Non-Domestic Rating Bill

Baroness Hayman of Ullock Excerpts

2nd reading
Monday 19th June 2023 Lords Chamber

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank the Minister for her thorough introduction and all noble Lords for their participation. Having been doing the levelling-up Bill, I have to say that it is nice have a Bill that is very focused. We broadly support the measures in the Bill. Clearly, business rates need modernising, as we heard, and some of the measures in the Bill will provide much-needed support for struggling businesses. But, like others who spoke in the debate, we believe that it is still lacking in areas where small businesses need support, so it is a bit of a missed opportunity as well.

Small businesses are a critical part of our economy and communities, and, as we have heard, they are the heart of our high street and of local employment. On these Benches, we believe that it is necessary to cut business rates for small businesses by raising the threshold for small business rate relief. We would pay for this by raising the digital services tax paid by online giants such as Amazon.

The noble Lord, Lord Shipley, and others mentioned the increase in online shopping, partly brought about by what happened during Covid, when many more people began to shop online. But, as the noble Lord, Lord Thurlow, said, nothing seems to have been done about this. So can the Minister provide further information about any progress at all, if any, that the Government have made on implementing fair taxes on the major online businesses?

The Savills analysis of recent business rates revaluation noted considerable variations in outcomes between different billing authority areas. It notes that retail units in some city centres will see an overall reduction in rateable value, but those in some small towns will see considerable increases—the noble Baroness, Lady Pinnock, referred to this. So, if the Government do not think that an impact assessment on the revaluation for smaller businesses, high streets and towns is needed, how do the Government see this benefiting levelling up if they do not have this information?

The noble Baroness, Lady Thornhill, and the noble and learned Lord, Lord Etherton, talked about the serious challenges facing our high streets and smaller businesses. I particularly mention concerns that were drawn to my attention by the British Beer and Pub Association, which has concerns about certain aspects of the Bill, particularly around the proposals for improvement relief. Of course, it is important to have the improvement relief proposals in here—it is a good step forward—but the British Beer and Pub Association said that improvements made by landlords in a period between tenants, who are the ratepayers, or with any change in tenant during the relief period, will not be eligible for relief. The main concern here is that improvements made by landlords on behalf of tenants who then move on while the property remains owned by the landlord would not be eligible.

In practice, this means that pubs that are not directly owned and managed by the ratepayer—namely, those in tied or leased arrangements, which is apparently around 30% of UK pubs—become a much less attractive proposition for investment, as improvement relief can be guaranteed only on directly managed pubs. A change to the Bill to this end would mean that leased and tenanted pubs could then be on an equal footing with directly managed pubs, in terms of the likelihood of receiving investment. Will the Minister take note of these concerns and look, ahead of Committee, to see whether the Bill could be improved in this respect?

Retailers have expressed concerns that the Bill will significantly increase the overall administrative burden through the new duty to notify procedures—this was a central concern in the debate. It would be helpful if the Minister could confirm whether every ratepayer will now have to fill in a new return for the Valuation Office Agency every year and every time there is a change to the property. Does she think that the new duty to notify will put increased burdens on smaller businesses, potentially forcing them into the hands of rogue rating advisers, as we heard from other noble Lords, particularly the noble Lord, Lord Thurlow?

The noble and learned Lord, Lord Etherton, mentioned his concerns about the extra 750,000-odd business-property occupiers who do not currently pay rates. They would have to return forms to the VOA, and they will have to cope with the huge administrative challenges of this. As well as businesses, this will have an impact on local authorities. So I would be interested to hear the Minister’s response to the noble and learned Lord’s concerns. Will local authorities have extra resources to deal with this administrative burden?

Noble Lords mentioned how promptly the VOA will act, as no similar obligations have been placed on it to produce its assessments quickly, and there have been no further measures to increase transparency—the noble Lord, Lord Thurlow, in particular talked about the importance of transparency. I am not aware that anything about speeding up the appeals system has been stated, so perhaps the Minister could provide further information about this.

We heard about the review of valuations changing from five-yearly to three-yearly intervals, and we are pleased that this has been reduced. But, bearing in mind that the VOA already has a significant backlog of appeals, are there sufficient resources within the VOA to deal with these proposed changes? What will happen to disparities in valuations between the VOA and the property owner or agent? Of course, in the audit world, this has caused major problems between local authorities and their auditors.

Currently, the new rateable values set at a revaluation are based on the situation two years previously, which, again, noble Lords have raised concerns about. Ministers have said that reducing the length of time between the AVD and a revaluation taking place remains

“an aspiration once the new 3-yearly cycle and supporting changes are fully bedded in”.

Can the Minister update us on what progress the department is making on this?

The noble Earl, Lord Lytton, and the noble Baroness, Lady Thornhill, talked about incentives for business to invest. Do the Government intend to do anything about tariffs and top-ups? So many areas have little incentive to improve their business base because the tariffs can be so fierce.

The Bill is an opportunity to give businesses a clearer incentive to improve energy efficiency, freeing up funds for business investments to enhance competitiveness while supporting net zero. We very much support the Government’s and the Bill’s proposals in this area. Strengthening the provisions on business rates in relation to energy-efficiency improvements is certainly an important step.

The Government have already made welcome steps to address these issues by exempting renewable energy generation and storage from rateable value, through regulations introduced last year. But these regulations did not cover energy-efficiency works, and the Government have made much more limited steps on energy efficiency more broadly, proposing just one year of business rate relief against the increase in rateable value in the Bill.

The introduction of heat network relief, mentioned by noble Lords and in Clause 1, is welcome, but it would be helpful to understand why it has been proposed to expire in 2035. The exemption of renewable energy plant and machinery is permanent, so why is there a difference here? Could we not take a similar approach?

Finally, the charity sector has raised concerns that its exemptions will be affected. Can the Minister provide reassurance that this will not be the case? Conversely, will the Government then use the Bill to tackle the fraudulent exemptions claimed when non-charity businesses let a charity occupy a small part of their premises, just so that they can then claim that charity exemption?

In conclusion, we believe that the Bill should go further, as I think do all noble Lords who took part in this debate. I am pleased to hear the Minister say in her introduction that there will be longer-term reforms, such as a commitment to explore further reforms, including the potential for annual revaluations in future. That is something that the Labour Party has been calling for. We welcome and support the Government’s ambitions in this respect but we need something to happen as well. These should not just be commitments to explore; we need to see what the outcomes will be and to learn when we will see them.

I apologise for the large number of questions I asked. I will be very happy for the Minister to write to me ahead of Committee on any that she cannot respond to today. We have quite a lot of issues to explore further.

Non-Domestic Rating Bill

Baroness Hayman of Ullock Excerpts

Committee stage
Monday 3rd July 2023 Grand Committee

[The Earl of Lytton (CB)]

My Lords, I have two amendments in this group, to which the noble and learned Lord, Lord Etherton, who cannot be with us because he is arguing his case across the way in the Chamber, has added his name. I declare that I am a member of the Rating Surveyors’ Association, which, together with Luke Wilcox, barrister of Landmark Chambers, has been helping me formulate my views on these amendments.

The purpose of the two amendments in my name in this group, Amendments 2 and 6, is to extend the application of improvement relief, so, to some extent, they follow the lead of the noble Lord, Lord Ravensdale. Without discussing it with him, I opted for extending the application to works carried out within a five-year period. The amendments follow up on the comments made at Second Reading.

The expected lifespan of the many types of improvement may extend to decades. If, as one supposes, the relief is intended to incentivise improvements—not just mandatory compliance works but those which add materially to utility, convenience and annual value—it needs to be an altogether bigger quantum; otherwise, as matters stand at the moment, we will be in a situation where, maybe 13 months after the work is carried out, the rateable value will increase by some 50% of the additional annual value of the works. This may not be so much for the purposes of adding value as of preserving value in the face of decline, so this dynamic needs to be whittled down.

