Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Baroness Blake of Leeds Excerpts

Report stage
Wednesday 1st December 2021 Lords Chamber

[Baroness Pinnock (LD)]

My Lords, I draw the attention of the House to my relevant interests as set out in the register, as a vice-president of the Local Government Association and as a member of Kirklees Council. I am speaking on Amendment 1 in my name and that of my noble friend Lord Fox, and on Amendment 2 in the name of the noble Baroness, Lady Blake.

I and my colleagues support the principle of the proposals—as I have said at every occasion—in relation to the non-domestic rates element of the Bill. Businesses have faced challenging circumstances due to Covid, and these challenges remain. Understandably, businesses have reviewed their position, and some have decided to use the VOA check, challenge, appeal process to seek a reduction in their business rates. The VOA publishes quarterly statistics of the numbers of businesses using the process to appeal their rates. The statistics do indeed show a spike in both the check and challenge elements of the process. For example, there were around 80,000 checks requested in the March to June quarter of 2020 —this spike compares with an average of around 10,000. However, 70,000 of these checks were quickly resolved. There were around 22,000 challenges in the next quarter, but fewer than half seem to have been resolved. There is clearly a significant increase in the volume of claims being received by the VOA. However, the value of these claims, including the value of successful claims, is not revealed.

Throughout the course of the Bill, I have been concerned to establish the evidence base for its proposals, including, importantly, the total value of successful and potentially successful claims which would result in a loss of business rates income. A loss in business rates income has a direct and adverse impact on local government finances, which have already been squeezed dry. Responding in Committee to similar concerns that I raised, the Minister was unable to give a categoric assurance that there would be no loss of income for local government. The Minister stated then that

“central government will meet 75% of the costs of irrecoverable losses in business rates income for 2020-21.”—[Official Report, 10/11/21; col. GC 522.]

Can the Minister confirm that local government will not be paying for any losses in business rates due to Covid?

Further, it is widely accepted that the existing system of business rates is ineffective and woefully inadequate in ensuring that retail businesses that use online ordering are paying at the same rate as those on traditional high streets that the Government often profess to want to support but lamentably fail to.

Amendment 2, in the name of the noble Baroness, Lady Blake, seeks a review of the impact of the changes and of whether business rates are fit for purpose. Any government review with recommendations to try to fix this broken system is welcome, and we support the sentiments in this amendment. I beg to move.

[Baroness Blake of Leeds (Lab)]

My Lords, I declare my interests, particularly as a vice-president of the LGA. I will speak to Amendment 2, in my name, and to Amendment 1, as introduced by the noble Baroness, Lady Pinnock.

As we begin Report, I remind the House that we are broadly supportive of the Bill and recognise that action needs to be taken swiftly. The measure in the Bill to rule out Covid-19-related material change of circumstances business rates appeals—that is quite a mouthful—coupled with the announcement of £1.5 billion in funding to provide additional targeted support to those businesses that have not already received rates relief, provides some certainty for local government.

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Moved by

[Baroness Blake of Leeds]

3: After Clause 1, insert the following new Clause—
“Advice to local authorities
Before 1 March 2022, the Secretary of State must publish a statement containing advice to local authorities on the implementation of this Act.”Member’s explanatory statement
This amendment would ensure that the Secretary of State publishes advice to local authorities on the implementation of this Act.

[Baroness Blake of Leeds (Lab)]

In this group we also have Amendments 7 and 8, in the name of the noble Baroness, Lady Pinnock.

I move this amendment to seek confirmation

“that the Secretary of State publishes advice to local authorities on the implementation of this Act.”

Clearly, there has been some movement on this issue; there was widespread concern about this Act in Committee. From my experience, this message has been repeated not only in this area but throughout the whole pandemic. Given that local authorities were tasked with many responsibilities in helping businesses with the financial packages from government, which were welcome, it is important that whoever is in government has the full respect for local government that it needs and deserves. Timely, appropriate and full information is of paramount importance.

