Non-Domestic Rating (Multipliers and Private Schools) Bill

Lord Thurlow Excerpts

Committee stage
Monday 24th February 2025 Grand Committee

[Lord Fox (LD)]

My Lords, I welcome the Minister back to his place and say that the whole House was sorry to hear of his family’s loss.

We on these Benches welcome this Bill as a narrow tinkering of a broken system. It may have some beneficial effects, but I remind your Lordships that the non-domestic rates system has been broken for years, and if this tinkering distracts from a full and proper review of the system, then it is a malign influence rather than a benefit.

From scrutinising the Commons debate on this Bill, it seems that the Government sought to limit debate by asserting that its purpose was to use multipliers to manipulate the non-domestic rates of a subset of businesses in what it calls high streets. This measure is focused on retail, hospitality and leisure hereditaments. Having done this, the broad government claim is that our high streets will somehow be protected and that investment will be encouraged. In wording Amendment 1, we attempted to include words that spelled out the spirit of the Government’s Commons claims, but I have to say that the Public Bill Office resisted all attempts to include the concept of protecting high streets and encouraging investment in the purpose statement. The PBO has confirmed the narrow nature of this Bill.

The Government cannot have it both ways. If they accept the restraints of their own handcuffs and restrict this Bill to varying multipliers for this subset of businesses, the Minister cannot claim to be protecting high streets. There are at least three reasons that make this true. First, high streets are much more than retail, hospitality and leisure, as we will see from various groups of amendments. If the Government’s actual purpose is to protect high streets, they would spread its activity more widely. This will be effectively asserted from these Benches and from those of His Majesty’s loyal Opposition.

Secondly, the Government present no evidence that their claims to be protecting high streets will actually come to pass. As we know, the non-domestic rating system is complex. It is further complicated by the application of reliefs, which will vanish as these multipliers arrive. Increasing the multipliers for larger businesses is another complication. In addition, there is the issue of valuations—this is the elephant in the room that this Bill ignores. They are always up. There are many puts and takes that affect the individual business rates that a business pays and what its competitors pay, yet there has been no attempt at an impact assessment. I have to put it to the Minister that no one actually knows the effects that this Bill will have.

Thirdly, we know that there are some important consequences for activities that fall outside the retail, hospitality and leisure focus that could be badly affected by the consequences of this Bill. My noble friend Lady Pinnock will highlight the issue of medical and health-related premises, and I will seek to demonstrate that an important sector of our creative industry—independent music venues—will be hit hard. In both cases, we need the Minister to confirm that increasing rates for these activities is an unintended, rather than an intended, consequence. Both these activities are important parts of well-functioning high streets, although of course there are other activities that also contribute. This is a consequence of blunt targeting, and it needs to be sorted.

I propose this amendment with a heavy heart, because the narrowness of the purpose allowed by the PBO identifies the limitations and faults of this Bill. But there is hope. First off, the Minister could accept my noble friend’s Amendment 51, when it comes up. That is a good starting point but, otherwise, I am sure that we can work with the Minister to come up with a new Short Title and Long Title that will allow us to properly set about protecting our high streets. My colleagues and I stand ready to help the Minister in this regard. I beg to move.

[Lord Thurlow (CB)]

My Lords, I stand to introduce the second group, in which, conveniently, there are three amendments, all in my name—

[The Deputy Chairman of Committees (Lord Geddes) (Con)]

We are still on group 1. We will come to group 2 in the fullness of time.

[Lord Thurlow (CB)]

My apologies.

[Baroness Scott of Bybrook (Con)]

My Lords, I will speak to Amendment 1 and to my notice opposing the Question that Clause 1 stand part of the Bill. I was pleased and interested to see that the Liberal Democrats had tabled a purpose clause, given that they have criticised purpose clauses tabled by my Conservative colleagues on other Bills. On the purpose clause tabled by my noble friend Lord Davies of Gower—

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Moved by

[Lord Thurlow]

2: Clause 1, page 2, leave out lines 1 to 2
Member’s explanatory statement
This amendment, connected to another in the name of Lord Thurlow, seeks to remove the power to introduce higher multipliers for more valuable properties.

[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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I am particularly conscious of the support that the noble Lord, Lord Thurlow, has previously expressed for reform of the business rates system, so I hope he welcomed the discussion paper on transforming business rates that the Government published at the 2024 Autumn Budget. I trust that he will bring the full weight of his professional experience and knowledge to support the Government in their endeavour to reform the business rates system and, in the meantime, will withdraw his Amendment 2.

[Lord Thurlow (CB)]

I thank noble Lords who have taken part in this group. The most important takeaway is that it would be too little, too late to postpone until 2027. The acute pain felt in the high street is great enough for there to be substantial loss of retail presence if we do not move more swiftly. We have heard from all sides of the Committee that the lack of impact assessments on the specific, granular issue of definitions is of very serious concern. It needs only another 12-month delay for consultations with experts to take place.

The noble Baroness, Lady Pinnock, revealed with clarity—the noble Lord, Lord Fox, referred to it as well—that there is a harsh difference between an Amazon warehouse with a rental value, on which rateable values are based, of £4.50 per square foot, versus £45 on the high street. That is a massive difference. Amazon are paying 10%. We are tinkering with the deckchairs if the rate poundage is increased for these larger retailers because it cannot be increased—as the noble Lord, Lord Fox, pointed out—to anything near what will be required to provide balance.

The difficulty is one of definitions. I would be grateful if we could speak to the Bill team before the next stage of the Bill. There is scope to introduce a new use class order specifically for the purposes of rating—not for planning, but rating. This would identify the difference between a fulfilment centre for a high street business and an Amazon generic. If that was offered, I would withdraw my amendment.

Amendment 2 withdrawn.

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[Lord Jamieson (Con)]

May I deputise? Before I do, I declare my interest as a councillor in Central Bedfordshire. In moving Amendment 3, I shall speak to Amendments 18, 37 and 43 in the name of my noble friend Lady Scott, and in favour of Amendment 32 in the name of the noble Lord, Lord Thurlow.

Amendment 3 seeks to introduce discretion for billing authorities in the application of the higher multiplier. The other amendments in the name of my noble friend Lady Scott—Amendments 18, 37 and 43—question whether the Treasury is the right authority to define these hereditaments. The purpose of these amendments is to seek the Government’s reaction to the proposal that local authorities should have a role in deciding which businesses pay the newer, higher multiplier. Local authorities are in a unique position to comprehensively understand the challenges and circumstances faced by their local businesses, which a centralised body certainly is not.

For all its strengths, we know that His Majesty’s Treasury does not have the local knowledge and in-depth understanding of the needs of individual high streets to make informed decisions on business rates that work in the best interests of the local areas. Local authorities are on the ground and are intimately familiar with the economic, social and cultural landscape of their high streets and areas. From my own experience in Central Bedfordshire, I know the positive impact that a well-run local authority can deliver for its high streets. We are interested to hear how the Government seek to empower councils in these areas. We have heard a great deal from the party opposite about the value of devolution; this is a good example of where the Government should put these sentiments into action. The amendments in the name of my noble friend Lady Scott look to empower local authorities to tailor policy to best suit their local area’s specific needs.

Fundamentally, policy is about not only implementing rules but creating a framework that works in practice. Therefore, it is essential, even if the Government are unable to accept the amendments in this group, that local authorities are consulted properly before the Bill is passed. Can the Minister set out the consultation process undertaken to date and confirm for the Committee the further steps that his department will take to consult local authority leaders on these changes? Can he also update the Committee on how this change to our business rates system will interact with the Government’s wider plans to reorganise local authorities? We know that the environments in which businesses operate vary dramatically throughout the UK. However, this issue is neglected in the drafting of this legislation.

It is concerning that the broad applications of the definitions of hereditaments, which will be determined by the Treasury, will not address these regional disparities and enable a focus on what works locally. When created by the Treasury, definitions are designed with an overarching and national perspective and may risk creating unintended consequences for local businesses. They do not account for the nuances of local businesses, which are well understood by local authorities, so we must be cautious about adopting a one-size-fits-all approach when introducing legislation that will undoubtedly have significant implications for local businesses. The Government risk implementing blanket definitions that are disconnected from the realities faced locally.

Finally, I turn to Amendment 32 in the name of the noble Lord, Lord Thurlow, which seeks to remove the power of the Treasury to define a retail, hospitality and leisure property; this addresses the fact that it is local authorities who decide what constitutes a retail, hospitality and leisure relief property, in line with the government guidance. In tabling this amendment, the noble Lord appears to have many of the same concerns as those expressed in my noble friend Lady Scott’s amendments. I look forward to hearing his speech. We did not discuss this matter before Committee so I was pleased to see on the Marshalled List that I have a friend on this issue on the Cross Benches; I thank and offer my support to the noble Lord, Lord Thurlow, and hope that we can work together constructively after Committee.

To conclude, I hope that all noble Lords will listen carefully to the concerns raised in this group of amendments. I look to the Minister to engage proactively with the issues addressed in this amendment. I beg to move.

[Lord Thurlow (CB)]

My Lords, the noble Lord, Lord Jamieson, has taken the words out of my mouth. I support much of what he has said.

The starting place for my comments on this group is that the Bill seems to reverse the attempts to regionalise power from the centre; it would take the ability to define these hereditaments back to central government. As the noble Lord, Lord Jamieson, said clearly, the definition of RHL properties needs local expertise. There are regional disparities, to which he referred; it is terribly important to understand that. Regional disparities are huge. This measure is a generic product, but it is subject to huge regional variations. One size does not fit all hereditaments. That is an important starting place. It is no accident that the government guidelines allow local authorities to define RHL in accordance with the existing government guidance. That is very sensible. They are the people on the ground. They understand the give and take, as well as the commercial flows, involved.

