical role in ensuring that individuals can pay their bills, collect their pension or access other financial services that a bank would traditionally offer. Indeed, they are the backbone of many of our British high streets, notably those in rural areas. As we enter a digital age, physical banking services offered by bank branches are incredibly hard to come by. When branches close, the impact extends far beyond just customers. It impacts on the whole local economy, as we heard from the noble Lord, Lord Fox, and the noble Baroness, Lady Pinnock.
Many small retailers—farmers and other independent traders—continue to rely on cash transactions. When a bank closes, cash withdrawals become harder, credit becomes less accessible and many face greater financial insecurity. In fact, bank closures may be yet another a blow to small businesses, with the Federation of Small Businesses warning that they could result in reduced
“ability to manage cash flow and productivity”.
Baroness Scott of Bybrook
Member's explanatory statement
This amendment, along with others in the name of Baroness Scott of Bybrook, seeks to exempt anchor stores because they drive business on the high street.
Baroness Scott of Bybrook (Con)
My Lords, I rise to speak to Amendments 11, 28 and 36 in my name, which seek to exempt anchor stores from the scope of the proposed changes in the Bill. These amendments are crucial for safeguarding the health and vitality of our high streets particularly in the context of the ongoing challenges facing retailers and small businesses. I thank all noble Lords who, throughout this debate, have acknowledged the importance of these businesses.
As we are aware, anchor stores play a vital role in the commercial ecosystem of any high street. They act as a significant draw for foot traffic, attracting customers not only to their own establishments but to the surrounding smaller retailers and businesses. It is no exaggeration to say that, without anchor stores, many high streets would be devastated. They are the backbone that supports the smaller independent shops that contribute to the unique character of our local economies.
However, while the higher threshold for non-domestic rates is a well-intentioned measure to ensure that out-of-town warehouses and large-scale online retailers contribute their fair share, we must pause and consider the unintended consequences of this approach. The so-called Amazon tax may be designed with online giants in mind, but the current proposals would also capture larger businesses operating on our high streets—businesses that, in many cases, are anchor stores.
It is a very real concern that these stores become subject to increased rates. They may choose to relocate to out-of-town retail parks where rates are more favourable. This would exacerbate the very problem we are seeking to address—the decline of our high streets and the hollowing out of our town centres. We must ask ourselves what the impact would be on our communities if these anchor stores, which currently act as magnets for footfall, were to disappear from our high streets. Would we see a chain reaction where smaller businesses, already struggling under the pressure of rising costs and changing consumer habits, are left without customers and forced to close? How many small businesses would be driven to the brink if the larger retailers that currently support them were to move away, taking their foot traffic with them? These questions are not just theoretical; they are deeply practical and must be considered carefully if we are to protect the future of our high streets.
Amendments 11, 28 and 36 seek to exempt anchor stores from the broader measures in the Bill and offer a way forward that ensures that we do not punish those businesses that are essential for the economic vibrancies of our town centres. They are about striking the right balance. We must ensure that we support businesses that are critical to the future of our high streets and town centres. Exempting anchor stores from this measure would help to achieve this balance. I ask the Minister to consider whether the current proposals risk harming the very high streets that we all seek to protect. We cannot afford unintentionally to undermine the businesses that are central to our local economies. Exempting anchor stores is a sensible, practical step to ensure the long-term health of our high streets, and I urge the Government truly to reflect on this before moving forward. I beg to move.
Baroness Pinnock (LD)
My Lords, I thank the noble Baroness, Lady Scott of Bybrook, for this group of amendments which seeks to exempt so-called anchor stores from high streets.
