Commercial Rent (Coronavirus) Bill

Earl of Lytton Excerpts

Committee stage
Thursday 10th February 2022 Grand Committee

[The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)]

My Lords, it is a pleasure to debate this important Bill in Grand Committee. I would first like to speak to a group of technical amendments tabled in my name, starting with Amendment 1 to Clause 4. This clause is vital to the Bill. It sets out what is meant by a business being “adversely affected by coronavirus”, with certain rent debts under such businesses’ tenancies being in scope for arbitration. Essentially, businesses or premises that were required by regulations to close during a specified period meet the test. Subsection (3) provides important clarity that a requirement to close at particular times is a closure requirement. Amendment 1 ensures that this provision applies in relation to closure of either premises or businesses, or parts of premises or businesses. I am sure noble Lords will agree that this minor amendment produces important clarification.

Turning to Amendment 4, arbitration under the Bill will provide a legally binding solution to unpaid commercial rent from the pandemic. This is important to give certainty and enable parties to return to normal contractual relations. If a tenant is awarded relief, such as a reduction in the protected rent they must pay, they should not have liability for the rest of the original debt. If a guarantor or former tenant ultimately pays the protected rent following an arbitral award, they should be required to pay only the sum required by the award. This should be the case whether, technically, a guarantee or an indemnity has been provided. Amendment 4 expressly sets out those effects of an award. This is intended to give clarity, as requested in a comment in written evidence in the other place. I am grateful to all those who took the time to give their feedback on the technicalities of the Bill. I am pleased to propose this additional clarity through Amendment 4.

Finally, I shall address Amendments 11 and 12. Schedule 2 contains a provision specifying that the Bill’s moratorium and related provisions on debt claims apply both to tenants and anyone who guarantees the tenant’s obligation. I am sure noble Lords will agree that this is important to ensure that the tenant has a genuine opportunity to access arbitration. Amendment 11 ensures that this provision’s protection applies to former tenants who may be liable for unpaid rent under a business tenancy, whether or not they have entered into an authorised guarantee agreement. Amendment 11 also clarifies that the provision applies whether, technically, a guarantee or indemnity has been provided. This amendment addresses a helpful comment made in written evidence in the other place.

Amendment 12 has the same effect as Amendment 11, but applies to Schedule 3’s moratorium and related provisions on winding-up petitions, bankruptcy orders and petitions.

I hope noble Lords will agree that these technical amendments provide useful clarity. I commend them to the Committee and I beg to move.

[The Earl of Lytton (CB)]

My Lords, far be it from me to delay any part of this important Bill, but I would like to be clear about the Minister’s insertion of “businesses or premises”. There does not necessarily seem to be a direct alignment between the two terms. For instance, is the closure of the business inescapably the product of a prohibition, as opposed to something that is advisory? I refer back to the great debate over whether something was guidance or mandatory. It seems to me that we could be looking at businesses with subsidiary operations and so on. If we are not careful, something that affects one part of a business but not the particular part we are talking about, namely the rent on particular premises, would not necessarily align. I would be grateful if the Minister could clarify what is intended there.

[Lord Fox (LD)]

My Lords, fools rush in where angels fear to tread—I shall try to speak briefly. I welcome the fact that the Minister has been flexible and responded to points raised in the other House. Government Amendment 4 is a really good thing, but I have the same question: is this guidance or a mandatory process for the arbitrators? My understanding is that, if a tenant is able to reach a settlement through this process, that tenant no longer carries the stain of the unpaid element of the arbitration process. That therefore means that this would not stand against their credit rating and I wonder whether the Government have considered how this might not filter through into the credit rating system. As I am sure the Minister knows, the credit rating system tends to make life very difficult if you get on the wrong side of it. Some clarity on that would be really helpful.

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[The Earl of Lytton (CB)]

My Lords, I shall make a few general comments about this group, which I certainly relate to. The Minister will doubtless have seen the item I sent in the past day or so from the Property Litigation Association, which I copied to a number of other noble Lords, about its concerns over the geometry of the arbitration process. With regard to the number of arbitrations, a matter raised by the noble Baroness, Lady Blake, and the noble Lord, Lord Fox, the final quantum of those willing to participate will not be known until the Bill and any regulations have been finalised, so willingness to participate may well depend on what is set out in them, what happens about any caps and proportionality relating to costs in the arbitration.

On the costs in the arbitration, my limited experience suggests that the process is capable of being gamed with bad behaviours referred to in an email I had from the property industry and brinkmanship as a predetermined tactic. Given that arbitration is not an inherently cheap process in such circumstances, I wonder what safeguards there are against, for instance, a bully-boy multiple having a go at a series of small landlords, a not unheard of situation. Unfortunately, the British Property Federation, which represents larger landlords, does not have data on what the impact is. I will be very interested to know whether there is any data.