A large supermarket on a high street may be the only anchor present in that town, being vital to the health of the high street, probably with a car park or a bus stop, and the only source of sufficient turnover of pedestrians to justify its presence in the high street at all. It has to be understood that, if these anchors pack up and leave, high streets really do suffer. There is a terrible price to pay for letting them go and anything that imperils their presence has to be terribly carefully decided, which is why it is a local issue, not a central government one. I strongly urge the Government to allow local authorities to continue to make these decisions.

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I hope that I have been able to provide further information and clarification for noble Lords and that, with that, they will be able to withdraw or not press their amendments.

[Lord Thurlow (CB)]

Does the Minister have any comments to make on the possibility of redefining the use classes for the purposes of rating, which would focus on the Amazon generic problem?

[Lord Khan of Burnley (Lab)]

I forgot to mention this to the noble Lord, Lord Thurlow; it would be helpful for him to sit down with me to discuss that, as well as his previous request, as soon as he has time in his diary. This is a discussion that we should have to engage on that particular point.

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[Lord Fox (LD)]

My Lords, this is another example of the blunt instrument in operation. We have talked about increasing tax on public services, some of which have the ability to recover the money via new burdens, while some do not. But these services are offered by private sector organisations, and we know for a fact that they will not get recompense from the Government for this, which will increase their costs, reduce their profit and may eliminate their viability altogether. When post offices and Crown offices are retreating from the high street, this is not a good time for those businesses.

In a moment we will talk about flagship operations. I put it to noble Lords that banks and post offices are flagship operations. People travel to towns to visit a post office and banks, and then they spend their money on other things, so by denuding or putting in peril those sorts of operations, we are removing the attraction of town centres. We are making sure that they do worse rather than better. That is the first point.

Secondly, I have a relative who owns a shop in a country town—I do not have an interest in that shop—and one of their biggest difficulties is banking their money. They have to drive 20 miles twice a week to take bags of money to bank it because there is no longer a bank. The removal of a banking hub would make that even harder. It also drives shops to go fully digital, which means that people who do not want to use digital and want to keep using cash are no longer facilitated by those businesses. I have seen businesses that can no longer handle cash simply because they no longer have the necessary banking facilities.

Once again, we are looking at the RHL sector, but these businesses serve the RHL sector and make their lives operational. I am happy to support the various amendments in this group in the name of the noble Baroness, Lady Scott, and I look forward to the Minister explaining how taxing post offices and banking hubs will help the RHL sector in our town centres and high streets.

[Lord Thurlow (CB)]

I will say a few words in support of the excellent Amendments 8, 9 and 10 in the name of the noble Baroness, Lady Scott. It had not occurred to me but is worth saying here that, just as an anchor is critical to the economic health of the high street and the social contribution that comes with it, so are these very small and vital retailers—if that is the right word—for banking facilities, as well as the small facilities open all hours, 18 hours a day or whatever it may be. They are critical. In fact, they should perhaps be considered in a conversation about revising the use classes order because, as we heard with the good examples given, they are essential to the health of the local community.

[Lord Khan of Burnley (Lab)]

My Lords, in her contribution, the noble Baroness, Lady Scott, said that she hoped the Minister listens very carefully. Just to reassure her, I always listen very carefully and with great interest to everything that the noble Baroness says, as is the case for all noble Lords in this debate.

Six of these eight amendments seek to change the Bill to remove certain high street services from the higher multiplier. In the previous debates on the amendments in groups 4 and 5, I explained why the Government have taken a sector-agnostic approach to the higher multiplier and have not excluded any sector or type of property. The same considerations apply here and I will not repeat them.

As regard detail, it is worth being clear what type of retail properties on the current rating list would be caught in the higher multiplier. The Valuation Office Agency’s published data shows that, of the subsector of shops that are at or above the £500,000 threshold, 72% are supermarkets, large food stores or retail warehouses. That leaves only 900 other shops at or above £500,000 across England, and of these 630 are in London and the south-east. For most regions, the number of shops affected, excluding supermarkets, large food stores and retail warehouses is fewer than 50. These numbers are rounded to the nearest 10.

In particular, the noble Baroness, Lady Scott, mentioned petrol stations, and amendments would support petrol stations but, in reality, from the Valuation Office Agency’s data, the number of petrol stations above the higher multiplier threshold of £500,000 is fewer than five.

The danger with these carve-outs from the higher multiplier is that the benefit could, in part, flow to large businesses in thriving and valuable locations, reducing the ability for us to support smaller businesses and less valuable locations through the lower multiplier. We understand the importance of facilities such as post offices or banking hubs for local communities. The average post office has a rateable value of only £16,000, so we do not anticipate that the higher multiplier will apply to very many premises used by post offices, and post offices are eligible for the existing retail, hospitality and leisure relief.

We understand that Amendments 17 and 35 seek to add to the lower multiplier hereditaments that host banking hubs. In the debate we have just had on group 4, I explained why we feel it necessary to target the lower multiplier on RHL. These amendments could easily widen the lower multiplier to other settings and introduce a loophole to the Bill. I assure the Committee that the Government will continue to work closely with high street banks to ensure that communities and local businesses have access to the banking services they need. I hope the Committee is assured that the Government remain committed to banking hubs. With these facts and assurances, I hope that the noble Baroness, Lady Scott of Bybrook, will withdraw her amendment.

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[Baroness Pinnock (LD)]

My Lords, I thank the noble Baroness, Lady Scott of Bybrook, for this group of amendments which seeks to exempt so-called anchor stores from high streets.

We could do with a definition of an anchor store and, indeed, of a high street, but we will come to that in a later group. High streets vary enormously from small town high streets and market town high streets to larger town centres and city centres. When there is a new retail development in a town or city centre, the phrase “anchor store” often comes into play. It is very clear in the business sector that retail works better if there is one major store, which is a sun around which the satellites of smaller shops and businesses operate. This is the description that the noble Baroness, Lady Scott, provided. However, that is just for a group of retail businesses, often in a new situation—such as an out-of-town retail park, a new retail development within a larger town centre or an existing large business in a town centre, for example a Marks & Spencer or a John Lewis store that has a multitude of operations within it. That enables other businesses to exist and thrive from the footfall that the big name store attracts.

I agree with the noble Baroness, Lady Scott, about the importance of these so-called anchor stores, although I would like to see whether the Government have a definition that can be applied. I agree with her argument that smaller businesses develop and thrive as a result of the draw of a so-called anchor store and, equally, the argument that she makes that, because anchor stores are critical to the business environment for the totality of large, medium and small businesses—retail, leisure, hospitality or otherwise, within the sector—it is important to think about whether those often large retail businesses are exempt from the higher multiplier.

I am thinking of a local town high street where the Marks & Spencer closed and moved out some years ago. It was absolutely clear that that was the focus of shoppers going to that town. Once it went, it caused the closure of a whole section of shops in that town and very difficult situation for the businesses that were left. The town will require government money for regeneration to get back on its feet. That is what happens.

So it is important that the Government, in thinking about the Bill and the impact it will have on businesses, think about the consequences of what they are doing. In a previous group, I raised the consequences for public sector-funded businesses, but this is as important for the future health of our town centres. If you take out the key store around which others, like satellites, are drawn because its business sums no longer add up, the whole area will be on a downward spiral.

I will give the Committee an example from some figures that I remember, so they may be wrong. Take John Lewis, which is a big store. It knows that much of its business will move online. I think its business plan expects 60% of its business to move online. If we put an additional cost, as would happen under the large multiplier, on the remaining 40% of its business, I expect that one of the consequences would be that a greater proportion would move out of the high street to online to reduce those costs. That is not what this Government want to happen. They have argued for the importance of the health of our town centres for all sorts of reasons, not just to support small businesses but to support the community which goes there to meet and so on.

It is important that the Government think about the unintended consequences of this rough and ready Bill because it will potentially have very rough consequences on our high streets, particularly those which depend on a big store as the holder of the rest of the businesses around it. I look forward to what the Minister says, but I hope that he does not use “tough choices” and “fair and sustainable”.

[Lord Thurlow (CB)]

I will briefly add a few comments. I wholeheartedly support Amendment 11 from the noble Baroness, Lady Scott, in principle. The noble Baroness, Lady Pinnock, has clearly illustrated what happens to a town centre when the anchor departs and the economic health of the shopping environment dies.

The problem we have is that of definitions. When a comprehensive town centre development is designed by developers, it contains, without fail, something called an MSU—a major space unit. That is the anchor, the John Lewis or the Marks & Spencer. When that goes, the only possible replacement, generally speaking, is a supermarket.

If the supermarket becomes the anchor of the economic health of the high street, at the back of a shopping centre, filling the space of the department store that was there before, the supermarket really has to be described as an anchor. I do not disagree with the concept, but it makes the problem one of definitions and gets back to the question of use classes, which we will perhaps be able to speak about with the Bill team at another time.

I agree with the principle of this amendment, but I think it is more complicated. We need to get to the bottom of it, but it is one of definitions.

Renters’ Rights Bill

Lord Thurlow Excerpts

Tuesday 4th February 2025 Lords Chamber

[Lord Thurlow (CB)]

My Lords, I congratulate the two maiden speakers on their inspiring, eloquent and very interesting speeches. I want to inform the noble Lord, Lord Wilson, that he and I share something in common—I am sorry to see that he is not in his place. My grandfather was the vicar of Sedgefield more than 100 years ago. Furthermore, he also sat in this Chamber, so we have two special causes to celebrate together.