We could do with a definition of an anchor store and, indeed, of a high street, but we will come to that in a later group. High streets vary enormously from small town high streets and market town high streets to larger town centres and city centres. When there is a new retail development in a town or city centre, the phrase “anchor store” often comes into play. It is very clear in the business sector that retail works better if there is one major store, which is a sun around which the satellites of smaller shops and businesses operate. This is the description that the noble Baroness, Lady Scott, provided. However, that is just for a group of retail businesses, often in a new situation—such as an out-of-town retail park, a new retail development within a larger town centre or an existing large business in a town centre, for example a Marks & Spencer or a John Lewis store that has a multitude of operations within it. That enables other businesses to exist and thrive from the footfall that the big name store attracts.
I agree with the noble Baroness, Lady Scott, about the importance of these so-called anchor stores, although I would like to see whether the Government have a definition that can be applied. I agree with her argument that smaller businesses develop and thrive as a result of the draw of a so-called anchor store and, equally, the argument that she makes that, because anchor stores are critical to the business environment for the totality of large, medium and small businesses—retail, leisure, hospitality or otherwise, within the sector—it is important to think about whether those often large retail businesses are exempt from the higher multiplier.
I am thinking of a local town high street where the Marks & Spencer closed and moved out some years ago. It was absolutely clear that that was the focus of shoppers going to that town. Once it went, it caused the closure of a whole section of shops in that town and very difficult situation for the businesses that were left. The town will require government money for regeneration to get back on its feet. That is what happens.
So it is important that the Government, in thinking about the Bill and the impact it will have on businesses, think about the consequences of what they are doing. In a previous group, I raised the consequences for public sector-funded businesses, but this is as important for the future health of our town centres. If you take out the key store around which others, like satellites, are drawn because its business sums no longer add up, the whole area will be on a downward spiral.
I will give the Committee an example from some figures that I remember, so they may be wrong. Take John Lewis, which is a big store. It knows that much of its business will move online. I think its business plan expects 60% of its business to move online. If we put an additional cost, as would happen under the large multiplier, on the remaining 40% of its business, I expect that one of the consequences would be that a greater proportion would move out of the high street to online to reduce those costs. That is not what this Government want to happen. They have argued for the importance of the health of our town centres for all sorts of reasons, not just to support small businesses but to support the community which goes there to meet and so on.
It is important that the Government think about the unintended consequences of this rough and ready Bill because it will potentially have very rough consequences on our high streets, particularly those which depend on a big store as the holder of the rest of the businesses around it. I look forward to what the Minister says, but I hope that he does not use “tough choices” and “fair and sustainable”.
Lord Thurlow (CB)
I will briefly add a few comments. I wholeheartedly support Amendment 11 from the noble Baroness, Lady Scott, in principle. The noble Baroness, Lady Pinnock, has clearly illustrated what happens to a town centre when the anchor departs and the economic health of the shopping environment dies.
The problem we have is that of definitions. When a comprehensive town centre development is designed by developers, it contains, without fail, something called an MSU—a major space unit. That is the anchor, the John Lewis or the Marks & Spencer. When that goes, the only possible replacement, generally speaking, is a supermarket.
If the supermarket becomes the anchor of the economic health of the high street, at the back of a shopping centre, filling the space of the department store that was there before, the supermarket really has to be described as an anchor. I do not disagree with the concept, but it makes the problem one of definitions and gets back to the question of use classes, which we will perhaps be able to speak about with the Bill team at another time.
I agree with the principle of this amendment, but I think it is more complicated. We need to get to the bottom of it, but it is one of definitions.
Lord Khan of Burnley (Lab)
My Lords, these amendments seek to change the Bill to remove anchor stores from the higher multiplier. I apologise for being repetitive, but as I explained in the debates on the previous three groups of amendments, we have taken a sector-agnostic approach to the higher multiplier and not excluded any sector or type of property. This is the fairest option.
We have also ensured that the Valuation Office Agency has published data on those properties currently falling within the threshold for the higher multiplier. This shows that the impact on high street shops is very limited. I will not repeat those numbers at this time but encourage noble Lords to look at that information.
