Mortgage Prisoners Inquiry Bill [HL]

Earl of Lytton Excerpts

2nd reading
Friday 7th February 2025 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I apologise to the noble Lord, Lord Sharkey, and to the House for being a few seconds late, due to a power failure on the rail network. I welcome the opportunity to participate on his Bill and I thank the noble Lord for his persistence.

Seemingly, the FCA’s response to him does not recognise his definition of mortgage prisoner. In my view, that is mere semantics, serving only to avoid addressing the problem. The key issue is whether the Government’s policies lead to circumstances that prejudice home owners as mortgagors. I support the noble Lord because it is clear that the interrelated nature of our financial and property sector is not being considered in the round. Whatever the reasons—out of scope, not a priority or too difficult—I share his view that this simply is not good enough.

The largest number of people trapped by the mortgage situation are leaseholders caught up in the building safety crisis, about which I have spoken a number of times before. Hundreds of thousands of them cannot sell or move on. Seemingly, the FCA does not recognise their existence as mortgage prisoner category. At its root, this is a combination of deregulation without effective oversight, lax enforcement without any meaningful sanctions and a propensity among developers and constructors to take the least onerous approach in a race to the bottom on quality and cost cutting, using untested construction techniques and inappropriate materials and failing to meet even the construction standards of 60 years ago.

I refer to the cases of two correspondents who have come to me recently with their accounts. The first narrowly avoided becoming a mortgage prisoner only because he was able to find an additional £10,000 to cover the tougher valuation terms of a new mortgage lender. The existing lender had proposed 70% higher monthly interest payments and a £10,000 higher arrangement fee simply for a renewal. The building is constructed using Panablok, a system for buildings up to 10 metres high, using a structural panel with a thin cementitious outer layer over a combustible inner core—a material described by some experts as “solid petroleum” such is the fuel load it presents in the event of fire. Fire risk assessments identified significant damage to parts of these panels, meaning that portions of the protective skin are missing. The system of dry lining finishes internally, which is integral to its basic fire compliance in the first place and poses an almost inevitable risk of damaging the brittle encasement layer of the panel. Accordingly, the rating of the building is significantly and adversely affected.

Under PAS 9980, I am told that it is deemed disproportionately expensive to replace the panels with a non-combustible alternative, even though a building of that height should never have been constructed with that system in the first place, because it is much higher than the 10 metres for approved use. Even worse is that the panels have a service life of about 60 years. Latent hazards and inappropriate use apart, this is a remarkably limited lifespan for a structural element in a modern residential building. Yet, this underpinned the sale of flats on 250-year leases—four times the likely economic building life. He asks me if this amounts to mis-selling. I ask the Minister the same question. High ongoing insurance costs, and the virtual impossibility of changing a mortgagee or averting any future and potentially catastrophic change in mortgagee approach to risk, seem permanent features. For other less well-funded leaseholders, it is much more serious. This is a trap which makes their home their prison.

I am afraid the second case is a sadder tale altogether. It concerns a Mr Crawford Wilson—who has allowed me to refer to him by name—who came to see me last year. He told me that in 2008, he bought an investment flat in Chelmsford built by Barratt, with a mortgage for 10 years via Mortgage Express. That provider failed in the wake of the financial crisis and was scooped up by UKAR. At the end of the mortgage term in 2018, the mortgage could not be renewed with any provider, despite his ability to make repayments, mainly because the building was found to have cladding and compartmentation issues and was thus caught up in the post-Grenfell building safety crisis. Pleas to the Levelling Up Secretary went unheeded. Repossession proceedings ensued and were effected in 2021. Hyalite, the firm to which UKAR transferred the relevant loans, eventually sold the flat in 2024 without an EWS1 certificate—which would normally be necessary for such a sale to proceed—for a forced-sale sum 43% lower than the price originally paid in 2008. Mr Wilson is now being pursued for bankruptcy for a large shortfall, a sum substantially enhanced by the generous costs of administering the debt.

I am indebted—as the noble Lord, Lord Sharkey, is—to the Library of your Lordships’ House, not only for the briefing on this Bill but for digging out the 2010 Budget Statement that included the following:

“The Government today announces its intention to integrate two of its wholly owned companies, NRAM and Bradford & Bingley plc, under a single holding company. The integrated business will be committed to providing excellent customer service”—


please note—

“leading arrears management and efficient operations. Both companies will remain as separate legal entities under the new holding company, each with its own balance sheet liabilities and government support arrangements. The Government believes this is the optimal solution to maximise value for the taxpayer and to create a solid platform for the orderly management of both companies’ mortgage books”.

There is absolutely nothing here about protecting innocent borrowers from foreseeable financial ruin. There seems to have been little understanding of the spreading contagion or assessed predictable outcomes for borrowers following the financial shock. Subsequently, the way government responded to the risks from the building safety crisis following the Grenfell fire arguably made things worse for far too many of them.