The Bill is big and ambitious, with far-reaching implications not only for occupiers and landlords but for the surveying profession—I should declare that I am, and was for decades, a chartered surveyor, working in this space to some extent. I also have two buy-to-let flats and advise a property development company that develops entry-level housing in England. The surveying profession will be involved; the Courts & Tribunals Service, as we have heard, and the ombudsman services will be dramatically affected. Social services will also be involved, as will, most of all in my opinion, local authorities. That said, I support most of the clauses in the Bill; it is a very welcome addition to the statute book.

Turning to those concerns, this Bill is going to frighten landlords. The noble Earl, Lord Kinnoull, informed us of what has happened in Scotland. That is an excellent market test of what is going to happen here in England and Wales. I too live in Scotland. A nationwide firm of estate agents which specialises in letting property closed its office nearest to where I live after Section 21 was abolished in Scotland. I spoke to them about this, and they said that they did it simply because the market dried up for landlords or they withdrew. They closed their department. All those landlords either sold their properties—most of which would have become second homes—or turned them into holiday accommodation and Airbnb-type alternatives. The only losers were the tenant community, and they have nowhere else to turn—there is a terrible shortage of housing. Do not let us fall into that trap and let that happen here.

Ending fixed-term leases is a mistake. They do not have to be long leases, but there are a lot of enterprising individuals who want to criss-cross the country: they are on secondment; they are on a consultancy project; they might be digital nomads, moving between centres of excellence in their field. They know they are going to be somewhere for three or four years. There is no reason why they should not have a fixed-term contract. The landlord would appreciate it and benefit, and, of course, they would, too—they could call it “home”.

I am concerned about, as we have heard from the noble and learned Lord, Lord Etherton, the courts and tribunal services and the delays likely to result from the logjam of huge increases in the numbers of referrals and complaints. We underestimate the pressure on the ombudsman’s services as these new rules come into play; there will be an awful lot of call on their services.

The impact on local authorities is principally one of resourcing. They have a big role to play in this Bill; there are going to be legions of surveyors having to be trained up in the decent homes standard and the implications of the ability to operate Awaab’s law. There is going to be a significant increase in the need for computers, IT and digital recording, which will include ongoing maintenance. We are a country of some 50 million people—we are not a country like the Nordics, New Zealand or others, where they are dealing with 10% of the size of our population—and these recording systems are immensely expensive to maintain. We are asking local authorities to become policemen, and that is not their role. They will have to enforce the new rules and regulations, which is going to be culturally difficult and will require a lot more employment, training and resourcing. Who is going to pay for it? We know that the local authority system is basically bust financially.

Finally, I do not think that it will work to prohibit rental bidding. Unless I have misread the Bill—I apologise if that is the case—I think that all a landlord has to do to prevent being caught out on rental bidding is to quote an unreasonably high rent, way above estimated rental value, and let the market do its work through a Dutch auction and gazumping, or whatever else it might be. But perhaps I have missed something in the Bill.

In conclusion, I support most of the clauses of the Bill. I am concerned that some will not work, and I am certain that others need review, but I look forward to Committee very much indeed and to discussing all these matters.

Renters (Reform) Bill

Lord Thurlow Excerpts

2nd reading
Wednesday 15th May 2024 Lords Chamber

[Lord Thurlow (CB)]

My Lords, I declare my conflicts: I am a former chartered surveyor and I have buy-to-let properties, as declared and set out in the register. I began research on the Bill by trying to establish its primary purpose—what is its core objective? I know it sounds obvious, but I was not convinced; it is not clear. It was revealed as a 2019 manifesto pledge and relates to key proposals from the 2022 private sector rental report, but there is no real indication of the underlying purpose.

However, there is much good in it: the key measures to abolish Section 21, new grounds for repossession, amending rent increase provisions, the ombudsman, blanket bans, pets and other key measures. All these are interesting, helpful and, for the most part, constructive, but there is no real underlying core purpose, and none of these things needs a new Bill, particularly bearing in mind the shortage of parliamentary time. They could have been accommodated in the concurrent debates we are having on the leasehold and freehold Bill or even in the levelling-up Bill last year. I believe the real root of this should be, and indeed lies in, the shortage of housing and, in this case, of properties to rent, as we have heard particularly eloquently from the noble Lords, Lord Frost and Lord Adonis, and the noble Earl, Lord Lytton.

There have been numerous attempts by successive Governments to deal with housing supply—we all know that. Some imaginative ideas have been proposed to attract private finance into it, and the measure whereby Section 106 agreements were attached to planning conditions for the larger developments was quite successful. But the sale of council housing goes on, and we seem no nearer to reaching anything like the levels of new housing required to provide a sustainable balance between supply and demand. The noble Lord, Lord Frost, in his comments could not have made this clearer.

There is no point in expecting the Treasury, or the taxpayer by any other means, to finance the level of development required to meet the necessary demand. We have heard some impressive statistics. If we look back and reflect on the housing market after the Second World War, we see that tens of thousands of residential units were owned freehold by City institutions. This was an ideal scenario; they were socially responsible landlords, who invested in residential properties to meet their obligations to customers, and they were largely made up of life insurance companies and others. It is the perfect formula for housing supply: it does not involve the Treasury but comes from the private sector and is socially responsible. However, this pattern of responsible ownership was shattered by the Rent Acts in the post-war era. Rent controls arrived, and probably necessarily so, but with a sledgehammer rather than with negotiation by the City institutions.

The result was disaster for the sector. Tens of thousands of units were sold, or dumped, by the City institutions. I spoke to some of them in the early days of my career, and they explained the reasons for it. It was an avoidable tragedy for society as a whole. City investment was lost, and low-income tenants found themselves at the mercy of private landlords, many of whom were ruthless or simply uninterested in looking after their properties. The era of tenant exploitation, exemplified as some of us will remember by tales of Rachman, had begun in earnest. We must recreate an institutional market in social housing—and we can.

The long-term problem is not about rental levels; the market does that. The long-term problem is shortage of housing for rent. It is about supply and demand. Capping rentals is a catastrophic solution. The SNP-led Government in Scotland have done this; they have done the market testing for us. So many landlords have abandoned the market that one nationwide letting agency has closed its renting department permanently—and it represents an entire region of Scotland.

We can fix this problem by attracting private investment, particularly institutional investment. I am convinced that it can be done. There are examples, such as the Legal & General insurance company, which tried with great purpose and financial commitment recently not only to invest in rented housing but to build modular homes, keeping down the costs, removing layers of the development process and enabling an economic return from affordable rents. It built a factory to construct prefabrication and showed the commitment that the challenge requires. It invested millions of pounds—but I believe that it has given up on the project, sadly. I shall inquire as to why, but I suspect that the challenges were simply too great. The political commitment has been lacking.

We have heard that, when the ASTs was introduced, it was hugely successful in bringing private capital into the rental market. Initially, the private sector responded cautiously; the doubt was about whether it could trust in long-term stability and long-term freedom from political interference. The bruises of the Rent Acts have a long tail. However, ASTs have worked, as we have heard, and now the private sector is responsible for thousands of units. Sadly, the number is declining. Successive Governments have interfered, with the removal of mortgage interest as a legitimate cost, for example. Any AST landlord with a reliable tenant would not dream of serving a Section 21 notice; it is the unscrupulous few who neglect their properties and squeeze the last penny of rent from their tenants against the threat of eviction who spoil the system for everyone else. They should be the focus of this Bill and of government attention—and indeed they have their place in this Bill.

The free market must be allowed to operate with private capital. Now, the rout of private investor-owners continues, as we have heard, and more and more are selling up. The ASTs probably never replaced the provision of those early City institutions, but it was a good attempt, until political interference spotted a tempting opportunity to use it as a source of revenue. What a political mistake. The taxpayer now houses thousands of council house waiting list families and others in hotels, at public expense.

It is not all bad, however. A key positive is the reference to penalties and forfeiture to penalise bad landlords, but this is subject to a process managed by local authorities. That is a logical choice, I agree, but we all know that local authorities are strapped for cash. They are pruning their meagre resources and will have little chance of effective intervention. Without significant further central government funding, it will fail; proposals that it should be self-financing ring hollow, certainly in the early years.

Perhaps the most loudly trumpeted feature of this Bill is the abolition of Section 21. However, the government amendments have effectively delayed this by years; it may never happen under this Government.

As I explained at the beginning, the Bill at its heart should be encouraging the provision of more rental housing. We are tinkering with the details surrounding the challenge, but even the effectiveness of the tinkering has been diluted in the other place through its tsunami of amendments. We need to accelerate the supply pipeline as a priority. Wholesale investment by City institutions is required. The residential rental market needs to become an accepted, accredited investment sector in the eyes of these investors. It can be done. It has been done before. It was done 30 years ago—long after the Second World War—with shared ownership. The Government must work with these organisations and the advisory fraternity which understands it to create an investment product that will be sustainable to all parties and provide the hundreds of thousands of homes we need. It can be done.