We have issues with the definition of “relief” and whether it will count for anything at all in practice, and of “improvement”, of which other noble Lords may seek to define certain aspects more clearly—I agree with that. Unfortunately, the Government’s protestations about the sums they claim to have earmarked for this relief do not disguise the fact that the design of these things is often such that none of it is ever called on in practice. I will leave that bit of cynicism to one side, but if this relief is to mean anything beyond a fig leaf, it has to be large enough in quantum and long enough in duration to be commercially noticeable and relevant. Some types of improvement may take a considerable time to translate into a business benefit.

Although I understand, for instance, not including developers in the benefits of this measure, I maintain that the net effect of excluding any otherwise qualifying works carried out by landlords for the tenant, for which there may be a higher rent payable, is based mainly on groupthink rather than objective balance. That is the reason behind Amendments 2 and 6.

[Baroness Hayman of Ullock (Lab)]

My Lords, I have Amendment 5 in this group. Its purpose is to probe the expiration date for heat network relief. For example, why have the Government come up with 2030 in this respect? As I said at Second Reading, we very much welcome the introduction of heat network relief but, as I asked then, as the exemption of renewable energy plant machinery is permanent, why has a similar approach not been taken to heat networks?

Also, the heat network relief applies only to what are described as “occupied” heat networks, so it would be helpful to have some clarification of the definition of “occupied”. For example, if the networks apply as a mix of properties, some of which are traditionally occupied and others are unoccupied, is that still considered to be an occupied property, or does the whole property have to be occupied?

More broadly, the aims of this amendment are also to do with the fact that we believe that the reform of business rates as a whole should have the underlying principle and aim to encourage green improvements to business properties, if, as the noble Lord, Lord Ravensdale, talked about, the targets are around net zero and emissions. We feel that all the proposals should have as their aim—at their centre—ways of meeting those targets.

I thank the noble Lord, Lord Ravensdale, for his introduction of this group of amendments. His amendments are very sensible, and I hope that the Minister will look at them carefully. I also take this opportunity to thank the Minister for her letter to all Peers following Second Reading, in which she gave quite detailed clarification of a number of issues, which I am sure we will discuss further today. I put on record that that was extremely helpful.

As for the other amendments in the group, clearly, improvement relief has been designed so that no business will face higher business rate bills for 12 months following qualifying improvements. We also heard from the Minister in her letter and at Second Reading that the Government consider 12 months sufficient for the benefits to flow through but, clearly, noble Lords who have spoken previously have reservations about this—in particular the noble Earl, Lord Lytton.

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[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.

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank the noble Baroness, Lady Pinnock, for introducing this group with Amendment 7, which seeks to change the Bill so that lists must be produced every two years instead of three. Today’s discussion has demonstrated that noble Lords think that this needs to be revisited and that perhaps three years is too long.

I am quite interested in Amendment 9 in the name of the noble Earl, Lord Lytton, which would allow SIs to be introduced to change it to one or two years. Bringing in flexibility to adopt a shorter cycle without that kind of prescription is a really interesting idea and approach. In principle, we would support that; my only concern is that the SI procedure has not exactly gone entirely smoothly in recent years. To get our full support to move in that direction, we would need to ensure that SIs are managed better than they have been recently.

The noble Baroness, Lady Pinnock, made some important points about the need for business confidence regarding valuations. That is incredibly important, particularly given the uncertainty resulting from inflation, various costs—of energy, for example—going through the roof, the challenges following the pandemic, the business rate holidays that have moved or not moved, and the differences resulting from where in the country you may be. None of that helps with certainty for businesses, particularly those that have retail in different parts of the country.

Another really good point was made about the fact that a small but perfect group is taking part in these discussions. Here we have noble Lords with real and practical experience and knowledge, which I hope will be helpful as we move through Committee.

The Chartered Institute of Taxation has agreed that moving initially to three-year revaluations would provide a balance between the administrative costs and the need for regular revaluation to reflect the economic conditions of business. But it also said that, given the rapidity of changes in business and shopping practices, the Government should consider a phased approach to achieving more frequent revaluations, and that this should remain under evaluation. Given the different amendments we have today and the discussions that we have had, will the Minister consider taking back to her department the introduction of a phased approach? I know that in the letter to noble Lords following Second Reading, she said that the Government will

“carefully consider the case for even greater frequency of revaluations once the new system changes have bedded in”.

That brings us to the point made by the noble Lord, Lord Thurlow, who suggested that waiting for that three-year cycle to bed in might be very helpful. He made the point that we need to listen to the experts and advisory groups and make sure that we get this right, because anything over two years goes out of date very quickly. The Labour Party position is that we should have more frequent valuations. We have talked about them being annual, but of course this has to be right, and it has to work for business.

Finally, on Amendment 14, tabled by the noble Earl, Lord Lytton, on the abolition of downward caps, it is concerning that the downward caps can prevent savings being passed on to businesses and could mean that they unnecessarily pay more in business rates. It is an important amendment, and I would be interested to hear what reassurances the Minister can give the noble Earl.

[Baroness Scott of Bybrook (Con)]

My Lords, this group of amendments takes us to the heart of the Bill; namely, our commitment to modernise the business rates system through more frequent revaluations. Amendments 7 to 13, from the noble Baroness, Lady Pinnock, the noble Lords, Lord Shipley and Lord Thurlow, the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, are concerned with the frequency of revaluations. They provide for either the revaluation cycle to move to every two years or for the Government to adopt a two-year cycle by order. The Government fully understand the desire to keep business rates as accurate and responsive as possible. That is why the frequency of revaluations was a key part of our review.

Regular revaluations update rateable values, and so rates bills, to reflect changes in the property market. During the business rates review, we heard from businesses that they overwhelmingly favoured more frequent revaluations. Interestingly, a majority of respondents to the review supported a three-year revaluation cycle. The noble Earl, Lord Lytton, mentioned countries that had annual revaluations, but it is not straightforward or accurate to simply compare our revaluation cycles with places such as the Netherlands. Evidently, a single property tax there covers both residential and commercial properties, so it is a very different system from the one in this country. We also considered annual revaluations, but some stakeholders raised concerns about an annual cycle, such as the increased volatility of bills and potential impacts on valuation accuracy. We therefore concluded that we should move to a three-year cycle of revaluations, and the Bill provides for that, with the next one to take place on 1 April 2026.

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[Lord Shipley (LD)]

My Lords, my name is on Amendments 28, 33 and 34 in this group. I will come to the accreditation of rating advisers in a moment.

There are a range of issues here which relate to the performance of the Valuation Office Agency. I agree entirely with all that the noble Earl, Lord Lytton, has said about the amendment to which his name is attached and with Amendment 15 in the name of the noble Lord, Lord Thurlow, which is about the proposed requirement on the Valuation Office Agency to reveal rental comparables and the evidence used in arriving at a rateable value. A lot of these issues meet the test of reasonable common sense. If I were challenging a business rates bill or valuation, I would want to be certain that it was at the correct level.

The amendments in my name relate to annual reporting and, jointly with the noble Baroness, Lady Hayman of Ullock, to whether the Valuation Office Agency has a problem with its resourcing. We need to be clear whether it has a problem and cannot do things because it does not have the resources. However, the principle that this group of amendments tries to establish is that the Valuation Office Agency should meet the same performance standards that it requires of business rate payers. It should have a duty to provide information requested, in particular comparable evidence on valuations, as I said earlier. That comment relates to Amendments 15 and 16.

