Non-Domestic Rating (Multipliers and Private Schools) Bill

Earl of Lytton Excerpts

3rd reading
Monday 24th March 2025 Lords Chamber

[Baroness Pinnock (LD)]

My Lords, I start by thanking the Minister and his civil servants in the Bill team for the very helpful discussions to aid detailed understanding of the Bill. The one issue that still irks me is that it was debated without an impact assessment. The convention now seems to be that this is the case, but I find it unacceptable that we have debated and agreed a Bill of this nature and with the implications that it has on many businesses. I believe it is unacceptable to do so without an impact assessment.

However, we on these Benches are delighted that the 290 hospitals which were destined to have the higher-rate multiplier applied will be excluded from that penalty. We hope that the other place will agree with the sanity of this proposal. The Minister said that the aim of the Bill was to protect the high street. It is not clear that that will be achieved by the Bill, and only time will tell, but I am sure the Minister will be pleased to know that I will be keeping a watchful brief on this issue and questioning him at regular intervals if the high street is not benefiting from these elements of the Bill.

Given that, I thank my noble friend Lord Fox, who did much of the work on the implications for business, and the ever knowledgeable and wise Elizabeth Plummer in our Whips’ Office, who was able to give me sound advice on the course of the Bill. With that, I thank the Minister and look forward to the consequences of the Bill.

[The Earl of Lytton (CB)]

For my part, I too add my thanks to the Minister for his willingness to engage at all times. As he now knows, business rates is a rather niche area of activity for your Lordships. I started my professional career just over 50 years ago in the Inland Revenue Valuation Office, so I have been tied to this problem for a long time. If I have come across as a bit of a business rates nerd, I apologise to the House.

The Minister mentioned Mr Nick Cooper, whom I have known a long time through several Administrations, and I think it was he who was astute enough to observe that this might, given that my time here may be limited as a retained hereditary Peer, this might be the last occasion on which I would have to bore your Lordships on a matter to do with business rates. So there is something positive for your Lordships to look forward to.

I thank the noble Baronesses, Lady Scott of Bybrook and Lady Pinnock, and the noble Lord, Lord Fox, and my colleague and noble friend Lord Thurlow, for their willingness to discuss matters of crucial importance.

I take the point made by the noble Baroness, Lady Barran, that the manifesto said one thing and this is not what we were led to expect. However, for all the talk and all the policy-making, and for all the manifestos, you do not get to alter economic reality, nor do you get to alter markets very much. Therefore, I suspect that the process of partial attrition which has gone on in the business sector, particularly over issues to do with high streets, will continue, so long as the root and branch reform that is so badly needed and which successive Administrations have promised is not delivered. It is tough when you are dealing with something that is cheap to collect, but we must understand the consequences of lack of fairness and lack of balance, and what this means for business decisions made here and where moving an operation abroad is an alternative.

Finally, I thank Jerry Schurder and Simon Green of Newmark surveyors, who have been an unfailing source of useful information on the background to current business rates. I am not a current practitioner, so I pay tribute to them and to others from the Rating Surveyors’ Association and the RICS, both of which I am a member of.

With that, I wish this Bill well. I am certain that it will reappear. I am not complacent that this is the last word on the matter, but we have given it our best shot in what is a rather difficult and complicated area. I wish it well and share the views of other noble Lords in hoping that the other place has regard to the rationale behind our efforts.

[Lord Khan of Burnley (Lab)]

My Lords, I thank noble Lords for their contributions.

Non-Domestic Rating (Multipliers and Private Schools) Bill

Earl of Lytton Excerpts

Report stage
Tuesday 18th March 2025 Lords Chamber

Moved by

[The Earl of Lytton]

2: Clause 3, page 3, line 26, after “hereditament” insert “other than a qualifying retail, hospitality or leisure hereditament”
Member's explanatory statement
This, together with another amendment in the name of the Earl of Lytton, would have the effect of leaving large RHL properties paying the standard multiplier rather than the supplement, consistent with previously stated policy intentions.

[The Earl of Lytton (CB)]

My Lords, as this is the first time I have spoken at this stage of the Bill, I declare an interest as a chartered surveyor, a member of the Rating Surveyors’ Association, and a member of the Institute of Revenues, Rating and Valuation. In fact, these are the three bodies referred to in Amendment 32, which is in this group, under the name of the noble Lord, Lord Thurlow.

I thank the Minister for his willingness to engage and for yesterday’s meeting—I appreciate that very much. If it is any comfort to him, that is at least part of the reason why I felt that I should not press these amendments today, most principally because they go to the heart of the philosophy of how the financial backcloth of rating is dealt with. That would be a very diffuse target at which to try to aim at this stage in the Bill.

Before dealing with Amendment 2 and speaking to Amendment 11, which is also in my name in this group, I remind your Lordships how we got here. During our deliberations in Grand Committee, the Minister referred to the 2024 Budget, in which the Chancellor set out a Budget to “fix the foundations” and to take

“difficult but necessary decisions on tax, spending and welfare to repair public finances, to increase investment in public services and the economy … Part of that agenda included transformation of the non-domestic rating or business rates system, including delivering on the Government’s manifesto pledge to support the high street”.

The Government’s manifesto pledge did a good deal more than just support the high street: it talked about dealing with the online giants. That is why Amendment 1, which we just voted on, in the name of the noble Baroness, Lady Pinnock, causes me to remind your Lordships of what I reminded them of at an earlier stage of the Bill: the very large number of non-target species that are swept up by this particular Bill. I enumerated a significant number of them—not all, I might add—of which hospitals were one.

The Minister went on to say that the Government intended to provide

“a permanent tax cut for qualifying retail hospitality and leisure properties and, in doing so, better ensure the ongoing vibrancy of high streets up and down the country”.

He then referred to this whole

“challenging fiscal position that the Government inherited”.

We can fairly say that business ratepayers have been subject to an unsatisfactory means of levying this particular tax for a very long time. I have been on my feet on innumerable cases during the two periods that I have been in this House challenging that perception and showing how this is very negative in its effects on business confidence.

The Minister said that the system

“should work in a sustainable way”.

There are two bits of sustainability: whether the Treasury can balance the books and find the most convenient shortcut through in dealing with its affairs, and what you might call the politically most expedient way. The other way is the one that looks at how businesses make decisions and how the prospect of a surcharge impacts on what businesses do. I have said many times in this House that it is a poor tax that itself starts shifting the dial for people trying to get away from its effects.

The Minister said that

“the Government are asking those with the most valuable 1% of properties to pay more to support the viability of high streets”.

I find it difficult to relate the benefit to the high street by the means shown in this particular Bill. The Minister also said that the process that the Government has alighted on would be equitable and would

“capture the majority of large distribution warehouses, including those used by online giants”.—[Official Report, 24/2/25; cols. GC 444-45.]

Fair enough, but it catches an awful lot else besides, so it is very poorly targeted.

On 17 March, in the other place, in a Written Answer to a Written Question from the shadow Secretary of State for Levelling Up, the Exchequer Secretary commented first on the Valuation Office Agency publishing its official statistics detailing the number of non-domestic properties in England with a rateable value of £500,000 and over, broken down by sector. He then went on to say:

“There is no special category code for ‘internet retail warehouses’. You may find the data for ‘retail warehouses and food stores’, and ‘large distribution warehouses’ helpful”.


I do not find that in the least bit helpful. These are charging people who are not part of the target species. It appears that the Government have no idea how many large warehouses are occupied by the online giants that they claim to be targeting in the first place.

There are lots of questions here, some of which have already been put on previous occasions by the noble Baroness, Lady Pinnock. Why was this threshold set at £500,000? What is the metric? How are the Government able to justify this figure? The manifesto said that the reforms would

“raise the same revenue … in a fairer way”.

When the Government are planning to raise an additional £2.65 billion by making businesses pay for the retail, hospitality and leisure relief and discounts, which up to now have been funded centrally, that makes me wonder precisely what the business of raising the same revenue in a fairer way amounts to.

If the intention was really to charge more to online giants, one would have to ask why the 90% of hereditaments to which the supplement might apply—the £500,000 rateable value and above—are dealing also with warehousing and other things that are clearly outside that. Some 90% of what they propose to charge does not fall within the category of online giants. It goes on from there. I have already raised the question as to why we cannot get to a more comprehensive reform of business rates—already referred to by the noble Baroness, Lady Pinnock—because this is starting to be an active disincentive to businesses.

That question is not answered by saying that other variable cost elements for businesses are better in this country than elsewhere. This is a direct, in-your-face fixed cost that businesses have to deal with. I cannot see that this is consistent with a growth agenda that intends to attract inward investment.

My interrelated Amendments 2 and 11 are aimed at not worsening the situation for the large retail, hospitality and leisure properties, the inclusion of which in the supplement cannot be justified on property terms. I would prefer the discounts to be applied to all such RHL properties, but this would be even less acceptable to the Government. However, it involves the removal of less than 25% of the total rateable value to which the Bill proposes to apply the supplement. When one looks at the mathematics of this, it really does not stack up. Even at the maximum level of potential supplement, it is substantially less than the extra revenue that the Government will raise from shifting the costs of the RHL relief from the Exchequer to the business rate payer—so it is not very large beer.