Leasehold and Freehold Reform Bill

Lord Thurlow Excerpts

Committee stage
Wednesday 1st May 2024 Lords Chamber

[Baroness Thornhill (LD)]

My Lords, I too support Amendment 94 in the name of the noble Lord, Lord Best, which was so well outlined by him with his usual clarity and reason. It is an amendment that I was determined to put my name to, but its popularity was such that I was too late. However, I listened intently to the informed contributions from the noble Baroness, Lady Hayter, and the noble Lord, Lord Young of Cookham, and look forward to the contribution of the noble Baroness, Lady Taylor. This will therefore be possibly my shortest and easiest contribution to the Bill, simply saying that, between them, the proposers have nailed this issue with an amendment that should be workable and which we hope that they will take forward on Report.

The noble Lord, Lord Best, listed the broad coalition of support for a regulator and indeed it appears that it is ready to go. This is something which the noble Lord has campaigned on for years. His report was widely accepted and praised for its thoroughness and its remarkably workable plan for the way forward, which he has stated in detail. Interestingly, the recommendations of his working group went much further than this amendment, so the movers of the amendment are being pragmatic and measured because they want to see change now—we support that.

I found the contribution of the noble Lord, Lord Truscott, on redress, particularly interesting. It reminded us that, currently, regulation in the property sector is voluntary and sanctions are limited. This Bill will not change that enough. Do your Lordships not think it is shocking that anyone can set up a firm from their bedroom and very soon be handling hundreds of thousands of pounds of leaseholders’ and taxpayers’ money while being largely unaccountable to the leaseholders who, on the whole, do not choose them to manage their block or control their service charges? This cannot be right. An individual can set up in business as a property manager without any formal qualifications, experience or even insurance.

It seems shocking that there has been so much good legislation to protect much smaller sums, such as deposits for renters, but nothing to protect leaseholders’ funds. We have regulations and regulators for individuals and companies handling much smaller amounts of people’s money. Leaseholders are usually required by the terms of their lease to make advance payments towards the service charge and to contribute to a sinking fund or reserve fund. These sums can be substantial, especially if major works are planned, which is why we supported the amendment tabled by the noble Baroness, Lady Fox, earlier in the Bill on consultation on major works. The Federation of Private Residents’ Associations has asserted that there is no other area in the UK in which money is held by a third party that is not regulated—unless somebody can tell me otherwise. The federation suggests that moneys held by unregulated and unprotected third parties may well exceed £1 billion.

If we want to change the behaviour of such property agents, there needs to be a much more professional approach to training and development, as the noble Baroness, Lady Hayter, exemplified well. Mandatory professional standards should be set, along with the oven-ready code of practice.

Even within the sector, the good guys—and there are good ones—do not want the rogues giving them a bad name and tarring everyone with the same brush. It is clear that the Government are procrastinating on this issue, so much so that several years after the report from the noble Lord, Lord Best, very little has happened. The fact that the Government have not taken the opportunity with this Bill to introduce relevant property agent regulations proves that they have probably yielded to the anti-regulation voices among their ranks, despite their acceptance in principle of the case for regulating property agents, which has also been accepted by the majority of interested and affected parties. We are all seeking a solution, and Amendment 94 is certainly worthy of consideration, and we urge the Government to give it that consideration. I look forward to the Minister’s reply and to Report, definitely.

[Lord Thurlow (CB)]

My Lords, I have not heard a voice in the Chamber this afternoon against the amendment from the noble Lord, Lord Best. It is such a refreshing amendment, it is long awaited, and we have heard, and we all knew, that his report was kicked into the long grass many years ago by the Government, and that is something of a disgrace. Even in the Levelling- up and Regeneration Bill debates last year, this subject was much discussed. We must not overlook that large cohort of hugely responsible and professional property managers—and there are many—but our focus must be on those who fail to adopt high standards, those who knowingly overcharge, those who take discreet commissions, and those in the pockets of clients with dubious standards.

This subject of rogue managing agents has come up again and again in this Bill; the time has come to act. The amendment clearly has strong cross-party support, and we have heard that the Government want to do it in principle. If the Government really want to do something for leasehold occupiers, this is it: simple regulation of property managing agents and other related property advisers; no one to practise without registration; a no-nonsense, strictly monitored and enforced system of effective supervision; and a simple, advertised complaints procedure for the lessees and rigorous monitoring of those complaints. This amendment has my wholehearted support. I hope the Government will adopt it; if not, I hope it is pressed on Report.

[Lord Hacking (Lab)]

My Lords, I do not want to jump in front of my Front Bench, but this is not a Bill that I have followed in detail. I did not take part in the Second Reading, and I have not taken part so far in Committee, but I was in the House this afternoon, and that is why I am standing up to very briefly address your Lordships on Amendment 94, which should be fully supported. I declare a personal interest, and your Lordships will see how I can link that to supporting this amendment. My wife and I are both freeholders and leaseholders of five flats, which are in an adjacent house to our own house. We personally manage them and know all the tenants well, and we try to deal with all their needs and circumstances, but the time will come when we have to sell. It is that stage that I am worried about, to ensure that these leaseholds are properly managed under the auspices of the regulator.

Leasehold and Freehold Reform Bill

Lord Thurlow Excerpts

Committee stage
Monday 29th April 2024 Lords Chamber

All this amendment tries to do is restore the intention of the Section 20 major works regime in the 2002 Act to what it was before the Supreme Court’s unhelpful intervention. I hope the Minister will help ensure that occurs.

[Lord Thurlow (CB)]

My Lords, I congratulate the noble Earl, Lord Lytton, on his high-speed gallop through a large number of his Friday afternoon amendments. They were quite technical, and anyone who managed to keep up with them all deserves a prize. It was very good indeed. I will address one of them, Amendment 78F. It is very short but very important.

Much of this Bill is designed to protect leaseholders from freeholders and their managing agents acting in concert in any attempt to inflate service charges. These in-house relationships are ripe breeding territory for dishonest behaviour and abuse, of which the noble Earl gave an example, in the opaque realm of service charges—something we look forward to being reversed or changed by this Bill. It is a money-making business model, albeit morally and actually dishonest. We should ban any close links of this kind between managing agents and their freehold clients, and inflict suitable penalties that are strong enough, or high enough in financial terms, to be a deterrent. If the Government really want to protect leaseholders, connected relationships giving rise to such potential abuse must be banned.

[Baroness Thornhill (LD)]

My Lords, I will speak to my Amendment 77 and make a few brief comments on other amendments. Amendment 77 would allow leaseholders to apply to the appropriate tribunal to ensure that freeholders who do not provide the agreed estate management services and allow a block to become run-down can be subject to a penalty at the sale of the freehold. There is clearly an issue of absent freeholders and little penalty when a managing agent is not appointed or adequate estate management services are not provided. The amendment would create a mechanism by which a penalty could be placed on the enfranchisement value and mean that leaseholders who have suffered from freeholder failures and consequently had to take the step towards acquiring the freehold should pay a lower cost for the collective enfranchisement of that freehold. This would reflect the freeholder’s dereliction of duty if a tribunal deemed it was warranted.

The Bill aims to remove barriers and rebalance legal costs for leaseholders to challenge freeholders at tribunal. Clause 56 addresses the enforcement of freeholders’ duties relating to service charges, and it includes provisions for tenants to make an application to the appropriate tribunal and the measures tribunals may put in place. As such, the amendment would just add to that. As well as having a power to make a landlord pay damages to a tenant for failure to carry out duties related to service charges, a tribunal would also have the power to apply a penalty to the enfranchisement value at the sale of the freehold to leaseholders. It does not seem fair, after having taken action to gain control of the freehold due to an absent freeholder, that leaseholders then have to compensate the freeholder with no penalty for that dereliction of duty. This is a modest amendment that would leave the judgment in the hands of the appropriate tribunal as to whether a penalty was warranted.

On Amendments 67 and 69, in the name of the noble Baroness, Lady Taylor of Stevenage, it is only right that leaseholders with old leases that have fixed service charges can challenge the reasonableness of those fees at tribunal. Evidence of costs being passed on in service charges is evident. This also ties in with Amendment 98D from the noble Earl, Lord Lytton.

We on these Benches support Amendment 69. We do not agree with the Government having a power to remove certain landlords from being subject to basic service charge transparency rules; all leaseholders are owed clarity on what they are paying for. We do not understand why that should not be the case.

I turn to Amendment 78 from the noble Baroness, Lady Fox of Buckley. We agree that leaseholders should be fully consulted on major works that they pay for; the noble Baroness showed that some of these costs are eye-watering. We agree with her proposal to restore the major works scheme in the Commonhold and Leasehold Reform Act 2002, which was eviscerated by the Daejan ruling by the Supreme Court in 2013, which the noble Baroness mentioned. We agree with the dissenting Lord Wilson in that decision, who said that the majority had subverted the intention of Parliament. It is not right that landlords no longer have to involve leaseholders in the decision-making process. We should use this Bill to at least restore the position to pre-Daejan so that transparency and accountability on major works are increased for leaseholders.

Amendment 78A, from the noble Lord, Lord Bailey of Paddington, would require a landlord who had lost a service charge determination, and who was meant to return the money to the leaseholders, to pay up in two months or else face compound interest. While Section 19(2) of the 1985 Act requires that overcharges be returned to leaseholders, landlords can and do ignore this. The same applies to similar provisions in leases. Where a tribunal has determined that a service charge or portion of it has been excessive, it should be relatively straightforward for leaseholders to get that money back. We on these Benches support that part of the thrust of the amendment—to ensure that landlords are under pressure to account to leaseholders in a timely manner, or otherwise experience financial penalties, as debtors in other parts of our economy do.

