Non-Domestic Rating (Multipliers and Private Schools) Bill

Lord Fox Excerpts

Committee stage
Thursday 27th February 2025 Grand Committee

[Baroness Scott of Bybrook (Con)]

My Lords, in moving Amendment 46 I will also speak to my Amendments 53 and 54, which are all borne from the lack of detail in the Bill and the failure to publish an impact assessment for its first four clauses. The Government are asking us to agree to a Bill without clarity on the substance and the financial impact, and one which will make a real problem for businesses on the high street. They are asking us to support the Bill despite not providing any assessment of how it will impact on the high street and, while they promise to reduce business rates, the only thing that we know is certainly being reduced at this stage is the relief we offer to retail, leisure and hospitality businesses.

My Amendment 46 calls for a review of the impact of Clauses 1 to 4 on businesses, high streets and economic growth. There is no impact assessment published alongside the Bill that covers its first four clauses and no commitment to publish one when the multipliers have been decided. This is entirely unacceptable; it seems unlikely that the Government would pursue a Bill without clarity as to what impact it will have. In order to have an informed debate, we need to know what the Government think the material impact will be. If they are so certain that they are reducing the amount of tax that businesses pay through business rates, it would make sense to publish an impact assessment detailing how such an objective will be achieved.

My Amendment 53 is borne from the same concerns about the lack of information and asks for an annual report as to how much money is raised through the provisions in Clauses 1 to 4. Again, there is no detailed information to accompany the Bill and we are being asked to agree to a measure despite not knowing how it will impact on the very businesses it taxes. Amendment 54 seeks to include an annual report that breaks down the revenue from business rates by type of business, so that it is possible to evaluate how successful this arbitrary threshold is at placing further burdens on online giants, rather than on small and larger independent shops and pop-up businesses.

The Government have changed their tone in regard to business rates after an initial promise that they would reform the whole system to balance the scales between the high street businesses and online giants—the Bill does not deliver on that. I would be interested to see which businesses end up with a larger tax burden as a result of the Bill. I urge the Government to seriously consider these amendments.

[Lord Fox (LD)]

My Lords, as we have heard from the noble Baroness, Lady Scott, this group is about understanding the impact of the Bill. To help us focus on why this is important, my noble friend Lady Pinnock and I have produced our own notional one-dimensional impact assessment.

If a property had a rateable value of £100,000, before Covid it was paying close to £50,000 in rates. Then, when the pandemic came, if—and only if—it qualified for relief, that £50,000 would benefit from a 75% reduction. In this case, the business owner would have been paying only £12,500. Rolling forward, what do we find when the Covid relief is completely lifted? The rateable value has not changed; it is still £100,000. So, by our calculation, if—and only if—the full multiplier reduction is applied, that business will be paying £30,000 in non-domestic rates.

I am sure the Minister can spot where we are heading on this. Yes, the business will nominally have a reduction in its rates, but those are the rates it was paying before the Covid relief. In reality, it will have gone from paying £12,500 to £30,000; that is what will be hitting the business. I have two questions for the Minister. First, allowing for our slight approximations to make the maths easy, is this broadly correct and, if not, what is the actual analysis? Secondly, how on earth will this bring benefits and investment to the high street?

As the noble Baroness points out, it is right to talk about the impact assessment, both before the implementation of the Bill and once it has been implemented. The accelerated timeline for the Bill’s implementation has left insufficient time for stakeholder consultation, particularly regarding measures affecting distribution warehouses and out-of-town retail premises, as the noble Baroness just mentioned. Therefore, my noble friend Lady Pinnock and I have tabled a number of amendments to help probe different aspects of the impact the Bill will have. When we get to Report, we will hope to refine this—that is, if the Government have not put forward their own amendments, which I expect they will because this makes so much sense and is so important to the Bill.

Amendment 48 would require the Secretary of State to publish an impact assessment on Clauses 1 to 4 before they come into force—very similar to what we have just heard. Amendment 49 proposes a new clause that would require the Secretary of State to examine the effect of the introduction of the new multipliers on the amount of business rates paid by businesses occupying a single site, compared with those occupying multiple sites. This is because the relief system had a cap on it. That cap goes. The question is: does the multiplier applied across multiple sites mean that some large multisite organisations will bust the cap and benefit substantially at the expense of single-site retailers or not? Because there is no impact assessment, we have no idea. This will, essentially, help us to differentiate the effect between the size and scale of businesses.

Amendment 50 is intended to assess the cumulative impact on businesses of the changes in the Bill with the expected removal of the retail, hospitality and leisure relief—coming to the point I was just talking about. Amendment 52 proposes a new clause that would require the Secretary of State to examine the effect of the introduction of the leisure multipliers on the amount of business rates paid by businesses in different council areas. In other words, how will this affect the regional distribution? The Minister, as someone who comes from the north, will understand that there are significant differences between what happens in the north and the south-east of England. Coming from Herefordshire, I would say that there is exactly the same sort of difference there, if not even greater. Amendment 73 is consequential.