I said yesterday in a meeting with the Minister, and I say again, that I and a lot of rating practitioners, and certainly business rate payers, would be a great deal happier if we could have an assurance that the Government will move at reasonable pace to remedy the deficiencies of the current business rate system by whatever means. There needs to be comprehensive thought about this whole process so that we do not simply drift on and create more and more division and less and less confidence. Even at this late stage in the process, can the Minister give a reassurance that this is forthcoming within the current Government, for the better achievement of their aims on investment and growth? I beg to move.

[Lord Shipley (LD)]

My Lords, I remind the House that I am a vice-president of the Local Government Association. I have great sympathy with the contribution of the noble Earl, Lord Lytton, and agree with the conclusions that he has so carefully reached. I know that these Benches would support his amendments.

Amendment 32, tabled by the noble Lord, Lord Thurlow, concerns an important issue. The Government promised in their manifesto to make the payment of business rates fairer and more balanced between retail distribution warehouses and high street shops. Indeed, the Chancellor said in the last Budget that she wanted to shift the burden. Yet all the signs are that nothing will happen until next year at the earliest. I hope that the Minister can give us an update on the timing for the outcome of the review that the Government apparently are undertaking. I say that because this is, as the noble Earl made clear, an urgent matter. Business rates are a major burden on retail high street shops. Sainsbury’s said a few months ago that half of its total tax bill is for business rates.

The system needs urgent reform. One step would be to accept the proposals in this group of amendments. In particular, Amendment 32 sets deadlines for when the Government must have acted. I hope that, if there is an opportunity, we on these Benches can support the amendments in this group.

--- Later in debate ---

[Lord Khan of Burnley (Lab)]

My Lords, yes, I can explain that, because we are talking in particular about the retail, hospitality and leisure sector. The point is very clear. We cannot have a system where every year businesses do not know what their business rates bill is going to be. Over the years—I accept that there has been Covid—we have not had a long-term approach to this. This is part of a wider reform of the whole business rates system. I am sure that the noble Baroness will understand that having a multiyear approach to this will provide more certainty and stability for businesses, which will know what their bills will be. The higher £500,000 threshold properties, which amount to 1%, are supporting the retail, hospitality and leisure sector, in particular, across the country.

[The Earl of Lytton (CB)]

My Lords, I am grateful to all noble Lords who have spoken to this group—and in particular my colleague on these Benches, my noble friend Lord Thurlow, for introducing his amendment.

I appreciate that the Minister has effectively gone as far as his brief permits, but I hope he realises that there is a serious job of work that needs to be done. A reforming Government who come in with a manifesto commitment need to do something better than shuffle the chairs on the deck of a ship that appears to have a very large hole in it, as far as I am concerned.

Before I conclude, I will make three or four comments. If the full 10% supplement is applied on top of—I paraphrase —a 55p in the pound multiplier, that is getting on for 20%. Maybe it is 18%—I have not done the maths—but it is a very substantial proportionate increase. On the Minister’s own admission, it serves to disadvantage what he regards as a “very few”, for the uncertain and, indeed, undetermined benefit of what we take to be numerous smaller fry.

We do not know how that is going to work out, as we have explored in previous stages of this his Bill. It does not target the high street; it does not target it with that benefit, at least not obviously so. For all the hospitals, police stations, theme parks, offices and manufacturing units, along with the distribution network of large warehouses serving conventional retail, it will just result in higher costs to consumers, including, indirectly, via local authorities owning leisure centres and installations of that sort.

So the problem does not go away just because the Government have found the least painful strategy for dealing with these things. I think we will be seeing the ill-effects of this for some time to come, not least in the attrition of confidence of which I spoke earlier. However, with that said, I do appreciate what the Minister has done and his willingness to engage and again thank all noble Lords for their contributions. I beg leave to withdraw Amendment 2.

Amendment 2 withdrawn.

--- Later in debate ---

[Lord Shinkwin (Con)]

My Lords, I support Amendment 30 in the name of my noble friend Lady Barran and the noble Lord, Lord Storey. In doing so, I should explain that leaving Clause 5 out of the Bill is the only way to protect all pupils with SEND who attend independent schools, like those I attended, where the proportion of children with SEND is much lower than 50%. I understand the Government argue that protecting only schools where a majority of pupils have education, health and care plans, or EHCPs, is adequate—as if they can ignore the inconvenient truth that almost 100,000 pupils receive SEND support in independent schools without an EHCP.

I wonder whether the Government have joined the dots and thought of the impression that this gives. The sad fact is that, in the Government’s eyes, the damage to many of these children’s life chances seems to be a price worth paying. They are expendable, immaterial, inconsequential, collateral damage, caught in the crossfire of what appears to be an ideological obsession with punishing anyone they perceive as rich. Yet many of these children’s families, as we have already heard from across the House, are not rich and the Government know it, but they seem not to care. They seem not to care that this is a deeply damaging and wholly disproportionate measure which, as we have already heard, will not raise significant revenue but will harm schools and particularly pupils with SEND who, as I did, come from modest backgrounds. Their life chances will be badly affected by its implementation. They seem not to care, but schools could close because of it. They seem not to care about the incomprehensible incompatibility of putting, as we have already heard, even more pressure on an already overstretched state sector, which the Government know and the National Audit Office has shown, is already failing to meet demand. They seem not to care, incredibly, about the mental health of pupils with SEND, which will undoubtedly be hurt by the impact of this measure unless Clause 5 is left out of the Bill. I say again to the Minister that I refuse to believe that this is the Government’s intention, but it is definitely the impression given.

So I fear that we have lost sight of the people who matter most: the almost 100,000 children with SEND who receive SEND support in independent schools without an EHCP. This amendment gives us the opportunity to send a clear message as a House that we stand with them in solidarity and with their families. That is why I urge noble Lords on all sides of the House to support it and to remove Clause 5 from the Bill.

[The Earl of Lytton (CB)]

My Lords, I had not originally intended to intervene on this amendment, but I cannot help but see a wider point of principle that is involved with Clause 5 of the Bill.

I should explain that rating law serves to exempt premises used by charities and occupied for their charitable purposes, with 80% mandatory relief and 20% discretionary relief given by the billing authority. There is also some discretion for billing authorities to give similar treatment to local not for profit or community enterprises. I hope I have got that right.

What disturbs me is that, clearly, the Government think that some charities are more deserving than others. This throws up a wider issue of an arguably discriminatory policy on which a wider debate across the country is warranted. What might be more or less meritorious when considering organisations concerned with human disease, animals, wildlife or conservation, building preservation and so on? But education is the very basis of what we leave and pass on to future generations in knowledge, citizenship and values. I fail to comprehend what this clause in the Bill is, and that is why I feel compelled to support these two amendments. If we do not secure its complete removal, we should certainly have the review advocated by the noble Lord, Lord Black.

I will illustrate some of the consequences of this. I recently visited my old school as part of the Learn with the Lords programme. I ascertained that this Bill, along with other measures introduced by the Government, will cost it an additional £1 million per year and that this is likely to be reflected principally in staff reductions. I happen to know that this school has a very firm commitment to its staff, as it does to its pupils.

So Clause 5 is more than unfortunate; it is retrograde and, I feel, discriminatory. The Government ought to think again about the purpose and formulation of this particular clause of the Bill.

[Baroness Barran (Con)]

My Lords, the Minister has heard three very strong arguments from across the House. The first is that the principle of not taxing education should be respected and upheld. Secondly, there is the principle that charities should not be subject to any kind of political overreach. Thirdly, the Government should not introduce a two-tier system, punishing charities that do not conform to their views. I think we have heard across the House that this sets a very unfortunate precedent.

Finally, there is the point that this policy will not deliver but rather will impact children, particularly vulnerable children, who attend some of the small schools that serve them and their communities all around the country. I would like to test the opinion of the House.

Non-Domestic Rating (Multipliers and Private Schools) Bill

Earl of Lytton Excerpts

Committee stage
Thursday 27th February 2025 Grand Committee

I conclude with a reminder that an important objective of this Bill is to level the taxation playing field—this is how it was announced—in the retail sector, between high street shops and the Amazon cohort of warehouse-based businesses. The Budget referenced the online giants being required to pay for a high street subsidy. This Bill still needs significant amendment to achieve that. I thank the Minister for the offer on Monday to discuss some of these NDR amendments in more detail. I beg to move.

[The Earl of Lytton (CB)]

My Lords, I support the amendment in the name of my noble friend Lord Thurlow, which relates specifically to Clauses 1 to 4. The business community was clearly expecting something rather different from what we have before us now, based on the Labour Party manifesto, so ably referred to by my noble friend. At the very least, we should be told the plans for where and when this longer-term reform, which was promised, will be mapped out. While the Treasury cannot make an accurate impact assessment until the new valuation figures are known, equally, businesses and their professionals have no idea either.

This rather matters, because it is not just a new list, as we heard from the noble Lord, which itself would come with inevitable transition arrangements, there is also the impact of the lower multipliers and the increased burden of supplements, which we believe will not be known until the Autumn Statement: that part will not be known, even if the contents of the new valuation list are known in advance. I am very doubtful whether lower multipliers will do much to move the dial on this, but I think the supplements will probably be a different matter altogether.

There is another point, which the noble Lord, Lord Lexden, touched on a few minutes ago. Parliament is entitled to be properly informed about the likely impact. I have suggested previously that this is not impossible, even without firm figures. The fact that the Government are not prepared to do this is, I feel, of particular concern, because they therefore cannot demonstrate that their policies on multipliers are actually competent and will achieve the support supposed and the rebalancing that has been claimed. For those reasons, I support the amendment, and particularly that more time should be allowed to consider the impact, to in some way soften the introduction and give businesses space to consider their options.

