Non-Domestic Rating (Preparation for Digital Services) Bill

Lord Bourne of Aberystwyth Excerpts

Tuesday 11th June 2019 Lords Chamber

Moved by

[Lord Bourne of Aberystwyth]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, the Government are committed to ensuring that our tax system is in step with the digital age. Paying tax should not involve unnecessary administrative burdens and business should be able to take full advantage of modern technology to support an efficient and straightforward process. We believe that the administration of business rates, in line with all other taxes, should reflect these principles and be designed around the needs of the taxpayer.

Of course, HMRC has already taken significant steps to roll out digital tax services, giving businesses more control over their finances and allowing them to spend their time focusing on innovation, growth and the creation of jobs. The Bill builds on those foundations by paving the way for a similar digital-first approach for business rates. It is a simple measure that will allow HMRC to explore a future digital system for the administration of business rates. It will give it the necessary statutory powers to expend resources on designing a digital business rates system, potentially linking local authorities’ billing systems with HMRC’s.

We are bringing forward this paving legislation—I stress that it is paving legislation—in response to the feedback to the 2016 comprehensive review of the business rates system. As well as inviting views on the tax itself, we asked for feedback on the administration of business rates and how they are billed and collected. Following the 2016 review, the Government have taken extensive action to improve the operation of the current system. They have answered calls from businesses for more frequent revaluations and to change the annual indexation of the business rates multiplier from the retail price index to the consumer price index.

In their responses to the review, businesses also called for the modernisation of the billing and collection of business rates. This was also reflected in the Institute of Directors’ evidence to the current Treasury Select Committee inquiry into the impact of business rates on business. It called for HMRC’s Making Tax Digital efforts to extend to business rates. Businesses are already highly engaged with digital services, making sales, banking and paying bills online. The business rates system needs to reflect these changes so that it is easier for businesses to manage their bills.

Currently, businesses receive separate business rates bills for each non-domestic property they occupy, and large businesses with properties in different areas will receive bills from each of the local authorities responsible for issuing bills and collecting payment. While the Bill is a simple paving measure, it will allow HMRC to explore some potentially significant long-term changes to improve this system. To be clear, the Bill does not implement any specific reforms at this stage. It simply gives HMRC the powers to undertake the work and engagement to develop options for improving the system. It will ensure that any further changes meet the requirements of businesses.

I should stress that some noble Lords have written with inquires and points not particularly related to this legislation. I will ensure that they get a response, but this is a very simple piece of legislation relating just to paving the way to explore the possibility of digitalisation helping businesses along with HMRC and the tax system.

During the passage of the Bill in the other place, the point was made that digitalisation could reduce local authorities’ control over the business rates system. I therefore reassure noble Lords that the Government remain committed to giving local authorities greater control over the money they raise in their area and greater business rates retention. We aim to increase local government’s retention of business rates from 50% to 75% from 2020-21. As local government will retain more business rates, individual local authorities will also be able to keep a bigger share of growth in their own business rates. This will provide an incentive for all local authorities to grow their business rates bases. These commitments will be totally unaffected by the Bill. Local authorities will still be able to make local decisions about their local business rates, and the Government will, of course, engage with local government in the next phases of the design work on digitalisation.

The Bill is a first step towards creating a digital business rates system. It will enable HMRC to begin exploring potential options to link business rates with the administration of the wider tax system and expend resources in undertaking the initial development work. This is necessary as HMRC’s statutory functions do not currently include activity in connection with the administration of business rates. HMRC will also begin to undertake engagement with stakeholders to ensure that any reforms work for business and local government. The Bill will begin to meet the Budget 2016 commitment to transform business rates billing and collection. We cannot say what the final product will look like as this will be subject to that design work. Once complete, further primary legislation will be bought before this House for full scrutiny before the new system is bought in after 2024. It is therefore important to stress that this is paving legislation that provides power to explore the possibilities of a full digital system.

Following the passage of the Bill, the Government will begin development of a proposal for what this digital service might look like. This will involve engagement with stakeholders and the evaluation of possible options to ensure the best value for money. HMRC aims to develop a series of outline proposals in time for the spending review later this year. What will be taken forward will depend on the outcome of the spending review discussions. I assure noble Lords that there will be appropriate scrutiny and accountability in respect of this project. This is in addition to the role that Ministers in MHCLG and the Treasury will have, and it is also common for the Treasury Select Committee to examine large HMRC projects.

The Bill received cross-party support in the Commons, where it passed quickly without amendment. We want swiftly to grant HMRC the ability to begin early design work so that it can explore what a new system would look like, working with business and local government. I hope, therefore, that the Bill receives the same level of support in this House. It paves the way for an initiative to update business rates for the digital age. I commend it to the House and I beg to move.

--- Later in debate ---

[Lord Bourne of Aberystwyth]

My Lords, I thank noble Lords who have participated in this debate. I am most grateful for the support of the noble Lord, Lord Kennedy, the noble Baroness, Lady Pinnock, and the noble Earl, Lord Lytton. I understand the concerns that they have raised. I sought in my opening remarks to provide the reassurance that this is simply paving legislation to enable HMRC to explore options and to firm up a proposal that will then have to come back to us. Further legislation will be needed to implement the new digital system and it is perhaps then that the detailed scrutiny that we have been touching on will become appropriate.

I will ensure that the noble Earl gets a detailed response to the questions he has asked, both today and when he wrote to me. I had prepared answers, but when I first saw the speakers’ list I do not think he was on it, so I was reassured and did not prepare my speech on the basis of answering some of his questions. However, I will ensure that he gets a detailed response to his very good points.

I thank the noble Baroness, Lady Pinnock, for her support. To reiterate her point, this is enabling legislation. It is important that we involve all the stakeholders in looking at the possible options before we come back with the design that will then be voted on.

I thank the noble Lord, Lord Kennedy, very much. It is not often that I show that degree of prescience and foresight, but clearly something was working when I was developing the speech earlier. Again, I reassure him that we will ensure that a detailed proposal comes forward after being honed by HMRC. It is important not to put HMRC in the dock here; this is something that business has been asking us to look at because it wants to remove some of these administrative burdens. Businesses—representative as they are of individuals, as the noble Earl said—have asked us to do this. HMRC is responding to that call and we will look at its proposals in detail. I am most grateful for the comments made and I commend the Bill to the House.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.