It is very important that the burden of the regulatory requirements on business rate payers is re-examined to make sure that all that business rate payers are now being asked to do is valid. It is said that all the proposed increases in workload are required because of the reduction of the valuation time period from five years to three. I am unconvinced by that and I hope that the Minister might be able to explain why that statement applies. Maybe, as I said a moment ago, it relates to resources. However, the Valuation Office Agency should meet the same performance standards that it requires of business rate payers. That is a very important principle.

My Amendment 34 relates to the Secretary of State being required to consult on the benefits and practicability of a system of accreditation for rating advisers. It seeks to explore an avenue for combating the rogue and unprofessional practices of some rating advisers. It is a simple issue. The new duty to notify will give rise to demand for professional help among business rate payers and, therefore, a serious risk of there being a rise in unqualified advisers offering services, so I conclude that there should be a licensing or accreditation system. At the very least, the Government should consult on that.

The context is simple: there is to be more work for business rate payers, the system is more complex, more will seek professional help and, when they do so, they will expect expert advice. If they do not get expert advice and mistakes are made which perhaps cost the business rate payer a substantial sum as a consequence, whose fault will that be? Of course, the immediate fault will not lie with the Government or the Valuation Office Agency, but behind that failure will be the fact that the Government could have done something to ensure that those who are giving advice are competent to do so.

This is simply a proposal that the Government set up a consultation for a system of accreditation. I hope that the Minister will take it seriously; it is a big issue. The changes in the Bill are welcome in so many ways but, as the noble Earl, Lord Lytton, said a moment ago, there is a danger of unintended consequences, which will cause some to feel that they have not been properly attended to. Setting up a consultation on the issue of accreditation of advisers seems an appropriate measure that the Government could take.

[Baroness Hayman of Ullock (Lab)]

My Lords, as we have just heard, I have Amendment 28 in this group. I thank the noble Lord, Lord Shipley, for his support for my amendment. We tabled this because we are concerned that the VOA may not be sufficiently resourced, particularly as the Bill gives the agency additional responsibilities. The noble Lord, Lord Shipley, has clearly expressed many of the concerns behind the amendment.

I looked at some recent data about the number of staff employed by the agency. The latest figures that I could find showed that it has a full-time equivalent of 3,698 staff, which is not huge, to be honest, particularly as a large number of new responsibilities is being brought its way. The global property consultancy, Colliers International, has described the Government’s plan to reduce the number of VOA offices from 56 to 26 as “a shambles”, and said that it will be a

“nightmare for businesses wanting to appeal their business rates”.

That is another reason why I was concerned enough to table this amendment.

We also know that there have been problems with the VOA managing the number of appeals and the time taken for resolution. I very much support what the noble Lord, Lord Thurlow, said in his excellent introduction to this debate, about the importance of transparency. He also talked about the number of challenges—30%—resulting in reduction. Clearly, that is too high and needs to be addressed—and the VOA needs sufficient resources to be able to do so.

We also know that, often, the number of challenges and the time taken for resolution relate to the number of rogue agents, many of which want to make a fast buck out of this. That is why we support Amendment 34 in the name of the noble Lord, Lord Shipley, which looks to address this. Again, we had discussions about it at Second Reading. We support his amendment and that of the noble Baroness, Lady Pinnock, in this group. In the letter that the Minister sent to noble Lords after Second Reading, she acknowledged that rogue agents need to be looked at and that this would be part of a government consultation. I hope that the Government will take this seriously enough to consider action on this following the consultation, because it seems genuinely to be a problem.

We very much support what Amendments 15 and 17, in the name of the noble Lord, Lord Thurlow, are trying to do to increase transparency in the revaluation process. We hope that that transparency would also reduce the number of appeals, as the noble Lord so eloquently said. Amendment 16, tabled by the noble Earl, Lord Lytton, would also increase transparency, and we would be happy to support it. Clearly, increasing transparency is important, but we have to be careful that amendments we put down on transparency do not have the unintended consequence of adding to the valuation office’s workload without it having sufficient resources—this comes back full circle to what I said at the beginning.

There is also the risk of a major bottleneck in the system, through the new online portal. It would be good to have reassurances from the Minister about how that will be resourced and managed. It is human nature that a large proportion of ratepayers will put in requests for their rental evidence soon after the 1 April date, when the new rating system is published. It would be helpful if the Minister could give assurances that the VOA will be able to respond in time to allow ratepayers and their agents to construct and submit challenges by 30 September—the six-month deadline—because that six-month window for a challenge is a fundamental change to the rating system. We need greater clarity and certainty about exactly how that window will operate, particularly in relation to new tenants and the changes in the list that occur during and after the six-month window. Where is that flexibility?

The Bill states that a ratepayer must provide “annual confirmation” that they have, first, provided “all notifiable information required” or, secondly, that they are “not required to provide” any such notifiable information. Is this confirmation likely to be digital, to fit in with the online system? Will accessible formats be reduced, and will any mitigating circumstances be considered, if a person is unable to complete that confirmation?

As the noble Earl, Lord Lytton, described it, his Amendments 18 to 20 remove the requirements for the annual return. He talked about duplication and unnecessary returns, and it would be helpful if the Minister could provide clarification on that, because a number of changes to how this is done are coming in, and it is important that it works smoothly from the start.

[Baroness Scott of Bybrook (Con)]

My Lords, group 3 concerns information sharing between the Valuation Office Agency and ratepayers, the performance and capacity of the VOA, and the behaviour of some of our rating agents. Central to this part of the Bill is our commitment to move to more frequent revaluations, delivered by Clause 5. As we have discussed, sustainably delivering this important goal is contingent on increasing the timeliness and quality of the information received by the VOA.

To ensure that the VOA has that timely and complete flow of information, Clause 13 introduces a duty on ratepayers to provide notifiable information to the VOA and to confirm each year that they have met their obligations under that duty. In return, Clause 10 provides the means for ratepayers to access an analysis of evidence used to set the rateable value for their property, which should reduce the need for ratepayers to make a challenge. Ratepayers will be able to access guidance from the VOA, provide information on their property and request evidence on their own valuations, all through an online service. This will be the same online portal through which ratepayers will also be able to provide their taxpayer reference number to meet the other duty introduced by Clause 13.

The noble Earl, Lord Lytton, asked about information if you have more than one property. The VOA will seek to enable ratepayers with multiple properties to provide information about their properties at the same time every 30 days, to limit their administrative burden. We have listened to requests from stakeholders for this functionality, and we recognise that there is also a benefit for the VOA from receiving information in this way. We will work with businesses, agents and software suppliers to rebuild a robust and effective system for ratepayers. The deadline for notification of the underlying changes will remain at the now-increased 60 days, and the same deadline will apply to all, regardless of the means of notification.

I turn to Amendments 18 to 20. As I have set out, Clause 13 includes a requirement on the ratepayers to confirm once a year that they have provided the information required of them—this will be digitally, to respond to the noble Baroness, Lady Hayman—under the VOA duty. Amendments 18, 19 and 20 from the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, would remove that requirement. I shall explain why this part of the duty is necessary.

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[Baroness Pinnock (LD)]

My Lords, the noble Earl, Lord Lytton, has raised an important group of issues regarding the penalties that could be imposed on ratepayers who do not provide accurate, timely information. I hope that the Minister will be able to respond to that and explain how ratepayers seem to have more and more imposed on them. They must provide the information annually to the VOA—in the last group we debated the VOA’s transparency in relation to that—and the noble Earl has just raised the quite significant penalties imposed if the information is not accurate, even if, as he pointed out, there is a genuine error. It seems that, in the previous group and this one, we do not have the right balance of responsibilities between the VOA requiring information, what business rate payers are required to provide and where the final duty lies.