[Baroness Barran (Con)]

My Lords, I shall speak to my Amendments 75 and 76. Amendment 75 is a probing amendment to ensure that the Government have considered and made an assessment of how the provisions of the Bill will impact on the ability of students on bursaries to access universities. Despite the picture that the Government are trying to paint, private schools provide genuine benefits to their local areas and offer education at a significantly reduced rate to families, including low-income families, through their bursary schemes. We also know that pupils from independent schools are more likely to go to university. If, as was discussed in earlier groups today, these schools cannot find enough money to provide bursaries, or not in the same quantities as before, these students will no longer be able to access the same opportunities. With this in mind, I hope the Minister can reassure me that the Government have thought about this and perhaps give the Committee his assessment of its impact.

Amendment 76 would delay the implementation of Clause 5 until 2026 to allow schools time to prepare properly. Despite this not causing a large fiscal impact on schools, they are facing a number of changes and have not being given time to adapt and readjust their budgets—most notably, of course, in relation to VAT—and this is having a real and very negative impact on the ground. As we have heard in Committee this afternoon and as the Minister knows, some schools have already closed as a result of the very abrupt imposition of VAT in the middle of the school year. The amounts in this section of the Bill will make very little difference to the Government and there is no real reason to implement immediately. Rather, it would show some good will on the part of the Government to give schools time to prepare.

Turning to Amendment 74 in the name of the noble Lord, Lord Thurlow, although we are not supporting this specific amendment, I agree with him that what is lacking from the Bill is any firm indication or clarity about what its impact will be. My understanding, and perhaps the Minister can confirm this, is that the Government will not decide the multipliers until after the spending review, although I think the noble Lord, Lord Thurlow, suggested that it might be earlier. Therefore, as we have discussed throughout Committee, not having published an impact assessment is a failure on the part of the Government. I agree with the noble Lord that not enough is known about the impact that the Bill will have on our economy and, crucially, on our high streets.

Grenfell Tower Inquiry: Phase 2 Report

Earl of Lytton Excerpts

Thursday 27th February 2025 Lords Chamber

[Lord Khan of Burnley (Lab)]

My Lords, the noble Lord, Lord Carlile, as always, makes a very important point. We are working on the response to Sir Martin’s report. We accept the inquiry’s findings and will address all the recommendations. I will take that suggestion away and we will have conversations to ensure that we deal with the recommendations and work through all of them. We will explore the opportunity for noble Lords, if not here then in another setting, to have an opportunity to listen to Sir Martin’s recommendations and how the Government are doing.

[The Earl of Lytton (CB)]

My Lords, I welcome the report from Sir Martin Moore-Bick and the Government’s Statement, but there is a legacy issue from what was put in place by the previous Government in terms of support measures for a defined range of properties considered most at risk following the tragedy. In light of the measures put in place concerning remediation under PAS 9980, which is the relevant standard, can the Minister explain what steps are now proposed to prevent that proportionate approach—bearing in mind there is an issue between critical life safety on the one hand and the safety of the building on the other hand? Those are two different risks. What does he propose to prevent that proportionate standard? There is also the issue of the lack of the Building Safety Regulator powers in relation to avoiding full remediation responsibilities where building regulation standards at the time of construction had not been met. The problem is continuing to impede remediation and to trap innocent homeowners with high insurance costs. I wonder if he could comment on that. He may need to write to me.

[Lord Khan of Burnley (Lab)]

My Lords, I kindly accept the invitation to write to the noble Earl, due to the specific nature of the very important question he raised.

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.

--- Later in debate ---

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.

--- Later in debate ---

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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

Renters’ Rights Bill

Earl of Lytton Excerpts

Tuesday 4th February 2025 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I have to declare a personal and professional interest with the private rented sector since 1968. Members of my family are also private rented sector landlords. I thank the Minister for introducing the Bill so cogently, and I add my tribute to our two excellent maiden speakers.

My professional training, which started in 1969 or thereabouts, involved an understanding of the Protection from Eviction Act, the Rent Acts, the rent officer service, rent assessment committees and fair rents. That regime, I know for certain, created a severe attrition of the private rented sector. The statistics show that it fell from 31% of homes in 1961 to under 10% in 1991, with substantial value write-downs in the process. The 1988 Act brought some relief and brought in shortholds. The emphasis was on the “short” bit; that was what it was intended to do, and you could not let for more than five years in the early stages. It has continued pretty much uninterrupted, under several subsequent Administrations. Even so, the proportion stood at 9.7% of homes in 2000.

The Government have been strident in their insistence that under the Bill no rent controls are planned, but I see the ability to challenge above-market rents, and the allied pressure for CPI pegging of rents and the whole question of affordability, to amount to the same principle of fair rents under the 1965 Act, give or take a bit, and likely to have very similar outcomes. At any rate, I believe that it is a distinction without a real difference, and could be adjusted and altered at the stroke of a pen.

The market will take note of this, looking at the headwinds and the new obligations under this Bill. My take is that the private rented sector is now destined for material decline. Halving it to the sub-10% of homes it was in 2000 seems a least a possible medium-term prospect. There will be no rush to the exit, just a steady attrition, with probably the 45% of the PRS in the buy-to-let component leading the way.

Does it matter, in what is actually a highly interconnected and joined-up housing sector, where people can move from one to the other? If the noble Lord, Lord Best, is right—I am glad to see him in his place —the surplus would be hoovered up by social landlords and new companies to be let at affordable rents— I assume this means an absolute maximum of 80% of market rent. However, having bought the property, which may need work and improvement, at market levels, to then let at a 20% discount, with rising costs and current interest projections, and the added duties, risks and so on, strikes me as improbable. I would like to know where the model for this is. Maybe he is right and giving incentives to sell to the sitting renter—those of them who have the cash—would be a way forward.

If these properties are released in dribs and drabs on to the general housing market, they cannot fail to have a dampening effect, likely over an extended timeframe, on the growth in housing values and the viability of new-build rollout because of the interconnected nature of the sector. I remind your Lordships that the CBRE suggests that there are at least 1 million consented residential plots that have not been built out and are sitting there waiting to go.

If I am right here, and we are moving to a higher proportion altogether of social rented property, then, again, the pressure on homes to purchase might, by that token, reduce. Good, I hear noble Lords say, but be careful what you wish for. Year-on-year increases in house prices are, in large part, what underpins our economy. From the Treasury at one end, with the tax revenues in sight, through developers and constructors, and local authorities to first-time buyers at the other end hoping to build equity in their home, this is all about money supply, banking, consumer spending and so on.

I am no fan of a model based on inventory rather than productivity—a point that the noble Lord, Lord Inglewood, almost touched on. I consider, in any event, that it will only end in tears, eventually. But it is such an important driver in our post-industrial, service industry-based economy, where we in the UK have about the fifth or sixth highest exposure to property-related debt in the world, that it cannot be ignored.

So, what about the inventory valuation that sits behind this? Has anybody done the calculations? I see this Bill as having the potential to trigger much larger events in a system of very many moving parts. I hope it is not an adverse trigger. I would hate things to get back to the stage we were at in 2008. This is why I would prefer a less iconoclastic reform, despite all the ills and abuses in the existing private rented sector, which I readily acknowledge. I would like to see choice, flexibility, freedom to transact, ease of entry and exit and all the mobility that this implies. That also implies a fair balance. It is a world of complementary needs. We should remember, too, that after 2008 the expansion of the private rented sector was able to absorb a lot of the pain that would have otherwise resulted from that debacle. But I am afraid that I see a bulky document, inherently encapsulating more cost, risk and delay and a transactional drag while it all beds in.

We have to stop conflating the problems within the private rented sector with other matters such as social inequality, lack of affordability, housing costs, high and inward migration, employment problems, income distribution and so on. We have to remove it from that—

[Captain of the King’s Bodyguard of the Yeomen of the Guard and Deputy Chief Whip (Baroness Wheeler) (Lab)]

Excuse me. Will the noble Earl please wind up? The advisory time is seven minutes.

[The Earl of Lytton (CB)]

I am actually finished. If I am right, there is little that can be done with this Bill. None the less, I will engage in order to try to improve it. Like my noble ancestor Lord Byron, I deny nothing but I doubt everything.

Non-Domestic Rating (Multipliers and Private Schools) Bill

Earl of Lytton Excerpts

2nd reading
Wednesday 29th January 2025 Lords Chamber

[The Earl of Lytton (CB)]

I thank the noble Baroness, Lady Taylor, for her introduction to the Bill and add my best wishes to her colleague, the noble Lord, Lord Khan. I express my thanks to him for his willingness to engage prior to this debate.

I commend the briefing from your Lordships’ Library, which is a most useful explanation of what is rather a niche specialism. I am grateful for comments from two rating specialists, Jerry Schurder and Simon Green from Newmark, formerly Gerald Eve, and to fellow professionals from the RICS rating and taxation forum. However, I stress that the views I express are mine and not in any way an official view of any other person or body.

I remind your Lordships that I come to this matter from a technical standpoint, with on-off professional involvement going back over 50 years in business rates and local government finance matters. I am also the beneficiary of a small business exemption on a very small rural business hereditament. I hold no brief from any professional body or any relationship with any commercial business rates payer or school.