I have concerns about arbitrator discretion. As I understand it, under the provisions of Arbitration Act 1996 the parameters of the arbitrator’s decision-making function are that he has to decide on one or other of the two cases before him. He is not in an inquisitorial position to try to fillet out bits of one and insert them in bits of the other, so when it is a question of what interest rate will be applied, it will be a matter of what is presented to him or her as arbitrator. If there is to be some change in this non-inquisitorial function of arbitrators—I am not suggesting that there could or should be—I can see that, if we are talking about the interests of justice rather than the much vaunted justice of Solomon, we might wish to review what is happening.

On the question of arbitration awards, again, my understanding is that these are normally private, not public, occasions. To the extent that it is proposed that the outcomes of those should be relaxed, I should like to know what revised terms, guidance or direction will follow. That might well have an impact—going back to the first point I made—on those who are already trained arbitrators who might wish to participate in this scheme and may regard the matter as a sufficiently aberrant novelty not to want to participate. I see this matter as a somewhat circular approach and would very much like clarification because I want the Bill to work in practice.

[Lord Fox (LD)]

I hope it is order for me to ask if the noble Lord agrees with me that the so-called bully-boy tenants that the Minister described are going about their bullying within the current system? How much more does this system facilitate their ability to bully or otherwise than the current system, given that we have seen high-street multiples hold their landlords to ransom without this legislation? Why would this legislation make it any easier for them to do that?

[The Earl of Lytton (CB)]

My Lords, the noble Lord asked a pertinent question and the short answer goes back to my earlier intervention. The impact on business and on premises are two separate things. Those are being coalesced into what has happened in terms of non-payment of rent and a build-up of arrears. All I would say is that it is just another factor that adds into a range of factors that he rightly points out are already in play. It adds to the complexity.

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I hope that I have reassured noble Lords on the Bill’s measures regarding interest on protected rent debt. I do not believe that further intervention is necessary and therefore I ask the noble Lord, Lord Fox, not to move his amendment.

[The Earl of Lytton (CB)]

Perhaps I may pick up on a couple of points that the Minister made. It appears that he envisages that the arbitrator will have to use quite a lot of his own discretion. In my way of thinking, that does not fall under the Arbitration Act 1996 and is, in fact, an adjudication process of a rather different nature. He is probably not in a position to answer that right now, and if he would write to me, that would be fine. However, I worry that the way in which the Government see arbitration here is irregular in terms of what most people would understand as the strictures of arbitration.

[Lord Grimstone of Boscobel (Con)]

My Lords, I thank the noble Earl for his intervention. The best answer I can give is that it has been fully discussed with the arbitral bodies whether this is something that they feel the arbitrators they are responsible for can do. I have had complete reassurance on this point, but I will consider it again and write to the noble Earl.

Commercial Rent (Coronavirus) Bill

Earl of Lytton Excerpts

2nd reading
Thursday 27th January 2022 Grand Committee

[The Earl of Lytton (CB)]

My Lords, I, too, welcome the opportunity to debate this Bill—I apologise, I may be standing too close to the microphone; it is my stentorian tones. In making my initial comments, I refer to my interests as a practising chartered surveyor and my association with the Chartered Institute of Arbitrators, although I do not practise as an arbitrator—and last but not least as a private landlord of let commercial property, although I do not have any rental or arrears issues. However, I do have a working knowledge of commercial landlord and tenant matters.

I thank the Minister for holding the briefing session yesterday and for his introduction today, and I acknowledge straightaway that the Government have made a necessary move to deal with an extreme set of circumstances surrounding suspension of business during parts of the pandemic and the accrual of rent arrears, as we have heard. So I agree that this is essential. After all, keeping tenancies going, as opposed to having occupational voids, is straightforward economic common sense. Like all such pieces of legislation, it is a typically blunt instrument of last resort, but I note that the threat it poses already seems to have concentrated some minds, and the estimate of some 7,500 cases is certainly less than I feared was the case.

Although I note that arbitration was the majority method of determination in response to the call for evidence, it certainly is not free from issues of its own and is not necessarily cheap, quick or, if appealed under the limited grounds under the arbitration Act, final. Good adjudication comes at a cost, and my sense is that the department may be underestimating this. The Chartered Institute of Arbitrators tells me that it has a budget package for written representation-only cases involving claims of between £5,000 and £100,000 and exclusive of the parties’ own costs. That is priced at £3,000 per case, split between the parties, and turned round in circa 89 days. But actual costs may vary substantially because of the actions of the parties themselves, and can easily be escalated. I must say that the proposed timeline in the Bill is, to my mind, tight.

In the absence of a contractual agreement to refer—and, potentially, of any party agreement of any sort—running up to arbitration under the Bill, I would suggest that some default terms of reference will be required and that minimum standards of information from the parties be specified. I am not sure that the Bill actually achieves this.