I put it to your Lordships that the case made by the noble Lord, Lord Sharkey, for a public inquiry to delve into the thinking and policies behind this whole area of mortgage lending is incontestable. Why is it that great departments of state appear to be unconcerned with the financial welfare of the citizen and apparently ignorant of the effects that their policies visit on society at large—and, for that matter, of the wider economic consequences for whole market sectors? In addition, what on any normal measure of their failure to understand, in terms of cross-departmental thinking, the consequences of other departments’ poor oversight? This does not meet the most basic functions of governance in mature and democratic nations, particularly in respect of protecting consumers and avoiding hazards. I am glad to note that this Government are committed to change from the past. Let us do this before the next disaster again leaves Ministers uselessly wringing their hands.

Budget Statement

Earl of Lytton Excerpts

Tuesday 14th March 2017 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, I welcome much of what is in the Budget Statement, and I thank the Minister for giving us the opportunity today to discuss it. I want to concentrate on the treatment of businesses, particularly with regard to business rates and allied matters where I have some concerns.

I declare my interests. I am a former employee of the Inland Revenue Valuation Office, now the Valuation Office Agency. I have a professional involvement in aspects of non-domestic rates as well as being a business ratepayer and a vice-president of the Local Government Association. I express my gratitude for the help of the Library staff of your Lordships’ House, who have been splendid, and to the Royal Institution of Chartered Surveyors, the Institute of Revenues Rating and Valuation, the Rating Surveyors Association and the LGA for their advice to me.

The cost of taxation to people in business via rates, or for that matter employee/employer or self-employed NIC, has been a growing issue for some time. Rather than concentrate on just the self-employed NIC, I ask noble Lords to consider the combined employer/employee contribution before jumping to conclusions, because I think that is the driver. It is what has become the disproportionate irritant that sits behind all this.

Business rates are a fixed-charge system in which—however you view it, whether space used, property value or use of services—there is a somewhat unbalanced level of tax, especially compared with its one-time residential bedfellow, now subject to council tax. You cannot disguise this by pointing to other contingent advantages. Migration to cheaper space, whether former industrial space, domestic garages, spare rooms, garden offices or even the virtual world of internet trading, is in part the result. The advent of the new rating lists on 1 April and the sharp, even penal, rises in some assessments was a matter of considerable concern.

It is the delay in the revaluation by two years, which was paraded as giving businesses certainty, that I object to: objectively, it has been the certainty of continued unfair treatment and, perhaps more cynically, the protection of the tax yield. Meanwhile basic issues have not been addressed and anomalies have grown. The failure to deal with the backlog of appeals has meant difficulties for business finance and, I suggest, for billing authority revenues. The LGA tells me that nationally there is a £2.5 billion provision against rateable-value adjustments and that there are about 240,000 outstanding cases as of last autumn, with more appeals being lodged as we get near the end of the current list.

I feel compelled to point to other ongoing efforts by HMRC to, as I see it, impede due process. For instance, it cites the Commissioners for Revenue and Customs Act to block the disclosure of sources of information, thus compromising the fair discharge and transparency of an independent appeals system. That will include the removal of several previously available and important data fields from the entries on the VOA website.

HMRC is devising a system known as “check, challenge, appeal”—CCA, if you like—which requires the most tortuous and demanding ratepayer registration that could possibly have been devised and, separately but in parallel, an equally tedious system for rating agents to register. The “check” aspect is still at the beta testing stage with, I understand, lots of anomalies and glitches to be sorted out, while “challenge” and “appeal” have yet to run at all. In my opinion it is clearly designed to prevent appeals generally by obstructing access to them and it comes very late in the day, with the new rating list coming into force in a couple of weeks’ time.

Then there is the attempt, as I see it, to introduce through statutory instrument a novel formula of words governing valuation accuracy, a wording that is untested and quite unusual in any other tax environment. Of concern to ratepayers with multiple outlets, appeal registrations must each be dealt with individually, property by property; you cannot replicate the registration for multiple property ownership. This is likely to create an automatic inbuilt two-and-a-half-year lead-in period to get any appeal dealt with and the rateable value sorted out. Meanwhile, pursuing cases that overturn long-accepted practice—the latest being the case of Monk v Newbigin, which went against the Valuation Office Agency on a principle for which I and the noble Baroness, Lady Farrington of Ribbleton, who is not here today, set the scene in this House in 1999—creates adjustments that prejudice business certainty and billing authority cash flows alike.

The statutory instrument dealing with the appeals process is not yet laid before Parliament although it was supposed to have been laid earlier this month. As I understand it, industry queries on the valuation terminology, which I have referred to, the implications for business rate refunds where justified and, furthermore, the extent to which the draft statutory instrument appears to exceed its powers claimed under the relevant provisions of the Local Government Finance Act 1988, as amended by the Enterprise Act 2016, have not been answered. Businesses need confidence that they are being treated fairly and consistently, especially as business rates in this country are the highest of any European equivalent.