The Bill has been described as a rebalancing measure, and that has been a repeated theme. We have heard that it imposes supplementary charges on less than 1% of some 2.15 million hereditaments where the value is £500,000 rateable value or over. According to my information, that amounts to 16, 857 separate hereditaments. I understand also that the Bill is the first step to meet the Labour manifesto commitment to

“replace the business rates system”

and

“level the playing field between the high street and online giants”.

At the moment, as we have already heard, there is a long-standing, and I believe just, criticism of the overall burden of business rates. Like for like, they are the highest of any OECD country. I am told that Jaguar Land Rover has a plant in Germany where the comparable tax burden is just one-sixth of the English plant equivalent. This is repeated constantly across many different types of business.

I remind noble Lords that when I first joined your Lordships House, back in 1985, I made my maiden speech on something called the Local Government Finance Bill—noble Lords may remember that that brought in the poll tax. In those days, there was a unified system of rateable values for all residential and commercial, and of course it has now been split. There is discrepancy in the whole local government finance arrangements between the burden borne by the capped council tax payers—who, as it happens, are almost certainly the main consumers of the goods and services produced by local government—and the rather higher level placed on business rates payers, who, it must be added, do not have a vote.

Any changes in taxation should aim to make the process more certain, clear, simple, speedy, efficient and so on, as we have heard. This is the expectation of businesses and the general public. The importance of business rates revenues is such that HM Treasury strives to protect the revenue stream at all costs, despite wider economic contraindications. Accordingly, it follows that the appetite so far within the Treasury for a root and branch reform has been rather modest. I hope that the consultation will produce real change.

As ever, the real rebalancing becomes evident in the other details. First, there was Covid assistance for retail, hospitality and leisure, or RHL, as the noble Lord, Lord Fox, referred to. The previous Government put that in place, but it is now progressively being withdrawn and will disappear by April 2026. It was previously worth £2.5 billion, but is now worth about £1.7 billion. The Government say they are not removing this relief, but from 2026 onwards it will have to be funded internally by the ratepayers themselves, rather than being an extra grant from the Government. This follows the fiscal neutrality principle, whereby however you shuffle the deck of the burdens within the business rates system, the thing will still yield the same amount or more. The situation now is whether the lack of adequate tapering—I think there is a problem with that—is going to produce a cliff edge in demands when we get to April 2026 and this is brought in.

Secondly, and much more significantly, the overall burden of business rates is set to rise. Currently, I believe it is about £26 billion gross—so I am told—but according to the last OBR budget report it is set to rise to £39 billion by 2029-30. That is a 50% increase over five years. I have really no idea at the moment how this is going to be achieved—will it be by broadening the tax base or simply by increasing the rate in the pound multiplier for existing businesses? That is another uncertainty. One must accept that businesses are not stupid; they can see what is coming down the track and will take a view accordingly. The rebalancing is not quite what one might expect. The Bill seems to be a redistribution of fiscal risks without attempting to deal with the underlying problem, and I have difficulty with that.

Noble Lords will note—it has been mentioned by the noble Lord, Lord Fox, and the noble Baroness, Lady Scott—that there is no financial impact assessment for this Bill, because it relies on the level of values, both cumulative and individual, in the as yet unpublished rating list for 2026. The explanation is that the figures on which such an assessment may be made are currently unknown.

This means that, effectively, we are being asked to sign off something without really having any idea of how it is going to work. The noble Lord, Lord Fox, referred to the number of moving parts. Yes, absolutely. I have been constantly saying that this has more moving parts than a Swiss watch. I make no apology for that analogy. We just do not know how much individual businesses will face, because the manner in which the reliefs apply and their response to them is, of course, entirely opaque. Government would set the relative multipliers in the Budget speech: I understand that they could set a different one in each successive Budget. There will be at least two multipliers on the sub-£500,000 rateable value cohort, which is the majority of the hereditaments.

There is a discrepancy between what the Bill allows and the admitted policy. For instance, the Bill allows for many higher multipliers, but, apparently, the policy is to have only one. Because policy can presumably be amended at relatively short notice, and the multipliers will be decided in each Budget speech, I cannot see that this does anything other than create a level of uncertainty that could be avoided. I am unclear whether the supplemental multiplier—that is, for the £500,000 value and above—will in the end apply to all the hereditaments in that category, or to only some.

The Government suggest that the current guidance for small business relief will become statutory regulation and thus more certain. I welcome that, but I wonder whether, of itself, it will generate arguments at the margins about whether something is in or out, creating further problems and uncertainty about the yield that the tax will produce. Going back to the number of moving parts, pushing one bit means that several other bits keep moving on the way. It is a very difficult thing to keep track of. So that is one of the things that is there. If the OBR estimates are right about this 50% rise in the burden, this has to give us thought as to the implications for business confidence, investment and growth.

I will leave other noble Lords to say—and I hope somebody will—how this might impact billing authorities and their ability to deal with it. The retail, hospitality and leisure uses do not necessarily coincide with high streets. We keep hearing about this as if they are almost interchangeable. They are not. They are different templates. High street health depends on many more things than business rates. It depends on local policies for planning, core time servicing, pedestrianisation, parking, congestion and air pollution charges, disruptive roadworks and things such as national insurance, minimum wage and other legislative and regulatory functions.

I will say a quick word on properties that might be affected. They include some 4,600 odd offices; 2,443 large warehouses, of which—as we have heard—some will be fulfilment centres; 1,802 superstores; 955 factories; 947 schools; 860 shops—some of them in major shopping centres—534 hotels, and so on. They also include some 325 hospitals—places such as large London teaching hospitals, at least one of which I know has a £12 million rateable value at the full rate. That will be £1.2 million. Well, I leave your Lordships can work out how many nurses and doctors or rehabilitation of hospital wings that could deal with.

I will conclude with three points. First, I will repeat what I have long maintained, namely that the impact of business rates is, of itself, a material mover and shaker of business decisions and policies. It does not exist in isolation. Why put oneself in a tangible, fixed asset such as highly rented business premises if one can operate from something else or in another way? I will leave that at that point.

Secondly, rates and rents are intertwined. Businesses naturally look at the overall costs of occupation when comparing their options, one area with another. If rate reductions simply bolster rents, nothing is gained. If rents are diminished by rates burdens, beware of impeding investment decisions in favour of high streets where one might want that investment to occur.

Finally, I will say a quick word on charitable relief. I do not call into question anything to do with the political policy that sits behind it. From a practical point of view, premises used for charitable and some not for profit community or social purposes—not just registered charities—can get 80% mandatory relief and may get another 20% discretionary relief on top. Of course, some of these compete with regular retailers, but I struggle to understand the rationale of the proposed selective denial of relief for private schools operating as charities in educating the young, as against any other philanthropic sector such as animal welfare, the arts, conservation and so on and so forth.

Noble Lords will all know of situations that apply. This strikes me as arbitrary, if not actually discriminatory, that this should take place, especially when we are told that it is not policy under this Bill to differentiate, say, teaching hospitals or public service-type buildings from the £500,000 and above cohort. Well, if you can identify one particular lot of schools, you can certainly identify another lot and say, “Well, we won’t incorporate them”. I cannot believe that, in this modern age of computer technology, you cannot pick them out and make a pretty accurate and granular decision on how you are going to deal with these things. So it seems to me that this is an incredibly blunt instrument that is being applied here. I also think it requires further and better justification, particularly in relation to the charitable relief on private schools, because it appears to lack consistency.

All in all, the normal expectations of tax reform in the area of the manifesto pledge do not appear to be met in this Bill as presented. I, for one, certainly hope that between us we can change that for the better.

Grenfell Tower Inquiry Report

Earl of Lytton Excerpts

Friday 22nd November 2024 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, it is a pleasure to take part in this debate. The great advantage of being a fair way down the list is that it enables me to strike out some of the things that I would have said in more detail. I too pay tribute to Sir Martin Moore-Bick’s report, as I do to the forbearance of the families of the 72 people who died in the Grenfell tragedy.

The phase 2 report is weighty, forensic and sobering in its implications. As a chartered surveyor, a patron of the Chartered Association of Building Engineers and a member of the fire safety APPG, I find the implications very profound and far reaching.

I cannot not thank your Lordships’ Library, which provided a very helpful and useful briefing note, and all those who have written to me. I must also thank my eldest son, who is my researcher and has been doing some work for me on this, and fellow professionals who have been happy to share some very candid views.

I turn to a point that was raised by the noble Lord, Lord Carter of Haslemere: we were warned. There were earlier fires, here and abroad, coroners’ reports, reports in particular that followed the Lakanal House fire, and Select Committee and other public body reports. They were noted and filed, with responses made—but, sadly, lessons were largely unlearned. That has to change.

The phase 2 report, in its technical and forensic detail, speaks for itself. I fundamentally agree with all its findings and recommendations, but I need to look at the wider context.

Professor Shane Ewen notes in his book Before Grenfell—I recommend it to any noble Lord—that what he describes as the “neoliberal agenda” of burning red tape and moving to individual responsibility also failed to maintain consistency of oversight, enforce regulation or impose sanctions. The moral hazard that sits behind that arrangement does not need any further explanation from me, but there is a risk of doing this again. The principles of a proportionate approach to fire safety, a tolerable risk, and—it has become a further undefined term—“life-critical” fire safety are all untested. Arguably, they may make things less safe than the building regulations requirements that constructors were supposed to follow and adhere to prior to Grenfell.