Alongside noble Lords, we of course appreciate the role anchor stores can play in the high street, but it should be acknowledged that anchor stores are often part of large retail chains that will also have a number of properties with a rateable value of below £500,000. Where retail properties’ rateable value is below £500,000, they will benefit from the lower tax rates for qualifying retail, hospitality and leisure from April 2026.
The amendment would also be difficult to operationalise and would require the Government to define the meaning of an anchor store. It would be very difficult to define these stores in the way that the noble Baroness is thinking. There are anchor stores in almost every out-of-town shopping centre and retail park, and what is an anchor store beyond a large shop?
While I understand the concerns of the noble Baroness, I do not think it follows that we should exempt anchor stores from the higher multiplier, nor do I think that this can easily be done without, in effect, removing all shops. Some very difficult decisions have been made, and we need to ensure that the system is long-standing and continues in a fair manner. I hope, therefore, that the noble Baroness, Lady Scott of Bybrook, will withdraw the amendment.
Baroness Scott of Bybrook (Con)
My Lords, I thank the noble Baroness, Lady Pinnock, the noble Lord, Lord Thurlow, and all others who have mentioned this issue throughout the afternoon. There is an important role for anchor stores. To the definition, with the greatest respect to the noble Lord, I suggest that they should ask communities and their residents what would be an anchor store in their local town centre and ask the sector to discuss that as well. As a former leader of a council for many years, and knowing many council leaders, as I do, I know that they know exactly what an anchor store at any one time would be for the size and type of the high street they are trying not only to protect but to keep being a high street for any length of time. Many leaders of councils across this country have spent many hours working with the sector to get exactly that in order to make sure that they have a good thriving and surviving high street for their local communities.
As we have said, we all agree that these stores play a crucial role in the vitality of high streets and town centres. We know that they drive footfall, support local businesses and contribute significantly to the economic and social fabric of our communities. That is why it is important that we find a definition and a way through this. Without them, many of our high streets will struggle to survive, let alone thrive. I have spoken to the sector, and these businesses will leave the high street and go out of town where it is cheaper. Not only that, but they may even go out of business and, as we are seeing, go permanently online. That will not help our high streets.
As I have said, the changes in the Bill could inadvertently harm these vital businesses and place an undue burden on them, pushing them out of our high streets. The Bill follows several other damaging decisions that businesses are having to fund. This one at the end of it could be the straw that breaks the camel’s back. Not only will it likely leave anchor stores paying higher business rates; they will also be paying increased staff costs, as we talked about earlier.
These decisions will have a cost, and if the Government continue to make them, we are worried that there will be no businesses left in the high street to tax. I urge the Minister to carefully consider the concerns raised by many noble Lords today. We just want a fair and equitable business rates system—
Baroness Scott of Bybrook (Con)
And equitable. We must not overlook the specific need, as we have all said—across parties—to protect our high streets for our communities for the future. We believe that exempting anchor stores from these changes is a measured and practical way of safeguarding the future of our town centres. I hope to have further discussions with the Minister on this before Report but, at this point, I beg leave to withdraw my amendment.
Baroness Pinnock
(a) as shops, restaurants, cafes, drinking establishments, cinemas or live music venues,(b) for assembly and leisure, or(c) as hotels, guest and boarding premises or self-catering accommodation.”;”Member’s explanatory statement
This amendment is intended to probe what hereditaments will be included in the definition of retail, hospitality or leisure.
Baroness Pinnock (LD)
My Lords, Amendments 16, 34 and 42 in my name and that of my noble friend Lord Fox seek to provide a much-needed definition for retail, hospitality and leisure businesses, which is sadly missing from the Bill. We keep being told by the Minister that one will be provided, but here is one that he might like to use.
These three amendments propose that the hereditaments defined as retail, hospitality and leisure should be
“shops, restaurants, cafes, drinking establishments, cinemas or live music venues”,
and those used
“for assembly and leisure, or … as hotels, guest and boarding premises or self-catering accommodation”.