I have already raised with the Minister what I see as an asymmetrical approach based on tenant viability on the one hand and landlord insolvency on the other. These are not the same and, in my opinion, it would be difficult for an arbitrator to compare those on a truly like-for-like basis. From the various documents it is hard to identify, for instance, just exactly what critical change to a landlord’s circumstances as between, say, extended borrowing or actual insolvency, is intended to form the relevant line in the sand for the purposes of the Bill, so I hope that that can be clarified. One cannot necessarily assume that either landlords or tenants will be in the stronger position, so this needs a fair balance, bearing in mind that many landlords may be private individuals with one or two pension pot properties, just as tenants may be sole traders.

I am concerned, as is the noble Lord, Lord Shipley, about the principle of viability as it applies to tenant businesses and how that can be assessed in practice. I believe a number of eminent bodies also have concerns about this. The revised code is singularly uninformative and the Bill a fairly minimal checklist. In early years, a business may be technically unviable or depend on personal good will until it has sufficient trading under its belt to be objectively seen as solvent. That is a normal risk. The arbitrator, at a cost to somebody or other, would have to make an initial decision on viability before proceeding to the issue of rental liability and what should actually be paid. I would be concerned if this Bill were itself to create perverse incentives, and I ask the Minister what safeguards will exist to ensure objective viability tests and monitor fair balance in outcomes.

The noble Lord, Lord Shipley, in a magisterial presentation, referred to the question of arbitral precedent, and I agree with him. The circumstances here are rather specific: it is not very normal to be looking into a tenant’s viability. I am aware that there is some experience of dealing with things like turnover rents but again, that is a rather different algorithm.

Any perceived imbalance may reinforce trends. I take the point the Minister made about returning, hopefully, to normal business, but I am not sure that there is such a thing. Landlord and tenant businesses can in future expect much greater scrutiny of management culture, lettings policy, trading viability and financial status now that their risk profiles and proclivities will be more apparent. Consequential investor, lessor and lessee nervousness may well be the result, especially if, as noted by British Property Federation, this sets a precedent for future “step-in” powers. As the BPF also observes, this is not just some limited category of landlord and tenant who may suffer varying degrees of loss, both financial and of confidence, as a result of emergency measures; it is pension funds, local authorities —referred to by the noble Lord, Lord Shipley —individual investors and entrepreneurs, charities, the vitality of high streets, consumer choice and convenience: in other words, all of us.

The noble Lord, Lord Shipley, referred to the bigger picture, and I relate to what he said. Looking at these things in an overarching policy balance is extremely important.

To a slightly more specific point, one question raised with me is whether rent arrears agreements already reached voluntarily, whether under threat of these sanctions or not, could be reopened and made subject to the Bill’s arbitration provisions. My working assumption is not, but the applicable degree of finality in that respect needs to be spelled out unless 7,500 is going to become some rather larger figure.

Like the noble Lord, Lord Shipley, I am not reassured about arbitral capacity in the property sector. It is not just a matter of signing up new arbitrators or rolling out existing ones but of how many have adequate experience in the commercial landlord and tenant sector. I am not sure that experience of

“business finances and commercial negotiations”

referred to in the code represents the complete skill set needed, so I would appreciate further and better information on this because the objectives of the Bill depend on the window of opportunity of six months and delivery in fairly short order.

The Royal Institution of Chartered Surveyors—RICS—believes this Bill inadvertently may make arbitrator appointing bodies responsible for the oversight of arbitrators, their conduct and their fitness. If correct, I sense that that might run counter to the provisions in the Arbitration Act 1996 relating to arbitrator autonomy and powers. More particularly, it could also create liabilities for the appointing body, increase costs and slow the process, always assuming the bodies are willing or legally able to take responsibility.

RICS also raises the pertinent point that arbitrators should be required to be free of conflicts of interest. I was once accused of bias because “Everyone knows that chartered surveyors always act for landlords.” I suppose in part, because I have in the past acted for both landlords and tenants, I am guilty as charged, but that points out that it is as much the perception of bias and resultant confidence in arbitrator impartiality that matter as opposed to actual conflicts of interest. Furthermore, most cases of appointments by appointing bodies rely on arbitrator self-disclosure of any conflict of interest, so I think the point is valid.

Nearly finally, although I appreciate that this ship may have sailed, I particularly dislike the conflation of rack rent and service charges as rent for the purposes of arbitration under the Bill. I do not believe that that merging proposal was made clear from the outset. It is one thing to be deprived of the rent but another thing altogether to be liable for the services related to use and occupation that are an on-cost payable to a third party and with no possibility of relief. The Government should reconsider that because different considerations apply within the stated global definition of rent.

That said, I appreciate the need for the Bill to complete its passage speedily but hope that I may have some answers to these points.