The VOA is serving two masters: the Treasury on one hand and business rate payers on the other. It seems that the VOA is responding to its Treasury master and is not giving sufficient cognisance to the customers—the business rate payers. The noble Earl raised some important points regarding that. We must get this balance right. The VOA needs to be more transparent and responsive to business rate payers. It also needs to be accountable to them—and the reverse is also true, as the noble Earl said. The VOA demands penalties if the ratepayer gets the information wrong but—hang on—the VOA makes errors all the time. Where is the accountability and compensation to business rate payers for those errors? The noble Earl raised that issue and I hope that the Minister will be able to get the balance right when she responds.

[Baroness Hayman of Ullock (Lab)]

I thank the noble Earl, Lord Lytton, for bringing the amendments on penalties forward because a number of questions around compliance and the penalties regime have been drawn to our attention. One is how it aligns with the wider UK tax regime generally. Another is that a new criminal offence is being created here, but is that actually necessary? Is this not covered by existing legislation and existing criminal charges, for example? I am more broadly probing why we need a new offence here.

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[Baroness Hayman of Ullock (Lab)]

My Lords, I will be very brief. The noble Earl, Lord Lytton, has laid out his concerns very clearly and in great detail. At the least, we need clarification. We have talked about the problems around licensing conditions; the hospitality sector in particular is very concerned about the implications of being stuck with a valuation for three years that, bluntly, may not be correct. It would be very helpful to hear what the Minister has to say and for her to give reassurances to the licensing sector that its circumstances will be taken into account.

[Baroness Scott of Bybrook (Con)]

My Lords, I am grateful to the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, for their amendment. I understand the concerns around this clause; I will take the opportunity to explain why we consider this measure to be necessary and to set out the limits of its application.

As we have heard throughout the passage of the Bill, more frequent revaluations and the measures we are introducing to support them are central to the reform of the business rates system. It is through those revaluations that the rating system is able to track and reflect changing economic circumstances. In property valuation terms, rateable values are updated at revaluations to reflect changes in economic factors, market conditions and changes in the general level of rents.

Of course, that does not mean that rateable values never change between revaluations. It would hardly be fair if, for example, a ratepayer demolished part of their property but this was not reflected until the next revaluation, or if a new property were built but escaped rates until the next revaluation. Therefore, some changes are reflected in rateable values as and when they happen. Examples include changes to the physical state of the property, the mode or category of occupation of the property or matters affecting the physical state of the locality. These matters, reflected as and when they occur, are called material changes of circumstances—MCCs.

The MCC system has been operating in this way for many years, but, during the coronavirus pandemic, we found that it was not working as intended. Large numbers of challenges were made, seeking reductions between revaluations for the effects of the pandemic, which by their nature were part of the general market conditions. Such general market matters should be considered at general revaluations.

Therefore, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 clarified the law to ensure that coronavirus and the Government’s response to it were not an appropriate use of MCC provisions. Specifically, that Act ensured that anything done to comply with legislation, advice or guidance given by a public authority and attributable to coronavirus should not be an MCC, subject to some exclusions. The principle in that Act was approved by both Houses, and it received Royal Assent on 15 December 2021.

Clause 14 of the Bill merely takes that principle, clarified and accepted by this House in the 2021 Act in relation to coronavirus, and applies it more generally to all legislation, guidance and advice from public bodies. Changes in such matters are part of the economic factors and market conditions for a property and should be reflected at a general revaluation. This clause will protect the integrity of the rating system and ensure that more frequent revaluations can proceed smoothly. It will protect the system not just for central government but for local government, which relies on the revenue from business rates. The Local Government Association supports this clause and agrees that these matters should be reflected at general revaluations. But this does not mean that these matters are not reflected in rateable values; it just means that they are reflected only at the set date of each revaluation, along with all other economic and general market factors present at that date.

Furthermore, we have limited the scope of Clause 14 to three aspects of the MCC system to ensure that it operates fairly. This is to ensure that physical changes to the property or the state of the locality are still reflected. Therefore, Clause 14 will bite on only three types of MCCs. First, it will catch matters affecting the physical enjoyment of the property but not the physical state. This might include changes in how the property can be used following new legislation or guidance. Secondly, it will catch matters that are physically manifest in the locality but not matters affecting the physical state of the locality. This might include changes to traffic flows and bus or transport services. Thirdly, it will catch the use or occupation of other premises in the locality, which might include the change in use of a nearby property where, for example, the original use has been prohibited by new legislation.

Clause 14 will ensure that matters such as physical changes to a property or to the state of the locality continue to be immediately reflected in valuations, even if they are a result of new legislation or guidance. Clause 14 will also not bite on whether the property is non-domestic or domestic or whether it is exempt. Overall, Clause 14 will preserve a long-established principle by ensuring that matters that go more to the market conditions and general level of rents of a property belong in the general revaluation process. Of course, with more frequent revaluations, these factors will still be updated more often than ever before.

The clause will provide important stability and certainty to the rating list and, therefore, to the vital revenue for local government that flows from the list. Therefore, it would not be prudent to delay the introduction of the clause, as this amendment seeks. I know that the noble Earl will be disappointed that we are unable to agree to this, but I hope that I have set out the basis for taking this measure and also given him some assurances regarding its scope. I will look at Hansard tomorrow and will write to noble Lords with further explanations if I feel that they are required.

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Moved by

[Baroness Hayman of Ullock]

29: After Clause 15, insert the following new Clause—
“Threshold for small business rate relief adjustment: impact assessmentWithin 90 days of this Act receiving Royal Assent, a Minister of the Crown must lay before Parliament an assessment of the impact of reducing the threshold for small business rate relief on the future of the high streets.”Member’s explanatory statement
This is intended to probe the possibility of reducing the threshold for small business rate relief.

[Baroness Hayman of Ullock (Lab)]

My Lords, Amendment 29 was tabled just to probe the possibility of reducing the threshold for small business rate relief, particularly in consideration of our high streets. We know that business rates remain one of the largest fixed costs for retailers and that they fundamentally impact business planning and investment decisions; for example, the convenience sector’s business rates liabilities are over £274 million, despite the small business rate relief. We also know that retailers are facing a particularly difficult time at the moment: we have increased commodity prices, skyrocketing energy bills and structural changes to the labour market—there is an awful lot going on and a lot of instability.

We are concerned that the current revaluation of business rates, which was implemented in April this year, will hit smaller high street stores in particular. They struggled during the pandemic and afterwards, and, combining that with a winter ahead with higher energy bills, we have particular concerns. We have called for short-term support through an increase in the threshold for the small business rate relief. We suggested that the current threshold of £15,000 be increased to £20,000 in order to give SMEs a discount on their business rate bill for 2023-24.

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Having only recently conducted a comprehensive review of the rates system, and having set out our plans for monitoring and reviewing the measures in the Bill and the protections for local government in our administration of the system, I trust that noble Lords will agree that these amendments are unnecessary.

[Baroness Hayman of Ullock (Lab)]

I thank noble Lords for the debate we have had on this, and I thank the Minister for her thorough response to the debate. I thank her particularly for her assurances regarding the impact of the revaluation on local authorities. It is important that that is taken into account. There are still outstanding issues in this area, particularly around the impact on the hospitality industry and other specific groups that will be affected and how we manage online versus high street and get an equitable position. I should have mentioned in my opening speech that we support the amendment tabled by the noble Lord, Lord Thurlow, and I thank him for his introduction to it. I beg leave to withdraw the amendment.

Amendment 29 withdrawn.

Non-Domestic Rating Bill

Baroness Hayman of Ullock Excerpts

Report stage
Tuesday 19th September 2023 Lords Chamber

Moved by

[Baroness Hayman of Ullock]

1: Clause 1, page 2, line 25, at end insert—
“(za) the chargeable day falls after the day on which qualifying energy efficiency improvements are completed,”Member’s explanatory statement
This amendment, and others to Clause 1 in the name of Lord Ravensdale, would allow qualifying energy efficiency improvements improvement rate relief until at least 1 April 2029.