I turn to the mighty avalanche of amendments from the noble Earl, Lord Lytton. For us, Amendments 78D and 78E stand out. Amendment 78D provides for a new, tighter and more objective test of value for money to replace the current test of “reasonably incurred”, which could be open to a wide range of interpretation—obviously, this is in relation to service group charge costs. Amendment 78E pushes the Government to go further in the entitlement of leaseholders to have more and better information. Given the rationale behind the amendments from the noble Earl, Lord Lytton, we believe it is worth the Government giving them serious consideration.

Finally, although we have not yet heard from the noble Lord, Lord Moylan, we are minded to agree with his amendments, as right-to-manage and residential management companies are thinly capitalised. Unlike big freeholders, they will not have lending facilities, so would be unable to pay legal costs up front to take non-paying leaseholders to tribunal or county court. Right-to-manage and residential management companies are non-trading companies and have nothing except the service charges in their coffers. I look forward to the Minister’s responses.

Leasehold and Freehold Reform Bill

Lord Thurlow Excerpts

Committee stage
Wednesday 24th April 2024 Lords Chamber

[Lord Sentamu (CB)]

My Lords, I remind the noble Baroness, in light of what she has just said, that it was in this place in 1215 that the barons said to the King, “This is the Magna Carta”. This principle was established and made very clear that a person’s property could not be seized by the King, except by the lawful judgment of his Peers over the law of the land. The assumption is that if you take the property, compensation must follow, even if you are taking such property because you want to convert some or all of it into leaseholds, so that they too can become owners. The Magna Carta will tell you, “Have you forgotten your history? Have you forgotten your law?” The rule of law in this country is what gives us liberty. It is not just a question of the European Court of Human Rights; it is also Magna Carta, which is really the foundation of all these things. To seize somebody’s property, even by an Act of Parliament, would go against the whole reason why Magna Carta came out and gave us the rule of law, in the end.

Let us be very careful in this Bill. If you take away somebody’s property without compensating them, those barons from 1215 will be rising up and saying, “Remember your history, remember your law, remember the tradition that it has created, and safeguard it”.

I do not think that freeholders are simply wanting to hold on to things, in the way that the noble Baroness described some of them, or are not doing any good charitable thing. I live in Berwick in Northumberland, and the duke there has plenty of other things. I have also seen some of the charity work that is being done.

Let us not use language and words because we are enthusiastic in one direction or another and ignore the Magna Carta. It is what has given freedom and liberty even to newcomers such as me. My friends, the rule of law cannot ever simply be brushed aside because of a desire to correct a particular question. The rule of law matters. The Magna Carta matters.

[Lord Thurlow (CB)]

My Lords, I support each of the three amendments in this group. I was going to say that the amendment from the noble Lord, Lord Moylan, concerning compensation, was so articulate that it really needed no reinforcement, but I was not expecting the fine history lesson just now, which has reinforced it with great skill and humour. The noble Baroness, Lady Deech, explained that she taught property law for many years. I studied property law for many years, and I am sure that, if I had studied under her—which would of course not have been appropriate at all in age terms—it would not have taken me so many years.

The expropriation is bad enough, but to add the retrospective characteristic in this legislation is shameful. My principal interest in contributing is the 80-year rule referred to by the noble Lord, Lord Howard of Rising, because that is a very sensible, intelligent compromise to the sledgehammer of absolute abolition of marriage value and hope value in the calculation being entirely reserved to the lessees. Many of the highest-value elements of this paragraph are, indeed, in central London and the south-east, and many are non-resident.

This clause would save the Treasury billions, in addition to earning it some billions, which we heard referred to by the noble Lord. There is logic to the 80 years proposed in his clause. That is the threshold below which mortgagees such as banks and building societies are very reluctant to lend on property. Lessees therefore have no choice but to negotiate an extension if they want to use borrowed money—and, of course, nearly all do. The 80-year rule is a compromise between the very long leases and those moving into the unmortgageable zone. It makes a great deal of sense to cut the pack in this way because it excludes those freeholders of over 80 years but encapsulates the value of the expiring leases. It should be supported.

[The Earl of Lytton (CB)]

My Lords, like the noble Baroness, Lady Deech, I come to this from a professional viewpoint. I am a chartered surveyor and, until recently, I was a registered valuer with my professional body. Coming from my background, I see the balance to be struck. When I was in the public sector, I was dealing with matters of compulsory purchase and compensation. Later on, after the passing of the Leasehold Reform, Housing and Urban Development Act 1993, I became the first chairman of the Leasehold Advisory Service. Although I was not a practitioner in the matter of leasehold enfranchisement, I had a very close up and personal involvement with what was happening there.

--- Later in debate ---

[Lord Bailey of Paddington (Con)]

My Lords, I want to pay tribute to Campden Charities, as I am a beneficiary of the activities of Campden Charities. I came from a community where the likelihood of one of us appearing in the Lords was next to zero, and Campden Charities is an important part of my arrival in your Lordships’ House. I point out that removing the ability of charities countrywide to provide such services would be devastating to some of the poorest communities in this country. Again, I stand here as a witness to the effectiveness of some of the work that they do.

[Lord Thurlow (CB)]

My Lords, it is not on the list but I did put my name to this amendment and I am very keen to support the right reverend Prelate. Much of the debate we have had so far this afternoon seems to be focused on the rich, greedy landlords versus the impoverished tenants. If we strip this away from the debate and focus on these landlords, those addressed in this amendment are charities; they do good. They are not bad actors. Their managing agents, in the case of their property investments, are not bad actors. They are responsible to the Church and they thoroughly deserve this exemption, as we were reminded very eloquently in the excellent few words of the previous speech. I proudly add my name to the amendment.

Leasehold and Freehold Reform Bill

Lord Thurlow Excerpts

Committee stage
Monday 22nd April 2024 Lords Chamber

[The Lord Bishop of Derby]

My Lords, I will speak in support of my right reverend friend the Bishop of Manchester, who is unable to be in his place today and who has asked me to speak to his opposition that Clause 28 stand part of the Bill. This is linked to a similar stand-part debate, in the name of my right reverend friend, relating to Clause 47, to be debated later in Committee.

I declare my interest as a beneficiary, as is my diocese, of the Church Commissioners. I thank the Minister for her engagement with the charities affected by the legislation so far: the Church Commissioners, John Lyon’s Charity, Portal Trust, Campden Charities, Merchant Taylors’ Boone’s Charity, Dulwich Estate and the London Diocesan Fund. I hope she will continue to engage with my right reverend friend to find an amicable solution.

The Church Commissioners for England are the freeholders of the Hyde Park Estate. If we are looking back a long way, the Church can look back longer than most. The Church has had a long relationship with that part of London, starting in 1550 when the Bishop of London was granted the manor. The first leases were granted in 1795, and the Ecclesiastical Commissioners became responsible for the estate in 1868. Like the other charities mentioned, the Church Commissioners have long relationships with their estate. The money generated from the estate beyond the local is used for the betterment of the whole of our society, by the levelling up of communities and the lowest income parishes across the country, including in the diocese of Derby.

Like the other charity freeholders of large estates, the Church Commissioners manage the whole area, focusing not only on the residential properties themselves but on the whole environment, for those who live in, work on and visit the area. Their freehold ownership includes approximately 100 commercial units on the estate, where independent cafés, specialist boutiques and restaurants are mixed alongside amenities for local residents. This by no means affects the Church Commissioners alone; other large freeholders across London and beyond use their mixed freeholdings to ensure that areas have what local residents need, such as a dry cleaners, a pub, a hardware store—I could go on.

I thank the Minister for her letter to my right reverend friend the Bishop of Manchester, received today. However, concerns remain that Clause 28 threatens the ability of freeholders in large estate areas to ensure mixed areas that have all the amenities that people need. If the threshold for collective enfranchisement and the right to manage claims is lowered so that more mixed blocks can initiate a claim, there is a risk of the degeneration of these areas. There is no guarantee that newly enfranchised blocks will have the wherewithal or even the desire to maintain the make-up of the estate area. Leaseholders may not even live permanently in the area, may be foreign-owned companies or may have no active stake in the community. What need would these companies or corporations have to ensure the maintenance of a community? My right reverend friend the Bishop of Manchester said at Second Reading of this Bill that:

“We would lose all the shops that really matter to those who live perhaps not just in that block, but”—[Official Report, 27/3/24; col. 737.]


in the locality.

The amendment of the noble Lord, Lord Thurlow, which would mean that right to manage and collective enfranchisement rule changes would apply only where 50% of the leaseholders are permanent residents in a block, would certainly be a step in the right direction. At least there would be a guarantee that those managing mixed blocks would have an active stake in maintaining community resources, including shops. Could the Minister tell us whether the Government could make proposals to ensure that great estate areas, such as the Hyde Park Estate and others, are not adversely affected? Nobody wants to see local shops, amenities and community hubs closing as an unintended consequence of the Bill.

[Lord Thurlow (CB)]

My Lords, I turn to my Amendment 18 in this group. I begin by declaring my interests as both the owner of two buy-to-let investment flats and the occupier of a flat, all on leases. I stand to benefit under the Bill in both situations, which is quite patently wrong.

I thank the right reverend Prelate the Bishop of Derby for articulating my amendment with greater ability than I can. I want to turn specifically to mixed-use buildings and the proposal to move from a 25% threshold for enfranchisement to 50%, and build on the comments of the noble Lord, Lord Sandhurst. Mine is a straightforward proposal: simply that lessees who are not occupiers living there as their primary residence should not benefit from the great wealth transfer that is going to take place through the enfranchisement process. It cannot be an intended consequence of the Bill.