I am sure that I do not need to remind the House that local authorities face a dire situation, particularly regarding their finances. Many of them are about to publish their budget, which they will have to deliver in the early months of next year. The timing of this Bill brings into focus why local authorities are asking for clarity, and the sense of urgency that is being expressed.

We know that, since 2010, under the policy of austerity, Conservative Governments have variously come together to cut £15 billion from central government funding to local authorities. According to the Local Government Association, councils in England will face a funding gap of more than £5 billion by 2024 just to maintain services at their current levels. That is why we must ensure that they get the best advice from government on the implementation of this Bill. If we could have real clarification from the Minister on what advice they will receive and when, we would be grateful.

On the £1.5 billion in the funding announcement, I remember my noble friend Lord Hunt saying in Committee that there is a problem in that the guidance to local authorities on the distribution of money is still awaited. Many businesses do not know whether they will qualify for funding given that, as I understand it, the criteria have not yet been published. My noble friend was particularly concerned that whole areas have been missed out in the proceedings.

In Committee, the Minister stated:

“The funding will be available as soon as local authorities have established their own local release schemes; the Government will support them to do this as quickly as possible, including through new burdens funding.”—[Official Report, 10/11/21; col. GC 522.]


I would be grateful if the Minister could provide an update on how that work is going, and give a clear explanation of how the rationale running throughout this is being used to inform how decisions are made and how fairness and transparency will be assured. I beg to move.

[Baroness Pinnock (LD)]

My Lords, Amendments 7 and 8 in my name pursue an issue I raised both at Second Reading and in Committee regarding the complete mystery surrounding the £1.5 billion of taxpayers’ money that the Government propose to use as recompense for businesses in removing their rights to appeal their business rates.

This is all very unsatisfactory. The Bill is in its final stages and we do not know, first, the value of the real and estimated claims being made by businesses via material changes of circumstances based on the impact of Covid. The Minister may well claim that there is no information regarding the value of estimated claims, yet that is precisely what the Bill seeks to do. Secondly, we do not know at all whether £1.5 billion will in any way be sufficient to adequately and fairly compensate business for the removal of lawful claims made to the VOA.

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[Lord Greenhalgh (Con)]

My Lords, I will do my very best. I start by saying that local authorities are protected by what is known as the local tax income guarantee; I know the noble Baroness, Lady Pinnock, knows about that. Three critical questions have been raised, and I will take time in answering them to reassure noble Lords that this has been well thought through.

First, there is a false equivalence between the £1.5 billion and the material change in circumstances. We do not see the £1.5 billion as a like-for-like compensation for Covid-related MCC claims. The statistics show that it would have seen reductions applied indiscriminately to properties whether or not their occupiers needed support. The £1.5 billion relief we are introducing is not—and should not be—designed to mimic or replace the MCCs that were submitted. It is better than that: it is focused on those who submitted MCCs who genuinely needed support and may have had to wait years. They will be able to access it more quickly because the approach is more targeted, and industries that have received quite considerable support are excluded from that amount. That is why we are taking this important approach.

I think the critical question that the noble Baronesses, Lady Blake and Lady Pinnock, asked is how the £1.5 billion will be distributed. I have to say that I have taken quite a long time to understand that myself; I put that right on the table. I have had some help from the former chief economist of the Bank of England, Andy Haldane, and I have had meetings with colleagues and Ministers in the Treasury about this. I think I broadly understand it. The marker that will be used at the national level is the ONS data around the gross value added reduction for those industries that have not had support. That is very robust information at the national level, but unfortunately we do not have very good data at the regional level for the last two years. So we will use the data we have at the local level around industries, because we know, broadly speaking, which businesses are at the local council level. Therefore, it is not something that is going to be gained. There is a clear proxy metric in GVA with the good data we have at the local level. I am satisfied that this is the best we can do in these circumstances and a sensible way in which to divide the cake.