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[Baroness Hayman of Ullock (Lab)]

My Lords, the noble Lord, Lord Ravensdale, is unable to join your Lordships’ House today due to work commitments, so he has asked me to introduce his amendments in the first group as I have added my name to them. Amendments 1, 2 and 3 in this group all relate to rate relief for energy efficiency improvements. Specifically, they allow qualifying energy efficiency improvements improvement rate relief until at least 1 April 2029. That contrasts with the current position of the Government, who have previously made it clear that they intend to offer improvement relief for only one year.

I understand from the noble Lord, Lord Ravensdale, that he has had constructive meetings with the Minister, but that during those meetings she raised two particular concerns about the implementation of his amendments, if the Government were to accept them. First, she raised the issue of the reduction in rates revenue that would come if the amendments were passed. The noble Lord asked me to draw attention to the fact that that would be offset by the increased investment in energy efficiency that would therefore result, including a reduction in the cost of bills, as well as the ensuing energy security and sustainability benefits that would come from the introduction of his amendments.

The second concern the Minister raised was about the classification of energy efficiency measures for valuation purposes when compared with renewables and energy storage. The argument here is that this would mean that almost any building works could potentially qualify: for example, replacement windows and anything to do with the fabric of the building itself. We understand what the Minister is saying about this and why she raised that point, but we would add that, while an insulated extension might have an incidental efficiency benefit, we believe—as does the noble Lord, Lord Ravensdale—that it should be possible to distinguish between changes that are mainly or wholly for the purpose of improving energy efficiency and those where the improvement is incidental. We should be able to differentiate between the two. The suggestion the noble Lord made is that the Government could look at tweaking the draft regulations on which they have recently consulted. It would be very constructive for the Government to discuss this further with the noble Lord to see whether this is an option going forward and whether it could actually be achieved.

We support the steps that the noble Lord is suggesting to encourage businesses to carry out energy-efficiency improvements. They are important because that would not only align with the UK’s climate and emissions targets but lead to long-term savings for ratepayers and bring about efficiencies all round. The recent increases in energy bills have created enormous uncertainties —very much so for high street retailers, who have been in a volatile market for some time since Covid—and the Government should explore incentives such as this. I beg to move.

[Lord Stunell (LD)]

My Lords, I listened carefully to what the noble Baroness, Lady Hayman of Ullock, said in support of the amendments tabled by the noble Lord, Lord Ravensdale. Looking at those amendments and their context, I think they present a viable option for the Minister to examine and respond to. It is important to consider where the benefit is likely to fall should these amendments be accepted. As I see it, it will primarily benefit SMEs above the small business rate relief threshold. That is not a guaranteed threshold, by the way; it is at the discretion of the Government of the day, from time to time.

For many of those smaller SMEs above that threshold, business rate costs easily exceed energy costs, even in this day and age. Therefore, for many of those businesses, their focus is on getting their rates down and getting the Government to do that, perhaps overlooking the need to make energy improvements, which they perhaps do not see as central to their business operation, nor producing a dividend that they can cash in good time. This amendment skilfully joins those two things. It offers, to those who find the rates burden excessive—and perhaps we could add “Who doesn’t?”—a mechanism for reducing them by investing in energy performance measures. I certainly agree with what the noble Baroness said about the shape of the guidelines, which would obviously be produced if these amendments were passed, and what those energy improvement measures should be and how they might be properly measured.

There is a clear incentive mechanism here, which is clearly needed because there is no doubt that businesses in that sector in particular are lagging behind on energy efficiency—for the reasons I have outlined: they have other business pressures on them and it is certainly not at the top of their to-do list. Also, they probably do not have an ESG policy or a policy statement committing their enterprise to getting to zero carbon by 2050. These are a band of enterprises which are core to the British economy, but they are not exactly headline-making businesses when it comes to developing their social and environmental policies. They need a nudge. To give them a nudge which reduces their rates bill seems a mechanism which merits careful exploration.

The measures in these amendments would be helpful in that hard-to-reach SME sector, often occupying hard-to-improve premises. To join those two things up would be very worth while. We cannot rely on reaching our 2050 targets for the built environment purely on the good will and common sense of hard-pressed SMEs, which have so much else to do.

There is a greater public good to be achieved. If the Government feel that there is any element of giving money away that they do not need to do, I would simply argue that this is, or could be, an important step in delivering that public good, which is reaching zero carbon by 2050—reducing our carbon emissions and avoiding climate extinction. I very much look forward to what the Minister has to say by way of response on behalf of the Government.

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I hope it is helpful to have this wider context on the record, alongside our reasoning about why a new relief is not necessary. I thank noble Lords and hope that they will not press these amendments.

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank noble Lords who took part in this debate and gave their strong support for the amendments of the noble Lord, Lord Ravensdale. It is much appreciated.

I feel that the Minister gave the reasons for the Government not doing this that I mentioned at the beginning, when I explained why we thought that they could, so I am not hugely convinced. It is good that the Government are looking at energy efficiency—it is really important and has not been taken seriously enough in the past—but, as the other areas that the Minister mentioned have been included, why not expand this to include the amendments from the noble Lord, Lord Ravensdale, and what they would achieve? Anything that improves energy efficiency should be encouraged, in a nutshell.

I hear what the Minister has said and I am sure that the noble Lord, Lord Ravensdale, will look carefully at Hansard, but I think it would be good if the door to discussion could be kept open. On that note, I withdraw the amendment.

Amendment 1 withdrawn.

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[The Earl of Lytton (CB)]

My Lords, I want briefly to address some of the amendments in this group, so ably moved and spoken to by the noble Lord, Lord Shipley. I note that in his Amendment 4—and to some extent in the question of social advertising—he is referring to the purposes for which a hereditament is occupied. We already have this situation in the sense that if a charity occupies a shop for charitable purposes, it gets a degree of mandatory relief. Possibly the only difference is that the charity must have a Charity Commission registration number, and therefore its whole constitution, terms of engagement and memorandum and articles of association are clearly laid out.

The only thing I would say about Amendment 4 is that it is important to make sure that some sort of asymmetry does not come in as a result of using the purposes of occupation approach; otherwise, I can see that there might be accusations of unfair competition. I therefore see no reason to object to the billing authority’s discretion being exercised in its own favour, subject to there being a properly laid out policy that makes it clear to everybody what it is doing and is possibly subject to democratic processes.

I suppose that Amendment 16 should warm the cockles of my heart in terms of the accreditation of non-domestic rating advisers. Of course, I come from the background of being a fellow of the Royal Institution of Chartered Surveyors, which is an accreditation body in its own right. Indeed, a large amount of the edifice of “check, challenge and appeal”, which was put in place by the Government to deal with the huge backlog of rating appeals many years ago, was to do with the fact that unqualified people were putting in blanket appeals and clogging up the system. The accusation was that many of these were totally unmeritorious and were simply wasting everyone’s time—so there is a case for doing it. There was a case for doing it instead of going through the malarkey of “check, challenge and appeal” in the first place, and all the powder and shot and grief occasioned thereby—but we are where we are and if it can help streamline the business so that people are bound by codes of conduct and can be called to account for their actions, all well and good.

I shall comment a bit on Amendment 18, which is also in the name of the noble Lord, Lord Shipley. I sent him today—I apologise to him for not having sent it a lot earlier—the consultation that is going on regarding avoidance and evasion. In that is some business about who does rating work and rogue rating surveyors. I believe that the consultation finishes on 28 September. I hope there will be further discussion with the industry and stakeholders about how it is going to formulate—but the point made by the noble Lord is well made, and I am glad to see that something is in progress.