These, taken with the amendment from the noble Baroness, Lady Scott, are all about how we know what the Bill will actually do. The Government have made bold claims about the effect they assert it will cause on Britain’s high streets. On these Benches, it seems there is absolutely no way of supporting those claims because there is absolutely no data.

[Lord Thurlow (CB)]

My Lords, I will add a few words on this important group of amendments. It is not possible to do an impact assessment at the moment. This has been rushed, and the new valuation list will not be completed for another three or four months. Non-domestic rates are the third-highest cost to most RHL businesses, after rent and employment costs. The third-highest outgoing for these businesses is being discussed here and going into law as we speak before one of the critical ingredients of the P&L of those businesses is known. It will not make good law.

The amendments we have heard about in this group, and some of those to come in later groups, refer to a request for delay to the impact assessment so that these variables are known and businesses are not groping about in the dark trying to understand their profitability and do their business plans. It is not the right moment to be having this conversation, but all will be fine if we allow an extra year to do the impact assessments and the required consultations with the professional bodies that have the expertise, which can then be assessed by secondary legislation.

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[Lord Khan of Burnley (Lab)]

My Lords, let me clarify this for the noble Lord. As I said repeatedly on day one in Committee, the Treasury will publish an analysis when it sets its multipliers at the Budget, but the work that is going on in providing that analysis will consider all the issues, in particular the issue the noble Lord raised about the 2026 revaluation.

[Lord Fox (LD)]

It seems to me that the Government have done an impact assessment; if it is not an impact assessment, it is an analysis that may or may not be an impact assessment. The Minister is saying that he has some data but is not prepared to let us have it, so we have to make this law blind.

[Lord Khan of Burnley (Lab)]

My Lords, I think I have been quite clear in stating that there is clear evidence that there is no impact assessment on taxation. However, what we are asking to do in the Bill is to set the parameters for increasing the multiplier and the flexibility for the higher rate over £500,000; and, for the lower multipliers, to support RHL, as we committed to do in our manifesto. When the Treasury works up to the announcement and makes a decision on the multipliers at the Budget, it will of course publish analysis on what the impact of that will be in 2026.

[Lord Fox (LD)]

I am sorry to labour the point. This may sound rude but it is not supposed to be. Given that the Treasury seems to be driving almost all of this, could we please have a Treasury Minister here, as well as the noble Lord, on Report? It would make sense to talk directly to the department that has actually made the decisions, rather than to the person who is carrying the message.

[Lord Khan of Burnley (Lab)]

My Lords, I take everything that the noble Lord says in a good spirit; I will come back to him on that point. Let me be clear on the remit of the Bill. On when the Treasury will set its multipliers, I understand the noble Lord’s point, but I will go away and see. As I said on day one in Committee, I look forward to meeting all noble Lords who have an interest and amendments. I am happy to sit down and discuss this; if I can get one of my colleagues from the Treasury, subject to availability and diary commitments, I will of course pursue that.

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Moved by

[Lord Fox]

47: After Clause 4, insert the following new Clause—
“Review of effect on non-domestic rating policy(1) Within six months of the day on which this Act is passed, the Chancellor of the Exchequer must conduct a review of how the measures in this Act have impacted non-domestic rating policy.(2) The review must assess—(a) potential changes required to non-domestic ratings as a result of the measures within this Act;(b) what alternatives to non-domestic ratings, if any, the Government has considered.(3) The report of the review must be laid before Parliament.”Member’s explanatory statement
This amendment would require the Chancellor to review the effects of this Act on wider non-domestic rating policy and consider alternatives, for example a commercial landowner levy.

[Lord Fox (LD)]

My Lords, I think we have all agreed that the Bill is tinkering with what is essentially a broken system. The Labour Party clearly knew that because it pledged in its manifesto to reform the system, so it understands that the system is broken. Speaking to the last group, the noble Lord said that businesses need certainty and that the Bill will give them it. The certainty is that they will be paying more in business rates in two years than they are now. They know the direction of travel, but they do not know how fast they will get there or how much they will be paying. We know that, no matter how broken it is now and irrespective of its impact, the Government plan to keep this system in place for three years. I think that is what I heard the Minister say.

On the one hand, I suggest that this is more than a little cavalier. As the noble Lord, Lord Thurlow, has explained, there may well be quite a number of chickens that come home to roost during that three-year period. On the other hand, it gives the Government time to carry out their much-vaunted detailed review, to properly consult and to legislate for a better and fairer system that genuinely encourages investment. Amendment 47 would require the Chancellor to review the effects of the Bill on wider non-domestic rating policy and to consider alternatives. I am sure the Minister would agree that productive capital and investment should not be the target for this tax. I suggest that one way of ensuring this is to levy rates on the value of the commercial sites and also to remove exemptions for empty or derelict commercial premises. Revaluations should happen on a more regular basis, and I think we should agree through consultation how often that should be. The nub of this is that anything a tenant invests in their business should not increase the site rateable value. If it does, which is where we are now, you are taxing investment and growth, not the actual site value.