The last question is around the timing of the guidance and implementation. I have spoken of the benefits of using locally administered business rates relief, rather than the appeals system, to funnel support where it is needed. One of these is pace, and since Parliament is agreed on the principle of the Government’s approach, we have a responsibility to avoid unnecessary delay. We need to move, and that is one of the real benefits of this course of action. The best course of action is to speed the Bill through to Royal Assent. On that basis, I hope noble Lords will not press their amendments.

[Baroness Blake of Leeds (Lab)]

My Lords, I thank the Minister for taking our concerns very seriously and for going away and having conversations with some very senior people. I am sure I speak for the noble Lords on the Liberal Democrat Benches when I say that we appreciate that. In Committee this concern was repeated from whichever Bench someone was speaking from. This is a very real concern, so I sincerely thank the Minister.

The question that will remain, of course, is how this is maintained and monitored and how we make sure that there will be recourse to additional funds if the £1.5 billion is not adequate. I am not sure that I have quite got that security of knowledge.

[Lord Greenhalgh (Con)]

The Government always keep these matters under review. We recognise the importance of business rates in providing the financial stability and underpinning for local councils, and I can make that commitment, as with all government policy.

[Baroness Blake of Leeds (Lab)]

With those reassurances, I beg leave to withdraw my amendment.

Amendment 3 withdrawn.

Moved by

[Baroness Blake of Leeds]

4: After Clause 3, insert the following new Clause—
“Insolvency Service finances and resources
(1) Before 1 March 2022, the Secretary of State must make a statement on the impact of this Act on the financial situation of the Insolvency Service. (2) The statement must include an assessment as to whether the Insolvency Service is sufficiently resourced to meet its obligations under this Act.”Member’s explanatory statement
This amendment would place an obligation on the Secretary of State to make a statement on the impact of this Act on the financial situation of the Insolvency Service and whether the Insolvency Service is sufficiently resourced to meet its obligations under this Act.

[Baroness Blake of Leeds (Lab)]

This amendment relates to part of the situation discussed in Committee: that this a hybrid Bill which has caused some conversation and comment over its different stages.

In moving Amendment 4 in my name, I will also reference Amendments 5 and 6. Amendment 4 would place an obligation on the Secretary of State to

“make a statement on the impact of this Act on the financial situation of the Insolvency Service”

and

“whether the Insolvency Service is sufficiently resourced to meet its obligations under this Act.”

As we know, the Bill removes the necessity for the Insolvency Service to apply to court to have dissolved companies restored before investigating said companies’ directors. In doing so, it makes it quicker and cheaper for the Insolvency Service to investigate the directors of dissolved companies.

Her Majesty’s Opposition are pleased at the closing of a legal loophole that for too long has allowed unscrupulous company directors to evade responsibility for their financial decisions. However, we remain concerned about whether the Insolvency Service has enough resources to carry out this extra work. We understand the concern caused by the behaviour of some directors in receipt of, for example, bounce-back loans and how the dissolution process might be being used inappropriately to shed liabilities. I should like to ask the Minister: do we have an assessment of the scale of the problem this is causing?

The Bill makes no mention of further funding for the Insolvency Service. Given that the Bill means that the service will be carrying out additional investigations, this is worrying and risks overstretching it. Can the Minister confirm that the service will be given the adequate funding to deal with this workload and ensure that all necessary investigations are carried out to a good standard? If the Minister argues against such a statement, as requested by Amendment 4, will he explain clearly how adequate resourcing for the service for these new powers will be included in its annual report? I beg to move.

[Lord Fox (LD)]

My Lords, I rise to speak to Amendments 5 and 6 in my name and that of the noble Lord, Lord Leigh of Hurley.

Amendment 5 seeks to add a new clause that would require the Secretary of State to report on the resources and the powers available to both the Secretary of State and the Insolvency Service in relation to the Bill. It covers similar territory to the amendment of the noble Baroness, Lady Blake. Despite the Minister’s comments in Committee that resources are always available for cases in the public interest, members of the insolvency and restructuring profession report that they often see cases involving significant breaches by directors that are not investigated and acted on. This would suggest that the Insolvency Service is currently resource-constrained.