We believe that that probably covers the gamut of RHL hereditaments and hope that the Minister will agree that it is an inclusive list. We hope that he will accept it so that the Treasury does not have to define one.
We have to understand that it is really important to local businesses to have certainty about their costs. This aspect of the Bill has not been touched on yet today. I speak to businesses in my locality, and they are concerned about potential increases in their costs. They need to plan ahead—not just one year but a couple of years at least, and, for cafés or restaurants, even further to be able to plan business costs and make sure that they end the day on the right side of the red line.
It is not helpful to the business community that it is not clear what the definition will be. If, as some of us suspect, it is the same definition as was provided under the rate relief over Covid, then let us understand that. If it will exclude some businesses included in that rate relief, that needs to be clear as well. Time is of the essence here, because the Covid rate relief, as we have heard, is declining considerably and businesses need to know how that will impact their bottom line.
That is the purpose of the first three amendments in our names—to get some certainty so that businesses, particularly small businesses, which this element of the Bill focuses on, understand what additional costs are coming their way. We still do not know, unless the Minister tells us, the consequence of, on the one hand, reducing the Covid relief and, on the other, the business rate changes. That is important. A few thousand pounds here and there can make the difference for a small business between survival and closure, so it is important for this Committee and for businesses to understand.
Amendment 51 in my name and that of my noble friend Lord Fox is slightly different. It tries to put some definition around these fabled “high streets”. The Government have said that they wish to protect high streets and lower the burden of costs on them while increasing the costs for big distribution warehouses. With that I concur, but it is important that we understand what is meant by “high streets”.
In the National Planning Policy Framework, there is a requirement to define what a high street or, more appropriately, town centre should be. When local planning authorities produce their local plans for a strategic approach to planning in their area, they are required to put a boundary around their town centres, because they often have particular importance for grant funding, transport and the consequences of all sorts of operations.
So there is a way of defining a high street or a town centre that encompasses the so-called high street. By “high street”, I believe the Government mean the essential businesses in a town centre. There is an ability for local authorities to use the NPPF to provide that definition. The Government could then enable all businesses within the boundary of a town centre to have a reduced multiplier, which would enable a thriving and prosperous town centre. That would benefit not only those businesses that operate within the town centre but the community that they serve.
Lord Jamieson (Con)
My Lords, I will speak to the amendments in this group in the name of the noble Baroness, Lady Pinnock, all of which address the lack of detail provided by the Government on their intentions with this Bill.
Amendments 16, 34 and 42 probe what types of hereditaments will be included in the definition of retail, hospitality and leisure. I am inclined to assume that the definition will remain the same as that which we used to define the requirements for the retail, hospitality and leisure relief scheme, and these are indeed the criteria listed in the noble Baroness’s amendments.
These may be unnecessary amendments, given that eligibility for retail, hospitality and leisure relief is already set out in the Government’s guidance for the scheme. However, we discussed our concerns about the power of the Treasury to define this in an earlier group. Crucially, businesses that are already worried about this Government’s plans need certainty and to be able to plan for the future. The Minister said that they need certainty; would not putting a clear definition in the Bill be a good way of delivering that? I will listen with interest to the Minister’s response, as we are likely to return to this part of the Bill on Report.
Amendment 51 seeks to probe the intended application of the Bill in relation to the National Planning Policy Framework. I certainly understand the noble Baroness’s confusion because, in the Labour manifesto, the Government promised reform of the business rates system and explained that such reform would include a larger burden on online businesses that operate from out-of-town distribution warehouses. Contrary to those statements, the Bill will actually have negative consequences on the high street. The noble Baroness is right to question whether the Government intended the higher multiplier to affect the high street in the way it will or whether, despite knowing what the impact would be, they chose to proceed anyway. I look forward to the Minister’s response and hope that there will be further clarity from him on the application of the Bill.
