Enterprise Bill [HL]

Earl of Lytton Excerpts

Monday 12th October 2015 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I, too, feel that there is much to commend in the principles behind the Bill and the reasons for introducing it. I particularly welcome the intentions towards small business and the general move towards proportionate regulation, no more so than in the business of the insurance payment provisions. However, in the time available it is necessary for me to focus on just two areas. The first is in Part 2—the proposal to bring the Equality and Human Rights Commission within the scope of the business impact target. I support the views of the commission expressed in its excellent briefing paper when it questions the reasons for that. It is not, after all, a regulatory body, but sets the framework for those bodies that are. First, as the briefing says, the proposals here could fetter the commission’s work. Secondly, they could impair its international status. That requires some explaining from the Minister. I pay tribute to the noble Baroness, Lady O’Neill of Bengarve. Had she been here at the beginning of the debate, she would doubtless have given chapter and verse much more eloquently than I am able to, but I press on.

My second area of interest is in Part 6 of the Bill. I declare my professional and other interests, not least as a payer of non-domestic rates. Back in 1975, I was an employee of the Board of Inland Revenue Valuation Office, so I come to the situation of non-domestic rating with some background knowledge. However, since that time, a once cheap and effective property tax was subsequently deemed unfair by the Thatcher Government, the residential part then became the community charge—of which probably the less said the better—and was subsequently changed again to the council tax, about which we have heard a lot recently due to the outdated nature of valuation bands. I will return to the question of things being out of date presently.

Business rates remained pretty much as they were, but ever more was demanded in terms of the product from that source of taxation. The year-on-year inflation-proofed increase through the national non-domestic multiplier, which is the figure applied to the rateable value to give tax due, remains the only certainty—a little like death and taxes. I have mentioned to the House before that one of my own business tenants, occupying about a thousand square feet of converted offices, pays three or four times in business rates what a residential occupier pays in council tax for the equivalent space, and for that he does not even get his dustbin emptied.

We now have about the highest annual business space tax anywhere in Europe, charged at nearly 50% of an assessment of rental value last fixed by reference to the market peak of 2008. The revaluation that would have come into force this year, based on what would have been the antecedent year of 2013, might have evened things up a bit, but the last Government deferred it. Other safeguards have been eroded too, such as those reflecting an uneconomic state of repair, the empty rate concession, access to adjudication within a reasonable timeframe, anomalies such as the relatively low level of rateable value on some hugely accessible retail superstores and, conversely, the way in which expenditure on costly but unremunerative environmental upgrades to premises such as steel works—adding to the rateable value, if you please—persist. The increased procedural requirements of the valuation tribunal for England now inevitably mean getting expert advice, so the costs of access to justice have risen.

There has been an inexorable move to shift the onus for substantiating the case on to the appellant ratepayer when in fact the Valuation Office Agency is the prime mover in setting the assessment in the first place. Businesses conclude that they are being treated unfairly, which is not least reflected in some 300,000 outstanding rating appeals of which admittedly maybe only a quarter will be truly justifiable. That is still a large number. The Valuation Office Agency staff are devoted mainly to dealing with the 2017 revaluation—the one that would have happened this year that was deferred—and do not have the resources to deal with the backlog. Meanwhile, the appellant businesses continue to pay the full amount until the reduced assessment is determined. All this is a blot on the enterprise landscape.

There is growing evidence, also, that standards within the Valuation Office Agency have been slipping for some time. I refer specifically to its rating functions: I make no comment on its other activities. I have been told of numerous cases where information that it offered about comparable property transactions—even in cases before the valuation tribunal and the Lands Chamber—has been misleading or inaccurate, never mind the badly prepared cases leading to unnecessary costs. I have experience of the valuation office claiming that it had “robust rental evidence” that turned out to be based on financial deals between lenders and borrowers in which the rent was governed by the repayment terms and was nothing to do with an arm’s-length transaction at all.

In the UK, property professionals share a lot of information and there is huge transparency, which greatly assists market fluidity. We should never forget that. In the rating context, the Valuation Office Agency is entitled to demand information on rents and, following revaluation, it has for some years posted details of every rating valuation and its breakdown on its website. The noble Lord, Lord Cope, commented earlier on some of the things that I will touch on. However, the agency does not always know the precise circumstances of any particular rental deal and, due to variables, most valuations produce a range of values rather than a precise figure. Nevertheless, it is an enormously advantageous position and indeed one of great trust. The property market is, after all, based on trust.