That view is supported by looking at figures on the disqualification of directors of insolvent companies by the Insolvency Service. These show a roughly flat line of disqualifications made by the service over a number of years—a constant rate of disqualification, irrespective of economic conditions, trends or fluctuations in the number of corporate insolvencies. Again, that suggests a resourcing issue for the service.

That situation could get worse without a commitment to fund the additional cases that the Bill will create. We have therefore tabled our Amendment 5, which would require the Government to report six months after the Bill has been passed on whether the appropriate resources were available to undertake the additional investigations required as a result of the legislation.

I thank the Minister, who met me and the noble Lord, Lord Leigh, to discuss these amendments—I think very productively. It is clear that the Minister and the Insolvency Service grasp the point that the more resources that there are, the better the return, or likely return, to the taxpayer. We are looking for something from the Minister that indicates that Her Majesty’s Treasury shares this understanding. We of course do not want to upset delicate negotiations that may now be under way between the Minister’s department and the Treasury, but a clear indication that the resource issue is in hand would help negate the need for this amendment.

It would also be helpful if the Minister were able to comment on the nature of the cases that this legislation will enable. Our understanding is that the Bill gives the Insolvency Service the power to pursue recompense from the former directors of dissolved companies and that this can be done via compensation orders without the cost of reinstating the companies in question. The key issue for clarification is which creditors may benefit from these future compensation orders. Can he confirm that future beneficiaries will include all other creditors in addition to Her Majesty’s Treasury? The Minister has just nodded. Can he confirm that the Insolvency Service will include the plights of those other creditors in its calculation of the public interest when it decides which cases to pursue?

The second amendment, Amendment 6, would also add another clause. This time, it creates a requirement on the Secretary of State to report on the impact of the legislation on the investigations into the conduct of directors of dissolved companies. The principal purpose of this amendment is to weigh the success of the legislation by measuring and reporting its ability to claw back money from directors of dissolved companies. We know that the Insolvency Service already has a duty to report annually. However, at the moment, our reading is that the metric we propose here is not explicitly included in the list of requirements on which to report. Again, following discussions with the Minister, it seems reasonable for this “cash-back” criterion to be added to the Insolvency Service’s annual report agenda. We hope that his response to this amendment will do just that, rather than requiring primary legislation. I trust that he is able to make those undertakings.

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[Lord Callanan (Con)]

Yes, it is my understanding that the Bill, if passed, will enable compensation to be pursued, and there is no need for the restoration of companies to the register for that to take place.

[Baroness Blake of Leeds (Lab)]

I start by thanking the Minister for a very full response. Sometimes when I get a very full response, I wonder whether it is an attempt to overload the system, but actually it was very technical. I also thank him—I think on behalf of us all—for taking time to bring his officials together to talk us through it.

We established in Committee that the Bill does not have the capacity to deal with some of the serious concerns raised in our discussions. We will need to revisit some of the worst excesses and infringements of current legislation. Some of the personal testimonies to the levels of fraud and the fact that some directors were re-emerging and getting away with some unspeakable behaviour is still of huge concern to us all.

On reporting, would it be possible to have a conversation on how we can pull out the relevant information from the various reports to which the Minister referred? With the best will in the world, we will not all be able to sit down to go through a whole set of annual accounts. With the particular experience with Covid and the extent of concern about it, there is a real need for transparency. I hope that we can pick this up and take it forward.

My concern about resourcing is still very live, and I hope that after the reassurance on the spending review and the need to focus on this, the debate in this Chamber will help to inform the decisions that are made. Noble Lords will have heard several in-depth media reports on the concern about the levels of fraud that have been perpetrated over the past 18 months, and I think there is a lot more to come to light.

I thank the Minister for his reassurances, and we will keep scrutinising progress in this important area. I look forward to opportunities—perhaps through further legislation—to deal with some of the real problems that continue.

Amendment 4 withdrawn.