Lord de Clifford (CB)
I rise quickly to support Amendments 16, 34 and 42 tabled by the noble Baroness, Lady Pinnock, and to reiterate my point about clarity for businesses. Businesses want to plan two or three years ahead but cannot. We have a limbo at the moment for about 18 months to two years, and this Bill leaves us in that position. I ask the Minister to go back to the Government and ask for some clarification—that is, some sorts of figures so that businesses can plan for the future.
Lord Khan of Burnley (Lab)
My Lords, I thank the noble Baroness, Lady Pinnock, and the noble Lord, Lord Fox, for their Amendments 16, 34, 42 and 51. I understand the intention of these amendments is to understand further, first, what hereditaments will be included in the definition of qualifying retail, hospitality and leisure properties; and, secondly, the intended application of the new multipliers to high streets.
The definition of qualifying retail, hospitality and leisure properties will be set out via secondary legislation later this year, as I repeated earlier. However, I can confirm that the Government’s intention is for this broadly to follow the definition that is used for the current RHL relief; I note that the noble Lord and the noble Baroness are familiar with this definition, as their amendment draws on the guidance published by the Government. When introduced from 2026-27, the new multipliers that this Bill makes provision for will apply to all relevant hereditaments, regardless of their geographical location.
It is the Government’s intention to introduce two lower RHL multipliers: one for RHL properties with a rateable value of between £51,000 and £499,999; and another one for RHL properties with a rateable value of below £51,000. All qualifying retail, hospitality and leisure properties will be eligible for these new multipliers. This approach will best ensure that support is targeted towards RHL businesses based on the high street while working within the existing business rates architecture. We are moving from a stopgap, ad hoc, year-to-year relief scheme to a permanent lower multiplier that provides greater certainty for business.
It is also the Government’s intention to introduce a higher multiplier for all properties with a rateable value of £500,000 and above—a point that I have made previously. Again, this will affect all properties that meet that criterion, regardless of their geographical location. It is the Government’s view that this is the fairest approach and that trying to restrict the application of the different multipliers based on geography would create unintended consequences and would likely drive perverse incentives.
Lord Fox (LD)
I thank the Minister for introducing the use of the relief definitions. If I have got this wrong, I am very happy for him to tell me so, but my understanding is that the bottom level of below £49,000, I think, were not paying business rates at all. Is that correct? Will they now be classified along with everyone else and pay business rates with the appropriate reduction put on to them, in which case they will go from paying no rates to some—albeit less than the full rate, as we would have seen it?
Lord Khan of Burnley (Lab)
Just to clarify, the noble Lord, Lord Fox, has got it wrong because the zero, as in no business rates, is for rateable values—£12,000 in particular—and it is then tapered, so the relief decreases as it goes to £15,000.
Lord Fox (LD)
Do they now come into the system or do they continue to have a zero rate under the proposals of this Bill?
Lord Khan of Burnley (Lab)
Just to clarify for noble Lords, there will be no change to small business rate relief—that is not changing—so they will still pay tax.
It is the Government’s view that this is the fairest approach and that trying to restrict the application of the different multipliers based on geography would create unintended consequences and would likely drive perverse incentives. It is also extremely difficult to draw a line around a town centre. I note that the noble Baroness, Lady Pinnock, made a suggestion around using the understanding of the term as per the National Planning Policy Framework, but that framework does not set a definition of a town centre. It should be noted that the framework suggests those centres identified in development plans, but this does not represent a requirement that all centres are identified. We also know that many areas do not have up-to-date development plans and that, therefore, centres that are identified may not reflect current realities.
Such an approach would essentially give local planning authorities the power to determine where multipliers should apply and could restrict their application from smaller retail centres that might be essential to particular neighbourhoods. Furthermore, it could result in the higher multiplier not being able to be applied to large warehouses used by online businesses or other properties with a rateable value of £500,000 or above if they are not located in a town centre, as these would fall outside the definition of a town centre. I do not think that is the noble Lords’ intention, but it is important to clarify that point. I hope that my remarks have helped to clarify the areas of interest and provided reassurance on the Government’s policy in this space. I respectfully ask the noble Baroness, Lady Pinnock, to withdraw her amendment.