[Baroness Hayman of Ullock (Lab)]

My Lords, I think the noble Lord, Lord Shipley, for his amendments and for his clear introduction to them. I also thank the noble Earl, Lord Lytton, for his contribution.

As we have heard, these amendments relate to rating agents, anti-avoidance, discretionary relief and viability rights, all of which are really important issues that we need to discuss. Amendment 4 would remove the ban that currently prevents relief being given to certain buildings. We know that the Local Government Association is very supportive of that amendment, because the current rules prevent councils from giving discretionary relief to their own hereditaments. As we have heard, both now and in Committee, this is particularly an issue with local authority markets. It became problematic particularly during Covid-19 because local authorities were unable to give those markets the business rates relief that other businesses were able to benefit from, which meant that many local authorities had to subsidise those rates in order for the markets to continue operating.

I am assuming that the ban is to prevent conflicts of interest; perhaps the Minister could confirm why it is in place. If that is the case, will the Minister consider whether there any added flexibility should brought into this prohibition so that, in times of particular need, councils can be flexible? If the Government are not going to accept the amendment, let us look at what else we could do to help.

Amendment 16 would start the process for accrediting ratings advisers. The reason I want to talk about this amendment in particular is that there seems to be an increasing number of reports of rogue agents claiming that they can help businesses. It seems to be a growing problem. There are concerns that the situation will be further exacerbated when the Government bring in annual returns and the duty to notify in their reforms, partly because that complicates the system.

Our concern is the impact of that on the smaller retail and hospitality businesses in market towns right across the country. They may not be seeing the reductions in their rates bills that they should be in the revaluation from 1 April, making them more vulnerable to approaches by rogue rating surveyors who promise that they will help them negotiate a new revaluation but do not deliver and disappear, leaving the businesses high and dry. That is our particular concern. So do the Government recognise that this is an increasing problem? If so, perhaps we should look at tackling it in the way in which the noble Lord, Lord Shipley, has proposed. We cannot allow this situation to continue and to get worse, because it will affect many small businesses that simply cannot afford it.

Amendment 17 exempts social infrastructure sites—such as bus shelters and telephone boxes—which have advertisements from paying business rates. I am not sure that the Minister will have this figure at his finger- tips, but it would be interesting to know how much is currently generated from this kind of advertising: what impact are we talking about?

Finally, Amendment 18 relates to anti-avoidance. I know that the Government have recently consulted on this, so it would be good to know exactly what action they are looking to take.

[The Earl of Courtown (Con)]

My Lords, I thank all noble Lords who have contributed to this relatively short and interesting debate on a wide-ranging subject. It is good that the noble Lord, Lord Shipley, has given us the opportunity to look into these matters a little further.

I will go through the amendments, but not necessarily in chronological order, so noble Lords will have to bear with me. I understand that the noble Lord, Lord Shipley, tabled Amendment 16 based on his concerns regarding the conduct and sharp practices of some rating advisers, as mentioned also by the noble Baroness, Lady Hayman of Ullock, and the noble Earl, Lord Lytton. I sympathise with and recognise the concerns behind this amendment and welcome the opportunity to discuss the work the Government are doing to address them.

I reiterate in the clearest terms that most rating agents are legitimate organisations registered with a professional body. Nevertheless, as my noble friend the Minister has said previously, we know that a minority of agents seek to take advantage of their clients through predatory practices and exploitative contracts, or by actively promoting rates-avoidance strategies. The Government have published a wide-ranging consultation, as mentioned by the noble Earl, Lord Lytton, on avoidance and evasion in the business rates system. The consultation includes a specific chapter on those rogue agents with whom this amendment is concerned and seeks views on how the Government could address any issues arising from their conduct. While there is no regulatory regime that covers all rating agents, a set of agent standards has been jointly published by the three professional bodies: the RICS, the Rating Surveyors’ Association and the Institute of Revenues, Rating and Valuation.

Recognising the importance of the professional bodies to the system, the Government will, as a matter of course, take the views of these organisations into account and will be engaging with them through the ongoing consultation process. The Government also provide advice on GOV.UK on how to find a reputable agent and the considerations that businesses should take into account when deciding to appoint an agent. Furthermore, the Valuation Office Agency is currently developing a standard for all rating agents, in alignment with existing HMRC agents’ standards.

The Government are keen to work collaboratively with rating agents to tackle poor practice. Our aim is to find a balanced solution that prevents sharp practice but does not impinge on the legitimate work of agents up and down the country.

Amendment 4 would remove the legislative bar which prevents local authorities awarding discretionary rate relief to their own properties. I understand that the concerns of the noble Lord and the noble Baroness are primarily with the application of business rates to local authority-run markets. The Government fully recognise the contribution that markets make to the vibrancy and diversity of our communities. We are supporting local authority-run markets with access to the £2.6 billion towns deal programme and the £1 billion Future High Streets Fund. We have also made permanent the permitted development rights which enable markets to be held by local authorities for an unlimited number of days.

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[Lord Shipley (LD)]

My Lords, I move Amendment 5 in my name, and will speak also to Amendments 6 and 7, which would, in effect, do the same thing. My name also appears on Amendment 15, which is in the name of the noble Baroness, Lady Hayman of Ullock. I will leave her to speak mostly to that amendment. It is about review and the point I made a moment ago—that we have to keep reviewing business rates and how they operate because of the challenges currently faced.

I have tabled these amendments so that we can hear again from the Government the justification for a three-year review, as opposed to the two-year review which I would prefer. I prefer two years because it has many advantages. It would be more efficient and reflect changes in valuations more quickly. It could reduce work and it would be really good if it could be done.

I understand that there is already a reduction to three years and to reduce it further would be pretty hard to do as quickly as it would have to be done. Therefore, I would probably accept the Government’s advice that they are mindful of the need to move to two years, that there are major advantages to it and that that is the sense of the journey they are following. It would be very helpful. I have tabled Amendments 5, 6 and 7 so that the Minister can respond and confirm again that it is the intention to get towards a system that does a business rates review every two years. I beg to move.

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank the noble Lord, Lord Shipley, for his amendments. This group is all about revaluations and reviews of rates. The first three amendments, which the noble Lord, Lord Shipley, has introduced, would change the timeframe for compiling non-domestic rating lists. I thank the noble Lord, Lord Thurlow, for his support and encouragement for my Amendment 15, and I support his Amendment 19. Those amendments are looking for broader reviews of the business rates policy. The intention is to look at how frequently we should review our business rates.

One reason we have concerns about the current system—and it is good that the Government have looked at this and reduced it to a certain extent—is that if reviews are done only over a certain period, the rest of the system needs to be fit for purpose. We are concerned that the current system makes it extremely hard for businesses to appeal their assessments. If you have an assessment that is high, it is difficult to appeal and to manage that, which creates difficulties, particularly for small businesses. The whole system needs to be much more fit for purpose if it is to work for businesses and for local authorities.

The Labour Party’s policy is to scrap business rates altogether and to replace the current system with one which works to incentivise investment. We think there should be more frequent revaluations. If property values drop for particular reasons outside a business’s control, there should be the ability to do more frequent revaluations. Where businesses are caught out in this way, bills should be reduced. There should be incentives and rewards for businesses which, for example, move into and invest in empty properties. It is about encouragement. Earlier, we talked about green improvements and energy efficiency and how you encourage businesses to invest in this way. The whole system needs to be a bit more nimble and more effective in supporting small businesses. The Government need to work with businesses, people working for those businesses and public bodies in order to get a system that is genuinely fit for purpose and supports local businesses and local authorities in the way it needs to.