This matters in particular to remediation and the requirements of what I can describe only as the rather equivocal PAS 9980. I think that needs a review to make its wording clearer. It is also particularly important to the building regulations’ assumption of “stay put”. Noble Lords will be familiar with fire-resistance criteria of half an hour, one hour or one and a half hours. They have been in regulations since 1965; they were the regulations I grew up with, as it were, when I studied for my profession. They assume that a building has sufficient fire resistance and compartmentation to enable firefighters to access and put out the fire. That is their fundamental purpose.

Adding to the fuel load by incorporating lightweight components—doubtless with the best intention to reduce greenhouse gas emissions—has altered that fundamental understanding entirely, and it has done so while nobody seemed to be taking any notice of what was happening or what the consequences might be. It has all sorts of implications for establishing adequate fire safety in existing buildings. One hopes that new regulations will deal with the ones that will be constructed in the future.

The point made by the noble Lord, Lord Porter of Spalding, on the complexity of buildings is apposite. I have always said that lower height does not necessarily equate to lower risk. I was glad to see the noble Baroness, Lady Pinnock, nodding, because she and I have argued that, up hill and down dale, in this House, particularly during the passage of the Building Safety Bill.

My point is that safe buildings—in other words, those that resist fire and its spread if it occurs—also protect people: that has to be the fundamental. So I cannot see that a risk-to-life approach that does not start with robust buildings makes logical sense. I invite the Minister to comment on that or perhaps write to me.

The people who had full agency here were those constructing the buildings. It was their choice as to whether they had a clerk of works, what specification they used, which architect and supplier they used, which product they substituted during the process, their relationships with their subcontractors and all the other things—many of which are highlighted by the Farmer report, Modernise or Die, and other reports about the construction sector.

These people need to be held to account, and I yield to no one on this point. It is not good enough to say that if you make a voluntary contribution of however many billions, we will let you off the hook. That must not happen. This has to be dealt with in a way that enables the funding mentioned by the noble Baroness, Lady Pidgeon, to be provided for somebody who may be made legally responsible for carrying out work but has no means to do so. That has to be dealt with as well.

We have inadequate information on residential block types and their construction risks, despite the seven years we have had to collect that data in detail. We do not account properly. The NAO report earlier this month does not take any account of non-cladding defects, which the House of Commons committee has heard are likely to be equal in scale and cost to the cladding defects. If you are talking about the budget for fixing cladding, you may need to double that figure for the rest of what needs doing.

We are doing nothing about buildings below 11 metres. We do not even know how many there are, how they are constructed or what the risks are, which goes back to my earlier point.

The report does not deal with the residual value attrition of life safety measures on the value of the building. It is all very well saying that something should be life critical. That deals with the human side of things but not the writedown of the property asset itself. It is the property asset that insurers are insuring. When they do not want to insure something, that is what they look at. They do not want the asset reduced to a pile of sticks. This goes back to my earlier point that we need robust buildings to protect people.

We do know some statistics. We have an estimate from the MHCLG of £16.6 billion as a low median figure to remedy cladding defects. According to my calculations, that represents around £50,000 per affected flat—or roughly a fifth of the average value of a flat in England, which is £254,000. To further contextualise, 1,300 buildings in London are under simultaneous evacuation orders as at September 2024. That is a departure from the building regulations “stay put” principle I referred to earlier. But in single staircase buildings, which most of them are, that has implications for people getting out in the event of a fire, and the fire services trying to get in, with fire doors being opened and closed, compromising the rescue process. That is where the second staircase argument comes in. How we will deal with that is an unresolved matter.

Some 11,000 people in England have been decanted from their homes because they are deemed too risky to live in—and the number continues to rise. To put this in a further economic context, house prices across the residential sector in general have risen by 34% since the Grenfell disaster, beating consumer price inflation which is 30%. Leasehold flat prices have risen by just 12% in the same period. If you take inflation into account, it is a negative return. That has significant implications for the inventory value. More to the point, it affects individual households’ spending power, their sense of well-being and their ability to build equity. It affects banks and lenders’ ability to generate money and has a significant effect on the overall economy. I have not tried to work that out, but it ought to be dealt with.

We are not out of the woods yet. The Grenfell report suggests bringing building control under a public body not driven by conflicts of interest. I agree with that but, needless to say, the industry out there is starting to shift as we speak. There is some evidence that those who have been involved in building regulation inspections are migrating to other roles. Why would they not? It is becoming a bit of a toxic area to be involved with. It is probably quite difficult to get professional indemnity insurance and so on. There is attrition going on in their numbers, and the training cannot keep up. If we are not careful, we will run into a situation where projects that might legitimately be expected to go ahead will be stalled because there is not the personnel to keep ahead of that.

There are other areas of specialist expertise—cladding, smoke extraction, staircase design and wider fire safety assessment. We are in deficit of people able to deal with them. Who is to do that and how is it to be funded? I am told that in the year ending September just gone, some 4,000 construction firms became insolvent. That is a very difficult thing to deal with.

The noble Baroness, Lady Pidgeon, touched on the last point that I wish to make. Ultimately, we are talking about people in their homes—a place that should have been their secure residence from which they conducted their lives, operated their work/life balance, maybe brought up children, established friendships, put down roots and became part of society. The problems that we are faced with of unmortgageable property, sky-high insurance costs and very high fees for general maintenance and management—many of these things were imposed under the Fire Safety Act—are becoming a corrosive factor in what should be these people’s secure place. The mental stress and strain, the repossessions and sell-offs that are still going on, and the fact that people are not being allowed to extend their mortgages—putting them at a real financial disadvantage—must be the most terrifying things that affect home owners in this category. That really has to be addressed because I fear that a very large cohort—it may be 300,000, 400,000 or half a million homes—are affected by this. This has to be looked at most carefully, and I hope the Minister is taking good note of that.

Renters (Reform) Bill

Earl of Lytton Excerpts

2nd reading
Wednesday 15th May 2024 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, it is a pleasure to speak in this debate. I have interests to declare as a chartered surveyor and a small-scale private rented sector landlord, both of some 50-plus years’ standing.

I welcome the Bill, which contains much good, for no other reason than that I hope it consolidates the good and prevents a small proportion of bad actors from providing a reason for criticism and discord. I thank the Minister for her willingness to engage, although I remind her that I sent her a list of questions beforehand that are not covered in what I have to say, and I hope she will be able to answer them.

The test will be whether the Bill results in more choice, supply and competition, with better outcomes for renters, while providing a balance of flexibility, opportunity and returns for lessors. The Minister said much about existing standards by landlords but nothing about ensuring good behaviour by tenants, and I suggest that we need both. There would be little purpose in giving renters a better deal if overall supply failed to grow or even shrank, so a polarised critique of supply side is rather unhelpful.

Current PRS market dynamics are opaque at best; the statistics are not sufficiently granular to enable cause or immediate effect to be established. Recent research by Savills, generally considered a reliable sector source, shows a modest but potentially significant decline in rental stock, but the reasons remain unclear. Some suggest that highly geared buy-to-let investors are put off by poor returns due to higher interest rates and fiscal changes. Even the Bank of England, in its note on that subsector, admits that it cannot definitively establish cause and effect. There are too many variations in circumstances and aspirations to reach a pan-sector conclusion.

I am particularly interested in an excellent piece on right to buy in the latest House magazine by the noble Lord, Lord Bird. I know of no focused research into lessor views other than that of the CLA, of which I am a member, and that only in the rural context, where it suggests that its member lessors are spooked. Poor yields and higher risks discourage new entrants—that must be obvious—and it is safe to say that the private rented sector, with its costs of entry, exit and interim returns, competes with other investment opportunities here at home or anywhere else in the world. There is nothing special that mandates investor participation in the PRS or that it must match unmet need for a place to live. The impact assessment suggests a ready replacement of departing lessors, but without evidence or research into that—and I find none—I conclude that the policy enters unknown territory. So far, not so good.

It is a common ground here that there are currently large numbers of people wanting to rent and far too few available properties. It is likely demand is rising because of severe social housing shortages, and because getting on the housing ladder has become so expensive—this despite those already having mortgages and in occupation having lower debt servicing costs compared with equivalent rental payments. However, I must say at this point that that is a bit like comparing apples and pears. More broadly, I consider that this is due to other government policies impacting on a sector that has become more volatile over the years. Such policies are characterised by the word “buy”—right to buy, help to buy, buy to let—and other fiscal prompts and exhortations to build, build, build, which cannot keep up. Stoking demand which necessitates housebuilding rates never achieved without council housebuilding—a point made by the noble Lord, Lord Adonis—is at best unwise. Relying on affordable housing on the back of market sales while selling off existing social housing at a discount is equally questionable, however popular that might be.

Near where I live, new market housing totally unaffordable to the locals is being offered to Far East buyers. We need a new model altogether for providing housing that the nation can afford, and to take some of the heat out of the PRS demand sector. My fear is that we are tinkering with the fallout from much bigger historic decisions about commoditisation of the roof over one’s head, stretching back to the Thatcher era. We have little or no idea what the effects of this Bill will be. The intention seems simply to accommodate demand. On supply, for which it has obvious implications, if it does not foster an increase then the policy will simply fail.

In turning to some of the Bill’s specific provisions, I will keep clear of the Section 21 question for a moment but simply remind your Lordships that the exit route under the Housing Act 1988 from the 25-year impasse of rent control and security of tenure created in the 1960s was to free up and revitalise the PRS through something called a shorthold tenancy. Superimposing longer-term aspirations of some renters on an essentially short-term model designed to give mobility both of occupation and investor finance may be a tactical error. Proper provision should be made in parallel for longer-term lettings. Measures which now make things less flexible inevitably alter supply-side dynamics. Demanding higher levels of competence and compliance raises fears of added cost and risk. These may increase rents, as we have already heard, especially if quality improves and/or the numbers of available properties, or of lessors, shrink.