The professional bodies, particularly the Royal Institution of Chartered Surveyors and the Institute of Revenues Rating and Valuation, both of which I am a member of, make mandatory practice statements incumbent on surveyors acting as expert witnesses or advocates. These mirror the requirements of Rule 35 of the Civil Procedure Rules, which is the Ministry of Justice instruction to experts giving evidence. But these need to be observed by all, not just by those who are outside. Given all this, one would suppose that in responding to a business that has started the appeal process ultimately leading to appeal, the valuation office would be happy to discuss the basis of the valuation underlying a property tax at an early stage. However, I am informed that there has been an increasing reluctance by the agency to divulge anything until the matter is literally listed before the valuation tribunal. That is merely adding to the problem and the likelihood of sustained appeals.

The agency has long cited the confidentiality of data under the Commissioners for Revenue and Customs Act 2005, which is what the noble Lord, Lord Cope, referred to. But here we are concerned with evidence that it is bound to produce in any event at some stage in the context of an appeal. By the time an appeal gets to be processed, the information is likely to be several years old so I question how valid this protection of sources really is. I am also told that every time the agency has advanced such a premise in the Lands Chamber, it has been overruled. A legal opinion has been sent to me by Mr Holgate—now the honourable Mr Justice Holgate—which I will forward to the Minister, which gives a very different perspective on this point of controlled confidentiality. Furthermore, the whole thing is an untested assertion that rental information actually falls within the 2005 Act.

Across the rating valuation industry and business ratepayers, there is consensus that things have to change. However, it does not appear that the Government have been listening. From what I have seen, the business and professional interests are no more in favour of the proposals before us than they were a year or two ago when the Government stepped back from implementing them. That pause for reflection gave people some hope, but unfortunately that has not been demonstrated within the terms of this Bill. To say that Clause 22 is unwelcome is an understatement. Admittedly, it facilitates the sharing of revenue information with certain other bodies, but it also makes clear what it does not permit—in this case the sharing of information with the ratepayer and his professional valuer. This is an impediment to progress. I also have to point to the somewhat disingenuous manner in which—it is thought by the private sector—a department of state has gone about this whole process. That is regrettable. I also understand that this failure to share information according to Clause 22 would adversely affect business in improvement district schemes.

My questions to the Minister are these: how will Clause 22 be used in practice? Secondly, will its use extend to denying access to the evidential basis of an assessment in the valuation tribunal proceedings or in the higher courts? I think we should know that.

I now turn to Clause 23. Here it is proposed to insert a new subsection (4A)(c) into Section 55 of the Local Government Act 1988. Provision is made to bring in a power for the valuation office to impose financial sanctions on those who in its opinion provide false information. However, as I have pointed out, the private sector is far from the only manipulator of facts or the sole source of misinformation that might be described as being provided “knowingly, recklessly or carelessly”, to use the wording from the Bill. So the idea that the valuation office in its present state should be judge and jury in its own cause does not come naturally. What defence is available to those who might be so accused, and to whom might they have an independent right of appeal?

Noting that this clause would also introduce the facility of making a charge for an appeal prompts me to point out that the root cause of all this is successive Governments underresourcing this overworked tax and its administration. That is the core of the matter. If the Government just made it easier for ratepayers to check the basis of assessments from day one, most of the appeals would evaporate and huge costs would be saved. Will the Minister, even now, reconsider this?

I appreciate that the Local Government Association—I am an LGA vice-president—is in favour of this part of the Bill. I would be too if the current standards within the valuation office or its agents were the same as those demanded from others. I acknowledge the severe problems for billing authorities, but short-changing businesses on matters of fair treatment is not the way forward. Is this fair and just governance for people and businesses or is it protectionism for state institutions that lack a decent property tax? It looks to me rather like the latter.

I ask the Minister to look again at this part of the Bill and to cross-examine her officials very closely as to the background to what is proposed. For my part, I will forward to her and place in the Library a copy of a very succinct background paper I received from Mr Jerry Schurder, head of rating at surveyors Gerald Eve, with his full permission. The wider reform of business rates clearly lies outside the Bill, but I finally say this: if a cost-effective commercial property taxation system is what the Government are looking for, there are many eminent persons and bodies who would be more than willing to help. For my part, I will be returning to this subject as the Bill progresses.