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

Earl of Lytton Excerpts

Wednesday 10th November 2021 Grand Committee

[Lord Hunt of Kings Heath (Lab)]

My Lords, I beg to move that Clause 1 does not stand part of the Bill. Of course, I hope that in the end Clause 1 does stand part of the Bill, but I want to use this as a way of raising issues I would have raised at Second Reading; noble Lords will recall that its timing was moved at very short notice indeed. I would like to register my protest to the usual channels about that, and the fact that none of us who had put our names down were consulted, which is a very poor show indeed.

My primary interest concerns the Government’s decision to establish a £1.5 billion fund to support further reliefs from business rates in the 2021-22 financial year for those businesses that have not received business rates relief. It is absolutely right to support those left-behind businesses, as I call them, but I have questions, which centre largely around the process of releasing this money. The businesses that this is aimed at are arguably some of the most in need, and yet they are having to wait much longer than is acceptable to have a chance of receiving any of this money.

In March, the Government announced the fund and said:

“This is the fastest and fairest way to support businesses outside the retail, hospitality and leisure sectors who have been adversely affected by the pandemic.”—[Official Report, Commons, 25/3/21; col. 78WS.]


But here we are in mid-November, eight months on, and still not a single business has received any money.

To give one example of the real-world impact of not releasing these funds any sooner, English UK, the body representing the English language schools sector, has informed me that, in the last month alone, no fewer than five English language schools have been forced to close, largely because they were excluded from business rates relief. Indeed, 38 English language schools have closed since the pandemic started— 15% of that trade body’s membership. It is hardly surprising: some schools had to pay £300,000 in business rates over the last two financial years, with virtually zero customers.

So, the need for speed is very apparent, but there is a problem in that the guidance to local authorities over the distribution of the money is still awaited. Many businesses do not know whether they will qualify for the fund, given that, as I understand it, the criteria have not yet been published. We just have to go on the March announcement:

“The £1.5 billion pot will be distributed according to official data on the impacts of the pandemic on different sectors, ensuring an even and more proportionate allocation of support across England based on the economic impacts of COVID-19 and not on estimates of the impact on a property’s value.”


As I have already said, there is a real risk that many businesses will not survive long enough to take any benefit from the fund. We do not have the guidance, and my understanding is that the Government’s intention is that it will not come at least until the Bill has received Royal Assent. Surely, given the urgency of the situation, the draft guidance could be issued so that local authorities can begin to prepare their schemes. How long are businesses going to have to wait to get this relief? Of course, I understand that the guidance has to be prepared carefully; there are matters to be enunciated through that guidance, but the policy announcement was made in March. Eight months later, we are still waiting to know what the criteria are for the distribution of these funds.

In addition, for English language schools a complex situation arises because a small handful of councils interpreted the expanded retail discount differently and awarded business rates relief. Consequently, it has been something of a lottery, depending on where the schools are situated. I do hope that the Minister will confirm that just because some councils took the bold step to offer business rates relief to English language schools, this will not jeopardise the chances of those that did not to receive additional funding.

Obviously, I welcome the Government’s existing pandemic support for businesses via the expanded retail discount focused on helping businesses in retail, leisure and hospitality. The release of the additional funds is also welcome, although it is a tacit admission that the previous relief did not reach all those businesses, which, as I said, could show a catastrophic impact due to the coronavirus restrictions. However, the lack of guidance to local authorities suggests to me that it will be many months before businesses receive any of these funds. I am using this opportunity to urge the Minister to sort this out, to get the guidance out quickly and to make sure that local authorities understand that the money has to be distributed as quickly as possible, according to fair criteria. I beg to move.

[The Earl of Lytton (CB)]

My Lords, noble Lords will know of my professional interest in business rating and that I was at one time an employee of the Inland Revenue Valuation Office Agency. I added my name to this clause stand part debate for reasons very much along the lines that the noble Lord, Lord Hunt, set out in making an excellent case for why this clause should be challenged.

I give the Government their due: they have made a massive commitment to the relief of business rates during the pandemic, but I do not believe any business thought, following a relatively modest individual level of relief, and given the overall scale of the impact of the pandemic on business activity, that the Government would then make an arrangement such as to eliminate a main ground of material change of circumstances for everyone.

That is the purpose of Clause 1. It is a binary choice; it is either in or out. My understanding is that the Government are not going to concede on the point so this will probably be my last comment on this bit of the Bill. Clause 1 is the only bit of the Bill that concerns me.