My amendment requires that at least 50% of leaseholders should satisfy the residence occupancy condition for any collective enfranchisement to apply. I remind the Committee that I am thinking of mixed-use buildings. A very complex management expertise is required in looking after mixed-use buildings; the skills are not the same for commercial property as for residential property, and the scope for mistakes and delay is huge. The potential to improve and curate an environment through single ownership of an expansive area has been very clearly described. To expect such behaviour to continue responsibly is almost impossible under the Bill as it stands.

We have also heard that, in London and the south-east, some 50% of tenants are not residents but foreign nationals living elsewhere, with ownership registered abroad. Are they taxpayers? This group often do not want to be identified. They shroud their property in ownership interests in offshore companies, as we have heard. They are very slow to respond, doing so from time to time, let alone to offer up money when required. If the Government do not agree that 50% of leaseholders in a block should be permanent residents, can I have an informed estimate on how many billions of pounds is expected to be paid in compensation to this cohort of wealthy foreign nationals, should they pursue this new enfranchisement entitlement?

[Lord Truscott (Non-Afl)]

My Lords, I declare an interest as a long-standing leaseholder of some 30 years. I have been a leaseholder in apartment blocks in London, Kent and Somerset, and a right-to-manage director in two apartment blocks.

I support His Majesty’s Government’s Clause 28, which seeks to raise the non- residential limit on collective enfranchisement claims from 25% to 50%, as mentioned by the noble Baroness, Lady Taylor of Stevenage. I consequentially oppose the proposal of the right reverend Prelate the Bishop of Manchester and the noble Lord, Lord Moylan, to vote against Clause 28.

Your Lordships have heard how giving more say to leaseholders in mixed blocks of residential and commercial units would be a bad idea and negatively impact on investment and the effective running of these blocks. It has been said that reform would only help some foreign leaseholders and investors and would result in fewer homes being built. That is far from the case. I have lived in two blocks of mixed developments: one was controlled by a residents’ right-to-manage company, with a NatWest bank in the basement, and another contained a number of commercial units and was 100% controlled by the freeholder. I can say categorically that the right-to-manage block was run better and with cheaper service charges. The freeholder-run block exploited the residents, cross-subsidising the commercial units at their expense and giving them no effective say over how the block was run. I point out to the noble Earl, Lord Lytton, that the difference was that the RTM block was actually run by the residents, who were managing their own money, whereas the freeholder block was run by a managing company and the freeholders were profligate with the use of residents’ cash.

Let us be frank: maintaining the 25% cap is about the freeholders retaining control and not about fairness or efficiency. If anyone lives or invests in a flat in a block, they should have a say over how it is run. For that reason, I oppose the amendments in the names of the noble Lords, Lord Thurlow and Lord Sandhurst, which would restrict enfranchisement and further strengthen the position of freeholders by limiting the number of leaseholders who can vote on and manage their own blocks of residents. RTM directors are perfectly capable of managing mixed blocks of developments.

Leasehold and Freehold Reform Bill

Lord Thurlow Excerpts

2nd reading
Wednesday 27th March 2024 Lords Chamber

[Lord Thurlow (CB)]

My Lords, there is much to be applauded in the Bill before us today. However, I am concerned that in seeking their objectives the Government are using a sledgehammer to crack a nut. The law of unintended consequences shines brightly through these proposals, and I shall address some of these concerns. I declare my interests as a retired chartered surveyor, as well as other items on the register. I am also a leaseholder of a flat. I thank the Library for its excellent briefing, and others who have provided experience and expertise.

I said that there is much to be applauded in the Bill, and there is. We have heard a lot about squeezing out bad practice from managing agents—I think it misses the point. There is improving the rights of occupiers—sometimes. Reducing ground rents and their review patterns—agreed but flawed. Improving the lease extension process—agreed. That is not a good school report. There is a shortfall; there are omissions in the Bill, missed opportunities and uncomfortable Henry VIII clauses, which are highlighted in the Delegated Powers and Regulatory Reform Committee report.

First, I will look at the impact of the Bill on investors, who are the freeholders. Here I will build on the comments of the noble Lord, Lord Howard of Rising. There appears to be a misunderstanding within government that freeholders are frequently bad actors in freehold disguise. Of course, there are some of these and they need to be brought to heel, but the vast majority of freehold residential ground rents are now in the hands of institutions—life insurance companies, charities, endowments, pension funds and other legitimate investors.

We should consider for a moment why these institutions invest in freehold ground rents. They do this because they provide a certainty of income, which, crucially, matches their liabilities. Removal of this value may impact the capital adequacy of these legitimate organisations, itself attracting the interest of regulators—government through another door—and will almost certainly require significant government compensation for the loss of value these proposals will inflict. Some pensions will fall in value and some legitimate investment managers, who have been entrusted with the husbandry of those assets, risk administration.

I see nothing in the Bill offering compensation for those who will suffer this collapse in value. I look forward to the Minister’s proposals concerning compensation and find it curious that this has not been recognised and addressed. I hope it is not being left to Mugabe-style economics: simply stripping one group of property owners for the benefit of another.

I turn to the abolition of marriage value. The noble Lord, Lord Palmer, usefully defined the phrase. When valuing a property, be it residential or commercial, marriage value is calculated to apportion value-sharing between freeholder and leaseholder, which is then divided either according to formula or agreement. Abolition of marriage value does not just interfere with the division of proceeds for a lease extension, it gives the entire sum to the head leaseholder—much better for there to be a regulated sharing arrangement.

Do the Government recognise that many of those leaseholders are not the occupiers? Many investors have bought leasehold flats and houses as investments on long leases specifically to sublet them to third parties—they are very good investments. They are buy-to-let landlords—they are investors and not occupiers. As we have heard from the noble Lords, Lord Campbell-Savours and Lord Palmer, many of them are foreign nationals. Many of them buy through companies registered overseas that probably pay little or no tax. We heard some figures relating to the volumes of money that could be transferred in this direction.

For such foreign-based investors, the Bill is the Christmas present of all time. Make no mistake, smart investors, recognising this forthcoming windfall, are already buying residential short and medium-term leases precisely for this purpose. Having cheaply extended the lease, they will immediately reoffer the flat for sale with vacant possession and enjoy the big lottery win. These winners—I repeat, these winners—are not the occupiers the Bill is designed to protect; they are speculators.

The Bill provides a huge transfer of wealth at the stroke of a pen, and not enough thought has gone into how that wealth will be distributed. The assumption that it is always the occupiers who will be relieved of the pain of paying for a lease extension is simply not the case. We should be clear that the great transfer of wealth the Bill seeks to engineer is going largely to speculators and not to the occupiers. Occupiers are often sublessees, even on long leases. Does the Minister intend to introduce an amendment to ensure that it is the occupiers, and not the investors, who will benefit from this change in the law?

Regarding the right to manage, in principle giving the residents of blocks of flats the right to manage the building is fine, but in practical terms it would be much better to tighten up on the rules applying to bad managers than to make the right to manage by occupiers so straightforward. Bad property management is one of the drivers of the Bill and, without further thought, things may not improve. The process of enforcing service charges, calculating service charges, dealing with those who refuse to pay their share, dealing with building services, and more, is not easy—certainly not easy for residents unless they instruct agents.

I ask your Lordships to consider someone living on the upper floor of a multistorey block of flats with no lift, because the right to manage has been applied and the manager cannot collect the necessary dues—they are not organised in the process of doing so—to service the lift. It can get worse—think for a moment of the disabled, unable to use the stairs. I have a close friend who is wheelchair bound and currently stranded on the upper floor of a modern block of flats because the lift has been out of service for several months. That may become the norm—a clearly unintended consequence. The right to manage needs better construction.

We have heard from numerous speakers that it would be far more effective to better regulate expert property managers and require qualifications. I fear that there will be a difficult time ahead for residents of many blocks of flats who decide to manage themselves and become entangled in a complex business that they do not fully understand, with its legal obligations. Nor will they, with all the best will in the world, have the skills to deliver—the noble Lords, Lord Moylan and Lord Bailey, clearly illustrated this. Other than for very small buildings, the right to manage should be subcontracted. This brings us back to the need for regulation and qualifications for managing agents.

Touching on service charges, I applaud the changes proposed—transparency, response times, removal of unfair practices, open reporting and penalties for non-compliance. All these and more are good. However, I do not believe the £5,000 maximum penalty proposed for bad property management behaviour is nearly enough. While it may seem high in relation to the service charge for an individual flat, it could be a very small sum of money for the firm of property managing agents which is looking after hundreds, if not thousands, of flats. This figure needs increasing to the point that it hurts, thus positively encouraging a managing agent to exercise their functions well and with the occupier’s interests in mind.

The right to manage mixed buildings has been discussed extensively this afternoon. It is hugely complex. Non-residential elements in such buildings need expert attention to an even greater extent than in blocks of flats. It is not layman’s territory. To allow residential leaseholders to manage a mixed-use building with a significant percentage of non-residential floorspace is inviting trouble, particularly when development opportunities arise. These days, such developments frequently create large volumes of housing units, helpfully adding to the Government’s targets. This will almost certainly be lost as the ownership, control and management of those properties are transferred to the residential occupiers’ management company or, in many cases, the foreign nationals and companies registered overseas who are already rubbing their hands in anticipation. That is unless, of course, the residential management team brings in the skills, but that is not without cost and it is likely to be an expensive exercise. Notwithstanding best intentions to try to exercise these functions in practical terms, it will be almost impossible, as what might have been a significant development opportunity stagnates or becomes broken up, and the critical mass required for major redevelopment is lost.

