Non-Domestic Rating (Multipliers and Private Schools) Bill

Earl of Lytton Excerpts

Committee stage
Monday 24th February 2025 Grand Committee

[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.

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[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.

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Cohesion is very quickly lost, and the retail offer withers. Where do the shoppers go when the retail offer withers? They go to the retail parks on the edge of town. Bus stops are provided there, too. Tempting fast-food offers are now provided on most retail parks. There is plenty of parking, but it is absolutely useless for community cohesion. The mums with their prams, the elderly residents taking exercise in the high street, meeting their friends, stopping to have coffee: that withers along with the high street. The high street mix of goods and services disappears. Estate agents, hairdressers, nail bars and massage parlours replace them, leaving a completely empty local offer. This natural balance of retail, which hinges on the anchor, can be judged only by the local authority, not by the Treasury.

[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.

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Moved by

[The Earl of Lytton]

5: Clause 3, page 3, line 26, after “hereditament” insert “other than a qualifying retail, hospitality or leisure hereditament”
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.

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[Lord Khan of Burnley (Lab)]

Yes, that is right.

[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.

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[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.

Amendment 5 withdrawn.