On the exceptions in the Bill, I note the points made by the CLA that carving out an exemption for agricultural and forestry workers fails to address the wider diversified rural business need, where parks, gardens, hotels, food processing and the like also involve providing staff with accommodation. Dealing with the normal turnover in staff housing needs has to be considered further.

A promise that Section 8 terminations will not be caught up in a severely underresourced court system— I am grateful to other noble Lords who have pointed this out—does not remove the suggestion of a process less certain and more contestable, protracted and costly. In the market, you cannot achieve vacant possession value if there is a tenant in place as it prevents immediate occupation by a purchaser. For a lessor intending to sell, this can impede choice of the moment to enter the market—a market characterised by seasonal fluctuations, with political and financial sector volatility. It is how markets work and how investors react.

As to blanket bans, I totally accept that unfair discrimination is completely unconscionable. A prudent lessor who already has responsibility for checking a renter is entitled to be in the UK—which I always thought to be a UK Border Force task until this Government decreed otherwise—should not object to complying with standards many already observe, or to acting with proper probity. These are likely no more onerous than the scrutiny that they themselves apply to would-be renters. However, I would venture to suggest that deliberate misrepresentations by either party to the other should have consequences, and merit access either way—from a landlord or a tenant point of view—to dispute resolution.

The renter should be no less fit for purpose and conduct than the lessor and the description of the property. Logically, the renter’s net income should be sufficient to pay the rent and outgoings and meet living expenses, as a minimum. After all, if the renter subsequently finds that they cannot afford the heating costs, the property and the renter’s health are both at risk. I remind your Lordships that the majority of PRS lessors are not big corporates but, as we have heard, private individuals who are just as entitled to the reasonable use and enjoyment of their assets as the renter is to quiet enjoyment of a residence that may or may not be their only home. Professionally, over the years, I have encountered both poor renters and rubbish landlords.

On decent homes, I agree with the principle although I have yet to see a revised standard. Arguably, quite a lot of PRS properties are of older construction and may be difficult to upgrade to anywhere near modern thermal standards. If this becomes a fitness issue, there will be failed properties that become uneconomic to rent and will go on to the freehold sale market. The Bill is silent, however, on what happens if a property cannot be upgraded without the tenant moving out. That needs clarification.

I accept some of the generality of the claim that terminations of tenancies are a major source of homelessness, but it rather overlooks the practice of local authorities insisting on an eviction order before acting by stepping in themselves, thus exacerbating an already difficult situation and making even reasonable lessors look like ogres. I hope the Bill will improve that, but if the view is that it is the role of the PRS to underwrite social support and be a safety net for those who would otherwise be homeless, then that needs a better and upfront justification.

There is provision for possession on grounds of redevelopment, but I am unsure what this means in practice. If a lessor has a project substantially to convert, remodel or otherwise carry out major works—it might be a developer assembling a site—with a view to eventual sale or re-letting but in the meantime decides they wish to let short term, do the Government consider that reasonable or would they rather that such properties were held vacant? It is a waste of a resource if you cannot let short term.

That is where I have concerns about the elimination of the fixed-term lease. It quite obviously suits lots of people if they are on secondment or whatever it happens to be—they may be away on a job or know that something is going to happen—that they can enter into a fixed-term contract. It is perfectly legitimate for a renter to decide they want only that. What is it about adults that we cannot trust them to freely contract in a market environment? I find that really strange. Clearly, there must be some safeguards against misuse, but I really do not see what the problem is. I would like to know what would happen to a sublet flat in a block requiring a decant for fire safety remediation, a matter that I have raised on many occasions in this House. Will frustration of that renter’s contract apply?

Other noble Lords have said that the private rented sector has a fundamental and pivotal role in housing provision. Much ultimately depends on whether there is political consensus on the measures in the Bill or whether the Opposition would wish to go further. It is unlikely that the availability of homes to rent will be improved until this is settled, possibly at some stage after the next general election. Much doubt and uncertainty are generated by this political fog. If there is an identifiable, serious decline in the availability of homes to rent, that will be a significant part of the reason. The language we use, therefore, has considerable significance for how things turn out.

Leasehold and Freehold Reform Bill

Earl of Lytton Excerpts

Committee stage
Wednesday 1st May 2024 Lords Chamber

Moved by

[The Earl of Lytton]