As I said at the beginning, there is much in this Bill that I applaud, but I fear it has not been sufficiently carefully thought through.

Levelling-up and Regeneration Bill

Lord Thurlow Excerpts

Report stage
Wednesday 13th September 2023 Lords Chamber

[Lord Stunell (LD)]

My Lords, on this side we are sympathetic to the intent of the amendment from the noble Lord, Lord Carrington, although somewhat doubtful about the mechanism he has proposed. I think we all want people who are subject to compulsory purchase orders to be treated in a humane and certainly human rights-compliant way. We do not want to return to the days of Crichel Down and everything that emerged from that.

Nevertheless, I think the noble Lord, Lord Carrington, made it clear that he saw the fundamental problem being one of resources and a search for a less mechanistic way of enforcing compulsory purchase regulations. I would be interested to hear the Minister respond and, I hope, confirm that purchasing authorities will be given support to make sure that they take that process through speedily, particularly the payment of compensation, and in a timely fashion.

[Lord Thurlow (CB)]

My Lords, I declare my interests as a former chartered surveyor. The current CPO guidance attempts to deal fairly with owners who are caught up in the process of having land acquired under compulsory purchase, but it remains a blunt instrument. This amendment requires the Government to provide a duty of care, which is an excellent proposal. It is also appropriate, as we heard from the noble Earl, Lord Lytton, that compensation under CPO is paid on transfer, as it is when any citizen in this country buys or sells any of their private property. I see no reason at all why it should not also be the case under compulsory purchase. I support the amendment.

[Baroness Taylor of Stevenage (Lab)]

My Lords, the powers introduced by this section amend and clarify powers and procedures for using compulsory purchase and have been extensively consulted on—unlike some other parts of the Bill. The LGA’s view is that the introduction of measures that would genuinely make the CPO process more efficient for councils is an encouraging step, as it has previously lobbied on the need to reduce the time taken to use the CPO, and it also believes that these changes will make the valuation of change in this context closer to a normal market transaction.

In fact, the LGA view is that the Bill could have gone further. It would also like to see the ability to tackle sites which have had planning permission for a long time but which have not been built out through stronger compulsory purchase powers, and the removal of the requirement for permission from the Secretary of State to proceed with a CPO, which would expedite the process for local authorities. Of course, the Secretary of State could always retain the right to call in in circumstances where it would be necessary to do so.

I listened carefully to the noble Lord, Lord Carrington, and the noble Earl, Lord Lytton, and I am sympathetic to the specific issues they raised, particularly the issue about prompt payment for purchases of land. Perhaps I have had an unusual experience of the CPO process but the conditions are already stringent, both in setting out the process for a site qualifying for a CPO and in the requirement for valuation of that site. Therefore, while I appreciate the thinking behind the amendment, it seems that there is already guidance in place—indeed, the amendment refers to it. I look forward to the Minister’s response.

Non-Domestic Rating Bill

Lord Thurlow Excerpts

Committee stage
Monday 3rd July 2023 Grand Committee

[The Earl of Lytton (CB)]

My Lords, I have four amendments in this group, of which Amendments 8, 10 and 13 relate to the matter explained by the noble Baroness, Lady Pinnock. Amendment 14 is a little different and to do with downward-only transition.

Before I go any further, I should have thanked the Minister earlier for her drop-in sessions and her willingness to engage on the Bill. To some extent, it is a joint venture between business, professions and the Government in trying to wrestle with the issues of local government revenues. I understand that.

The purpose of Amendments 8, 10 and 13 is to create an ability for the Secretary of State to adopt a shorter cycle, be it of one year or two years, but they are not prescriptive as to what that might be. That is simply because, having considered the situation and how things have bedded in, the Government should at least have the ability to do so without then seeking a legislative slot later. Although it is counterintuitive to suggest anything that might smack of a Henry VIII clause, this is a sort of Henry VIII clause that I think might be useful in this particular instance.

I pick up something that the Minister said at Second Reading, which the noble Baroness, Lady Pinnock, mentioned, namely the potential instability of more frequent revaluations. However, this does not seem to be a problem in Hong Kong or Scotland; why should it be here? The noble Baroness, Lady Pinnock, alluded to my next point, which is that the stability of the system is within the gift of the Government in terms of their wider policies. I would argue that it is the level of business rates—levied at around 50p in the pound at the assessed rateable value—that is itself the harbinger and cause of a degree of instability. Professionals and businesses just need to feel that there is a better commitment—a more bankable expression of intent—about this. That is why these amendments would serve to allow the shortening of the revaluation gap and, of course, its attendant antecedent date.

I now turn to Amendment 14, which, had I spotted it before, I might have disaggregated from this group because it relates to downward-only transition. Although the Minister made some hopeful noises at Second Reading, I have not yet persuaded her to signpost the permanence of what is otherwise a very welcome item in this Bill; namely, the removal for the next revaluation of downward transition. It always seemed to me invidious that those whose rateable values were reduced should see the benefit only by such minimal and curmudgeonly means as to deprive them of the effect of a significant reduction, not just for many years but, sometimes, for many revaluations. Now that the principle is established that the transition no longer has to equal and offset the transitional phasing of increases by those who should be paying, it is time to confine this rather dishonourable measure to oblivion, if I may so suggest.

Let us not forget that, for every measure of palpable unfairness, perceived or actual, in the business rates, there will be an unknown number of potential entrepreneurs who simply will not lay themselves open to such practices because they see the system as unfair and operating unfairly against them. To that extent, the system is not as elastic an economic function as may be supposed. That is the background to my amendments.

[Lord Thurlow (CB)]

I take a slightly different position. I support these amendments, but I want to introduce a brief note of caution. The case for a reduction in the frequency of updating rateable values has been extremely well made, but I think experts should have a voice in the proposal. I think we should wait until the three-year review process has bedded in and all interested parties should then be free to comment, before reducing that interval further from three to two years, or even one year. Clearly, the VOA has a central role—the most important role—but ordinary ratepayers have a role too. It is possible that an annual or biannual revaluation will become unworkable. That is unlikely with digitisation and the wider use of technology, but any period longer than one year between revaluations is, by definition, quickly out of date. We saw that in high relief with volatile rental markets during and following Covid.

My amendment suggests that the Government listen to the view of the VOA, of course, but also to the RICS, the Rating Surveyors’ Association and the Institute of Revenues Rating and Valuation, together with other accredited advisory groups, before making a decision on these further reductions. I ask the Government to write into the Bill that they will listen to the voices of these experts before further reductions are agreed to.

[Lord Shipley (LD)]

My name appears on three of the amendments in this group. I think that the case made by the noble Lord, Lord Thurlow, is very strong. We have to be certain. I believe a reduction from three years to two years—and, in an ideal world, to one year—would be the right thing to do.

I should state for the Committee stage, however long that lasts, that I am a vice-president of the Local Government Association.

I am convinced that currently revaluations are too infrequent. The Government have accepted that case. We are going to three years, and that is indeed better, but to reduce appeals and to ensure a fairer system requires two years or fewer. Like my noble friend Lady Pinnock, I will be very interested to know why we cannot draw on the comparator of the Netherlands since it does a revaluation every year.

There are clearly advantages to more frequent revaluations. We will have fewer appeals because the valuation would be more accurate. It would be fairer to businesses and reduce complaints about the system. I read very carefully the letter the Minister wrote after Second Reading, but it is not clear to me that there are any administrative barriers to moving from three years to two years.

We support Amendments 8 and 10, which suggest that the Government introduce a change to two-year revaluation or to one-year revaluation by order, as long as the affirmative procedure is used. As I said a moment ago, I think the points made by the noble Lord, Lord Thurlow, matter. I hope the Government will pay particular attention to Amendment 12 because it would enable us to be certain that it would not be a mistake to move to two years. We are sufficiently open to say that we want to go to two years and would like to go to one year, but we are very happy to build in a timescale which enables that to happen securely.

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Moved by

[Lord Thurlow]

15: Clause 10, page 19, leave out lines 4 and 5 and insert—
“(2) V must disclose the information to P without delay if requested by P.”Member's explanatory statement
This adds an obligation on the Valuation Office Agency to reveal their rental comparables/evidence used in arriving at a Rateable Value when challenged in the interests of transparency. This may satisfy ratepayer concerns at fairness early in the process and reduce the numbers resorting to appeal.

[Lord Thurlow (CB)]

I declare my interest as a former chartered surveyor. I should have done so earlier, and I apologise. I, too, join in the chorus of thanks to the Minister and her Bill team for the help and meetings a week ago. I also thank the noble and learned Lord, Lord Etherton, who is absent, for adding his name to my amendments in this group. I am sorry that he is not here to add his voice. This group of amendments is focused on the operation of the VOA and rooted in the desire for transparency for the ratepayer. It is a matter of simple public interest.

The current arrangements require registration for the check, challenge, appeal process before the VOA reveals the evidence it relied upon in assessing rental value. Amendment 15 questions why the VOA should be so secretive. There is no need for it. On appeal, the evidence is revealed, so why not admit it on first inquiry without the need for the CCA registration process? We all hope that the VOA’s figures are correct when assessing new rateable values and that its assumptions in arriving at them are well founded. It is hoped that, by the evidence being shown at the outset of any inquiry, most ratepayers would agree with the VOA’s evidence and accept its valuation. This would avoid the cost, resourcing and administration of the CCA process for the VOA and ratepayers.