[Lord Thurlow (CB)]

My Lords, I declare my interest as a former chartered surveyor with interests in rating. This amendment and the rest of the amendments in this group clearly call for a review of business rates. I am pleased to add my name to the amendment in the names of the noble Baroness, Lady Hayman of Ullock, and the noble Lord, Lord Shipley.

A change which had been promised and which was long overdue is this review of business rates. It is particularly disappointing that the result of the review will be declared so shortly after the end of the progress of the Bill. It is the wrong way around. A redefinition of use classes—not for planning but for non-domestic rates purposes—is certainly required in order to reflect the changes that have taken place in the real world. Should Airbnb properties which are professionally managed as such be subject to council tax or to non-domestic rates? Likewise, one can follow that thought process through to the high street. Some of the changes of use in the high street to non-retail property do have specific use classes, but this needs to be brought up to date.

Should a sole trader with one or only a handful of outlets receive start-up incentives to boost their chances of survival? As Amendment 15 seeks, small retailers really should have the thresholds for relief purposes reviewed urgently. Dozens and dozens are going bust in the high street every month, on the watch of a Conservative Government whose mantra is to support business, and particularly small businesses. I just do not understand why there has been such neglect.

I turn to Amendment 19 in my name. This is one of several amendments requesting a general review of non-domestic rates. As part of this, I support the reference in Amendment 15 to a two-year review. That is taking it at quite a racy pace compared with the current five-year programme, but I think we should see it as the objective in the process of increasing the frequency of reviews.

We also need the Government to address the imbalance of the rates burden between the high street retailers and the big-box dark retailers—the internet retailers. We know, of course, that many smaller high street retailers operate mail order businesses. That is not what I am referring to; I am referring to enormous warehouses, measuring hundreds of thousands of square feet. We all know of Amazon—this is effectively the Amazon amendment. The small retailers in the high street cannot compete, and rates alone create a massive disadvantage to the high street retailer. What are we doing? We are doing nothing, and we should be doing something about it.

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[Lord Etherton (CB)]

My Lords, I also support Amendment 8 in the name of the noble Earl, Lord Lytton. Ideally, it is worth avoiding appeals. Appeals can be avoided only if there is confidence that you have the material available. That presupposes a sharing of information that is open and transparent. One of the criticisms that is often made is of the time taken in appeals, the obscurity of the role adopted by the valuation office and its failure to disclose information. It seems to me that it is in everybody’s interests, economically and in terms of management time and stress, to avoid appeals by an early disclosure of information where requested.

[Baroness Hayman of Ullock (Lab)]

I thank the noble Earl, Lord Lytton, and others for speaking to these quite technical amendments. As the Minister said previously, I would not say that I am an expert on these issues, but it is very important that they have been raised. It is particularly important with valuations and penalties that we properly understand the implications of the Bill.

I have one question for the Minister on government Amendment 12, which limits the daily penalties that are applicable. I wonder where the figure came from and whether the Minister thinks it will be a sufficient deterrent.

[Baroness Swinburne (Con)]

The noble Earl, Lord Lytton, has tabled a number of amendments related to the provision of valuation evidence to the Valuation Office Agency. I am grateful for the opportunity to address this again, following the earlier debate in Committee, and to explain how the Government have listened to the suggestions heard in that debate.

As has been noted previously, these reforms are essential to securing the sustainable delivery of more frequent revaluations, which I know noble Lords support. Clause 10 consists of a power to allow the VOA to share valuation information with ratepayers. Amendment 8 would make this power a duty, and I will explain why the Government cannot support this. The Government are absolutely committed to providing greater transparency about how rateable values are calculated. The VOA has recently consulted on how, in practice, they intend to use this clause. It is an important part of the reforms and a key plank of our commitment to ratepayers. However, as that consultation reflects, we cannot overstate the importance of privacy rights. The information relied on by the VOA in establishing a valuation will, in some cases, include personal and sensitive data, so it is right that we take an approach which is common among other data gateways; namely, that the gateway is permissive: it permits the VOA to disclose information rather than placing a requirement to do so. This approach safeguards the interests of ratepayers and their data, but I am clear that within the necessary constraints of the clause we are committed to the transparency of valuations.

Amendments 9 and 10 from the noble Earl, Lord Lytton, seek to remove the requirement in Clause 13 for rate- payers to submit an annual confirmation as well as a notification to the VOA when there is a notifiable change related to their property. On this amendment, the Government are mindful of those concerns. Of course, we should not burden businesses where we do not need to. However, we have a safeguard in place for that very purpose. The Bill provides that the annual confirmation can be brought into force later than the other parts of the VOA duty, and the Government have been clear that we will not bring it into force until we have ensured that it will be sufficiently straightforward for ratepayers to complete. We intend that completing the annual confirmation should be a matter of only a few minutes for those who are already up to date with the duty. Moreover, the annual confirmation will serve a valuable purpose for ratepayers, as well as the VOA. By providing a further opportunity to ensure that they have complied with the duty, the annual confirmation will act as a safety net.

Amendment 11 seeks to prevent the VOA backdating changes to the rating list after a certain period. We are aligned on the importance of the VOA acting promptly and accurately on information received about a property. The VOA takes this very seriously and is performing well—it meets its own targets for processing checks within 12 months and challenges within 18 months in 99.9% and 98% of cases respectively. Of course, as we develop these new systems for the VOA duty, we will review the VOA’s operational targets accordingly, but in light of the VOA’s performance on its existing targets we do not see the need for primary legislation in this space. Furthermore, we hope the noble Earl will recognise that the information provided under the duty may vary considerably by type of property. In the view of the Government, that does not point to a one-size-fits-all approach being appropriate. Instead, it requires effective and transparent performance monitoring, which we will continue to provide under the new system.

I shall explain the steps the Government are taking through government Amendments 12 and 13 to improve the penalties regime for the VOA duty following proposals made by the noble Earl, Lord Lytton, in Committee, for which I am grateful. Amendment 12 deals with the daily penalties which the VOA may apply where a ratepayer continues not to comply with the valuation notification requirement 30 days after being served an initial penalty notice. Its purpose is to encourage timely compliance with the duty. However, it has been noted that in the similar provision for the separate duty to provide HMRC with a taxpayer reference number, a cap on daily penalties equivalent to 30 days of the maximum penalty is applied. The Government have decided to extend this protection for ratepayers to the valuation notification duty. Of course, it is vital that the VOA can secure the information it needs to deliver more frequent revaluations, and to do this it needs effective compliance tools. Nevertheless, the Government have reflected on the points raised in Committee and accept that placing a cap on the total amount a ratepayer may be fined is appropriate. I have a note that I hope helps the noble Baroness, Lady Hayman: this is equivalent to 30 days of penalties, each being £60.

Amendment 13 alters the burden of proof that the valuation tribunal should apply when deciding whether to uphold a penalty decision. The penalty decisions with which this is concerned are for the criminal offence of knowingly or recklessly making a false statement. The Bill prescribes that, for a higher penalty to be applied, the VOA must be satisfied beyond reasonable doubt that the ratepayer has made the false statement knowingly or recklessly. That is the correct standard of proof for a criminal offence.

However, the noble Earl, Lord Lytton, identified an issue with the procedure where a ratepayer appeals such a penalty decision to the valuation tribunal. The tribunal would have to be satisfied beyond reasonable doubt that the ratepayer had not committed the offence. The Government wish to amend this to ensure that the proper burden of proof is applied, to the benefit of ratepayers.

Finally, Amendment 20 is a minor and technical change that we think we should make to the 1988 Act as a consequential effect of the provisions in this Bill concerning business rates multipliers. Clause 15 makes changes to the multiplier rules and separates the multiplier provisions relating to England and Wales. Section 140(2)(b) of the Act refers to Ministers making separate estimates of rateable value for England and Wales. As the provisions relating to England and Wales will now be separate, that section is obsolete and can be deleted. This is simply a drafting correction to improve the clarity of the statute book and the Government do not foresee any practical effect.