Although I welcome the Chancellor’s further business rates announcements, the fact is that the underlying problems have not gone away. I have very little doubt that someone in HM Revenue & Customs thought quite hard about this and concluded that the removal of a Covid clause for material change of circumstances also conveniently eliminated many other forms of material change, in so far as it would probably be impossible to make a reliable distinction between one and the other. I guess they calculated that those who had not benefited at all could be ignored—that they could afford to concede a short-term position but recover, no doubt with added interest, in the longer term—something they would keep quiet about in the interim. HMRC would thus hold to the mantra of fiscal neutrality, which I have mentioned in the House before, and reinforce its view that there are too many appeals, that managing appeals does not sit easily with the general direction of travel, and that making things administratively cheap to run trumps fairness and equity to ratepayers in a system that has become overstretched, if not overstressed, by the demands made of it over many years. This of course has followed the earlier massive reductions in the capacity of the Valuation Office Agency.

Whatever may be promised by way of additional resources to that agency, which is a critical part of all this, it will be years before the capacity and technical excellence of a once venerable body of professionals gets back to anything near its former self, always assuming that the new resources—if indeed they are new—are other than a race to develop some automated valuation algorithm.

The Government are particularly good at window dressing, but in making a promise of £1.5 billion to be spent by local authorities for further relief of certain business rate payers, they make no reference to the manner, timing or precise purposes to which this relief will be put, so it remains, to some extent, a “jam tomorrow” aspiration. The Minister might like to enlighten the Committee—here I follow the noble Lord, Lord Hunt of Kings Heath—on the origins of the £1.5 billion figure and how it has been calculated, just as every business rate payer and every billing authority would like to know how it will be distributed in practice.

While I am at it, perhaps the Minister can also tell us when the promised further guidance that relates to that distribution will be published. I may be accused of harbouring dark suspicions, but I suspect that it will be too late do anything about it for the 2022-23 fiscal year. This will also be the assumption of local government finance officers and businesses alike, if the Minister cannot assure us of an early date, this side of mid-January 2022, when finance officers will be fixing their budgets and businesses considering their forward programmes. A company that got hammered—excuse the term, but I think it is right—in 2020, may not get any help until 2023. If I am right, that will be just another facet of the creative accounting by the taxman which ultimately costs jobs, blunts enterprise, discourages investment and dents productivity—end of homily.

On previous occasions, I have mentioned the total lack of trust and confidence among those medium-sized and large businesses whose rates bills do the heavy lifting in this area of local government finance. I have previously pointed out the business rate unfairness, its asymmetry with regard to the use of local government services and the dangers of gaming the system of valuation and fair access to appeals, which have now gone on for many years. The Government may consider that the fundamental review that they have responded to will save business rates as a tax, but I am fairly confident that, economically and practically, it is probably too late.

I believe that the Minister is an honourable man. I do not blame him: he inherited this situation, so I give him the benefit of the doubt in suggesting that he can do something about rolling back a bad position in his response today, which I await with interest. That is why I oppose Clause 1 standing part of the Bill.

[Lord Cormack (Con)]

My Lords, I endorse what the noble Lord, Lord Hunt of Kings Heath, said—not for the first time, on a variety of subjects. When we debated in Grand Committee a couple of weeks ago, it was a very peculiar and unsatisfactory situation. The date had been changed twice. I do not particularly complain about that—it was nothing to do with the ghastly, terrible tragedy of the murder of Sir David Amess; it was changed irrespective of that—but there should have been a proper Second Reading and there should have been proper consultation with those such as the noble Lord, Lord Hunt of Kings Heath, and others who had indicated an interest in the Bill.

My interest is entirely with Clause 1, and I will not say anything later, because I will not move my amendments. They were tabled with advice from the clerks, for which I am extremely grateful, merely to try to ensure that the Bill would not come into force until at least six months after we knew about the distribution of the £1.5 billion. We may return to that on Report—I take it that there will be a proper Report on the Floor of the House, because we are not allowed to vote in Committee, for reasons we all know, appreciate and understand.

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[The Earl of Lytton (CB)]

My Lords, it might be of assistance to the Committee if I offer a few words of clarification, because the noble Baroness, Lady Pinnock, has given us some extremely perceptive insights into the whole issue.

With regard to Amendment 1, the issue here is that the Government have chosen to replace what would have been the objectively and judicially managed process of appeals against the assessment of the value of the real estate with what is, in fact, a wholly discretionary sum, with all that that entails, which will, as we heard from the noble Lord, Lord Cormack, be spread thinly across a huge number of non-domestic ratepayers, who will presumably plead some sort of hardship. That seems to transfer a load of administrative activity on to local government and away from what one would normally expect to be the longer-term process.

The Minister made a comment about the pandemic never having been in focus in terms of dealing with material change of circumstances. I am not sure he is entirely right in that interpretation. The acid test is fundamentally one of the perceptions of the longevity of the problem. It is quite clear that this will be a multi- year factor.

The noble Baroness’s second amendment points to the lumpily uneven nature of what has now become the business rates system. She referred to the online retailers, many of which operate out of enormous distribution sheds. Their shop window is a website with a virtual walkaround operation, their stockroom is somewhere between a number of vans on the road and their fulfilment centres, as I believe they are called, and the till is PayPal or the equivalent.