For billing authorities moving to 100% business-rate retention, uncertainty and the corrosive effects of an appeals system that is not slick, quick or predictable are damaging and pose significant risks. It is not surprising that many observers are saying the business rates system is unfit for purpose. The continued failure by the Treasury and HMRC to tackle these issues in order to create proper accountability, transparency, simplicity and accessibility for every class of business occupier, along with the ongoing tinkering, are simply not acceptable. HMRC is perfectly capable of designing and managing an online system for tax, VAT and PAYE that can be operated by non-specialist individuals. By this standard, the CCA system is an aberration that will simply add to the number of unscrupulous types already milling around and trying to get instructions from business ratepayers. We can and must do better than this.

Queen’s Speech

Earl of Lytton Excerpts

Wednesday 16th May 2012 Lords Chamber

[The Earl of Lytton]

My Lords, I add my congratulations to the two maiden speakers, particularly the noble Lord, Lord Ashton of Hyde, who I thought was about to shoot my fox in turning his attention to regulation, which I want to concentrate on, too.

I welcome the Government’s commitment to reducing regulation and red tape, and am pleased to see that a number of measures have been put in place. The question that I want to concentrate on relates to business rates. These are one of the largest premises costs after rent, typically relating to about one-third or one-half of the rent itself. Very small businesses get some relief, but the extra cost of that is passed back through the system and is borne by other business rate payers. The businessman has no democratic voice, unlike the council tax payer; no services are provided for his payment and, save for extreme and demonstrable hardship, there is little relief. Empty rates, meanwhile, are levied on all but the tiniest premises and stalk the minds of those with empty and unlettable properties.

The system is under considerable stress in terms of the management of the business rates environment. First, due to inadequate resources made available to the Valuation Office Agency, whose predecessor body I was once an employee of, the initial accuracy of figures in the valuation list has suffered. Secondly, the valuation base year for the 2010 valuation list that we are currently in is in fact the antecedent year of 2008, the peak of the market. Many commercial values have fallen a great deal since then, and rates have accordingly become more onerous for that reason. In fact on 1 April this year they went up by 5.7%, an increase that, had it applied to council tax, would have been fairly instantly stamped on. Thirdly, as I have said, the risk of liability for empty rates makes owners of unlettable buildings desperate to reduce their exposure. Regrettably, the VOA has allowed itself to change its role from being the impartial government valuer, when I was part of its predecessor organisation, to a strategic player in the maintenance of a tax base. I view that with considerable regret, as do a number of other professionals in this field.

I understand that the Valuation Office Agency and the Valuation Tribunal, which deals with appeals against rating assessments, just about manage to handle the current inflow of appeals but have no resources to clear the backlog, amounting to some 146,000 or so outstanding cases, some going back to the 2005 valuation list. Typically it might take two years for an appeal lodged today to receive even an initial substantive response from the VOA. Meanwhile, the rates are payable in full. The Valuation Tribunal, which appears to operate on a computer system different from and largely incompatible with that of the VOA, has in recent times produced a plethora of practice statements and other regulations making for immense complexity, such that even some of the experts no longer understand the system.

The businessman is forced to take advice from others. Unsurprisingly, in the confusion, unscrupulous practitioners emerge promising rate reductions they cannot deliver, charging high up-front fees and making mass appeals which further swamp the system. More draconian regulation then follows naturally from the Valuation Tribunal, and the Valuation Office Agency becomes more defensive in its administration as a natural consequence. Soon nobody knows whether they are coming or going, whether an assessment is correct or up to date and so on. This is a fairly corrosive mix. Justice is denied, fairness has gone out of the window and a rather unsavoury mercantile element seems to have entered the minds of those administering the system, which dents confidence in it. We do not need confidence to be dented.

For years, the smallest of small businessmen have voted with their feet. The threshold costs of moving to a conventional rented office or other commercial accommodation are too high at the margins. The market adjustments are too slow in terms of bringing rents and rates into line with affordability. If the necessary adjustments were made, I suspect that insolvencies and write-offs would be very large indeed. So microbusinesses operate from spare bedrooms, converted garages, garden sheds and other domestic spaces. Their marketplace is the web, which is also their shop window. Good luck to them. I am one of them. I have been using one end of my home since 1988. To use a term from one professional acquaintance, this domestic environment has become the new business enterprise zone, free of rent, rates, business premises regulation, legal set-up costs, travel-to-work overheads and so on. It is not lost on such business operators that the council tax on an average band E or F dwelling is less than half the rates on an equivalent area of business space.

Nobody is charged with policing what happens here, and nobody has any real interest in investigating further what is happening on the ground. There are no checks on, for instance, whether a second home with its council tax reduction is also a holiday home run as a business. Charging authorities have no incentive to check up on this either, as they are merely collection agents for someone else’s revenue stream.

Business rates are not the only place where this sort of thing happens and where the management of all sorts of things from environmental health, health and safety, employment rights, planning rules, landlord and tenant law and so on cumulatively affect small businesses, in particular small businesses that start as microbusinesses and want to become small and medium-sized enterprises and grow on from there. I believe this is a great country in which to start a business, but I am not sure that it is quite such a good one in which to grow it on once it has got going.