I thank the noble Earl, Lord Lytton, for his scrutiny of this area of the Bill, which has allowed us to make important improvements. I hope, with those reassurances and our amendments, he will be prepared to consider not pressing his amendments.

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I am glad that the noble Earl has decided not to call a vote on this matter, because we all together need to debate how we can get a better definition of the law so that properties that think they have suffered a material change of circumstance are entitled to seek redress for the position that they find themselves in. So I fully support what the noble Earl, Lord Lytton, is urging.

[Baroness Hayman of Ullock (Lab)]

My Lords, I will say very little, other than to echo what the noble Lord, Lord Shipley, has said. The noble Earl raised this issue in some detail in Committee, but we have not had the answers that he asked for. He is not satisfied that Clause 14 is necessary or designed to do what it wants to do. He has great experience in this area and we need to listen carefully to the concerns that he has raised. We very much support the fact that the noble Earl has brought this back to the House’s attention and look forward to the Minister’s response.

[The Earl of Courtown (Con)]

My Lords, I thank the noble Earl, Lord Lytton, for this short debate, which has been fascinating. He has quite rightly gone into some detail on this issue, and I hope I will be able to explain part of the thinking behind our inclusion of Clause 14 in the Bill. However, as the noble Lord, Lord Shipley, suggested, once I have read Hansard I will ensure that, if we do not feel we have not gone far enough in explaining our thinking, we will write to the noble Earl, making that available to all noble Lords and placing a copy in the Library.

Amendment 14 gives us the opportunity to consider the reasons behind Clause 14, and I believe the House will have found this debate useful. Where I trust we have agreement is on the role of revaluations, as they have been the main subject of debate on the Bill. Revaluations allow us to reflect in rateable values changes in economic factors, market conditions or the general level of rents for a property. These are familiar terms for describing a revaluation, not just because we have been using them throughout the Bill but because they appear in judgments when the courts have considered this matter.

Clause 14 will therefore ensure that changes in legislation, guidance and advice from public bodies are considered among the economic factors and market conditions for a property and should be reflected at a general revaluation. The noble Earl is concerned that the clause will go further into matters that should not be left until a revaluation and do not concern the general market for a property. However, our view is that the framework of legislation and guidance within which a property is used is in fact a central part of the economic factors and market conditions for that property.

As the noble Earl remarked, he kindly sent a list of examples to the department, and I shall deal with that point now. He raised a number of examples and considered how they should be treated under Clause 14. I hope noble Lords will understand that it is not possible to provide a case-by-case analysis during this debate on these examples, as each will depend on facts. Whether a particular event would result in a material change in circumstances, under the new law in the clause, would depend on whether it was attributable to the relevant factors listed in the clause.

The Government published a technical consultation in 2021 which explained how they intended the law of material changes of circumstances to operate. We also included a section on this in the Explanatory Notes to the Bill. The Valuation Office Agency will of course publish guidance on material changes to circumstances in its rating manual and, as always, it will work closely with professional bodies, with which the noble Earl is familiar, in ensuring that the rules are explained and understood. If, as has been suggested, we allow the matters listed in Clause 14 to be assessed between revaluations as a material change in circumstances, the impact on the rating system may be considerable. It would amount to the Valuation Office Agency conducting a non-stop real-time revaluation, revising large sections of the rating list as and when there were changes in the legislation, guidance or advice concerning how properties can be used.

Such an exercise would jeopardise our objective of moving to more frequent general revaluations.  It would also mean some ratepayers benefiting from a set of more favourable economic factors in their valuations than others.  The clause will ensure that all ratepayers are assessed against the same economic considerations at a set date—the valuation date for the revaluation—and that is updated for all only at the following revaluation. Clause 14 will therefore maintain the stability of the rating system, and it is not surprising that it is supported by the Local Government Association.

As my noble friend explained in Committee, there are safeguards in the clause. I shall not repeat them but, for example, the clause does not apply to changes in the physical state of the property, which will continue to be reflected as and when they occur.

This is not a step we have taken lightly; we consulted on our intentions in the technical consultation in the business rates review. It is a necessary step, to which I hope the House will agree.

Non-Domestic Rating Bill

Baroness Hayman of Ullock Excerpts

3rd reading
Monday 16th October 2023 Lords Chamber

[Lord Shipley (LD)]

My Lords, I thank the Minister very much for her conclusion to this Bill. I extend our thanks also to the noble Baroness, Lady Scott of Bybrook. As she said, the Bill has broad support in your Lordships’ Chamber. I am grateful for the Minister’s assertion that we have introduced a pragmatic approach to the content of the Bill, for I think it is true—we have done just that. I was particularly pleased to hear the Minister say that the Government have a commitment to monitor what actually happens. I know that, on all sides of the House, that will be very gratefully received.

The Bill has a number of very welcome changes: in particular, more regular revaluations, which will be a big help. However, problems remain. Crucially, the level of business rates is too high. Business rates used to be around half the rental level of a property; they are now almost equal. This financial burden is putting a huge pressure on many businesses, not least in the retail sector. I said on Report and at other stages of the Bill that small business rate relief should be further extended, particularly to assist the high street. I also think the Government should not be increasing the level of business rates next year by the rate of inflation.

I hope the Government will take on board comments made on all sides of the House about the need to review the non-domestic rates valuation process itself for its accuracy, its communications and its explanations to business rate payers. The noble Earl, Lord Lytton, has been particularly concerned about the issue of material change of circumstance. There is a new definition and there is a view that I share with the noble Earl, Lord Lytton, that it is too narrow. I am reconciled to what the Minister has said, which is that they will keep it under review.

Thirdly, the Government need to keep a close eye on the level of payments made by warehouses when those warehouses have a retail purpose.

In conclusion, I think that the NDR system is broken. This Bill is a welcome improvement, but it is not a solution. Business rates cannot just be a means of revenue raising by the Treasury. I hope that this Government, and any future Government, will simply bear in mind that we need a major reform of the business rates system.

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank the Minister for her opening remarks. I also thank the noble Baroness, Lady Scott, for all her work on the Bill; I wish her well from our Benches and we look forward to seeing her back in her place very shortly.

As others have done, I thank all noble Lords who took part in the debates on the Bill. It is a short Bill, but it is quite complex in areas, so it has been incredibly helpful to have real expertise and insight from noble Lords—such as the noble Lord, Lord Thurlow, and the noble Earl, Lord Lytton, who have been mentioned—not only for Government Ministers but for those of us leading on the Opposition Benches. It was good to be able to understand the implications of the Bill through the expertise noble Lords brought to the House. I agree with the noble Lord, Lord Shipley, that, having had that, the Bill is now in a better place than it was when it began in this House. It is an important Bill, and it is important that we improve the situation of business rates from how they currently stand. However, I also agree with the noble Lord, Lord Shipley, that there are still a few outstanding issues; that is why it is important that the Government keep their commitment to monitoring the outcomes of the Bill, particularly on the timescales of revaluation. As we discussed in Committee, some of us would have liked to see revaluation done more regularly, so it is important that we keep an eye on that.

As we discussed in the debates on the Levelling-up and Regeneration Bill, as well as on this Bill, there are a lot of concerns about our high streets and our small businesses on them—and business rates are a critical part of how they are supported. So, as we are also coming to the end of the Levelling-up and Regeneration Bill, I hope that, going forward, the Government will still consider different ways in which we can continue to support our high streets and small businesses. Having said that, we were pleased to support the Bill and we welcome it moving forward.

Bill passed.