The situation regarding the principle of business rates is that it was always supposed to be the benefit derived from the occupation of those premises. Over the years this has morphed into being, “You’re the owner so you pay up.” That is the principle behind the invidious situation we have now to do with empty rates. I add those who have high street premises that they cannot let; they cannot find an exempt or partially exempt occupier such as a charity to come and occupy it for them. They are stuck with this situation. There is no relief for them. Not surprisingly, they get boarded up and, in street frontage speak, they become a missing tooth in the jaws of a pretty girl, as it was once put to me. That needs to be sorted out.

The fundamental review I referred to earlier is, I think, trying to do the least it possibly can. When I said that I thought we were getting—or had got to—the point of no return, I meant it, because if this is not taken seriously and is not taken in hand, the only show in town will be what I understand is a bit of Labour Party policy, which is to abolish business rates and have some sort of sales tax instead. We know what has happened in the past—I cannot remember if it was the first or the subsequent Government under Mrs Thatcher that was elected partly on the premise that they were going to abolish the unfair ratings system.

If we are not careful, this simply becomes another mantra where, historically, a perfectly good, cheap to run system gets trashed. The Government will rue the day that they allowed this process to continue and allowed the forces within the revenue department to erode the system of fairness and confidence—this will be the net result. It affects everybody—businesses and local authorities—and prospects all round, because doubt, uncertainty and risk are corrosive of the entire process.

I very much take the point that the noble Baroness made in moving this amendment, and I hope that the Minister is taking this on board, because we are pretty much at a tipping point and many people have said to me that it cannot go on like this. I just felt compelled to make that intervention at this stage.

[Baroness Blake of Leeds (Lab)]

Thank you for those contributions. There is no doubt among any of us about the real sense of urgency and the importance of the amendments that we are discussing in this group. Again, it is inevitable that the question of the £1.5 billion comes up, but we also need to keep a very close eye on the economic prospects as we go forward. I have to say, the confidence around that is not as great as perhaps we are being led to believe.

Again, I thank the noble Baroness, Lady Pinnock, for putting her name to Amendments 1 and 2, and for the comments of the noble Earl, Lord Lytton; he really got across that sense of urgency. I can confirm that Labour has called for the longer-term abolition of the current system of business rates, to be replaced by a new system that is better balanced between high-street businesses and the out-of-town online giants, as we have been hearing.

On Amendment 2, does the Minister agree with the assessment that we are in a very lumpy situation, and will he be looking at how the playing field can be levelled out? That is a really important question that we need some certainty on. Again, Labour has called for an increase in small business rate relief next year from the current threshold of £15,000 to £25,000. Does the Minister accept that we need an increase in relief to help small businesses cope?

I turn to the amendment in my name. It is important, at every opportunity that we have in this House, to really spell out the dire situation facing local authorities, particularly regarding the financial position that they are in. This is one reason local authorities are asking for clarity and a sense of urgency. They are also asking that, once the criteria are established, the way that this unfolds is kept under review, and for local authority guidance to be published as soon as possible. We made a very strong case for that at Second Reading.

We know that Covid-19 has had a devastating impact on local authority finances, with a combination of income falling and costs rising. The income element for local authorities, I am afraid, is one which the former Secretary of State would not take into account in terms of the losses that local authorities have been facing. This is on top of the fact that Conservative Governments since 2010 have cut £15 billion from central government funding to local authorities.

We are looking at a situation, according to the LGA, where councils in England will face a funding gap of more than £5 billion by 2024 just to maintain services at current levels. It estimates that the Government will need to find an extra £10.1 billion per year in core funding to local authorities by 2023-24 just to plug the existing funding gap. New research by the BBC, I understand, has shown that UK councils have found a £3 billion black hole in their budgets as they emerge from the pandemic. Put in that context, I think we can all understand why there is so much concern from local authorities about how much is going to be available to them to distribute, to enable businesses in their areas to survive and to continue to pay the rates due to them. Again, I ask whether the guidance can be issued to local authorities as a matter of haste and whether it is possible for us to have an understanding of when that will be.

I was actually in the room when the former Secretary of State told local authority leaders that the Government would provide

“whatever funding is needed for councils to get through this and come out the other side”.

Again, I ask: does the Minister believe that this promise has been kept? I do not think we need a list of all the different resources that have been given to local authorities, welcome though they have been. Unfortunately, they do not match the need and we know from the impact of the pandemic that need in our communities, through a whole raft of measures, is really going through the roof.

In that context, I hope that everyone will recognise the urgency required to resolve these matters but also the enormous challenges facing local authorities in the years ahead.