93B: After Schedule 12, insert the following new Schedule—
“SCHEDULEBUILDING SAFETY REMEDIATION SCHEMEDuty to establish the scheme
1 (1) The Secretary of State must establish, or make arrangements for the establishment of, a Building Safety Remediation Scheme (“the BSRS”).(2) The purpose of the BSRS must be to ensure that residential blocks of flats with building safety risks are made safe, mortgageable and insurable at no cost to leaseholders or landlords. (3) For the purposes of this Schedule “building safety remediation principle” is the principle that—(a) so far as reasonably practicable, remediation costs for relevant buildings with building safety risks arising from defective construction or additional building work should be met by the developer, the principal contractor or both, and(b) where that is not reasonably practicable, or where building safety risks do not arise from defective construction or additional building work, costs should be met by the building industry.Scope of the scheme
2 The BSRS must be framed so as to apply to relevant buildings which—(a) were constructed, or subject to additional building work, on or after 1 June 1992, and(b) present building safety risks.Operation of the scheme
3 (1) The BSRS must provide for persons (including freeholders and leaseholders) to apply—(a) for a building to be recognised as a relevant building, and(b) for a relevant building to be recognised as eligible for grants in respect of the cost of remediation works.(2) The BSRS must provide—(a) for the appointment of persons (“BSRS adjudicators”) with appropriate expertise to determine, on behalf of the Secretary of State, applications under sub-paragraph (1)(a) and (b), and(b) for BSRS adjudicators to be required to exercise operational independence in making determinations under the scheme.(3) For the purposes of sub-paragraph (2), the BSRS may provide for appointments to be made by the Secretary of State or by one or more persons designated for that purpose by the Secretary of State under the scheme.(4) The BSRS must provide that determinations of BSRS adjudicators in respect of building eligibility for the scheme under paragraph 4 are final (but nothing in this sub-paragraph prevents the exercise by the High Court of its judicial review jurisdiction).Scheme supplementary regulations
4 (1) The Secretary of State must make regulations (“scheme supplementary regulations”) in respect of the BSRS.(2) Scheme supplementary regulations, in particular—(a) may make provision for determining what is to be, or not to be, treated as a relevant building for the purposes of the scheme;(b) may make provision for determining the date on which buildings were constructed or subject to additional building work;(c) may make provision for determining who is entitled to make an application under the scheme in respect of a relevant building;(d) may specify criteria to be applied by BSRS adjudicators in determining whether a relevant building presents building safety risks as a result of defective construction (and the criteria may, in particular, make provision wholly or partly by reference to building regulations or other enactments in force at the time of construction or by reference to specified classes of document);(e) may make provision permitting or requiring BSRS adjudicators to conduct tests, and requiring owners and occupiers of relevant buildings to cooperate with BSRS adjudicators in conducting tests; (f) may make provision permitting BSRS adjudicators to require local authorities or other specified classes of person to provide information or documents, and requiring persons to comply with any requirements imposed;(g) may make provision about the timing of applications and determinations;(h) may make provision about evidence to be adduced in support of an application;(i) may require or permit BSRS adjudicators to operate a rebuttable presumption of defective construction where specified classes of fact have been proved (for which purpose the regulations may make provision similar to, or applying with or without modification, any enactment);(j) may make provision about the making, processing and determination of applications under the scheme;(k) may make provision about the giving of notice to developers and others;(l) may make provision about the payment of awards;(m) may make provision about monitoring expenditure on remediation works;(n) may set a threshold for the estimated or quoted cost of remediation works below which an application for recognition cannot be made;(o) may make provision for determining, having regard in particular to the need for proportionality, the nature and extent of remediation costs which may be funded by the scheme (for which purpose “remediation costs” means any class of expenditure related to building safety risks, including, in particular, repair costs, the costs of interim mitigation or safety measures and reimbursement of or compensation for increases in insurance premiums);(p) may make provision for account to be taken of grants provided in respect of remediation works by any other scheme established by enactment or by a public authority;(q) may make provision for financial assistance provided by any other scheme established by enactment or by a public authority to be repaid out of grants under the remediation scheme;(r) may permit or require the amalgamation of multiple applications in respect of one relevant building, or of applications on behalf of the residents of one or more relevant buildings;(s) may permit or require representative applications on behalf of the residents of one or more relevant buildings;(t) may make provision about the qualifications, appointment, remuneration and conduct of BSRS adjudicators, and the regulations may, in particular—(i) provide for adjudicators to be remunerated from BSRS funds;(ii) provide for indemnities in respect of decisions taken by adjudicators (for which purpose the regulations may apply an enactment (with or without modification));(u) must include provision requiring the maintenance and publication of records of applications and determinations under the BSRS;(v) must confer a right to appeal to the First-tier Tribunal in respect of determinations as to whether a building safety risk arose from defective construction or additional building work.Scheme funding regulations
5 (1) The Secretary of State must make regulations about the funding of the BSRS and of grants made under it (“scheme funding regulations”).and of grants made under it (“scheme funding regulations”). (2) Scheme funding regulations must aim to apply the building safety remediation principle so far as practicable.(3) For that purpose, scheme funding regulations must aim to ensure that a grant awarded under the BSRS is funded—(a) so far as possible where building safety risks arise from defective construction or additional building work, by the developer or principal contractor of the building in respect of which the grant is awarded, and(b) failing that (whether by reason of the dissolution of a developer or principal contractor, insolvency or otherwise), or where building safety risks do not arise from defective construction or additional building work, by money paid into a fund maintained through a levy on the building industry in general, or specified parts of the building industry.(4) For the purposes of achieving the objective in sub-paragraph (3)(a)—(a) the reference to the developer of a building includes a reference to any person who arranged for its construction or additional building work and for the sale of units in the building;(b) the reference to the principal contractor is a reference to the person who was responsible to the developer for the construction of a building or undertaking additional building work;(c) scheme funding regulations must permit a BSRS adjudicator to provide for an award under the scheme to be paid by one or more persons specified by the adjudicator (and awards may, in particular, provide for joint and several liability);(d) scheme funding regulations must confer a right to appeal to the First-tier Tribunal;(e) scheme funding regulations may include provision permitting a BSRS adjudicator to permit or require an award for payment by a specified person to be satisfied wholly or partly by a person connected to that person (within the meaning of the regulations, for which purpose the regulations may apply, with or without modification, section 121 of the Building Safety Act 2022 and any enactment relating to joint ventures);(f) scheme funding regulations may include provision about enforcement of liability to satisfy awards, which may, in particular—(i) provide for collection of awards as a statutory debt,(ii) include provision for interest or penalties,(iii) provide for liability to make payments pending appeal or review, and(iv) create criminal offences in connection with evasion.(5) For the purposes of achieving the objective in sub-paragraph (3)(b), scheme funding regulations—(a) must establish one or more levies to be paid by specified businesses or classes of business;(b) must make provision for determining liability to pay the levy;(c) may confer functions on BSRS adjudicators or other specified persons (which may include the Secretary of State) in respect of determination of liability to pay the levy;(d) must confer on a person determined to be liable to pay the levy the right to appeal to the First-tier Tribunal;(e) may provide for different amounts of levy to be paid by different classes of person;(f) may provide for the levy to be paid by way of one-off payments, periodic payments or both; (g) may include provision about enforcement of liability to pay the levy (which may, in particular, provide for collection of the levy as a statutory debt, include provision for interest or penalties and create criminal offences in connection with evasion);(h) must include provision about the administration of the levy by the Secretary of State, including provision as to the maintenance and publication of estimates, accounts and other records;(i) may include supplemental provision about the levy.(6) In making regulations under sub-paragraph (5), and in particular in assessing the proportionality and other fairness of any levy imposed by regulations under sub-paragraph (5), the Secretary of State must—(a) have regard to any other levy or similar imposition that appears to have a similar purpose as a levy under the scheme funding regulations, and(b) must consult persons appearing to him or her to represent the interests of persons affected by other relevant levies and impositions.(7) Scheme funding regulations may include provision about—(a) application of awards, levies and grants, including provision for holding (or return) of surplus funds;(b) the nature and extent of obligations imposed by awards (which may, in particular, provide for payments in money or services or money’s worth);(c) processes and procedures to be applied in determining applications for grants and questions of liability to awards (which may, in particular, include provision for determination wholly, partly, absolutely or contingently by arbitration, mediation or any other kind of process or procedure the Secretary of State thinks appropriate);(d) terms and conditions of awards, levies and grants;(e) appraisals, appeals and enforcement.Apportionment
6 (1) Scheme funding regulations may make provision about apportionment of liability for defective construction.(2) In particular, scheme funding regulations may provide that where a person is required to pay an award under the BSRS, that person may bring proceedings to recover a contribution from one or more persons who share responsibility for the defects in respect of which the award is made.(3) Provision made by virtue of this paragraph may—(a) confer jurisdiction on the First-tier Tribunal or on any other specified court or tribunal;(b) apply (with or without modifications) any enactment about third- party liability.Interim payments
7 (1) The Secretary of State may make interim grants to persons whom the Secretary of State believes are likely to be entitled to benefit from the remediation scheme.(2) Interim grants may be made on such terms and conditions (including as to repayment) as the Secretary of State may specify.(3) Scheme supplementary regulations—(a) may include provision for account to be taken of interim grants under this paragraph, and(b) may include other provision about interim grants under this paragraph (including provision about applications for grants, eligibility for grants and determination of applications for grants). Interpretation
8 For the purposes of this Schedule— “building safety risk” has the meaning given in section 120(5) of the Building Safety Act 2022;“building industry” has the meaning given in section 127(7) of the Building Safety Act 2022;“construction” includes any kind of building work (whether part of the original construction of a building or not) including works of improvement, repair and extension;“class” includes description;“defective construction or other building work” means construction or additional building work that—(a) contravened building regulations or other enactments in force at the time of the construction or additional building work, or(b) satisfies any other criteria specified in the BSRS or in scheme supplementary regulations;“BSRS funding regulations” has the meaning given by paragraph 5;“BSRS scheme” has the meaning given by paragraph 1;“BSRS adjudicator” has the meaning given by paragraph 3;“grant” includes loans and any other form of financial assistance (for which purpose a reference to payment includes a reference to the provision of assistance);“building safety remediation principle” has the meaning given by paragraph 1;“landlord” means means the landlord under the lease or any superior landlord.“remediation costs” has the meaning given by paragraph 4;“relevant building” means a self-contained building, or self-contained part of a building that contains at least two dwellings;“scheme supplementary regulations” has the meaning given by paragraph 4.Consultation
9 Before making the scheme, the scheme supplementary regulations and the scheme funding regulations, the Secretary of State must consult—(a) persons appearing to represent the interests of freeholders, leaseholders or occupiers of blocks of flats with building safety risks;(b) persons appearing to represent the interests of the construction industry and related industries, and(c) such other persons as the Secretary of State thinks appropriate.Regulations
10 (1) Scheme supplementary regulations and scheme funding regulations—(a) may make provision that applies generally or only for specified purposes,(b) may make different provision for different purposes,(c) may confer functions (including discretionary functions) on specified persons or classes of person, and may provide for the Secretary of State to appoint persons to exercise functions under the regulations or the remediation scheme (whether or not on behalf of the Secretary of State), and(d) may include supplemental, consequential or transitional provision.(2) Scheme funding regulations may not be made unless a draft has been laid before, and approved by resolution of, each House of Parliament.(3) Scheme supplementary regulations are subject to annulment in pursuance of a resolution of either House of Parliament.” Member's explanatory statement
This new Schedule would implement a building safety remediation scheme to ensure that buildings with building safety risks are put right without costs to leaseholders.

[The Earl of Lytton (CB)]

My Lords, in moving Amendment 93B I will also speak to linked Amendment 107 and Amendments 105C to 105G standing in my name. These amendments offer a range of proposals to enhance the protection of leaseholders from the costs of remedying fire protection or other structural defects.

I make no apology for returning, once again, to this matter of basic consumer protection for leaseholders and for going over some old ground. My mailbox tells me that the issues are far from resolved. Too many leaseholders remain seriously encumbered by the defects in the original construction of flats that they occupy or own. The plain truth is that the Building Safety Act—I shall refer to it as the BSA—is not delivering the protection that leaseholders ought to expect as a basic right, and this Bill serves to undermine it further in certain material respects.

There is cross-party consensus that the BSA needs amendment. I pay tribute to colleagues who, with me, continue to press the Government to make changes. I support the other amendments in this group for reasons that will become apparent. The BSA is convoluted. It complicates, excludes, creates uncertainty and risk, and delays remediation. It leaves some leaseholders—and their lenders—with permanently impaired assets. Where before there was one market, the BSA creates three tiers of flat ownership, with such complex rules that conveyancers frequently decline instructions and, increasingly, insurers are unwilling to offer professional indemnity cover to practitioners.

The Government have placed substantial remediation obligations on landlords. The courts should be the last resort, yet the BSA and the Bill force landlords to take legal action as a first resort on initial unfunded remediation and, thereafter, to recover the costs of defects that they did not cause from the developers. Where the developer no longer exists, they must fund it themselves. There is no automatic developer liability to meet any of the costs in the 85% of buildings not covered by the developer contract. There is no legal obligation on any contracting developer to cover non-life-critical fire defects and structural defects. Landlords are the backstop if public funding for cladding costs happens to prove insufficient. Construction inflation, moreover, has risen by a quarter since the announcement of the building safety fund in March 2020, so my first question is: what assurance exists that all eligible claims on the building safety fund and the cladding safety scheme will be met even if they exceed those historic cost budgets?

More broadly, this model seems to be based on little more than political bias and destined to fail, and fail in a way that will ultimately harm leaseholders and the leasehold market. I have questioned previously whether the major landlord groups can afford to fulfil their remediation obligations as demanded. I was therefore surprised to learn that under the Bill, and despite relying on landlords to fund non-cladding remediation works or related legal action, the Government proposed to eliminate or reduce the ground rent income. I was further surprised to learn from the noble Baroness, Lady Swinburne, in a letter last week, that the Government have no estimates of the risk of freeholder insolvency.