These are the ideas and sorts of things that the Government have time to consider. They have time to radically throw this system up in the air and make sure that what comes down is fairer, rewards growth and investment, and makes sure that the right people are paying the right amount. If we are to have this tinkered-about system for three years, can the Minister assure your Lordships that the time will be used usefully to deliver a system that is fit for purpose and delivers growth across our country?

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[Lord Khan of Burnley (Lab)]

My Lords, Amendment 47 seeks to require the Chancellor to undertake a review of the measures in the Bill, once passed, on broader non-domestic rating policy and to set out what potential changes may be required and/or what alternative approaches to non-domestic rating have been considered. The Government are committed to creating a fairer business rates system that protects the high street, supports investment and is fit for the 21st century. The Government commenced that journey at the 2024 Budget, when we announced our intention to permanently—I say that again: permanently—introduce lower rates for qualifying retail, hospitality and leisure properties from 2026-27, as well as a higher rate on properties with rateable value of £500,000 and above to ensure that the permanent tax cut is sustainably funded.

At the Budget, the Government also published the Transforming Business Rates discussion paper, setting out priority areas for business rates reform and inviting stakeholders to have a conversation with the Government on this matter over the course of this Parliament. The areas of interest for further reform as set out in the paper include: incentivising investment and growth, considering the frequency of revaluations and ensuring that the system is transformed to make it fit for the modern 21st century economy. The paper also focuses on tackling avoidance and evasion; for example, through the Government’s intention to publish a consultation on adopting a general anti-avoidance rule for business rates in England.

I am delighted to say that those conversations with stakeholders on priority areas for reform have commenced and are ongoing. I thank all those stakeholders who have been in contact to offer their valuable insights and experience of non-domestic rating. Furthermore, on 17 February, the Government published the Business Rates: Forward Look policy note, which provides an update on key milestones for the Government’s overall business rates reform agenda. As set out in that note, we are reflecting on engagement undertaken so far and the views expressed as part of that process. It also sets out that we anticipate further stakeholder engagement on specific reform options ahead of the Autumn Budget, when final decisions will be set out.

I am aware that there is support from Liberal Democrat noble Lords and Members of Parliament for the replacement of business rates with a commercial landowner levy. What is important to the Government is that we have a tax that works. It is not the first time that this House has heard suggestions for a tax on land values or a levy on landowners: it was as common a debate in the last century as in this one. What all those debates show is great uncertainty and a lack of evidence of the benefits: any benefits to the high street would be far from certain. We are clear on the need for reform but, to minimise disruption for businesses, the Government will make improvements to the existing system over the course of this Parliament.

Before I conclude, let me address the points that the noble Lords, Lord Fox and Lord Jamieson, raised on investment. They will understand that I am unable to comment on specific examples of live non-domestic rating bills but, as part of the Transforming Business Rates discussion paper, we will look at the effectiveness of the improvement relief scheme, which helps businesses that invest in their property. I look forward to our engagement, post Committee, in more detailed conversations. For the reasons set out, I am unable to accept the amendment. I agree that the system is broken and we are trying to fix it. It cannot go on year after year on an ad hoc basis. We need certainty and sustainability so that people can have a clear and fair system. As we said in our manifesto, we will continue to support leisure, hospitality and retail, and those above £500,000 rateable value—fewer than 1% of properties—will contribute to make sure that our system is fair and balanced.

I hope I have provided reassurance as to the seriousness with which the Government are approaching our stated task of reforming the business rates system, and I ask the noble Lord to withdraw the amendment.

[Lord Fox (LD)]

I thank the Minister for replying; I am not sure that I thank him for his reply. I thank him for acknowledging that the system is broken. When you try to fix something, there is no point in fixing the windows if the roof has caved in and you have subsidence. The scale of the brokenness means that the ambition to reform needs to be somewhat more than I detected from him.

I am grateful to His Majesty’s loyal Opposition for bringing up the cliff-edge point: we have to talk about putting in steps to avoid that cliff edge. The example given was not specific but an imagined, general example. We do not need specifics: we know that if a business is valued at £495,000 and it increases its value just a tiny bit, it is suddenly in a massive tax bracket. The Minister must be able to see that that is a huge barrier to investment. The only way to deal with that is to have not a cliff edge but a gradual approach. We should investigate that process together.

[Lord Khan of Burnley (Lab)]

The noble Lord touched on a point that the noble Lord, Lord Jamieson, made about anchor stores and valuations above £500,000. Let me be clear: many anchor stories in RHL have rateable values of properties in other parts of the country that are less than £500,000, so, equally, they will also benefit from lower multipliers in that bracket.

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[Lord Fox (LD)]

And if the Government adopt my impact assessment, which deals with multiple retailers versus single retailers, we will know how that works.

The Minister will be pleased to hear that this is the last time noble Lords will hear from me. There is a tremendous amount of work to be done between Committee and Report on Clauses 1 to 4. There is potential for us to work together to make this better, even though, as we have all admitted, it is tinkering around the edges. With that, I beg leave to withdraw the amendment.

Amendment 47 withdrawn.