With the help of the RICS, I have looked at some of the statistics for recent check, challenge, appeal numbers. In the quarter to March this year, more than 10,000 CCA notices were received. This is the first stage in the appeal process. Fortunately, 90% of them came from interested persons, and I believe that means ordinary people, not agents acting on behalf of ratepayers, so the leaseholder or the freeholder. It is a good thing in the absence of a requirement to use accredited agents, which we will come on to. But 10,000 registrations is an unusually high number. It is to some extent the result of the publication of the latest business rates revaluation. It must put great pressure on VOA resources.

If I am reading the VOA’s published data correctly, in the rating list period 2017-23, 30% of challenges resulted in a reduction. That is far too high. It suggests that the VOA may be taking a bullish view of estimated rental value, rather than an objective one. The VOA translates from estimated rental value to rateable value. This is very likely to lead to a growing trend towards challenges of the fairness of assessments, which is a concern. I do not want to overlook the fact that 70% of CCAs were found in the VOA’s favour, but 30% is still too high for successful appeals. My amendment seeks to reduce the volume of CCAs by thousands of appeals through applicants withdrawing at an early stage in the process.

My other amendment in his group is Amendment 17. It is a simple matter concerning confidentiality of information. Occasionally there is a confidentiality clause in a rent review or a new letting. There may be a means by which the VOA can obtain that detail but the ratepayer cannot. There may be other reasons for confidentiality. Why should the VOA be allowed to factor this evidence into its assessment if the ratepayer may not? It is akin to the VOA informing the ratepayer that it has information it cannot reveal which supports its figures. My amendment does not dispute the reasons for confidentiality being protected—not a bit—but requires simply that any information which cannot be shared with the ratepayer must be disregarded. The ratepayer must be empowered to challenge all the evidence used against them. I beg to move.

[The Earl of Lytton (CB)]

My Lords, I have five amendments in this group. I support the noble Lord, Lord Thurlow, in what he has just said in relation to Amendments 15 and 17. My Amendment 16 follows on from that, and for that reason I will be quite brief about it. The amendments tabled by the noble Lord, Lord Thurlow, and my Amendment 16 seek to provide a duty on the Valuation Office Agency to provide such information, subject only to data protection legislation.

This addresses something that has been a bone of contention for many years, namely that a target and tax revenue focus in HMRC seems to have affected areas of Valuation Office Agency practice to the point where—or where the appearance has been that—evidence has been withheld, right up to tribunal-stage appeals. Over the years, as I have monitored the updates from the Rating Surveyors’ Association and others, I have noted with alarm some examples—I hope these instances are few and far between—of appalling and unprofessional practice, not, as one might suppose, from rating agents of an indifferent moral persuasion and possibly no professional training at all, but from the VOA itself. I worked for the VOA’s predecessor body, the Inland Revenue Valuation Office, for nearly seven years. Then, it was held in universally high esteem for its ethical and professional principles. It would be highly regrettable if, as time has gone on, that were no longer a given—I want to stress that.

This amendment does no more than insist on the same standards for disclosure and candour from the VOA that it requires of private sector agents acting for ratepayers. If this or something similar is not agreed to, there will be not only a rising tide of criticism within the profession but some sort of backlash from the First-tier Tribunal and Upper Tribunal, which will ultimately force the issue. We need to deal with that at this stage.

I move on to Amendments 18 to 20 in my name. Again, I can deal with these quite briefly. All three interlinked amendments try to remove the requirement for an annual return. The principle is that the requirement for notification arises only when there is a change in that status requiring the notification. At Second Reading, there was some consensus that the proposed volume and frequency of making returns to the Valuation Office Agency in relation to changes was misconceived. We heard that it would bring into scope some 700,000 hereditaments on which an additional return-making duty will fall—we are talking about a return per hereditament, not a blanket return per operator. If you are, for instance, an outdoor advertising company—that trade body has been in touch with me, as it has with many other noble Lords—with thousands of billboards, or an operator of cashpoints, this starts to matter. I do not know whether the latter is a good or bad example.

I accept that, if we move to two-yearly or yearly valuation, the real-time provision of data capture becomes that much more important. But why, in all logic and seriousness, if a return is required for a change within 60 days after the event, is it also necessary to make an end-of-year return in addition for the same hereditament, especially as a form of return can be requested at any time by the VOA? To put it another way: the desire for real-time notification and coherence of VOA record-keeping cannot be a justification for unnecessary duplication of duties on the ratepayer. I really do not think that this should be a matter for negotiation; it is a matter of straightforward common sense.

I move on to Amendment 21 in my name. It seeks to ensure that ratepayers do not receive retrospective increases in their rating liabilities where the Valuation Office Agency has not acted promptly on the receipt of ratepayer-provided information. It is to prevent retrospectivity where there is delay in acting on the ratepayer’s provision of information on a notifiable event. Its intention is to cover all situations where the rateable value is likely to be affected, including entering a new hereditament into the rating list. I think it is basically self-explanatory, but it is the counterpart to the duties on the ratepayer to furnish information in a timely manner and, of course, the penalties for failing to do so—about which more in due course.

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[Baroness Scott of Bybrook (Con)]

We will be in touch.

[Lord Thurlow (CB)]

I thank all noble Lords who have taken part in this group. I thought that the reference made by the noble Earl, Lord Lytton, to a timely VOA response was particularly apt, and I was grateful for his support just now on Amendment 17 on confidentiality. I thank the Minister for the offer to follow up.

The comment from the noble Lord, Lord Shipley, that the amendments in this group are simple common sense was one of the most powerful pieces of oratory that I have heard this afternoon, and I hope that it materialises very soon. I admired his well-made comments about the rogue agents, and once again I thank the Minister for her comments in that regard, as to how the Government intend to protect the public. I thank the noble Baroness, Lady Hayman, for identifying a number of concerns over the VOA’s resourcing, which tie in directly.

--- Later in debate ---

The final review I ask for, in Amendment 35, is simply for an impact assessment. Do these changes actually incentivise improvements to business premises? Will business benefit from more frequent valuations? The amendment asks the question about devolving more powers over business rates to local authorities. These are important changes. Reform and review are at the heart of the amendments, and I look forward to hearing how the Minister will respond, especially to Amendment 36 in the name of the noble Lord, Lord Thurlow.

[Lord Thurlow (CB)]

That was an impressive introduction. I apologise for bringing this up so late. I was not going to table it, as it was too difficult, but I just could not not do so. I give great thanks to the Table Office for drafting and help.

This group is listed as reliefs and reviews, and I feel strongly that we should dwell more on reviews than reliefs. While injustices should be addressed in the short term with financial relief, the non-domestic rating system is broken, and it seems that the attempts to fix it have become too difficult and it has become easier to throw taxpayers’ money at reliefs than to review it. I believe that the attempts to resolve the injustices in the system have simply been considered too difficult—as I did until last night, or Friday—and have been kicked into the long grass. I would like nothing more at all than to hear from the Minister that action is expected very soon.

One particular injustice, perhaps the most trumpeted, is that of the small high street retailers we have heard about, struggling to survive against the onslaught of internet shopping. In ordinary business terms, the free-market economy dictates the survival rate of businesses, but in this case there is an important further dimension—so much more important—which is the public interest case for healthy high streets. They provide a social necessity to our communities, a valuable asset in the social fabric. We know the subject is complex. A number of high street retailers and major supermarkets have websites; some SMEs may rely on them. These and other good reasons simply complicate the matter; they do not make it impossible.

There is a fiscal irony here. The growing turnover and profitability of internet retail is directly felt in the high street by falling demand. Falling demand translates as falling rental value. It follows that the rateable value will fall. Without this amendment or something similar to it, net tax receipts will also fall. Introducing fairness to the rates paid by internet retailers will go some way—possibly a very long way—to making up for the loss of high street rate contributions.

The solution lies in a new property use class for the purposes of assessing NDR—not to overlap with use classes in the planning Acts; I would run a mile from that. This would be purely for rating. It would correct the current major imbalance between retailers paying warehouse rates and high street retailers paying high street rates. Warehouse rates are a fraction of high street equivalents. Internet retailers know this, and their profits swell by the artificial discount the system supports.

The amendment proposes that the Government conduct a review to make recommendations for a new rating use class. It would harness expertise from the commercial property sector. The amendment gives the Government 12 months to bring a new Bill before Parliament with recommendations to correct this widely recognised injustice.

[The Earl of Lytton (CB)]

My Lords, I support the amendments in this group. At one of my meetings with the Minister and her Bill team I was told that it was not HMRC—or they may have said Treasury—practice to produce an impact assessment as such, and I was directed to a series of notes in lieu. But business rates have an impact on business, employment, entrepreneurial activity and the health of our high streets, and have long seemed a substantial tipping point in decisions about taking on premises, where the tax levied is 50% of the determined market rental value. That puts into shade the collective cost of things such as insurance service charges and other occupational outgoings.

There is a basic imbalance here; I have said so on many occasions in the House and elsewhere. Upfront impact assessments and post-legislative review are exactly what is missing here. I agree with the noble Baroness, Lady Pinnock, that small business relief and small business exemptions are almost an admission of the failure of the system we have.

Turning to Amendment 36, tabled by the noble Lord, Lord Thurlow, I totally agree with its underlying principle that the tax base for local government finance needs to be broadened, with proportionately less of a burden falling on what we might call the traditional business rate payer. This is becoming an impediment. What are termed fundamental reviews have been a great deal less fundamental than they ought to have been. The system has been creaking for some time and one should take notice when things start to creak; it usually means that something is wrong. I very much relate to these amendments, and I look forward to the Minister’s comments.