Off-site Manufacture for Construction (Science and Technology Committee Report)

Earl of Lytton Excerpts

Wednesday 12th December 2018 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I too congratulate my noble friend Lord Patel and his committee on a very thorough benchmarking report. The House will know of my interest as a practising chartered surveyor, which also involves the construction sector. I have also had the privilege of serving on an ad hoc parliamentary committee on government policy for the built environment, chaired by the noble Baroness, Lady O’Cathain. The House will also know of some of my activities in the All-Party Parliamentary Group for Excellence in the Built Environment, which, as the noble Lord, Lord Stunell, will know, have considerably informed my views on many of the things that have already been raised.

I draw on some 40 years’ involvement in various parts of the construction cycle but remain, I am afraid, very much at the muddy-boot level, although I begin to feel my age as I weekly shin up and down scaffolding on construction sites. I distinguish straightaway the existing bulk of traditional construction that forms our existing building stock and concentrate, as the committee does, on new build and where we go from here. I have witnessed, over my professional life, the growing use of component standardisation and off-site assembly, as the noble Lord, Lord Mair, so eloquently put it. I have also visited manufacturing facilities where entire floors of houses, which could be stacked on top of each other, were produced. I do not know how they moved them down the road, but that was another story.

Among the physical limitations of prefabrication is the size of components that can be conveniently transported to sites. However, in the realms of moving to robotics and 3D printing, who knows where we might be in a relatively short time in respect of distributed fabrication of components? The committee rightly referred to the limitations in current construction practices and the different approaches that would be needed, from design to completion, for procuring buildings with substantial off-site content. While many of them—hotels, some municipal buildings, schools, student accommodation and so on—are becoming, as we speak, early candidates for this type of work, the low-rise residential housing sector has been flagged up as a potential sticking point. This is mainly because changes in style, layout and space might place standardisation in the way of customisation, particularly, post-occupation adaption. I shall say more about that in a minute, although I believe that many of these points are perceptions rather than reality, and that, fundamentally, we are on to a good thing here and we should go with it.

There will always be a market for the one-off self-build of conventional construction. Needless to say, we have plenty of conventional construction already in place, but we will progressively get to a degree of standardisation of components, which can be arranged in multiple different ways to achieve a wide range of different designs and styles. I do not absolve current traditional methods of constructing dwellings from some significant criticisms of monotony and sameness. So let us not compare the bad bits too much. If we can get innovative design and exterior appearance into off-site construction, we will start to overcome some of the prejudices that sit against this particular form of creating buildings.

We must not forget that many of our best-loved residential street scenes are partly the result of standardisation of design and the way in which things have been put together. That has not prevented a degree of customisation by successive owners, who, as we know, love to tinker with their houses. We have retail superstores devoted to catering for their every need in that respect.

However, there are some key considerations to all this. First, a dwelling is not just a commodity; it is also a home on which occupiers may rightly wish to stamp their own mark as an expression of character and aspiration. Exhaustive design risks denying that, which has consequences for value and personal commitment to a very important investment asset—someone’s own home. We should not forget that. Where changes by owners take place, they can cause significant damage to the building’s performance. I think of the many cases I have come across over many years of puncturing of vapour barriers or cutting away structural elements to accommodate alterations.

Longevity of what we produce must be part of the deal. The fact that a new building might have a constructional life of 50 years instead of 200 is a criticism I have heard levied against modern construction. I think the noble Baroness, Lady Young, referred to that. We should regard that very critically, because savings made today on cost-cutting merely bring forward costs for tomorrow. I wonder whether there might not be a different way of making a cost comparison—for instance, by using something that was not money-based but an energy accounting method. Along the line, with our discounts and jam today versus jam tomorrow, we have led ourselves astray. Durability is vital, and buildings need to be constructed with future maintenance costs in mind. That to some extent governs the choice of components and materials.

The All-Party Parliamentary Group for Excellence in the Built Environment, in its 2016 report, More Homes, Fewer Complaints, made a number of recommendations, of which better supervision of on-site works was one. Off-site construction might deal with some of these issues, but by no means all. I have a particular bugbear, which is premature component obsolescence, with its obvious implication for future downstream costs simply because the production run of whatever it was has ceased a long time since. I think of the recessed low-energy light syndrome, where the starter unit and the electronics do not outlast the first set of bulbs. That is a fundamental failure and we should not allow it.

Hypothecation of components to a particular manufacturer or product line also brings its own risk. What do you do later when you need to repair something or replace an element? Composite elements manufactured off site and then put together need to be repairable. That means having some system with capacity to create them. The more elaborate and all-encompassing the off-site component in terms of its engineering content, the more that matters. I shall give a particular example, if I may.

A couple of years ago, I was called to inspect a zero-energy home constructed of composite panels made of insulation material between a sandwich of some sort of particleboard. It had an external cement render in what appeared to be a single coat with no joins and looked very smart. You could not fault the design but, somewhere along the line, the outlet for the roof drainage leaked. Lo and behold, the leakage was directly above some of the composite panels; these proceeded to rot as part of their component—namely timber—was biodegradable. To get them out, special panels had to be ordered. This was done under a building warranty; had it been a few years later, there would have been no such warranty. This sort of thing brings our construction industry into a degree of disrepute.

