Non-Domestic Rating (Lists) (No. 2) Bill

Lord Thurlow Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Monday 18th January 2021 Lords Chamber

[Lord Thurlow (CB) [V]]

I wish to address the Bill concerning non-domestic rates on commercial premises. The other Bill has been well discussed; I certainly support it. I declare my interests as in the register.

I cannot make these comments without some focus on reform of the system. By way of background, I spent some 40 years working in non-domestic property. I also spent a limited time—but some time, nevertheless—in the rates department of my firm, where I learned that this is a highly specialised sector lying within a specialist division of the RICS. It is a complex business.

This Bill is about moving the revaluation date forward, thus adopting values from March this year. I believe that it is flawed. In the retail sector, it will be very difficult, if not impossible, to establish estimated rental value—ERV—based on supply and demand and comparable evidence. There are probably thousands of empty shop units across England and Wales. Some will have had no offers for many months, let alone competition—an unheard-of blight in my 40 years of market practice. Many landlords have given up the premises for temporary charity use precisely to avoid the NDR obligation. There is virtually no retail letting activity from which the ERV must be assessed in only a couple of months’ time.

This blight was predicted. For 10 years at least, the industry has been debating the implications of internet shopping for the traditional retail format of high streets, out-of-town shopping and shopping centres. The threat was clear, and it has arrived. Traditional retail must change dramatically if it is to survive the low-rent, low-rates model of internet shopping.

Of course, the body blow to traditional retail is Covid. For many retailers, it is the death knell of their businesses. Every day, the newspapers remind us of high street retailers folding. A few will be bought out of administration but many will disappear, with jobs lost, debts, personal guarantees and tragedy. However, if you are Amazon or any internet retailer, Covid has played into your hands, with low rent, low rates and collapsing competition.

With the Government turning something of a blind eye to the soft rates regime for these internet businesses, the high street carnage comes as no surprise. Yet this could swiftly be corrected if the rating value rules recognised internet warehouses as the engine room of internet shopping. The burden of rates should follow the money and the profits. We should treat these warehouses as the retail properties they have become. The Government have provided Covid rates relief—huge relief—but to the high street, this is a stay of execution, not a cure. Retail patterns are not changing; they have changed.

Moving the valuation date will require valuers to assess ERV at the trough of a dead market. There will be little evidence. The problem will arrive with an appeals process of huge proportions. There will be a tsunami of claims. Without internet shopping, this would not be a problem.

The fundamental review that we expect in the spring, as mentioned by the Minister, is welcome but I fear that these events are occurring in the wrong order. The definitions of “internet shopping” and “distribution centres” must be rewritten to acknowledge their role. Following that event, the valuation process could unfold. High street retail could settle down. Rates would be at an economically justified level. Post-Covid markets would be able to return to a balance between supply and demand.

I fear for those in the VOA who, I believe, will be overwhelmed by the appeals process. I am afraid that the NDR, as applied to retail, is a broken system. There has been a simple transfer of retail trade away from shops to the internet without the corresponding and necessary transfer of rateable obligation. Can the Minister tell the House how long we must wait, following the review, for legislation to reform fundamentally the non-domestic rating system?