Baroness Pinnock (LD)
I thank the Minister. I thank the noble Lords, Lord Jamieson and Lord de Clifford, for their supportive comments, as the Minister was not so helpful. Businesses require clarity and certainty. To tell us that secondary legislation will be needed to set out the definition of RHL means that clarity and certainty will be pushed further down the line. The Minister shakes his head, but I wrote down what he said: secondary legislation will set out the definitions. By definition, that will be after this Bill has gone through its processes.
Lord Khan of Burnley (Lab)
My Lords, in the very same sentence I said:
“However, I can confirm that the Government’s intention is for this to broadly follow the definition that is used for the current RHL”.
Baroness Pinnock (LD)
In which case, I apologise to the Minister. I must have missed that bit of his explanation. We have been saying right from the start that Covid relief would be the definition for RHL, and that is the clarity people need. I hope the Government will inform businesses that, if they currently get Covid relief, they will qualify under this Bill. Equally, we will be pushing the Government to expand that definition. It is not as inclusive as some of us think it should be if the aim is for small businesses to thrive or have reduced costs, as opposed to distribution warehouses and online retailers.
On the last amendment, I disagree with the Minister because the National Planning Policy Framework—which I have read—sets out what a town centre is. Local planning authorities have the responsibility to form a local plan. The Minister is right: far too many local planning authorities have failed in that responsibility. However, the Government have said that they expect local planning authorities to produce a local plan. In that case, all local planning authorities would produce a local plan in which they can define what is included within the boundaries of several town centres within their purview. That is really important because lots of issues follow from being within the purview of a town centre.
I hope that the Minister will perhaps go away and think with his officials about whether this could be used as a definition for businesses within the purview that will be set out in the local plan so that this Bill— the Government have stated that its aim is to help the so-called high street, which, as I have said, will be the town centre—will help businesses to thrive despite the growing competition that they face from online retailers, which, by the very nature of business rates, pay much less than those businesses do in town centres even after this multiplier is applied. With that plea to the Minister, I beg leave to withdraw the amendment.
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
My Lords, this will be the last group today.
Amendment 21
Baroness Scott of Bybrook
“(9D) In sub-paragraph (9B) the £500,000 threshold must be increased on 1 April each year by at least the CPI.(9E) The CPI is the Consumer Price Index percentage recorded by the Office for National Statistics for September of the financial year preceding the relevant year concerned.”Member’s explanatory statement
This amendment, along with others in the name of Baroness Scott of Bybrook, seeks to increase the £500,000 threshold with inflation to ensure businesses don’t get drawn into the higher rate.
Baroness Scott of Bybrook (Con)
My Lords, Amendments 21, 40 and 44 in this group seek to introduce a statutory index-linked uplift in the threshold for the higher multiplier in line with inflation. These specific amendments relate to the level of the threshold in future years, so I am grateful for this opportunity to have a brief and specific debate on the threshold.
We have already probed the Government over their arbitrary threshold of £500,000, but I hope that, in response to this group, the Minister will be able to explain the Government’s current plans for uprating the threshold in future. There are no measures in the Bill to prevent more businesses being caught by this threshold over time. We are told that it is not the Government’s intention for smaller high street businesses to be hit by the higher multiplier, but inflation and a fixed threshold mean that that will be an inevitable result of this policy. I remind the Committee at this point that, thanks to the Government’s Budget measures, inflation rose by 3% in the 12 months to January 2025, up from 2.5% in the 12 months to December 2024. As the hereditament valuations rise over time, more and more businesses will be paying higher business rates.