I recall that, many years ago, something related to timber-framing caught the wrong side of the television press. Noble Lords will remember: it was a celebrated case in which timber-frame panels were stacked on site but not protected or prevented from getting damp or maltreated. This nearly brought down the company in question; it caused mortgage lenders to refuse to lend against modern timber-framed structures for several years thereafter and caused significant disruption to a perfectly good and legitimate method of construction. We need to make sure that we have future-proofed as many of these things as we can. On-site techniques will have to change, not least in handling. As I said, bad news affects perception in a much more potent way than the actual defect probably warrants. That is information for you, and it is getting worse.

I see the process of off-site construction as part of a journey. It will become an increasingly significant component of everything we do. I welcome the Government’s response to this. I should like to reinforce what has been said about fragmentation, contract and payment arrangements—all the other things raised by the Farmer report.

I make a plea: construction and engineering is not seen by young people as a career they might like to go for; we ought to reverse that situation—construction and engineering is a fabulous career path. I draw attention also to the fact that very few young women are attracted to this sector; that is another waste of resources.

I finish by repeating my congratulations to the noble Lord, Lord Patel, and his committee on an excellent job of work, and express my appreciation to the Government for their very positive response.

Retail Trade: Online Suppliers

Earl of Lytton Excerpts

Wednesday 28th February 2018 Lords Chamber

[Lord Henley]

My Lords, again it is a matter for the CMA to look at that, but the Government will obviously keep these matters under review as well. These are social changes happening in the marketplace, and very often because that is what consumers want.

[The Earl of Lytton (CB)]

My Lords, I declare my professional and LGA interests. Does the Minister agree that, in addition to the challenge of online retailing, rental levels, underinvestment in retail streets and the business rate system, which imposes one of the highest recurring taxes of its kind anywhere in Europe, conspire collectively to damage profits prospects and the public experience of many traditional shopping environments? Furthermore, does he agree that trying to shift the burden of reliefs for business rates on to hard-pressed billing authorities is not the right answer?

[Lord Henley]

The noble Earl makes some valid points. These are matters that can and will be looked at. The important point is that we have done what we can to help with rates, and we hope that that significant help will make it easier for the retail sector.

Queen’s Speech

Earl of Lytton Excerpts

Monday 26th June 2017 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I apologise to noble Lords at this hour for appearing in the wrong place on the list, but their gain will be my loss because I will have an even shorter speech. The gracious Speech contains many valuable proposals. As a professional involved with property, much of what I would advocate in doing things better has been very tragically illustrated by the Grenfell Tower fire. I add my sympathies to all those affected. Here, the best of regulatory intentions in improving and updating an ageing housing stock have found us wanting.

Like other noble Lords, I suggest that there are many areas in which public administration and corporate social responsibility must improve. Regulators often appear ineffective, even toothless, and ethical tests seem to be missing from their toolbox. We would do well to consider impediments created by the inaccessibility of the judicial process to most normal folk and the economic implications of not having that check on actions by others.

In particular, we should address the “us and them”—perhaps the point made by the noble Viscount, Lord Thurso—and the sentiment that public administration is often not seen as being for the people or by their elected representatives. From my own standpoint, sometimes it is not clear whether one is dealing with the objective public administrator, a commercial competitor or some sort of political adversary. That should not happen.

The noble Lord, Lord Naseby, referred to business rates. Yes, indeed, not only is the valuation in some areas patently faulty, but the Valuation Office Agency itself is faced with substantial cuts. Then there is the new rating appeals system. A more dysfunctional, intrusive and frustrating process which seems to have been designed to prevent appeals happening at all is hard to imagine, but it is being paraded as a simpler and fairer system—I wish.

I welcome the attention being given to the question of spurious personal injury claims in motor accidents, but Highways England’s own contractors are apparently not averse to submitting inflated “green claims”, as they are known, for highway infrastructure damage caused during motor accidents. These increase insurance costs, too, and appear to be outwith the contractual arrangements with Highways England, and yet nothing seems to be done about them.

Planning departments across the country are underresourced. This matters because approval of reserved matters in planning consents is often mired in utterly unreasonable compliance demands and some are, frankly, nihilistic. All of them cost a fortune to resolve, but significantly most could be resolved by greater officer experience, the very experience which has in large measure been lost from that sector. All of these factors add cost, risk, delay and drag in delivery and fetter growth, to say nothing of developers then gaming the system for their own advantage. Housing and infrastructure are at stake here, and making ourselves best fitted for Brexit means that we can and must attend to these inefficiencies because much of the thrust of the other proposals in the gracious Speech will depend on it.