The main asset of many landlord groups is ground rent income, as we have heard before in discussions on the Bill. It is used to repay the long-term bonds or loans over many decades. If the income is removed, some will likely declare insolvency: the Government acknowledge this risk in their own impact assessment. I mention this again because it is critical to the remediation obligation. So that leaseholders are not left completely exposed if their landlords are insolvent, I trust that the Minister will regard as an essential lifeline my amendments, which are the only ones providing for alternative remediation funding sources. I would like to know what contingency plans the Government have in place apart from this, should buildings with remediation obligations escheat to the Crown, an eventuality the Minister alluded to on Monday.

Valuers are already marking down portfolio valuations because of material uncertainty. Permanent impairment of leaseholder and lender assets is also risked under the Government’s model. Basel III pillar 1 standards come into force next year. Lenders will have to revalue a loan if an

“event occurs resulting in a permanent reduction of the property value”.

Leaseholders will also be hit by these provisions; specifically the unprotected and partially protected—that is, the capped liability leaseholders—and those leaseholds covered by the developer contract. The contract allows combustible materials, now banned, to remain on buildings so long as they do not cause that “life-critical fire safety risk”. I put that in quotes: it is a non-statutory definition and my Question for Written Answer on this still awaits a response. But leaving these in place gives rise to a B1 category of building risk rather than the fully remediated A1 classification. At the same time, these flaws are evident to the market, which values an asset not according to life safety but according to the risk of material loss. The result is permanently higher insurance premiums. Ministers may wag the finger at the FCA in relation to its insurer members but, in truth, the market has spoken on the BSA and on building and professional indemnity cover risks, and no amount of political manipulation is going to alter that.

There is one group that faces a very bleak outcome, unless the Government change course, and that is in enfranchised leaseholders. Theirs are, in the terms of the BSA, “not relevant buildings”, a point that the noble Lord, Lord Young, makes in his amendments. The limit of any new protection afforded to resident management companies is the cost of obtaining a remediation contribution order, so can the Minister explain how enfranchised leaseholders will deal with non-cladding defects or effectively force the original developer to make a contribution, especially if it happens not to exist any longer?

Better policy is clearly needed. Simply, the BSA should be amended to protect all leaseholders, regardless of circumstances, in buildings of all heights. A separate, dedicated funding stream is needed so that leaseholders are not left in limbo, particularly when their landlord becomes insolvent.

The Committee will be familiar with Amendments 93B and 107 from the debates on the levelling-up Bill and the then Building Safety Bill, so I will try not to labour the point too much. Amendment 107 requires the Government to establish a building safety remediation scheme and Amendment 93B proposes a new schedule setting out the scheme’s key features. The scheme would serve to protect all leaseholders, without exclusion, from building safety remediation and interim safety costs. As drafted, it is fully funded.

Joint and several liability for remediating building safety defects is placed on the developer and principal contractor where a building did not comply with regulations at the time of construction. If neither can pay, or if the regulations have moved on and a building is retrospectively deemed unsafe, remediation funding comes from a levy across the wider building and materials industry. That approach has been extensively scrutinised by a range of legal and other professionals. In particular, I thank David Sawtell KC, of 39 Essex Chambers, for making himself available when I recently met with the Minister, whom I thank for facilitating the meeting.

I have added a second option for good measure. Amendments 105C to 105G amend certain arrangements already in the BSA. The developer contract limits developer responsibility to undefined “life-critical fire safety defects”. That means that all other defects are excluded. Amendment 105C closes that loophole by requiring developers to remedy all defects defined in the BSA. That brings all fire and structural defects within the scope of the developer contract—and, therefore, the responsible actors scheme—and puts that in line with primary legislation. It ends the arrangement whereby Parliament set in legislation one definition of defects requiring remediation while the Secretary of State entered into some side agreement with the industry for something rather different. At present, the government scheme requires developers only to remediate their own buildings. The Secretary of State has not given effect to Section 126(4)(b) of the BSA on the costs of remediating other buildings. Amendment 105D would put that right by amending the responsible actors scheme regulations.

Amendments 105E and 105F set out to end the three- tier system of leaseholder exclusions from remediation cost protection. Amendment 105E removes the exclusions according to building height and type of lease set out in the BSA. Amendment 105F removes the conditions and exclusions around remediation cost protection in Schedule 8 to the BSA.

The risk of major landlord insolvency is real. Amendment 105G reinstates and expands the original BSA provisions on insolvent landlords. It obliges insolvency practitioners and Law of Property Act receivers to commence or continue remediation work. Remediation costs are to be considered part of their expenses and therefore paid ahead of other creditors. It also reinstates their power to apply for a remediation contribution order, which the Government seek to remove through the Bill. But—this is a very big “but”—insolvency practitioners need secure funding if that is to work.

In closing, I draw attention to the great gulf between the Government’s self-praise about what they are doing—although, to a great degree, there is a lot of good in the Bill—and the reality. That reality is measured in the anguish and distress of hundreds of thousands of leaseholders who bought properties in good faith and now cannot sell them, get mortgages or move on with their lives. It is measured in the 15,000 people evacuated from their homes, as reported three days ago in the Sunday Times and referred to by the noble Baroness, Lady Thornhill, on Monday. It is measured in the 37% defect rate found in developer-contract buildings; in the glacial progress of remediation revealed in the Government’s most recent progress statistics; and in the FCA’s frank warning that insurers price risk not according to the loss of life, as the Government may wish, but according to the stronger test of total loss of asset. It is measured by the fact that this debate continues to play out seven years after the Grenfell fire.

This inequitable scattering of liability across innocent parties begs the question: why do the Government not make the wider construction industry, which designed, built, sold and banked the profits from these defective properties, the primary backstop for the damage done? We do not have an answer to that.

I have provided in these amendments two possible routes to effective protection of leaseholders, the most vulnerable group in this sorry tale of shame. I ask the Minister and noble Lords: if not by these proposals, how? When will the Government act to protect all innocent, home-owning consumers from market failure, and are they content to risk their reputation and legacy on simply making this a problem for the next Government? I beg to move.

--- Later in debate ---

With those clarifications, I hope that noble Lords will feel able not to press their amendments.

[The Earl of Lytton (CB)]

My Lords, I thank all noble Lords who have spoken in this debate. Needless to say, too many further questions arise out of all this, and there are too many points for me to be able to address anything other than the odd one—other than by making a very long speech and incurring the wrath of the Government Whip for the second time in the week.

I preface my further remarks by saying a word about Lord Stunell. His death is a great loss to all of us. He was forensically well-informed and always delivered his contributions with care, tact and supreme authority. I had the great honour of serving with him on the Built Environment Committee and, of course, I was with him throughout the Fire Safety Bill and the Building Safety Bill, as well as the levelling up Bill. He will leave a very great hole in our deliberations.

There is a fundamental common purpose between what the noble Lord, Lord Young, and I are trying to achieve. I simply say that I look forward to working with him to see whether we can find a common way forward—and indeed with other noble Lords, such as the noble Baronesses, Lady Thornhill and Lady Taylor, and the Minister, because there is a consensus that something needs to be done.

The right reverend Prelate and all the Bishops have been fantastic in their support on this—right the way through the passage of the now Building Safety Act and Levelling-up and Regeneration Act, and again on this Bill—in order to get justice for innocent leaseholders.

The noble Baroness, Lady Thornhill, referred to the wider liability and systemic failures. I get that, which is why I keep referring to the wider construction industry. There are lots of people involved there and they all have some responsibility.

The noble Lord, Lord Empey, referred to building control. This takes us back to the Building Act 1984 measures, which allowed for approved inspectors—as privatised entities—effectively to take over the role of local authority building control. The local authority then lost control of the process at that stage. The construction sector gamed the system. Indeed, I know at least one large body that had its own wholly owned subsidiary as its approved inspector. Where is the objectivity there?

The noble Lord, Lord Rooker, was absolutely right on the question of electrical safety, which is a subset of the fire safety issue.

The noble Baroness, Lady Taylor of Stevenage, has always been a fantastic supporter of what I am trying to do; I say to her and to all noble Lords that I am not set on the particular solution that I have put forward, but I am dead set on wanting something that protects consumers and protects leaseholders in their own home—this is the recurring theme. The chickens are going to come home to roost: the bottom line is that this will always end up with leaseholders by default picking up the pieces; they are the most vulnerable. The problems do not go away; whether you kick the political can down the road or whether you do not, it just leads to more grief.

I will not go through the comments of the Minister, but I thank her for them and will look at them with very great care. I am sorry that the argument still seems to be that, because this matter was raised in the passage of the then Building Safety Bill and levelling up Bill, it somehow should not be discussed any more. The point is that the problem has not gone away. The Minister may not want to listen to me—certainly not for much longer this afternoon—but she needs to listen carefully to what leaseholders are saying about their experiences. We in Parliament may start turning a tin ear to what is happening out there, but it is evident in the media and in emails to me and other noble Lords, and it cannot be ignored or avoided any longer. The mercury in this respect is going up the tube quite fast, and this will become more and more of an issue.

If my proposals are destined to slow down the process, all I can say is that, politically, I suspect that this is going to start speeding up very rapidly. The Government may say that they will take further action if the players do not perform, but this is another bit of finger-wagging. We know that something needs to be done and that it needs to be done now.

I end by saying that I will consult with other noble Lords about how we can take this forward. I certainly may return to this matter on Report. None of us wants to delay this Bill but, unamended, the agony for lease- holders will go on and on. On that note, I beg leave to withdraw Amendment 93B.

Amendment 93B withdrawn.