If the Minister feels that the CPI is not the correct index to tie this threshold to, we are open to discussions about that. Our goal here is to probe the Government’s willingness to explore increases in the thresholds going forward to protect small businesses that should never have been caught by the higher multiplier threshold from facing higher taxes by the back door. Can the Minister confirm that it is not the Government’s intention for smaller businesses to be hit by these higher taxes? If the Government do not intend to hit smaller businesses with higher taxes, can the Minister give us an undertaking to look at the threshold and consider including in this Bill a measure that would deliver either an index-linked uprating of the threshold or, as a minimum, a power for Ministers to uprate the threshold without having to bring primary legislation before the House again? We are generally cautious of new regulatory powers but, provided that a power was limited to uprating and excluded the possibility of lowering the threshold, that might be a way forward. I beg to move.
Lord Fox (LD)
My Lords, I think this might be the last group today; I would say that we have done very well to get this far. I shall speak to these four amendments. The first three make an assumption that the £500,000 threshold was right in the first place. Of course, that is really addressed by the fourth amendment, so I am going to speak to it. It is right that there should be some form of uprating, but I am more intrigued about how the figure of £500,000 was alighted on in the first place.
If we were looking at something that was broadly financially neutral, I do not know how we would know, because we do not know how the flexible upper rate will be applied, so we do not know how much money that will raise. We therefore do not know whether £500,000 was the right number to make it financially neutral. Was it chosen for a business reason? Are businesses of that size particular sorts of business that we need to factor in, in a different way, or was there some other sociological plan involved in choosing £500,000? My big question for the Minister is who chose the number. Was it DHCLG or the Treasury?
Lord Fox (LD)
Whatever it is called these days—they keep changing it, and I never normally address this particular crowd. Was it the Minister’s ministry or was it the Treasury? If it was the Treasury, I rather think we should have a Treasury Minister here to answer the question of why it was a £500,000 limit, because it seems to me that it is a very round, arbitrary number. It would have been more convincing had it been £550,000; it might have looked like some thought had gone into it. This looks like a dart-throwing exercise.
So can the Minister explain what was behind the number? Is it trying to balance the money raised? If so, how can you know when your top rate is a top rate and is not necessarily applied? If it is the nature of a business, what is it about the nature of the business? If it is from an analysis of every single £500,000 business, what criteria were used to make that analysis? In other words, where did it come from?
Lord Khan of Burnley (Lab)
My Lords, Amendments 21, 40 and 44 concern the rateable value threshold above which the higher multiplier may apply. This is set in the Bill at no less than £500,000, as we have heard repeatedly in contributions by noble Lords. The Bill allows the Government to set a higher threshold through regulations if they wish, but the amendments would require this threshold to be increased annually in line with CPI.
Alongside the amendments, the noble Baroness, Lady Scott of Bybrook, has given notice of her intention to oppose Clause 3 standing part of the Bill. It would therefore be appropriate at this point if I set out why Clause 3 should stand part.
The noble Baroness, Lady Scott of Bybrook, raises a reasonable question as to whether, and if so how, the £500,000 threshold should change over time and other noble Lords have also raised this point. Of course, we would expect that, over time, the value of properties and therefore their rateable values will increase as the economy grows. As these rateable values grow, the current threshold in the Bill of £500,000 will, relatively speaking, be smaller and more properties may be drawn into that category. That is the issue that the noble Baroness is probing with these amendments.
However, I do not think these amendments are the answer to that issue. First, and perhaps most importantly, rateable values will not increase annually in line with inflation or with any other measure of property value or the economy. Rateable values are set every three years at revaluations, and between those revaluations will not change other than for matters such as physical changes to the property.
The Government have set out that our intention for the 2026 rating lists is for the threshold for the higher multiplier to be set at a £500,000 rateable value. The Government consider that this will best ensure that sufficient revenue is raised to provide for a meaningful level of support for retail, hospitality and leisure properties, and will do so in an objectively equitable way.
The 2026 rating list will last for three years, and those rateable values will not increase over that period, other than if, as I have said before, the property is expanded or improved, for example. By extension, the 2029 revaluation will be the next logical moment to consider whether the £500,000 threshold remains the appropriate minimum for the new higher multiplier.
In approaching these considerations, the Government will need to examine how rateable values have changed at the revaluation but also what support is to be provided to retail, hospitality and leisure properties and, consequently, how much revenue is needed to be raised from the higher multiplier.
I hope the noble Baroness will appreciate that there are several factors the Government will need to consider and balance, beyond just the changes in rateable value. More broadly, as the noble Baroness will be aware, the Government keep all taxes under review, including rates and thresholds. As such, I can assure the Committee that in relation to the proposed amendment, the Government will, as a matter of course, actively consider whether the £500,000 threshold in the relevant regulations should be amended at the 2029 revaluation, as they approach that revaluation.
The noble Lord, Lord Fox, asked whether MHCLG or the Treasury decided. It was the Government who decided. As much as I love darts, it definitely was not a dart-throwing exercise.
I will now expand further on Clause 3 so that, I hope, noble Lords can agree that it should stand part of the Bill. We have discussed several amendments in relation to Clause 3 today, so I shall try to keep my remarks to the point and not go over previously covered ground too much.
Clause 3 is concerned with how we will determine to which hereditaments those multipliers should apply. It is split into three main parts, concerning occupied hereditaments in Clause 3(2), unoccupied hereditaments in Clause 3(3), and hereditaments on the central rating list in Clause 3(4). Properties on the central list are typically utility networks spanning many local authority areas, such as the gas, electricity and water networks. Each of these parts of Clause 3 are essentially identical, so to save the Committee from repetition, I will explain the provisions on occupied hereditaments in Clause 3(2) only.
The most important part of Clause 3(2) is the small amendment made by Clause 3(2)(a) to existing powers in the Local Government Finance Act 1988. Under those existing powers, the Treasury already has the ability to determine in regulations which multiplier applies to which property. Those powers, in respect of occupied properties, are in paragraph 10(9) and 10(10) of Schedule 4ZA to the 1988 Act. Clause 3(2)(a) amends that part of the 1988 Act to extend those powers to cover also the new additional multipliers. This means that the Treasury will be able to determine by regulations which properties pay on which multiplier.
As with Clause 1, we have included in Clause 3 safeguards as to how the Treasury may use these powers. These limit the higher multipliers to hereditaments with a rateable value of £500,000 or more and limit the lower multipliers to only qualifying retail, hospitality and leisure hereditaments.
Finally on Clause 3, the existing powers for determining the application of the multiplier allow the Treasury to do that by reference to a list of factors found in paragraph 10(10) of Schedule 4ZA to the 1988 Act. This is a non-exhaustive list that includes factors such as its rateable value, location or use. Clause 3(2)(c) expressly gives the Treasury the scope also to determine the application of the multipliers by reference to the description which the Valuation Office Agency puts in the rating list.
I hope that this further information provides the reassurance and clarity needed for the noble Baroness to withdraw her amendment and agree that Clause 3 should stand part of the Bill.
Baroness Scott of Bybrook (Con)
My Lords, I thank the noble Lord for speaking in this debate. He actually brought today’s debate right back to the beginning: where did the £500,000 figure come from? If we could get that from the Minister, it would be very useful for our debates as we enter Report.
The answer to whether there will be any further uplifts, is, I understand, the revaluation, which is in three years, but three years could go on. I go back to the difficulty that this makes for businesses to plan when they know they are going to hit that cliff edge of £500,000 and that their business rates are going to go up considerably. I go back to the example of my noble friend Lord Jamieson, who gave the example of the health centre that wants to build an extension, which could possibly move it across; the health centre would need to think very seriously about doing that extension, and this will happen across all investment in different types of businesses, which I think is worrying.
This is something that we could resolve together by a relatively straightforward amendment to the Bill, and I hope that the Government will do the right thing in protecting these smaller businesses from being hit with higher business rates inappropriately in the future. But, at this point, I beg leave to withdraw my amendment.
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
My Lords, well done—I think we have finished just before the vote.