Non-Domestic Rating Bill

Baroness Pinnock Excerpts

2nd reading
Monday 19th June 2023 Lords Chamber

[Baroness Pinnock (LD)]

My Lords, I remind the House of my relevant interests as a councillor and as a vice-president of the Local Government Association.

This Bill is one in a long line of recent Bills making important amendments to business rates. I reckon that, for at least 35 years, there has been no fundamental reform of the non-domestic rating system, whereas business practice, as we have been hearing, latterly from the noble Lord, Lord Thurlow, has been revolutionised by the growth of online retailers.

The Minister stated in opening that the Government are focused on longer-term reform, but being focused on longer-term reform is not the same as implementing it. All noble Lords who have spoken so far have brought the Minister’s attention to the fact that online retailers are benefiting at the expense of our high streets, despite the fact that the levelling-up Bill is trying to remedy that. Here is an opportunity to do something about it, and it has been missed.

The current system creates fundamental inequalities. Out-of-town online retailers pay significantly less than high street retailers because of the way business rates are worked out. Many times in this House I have given the example of a famous online retailer in a town near me. It pays £45 per square metre in business rates, whereas a small shop in my own local market town pays £250 per square metre. That is the extent of the inequality. It is one of the reasons high streets are finding it difficult to continue. That is why 47 shops a day are closing. The Government have a responsibility to address this relative decline of our high streets by creating a level playing field for our town centre retailers.

Having said that, this Bill introduces some improvements to the system. We on these Benches welcome Clause 5, which introduces the shortening of the period between valuations from five years to three years. This will help the rating system to respond in a more timely way to changes in economic circumstances. My noble friend Lord Shipley and the noble and learned Lord, Lord Etherton, have asked the question: why every three years? Why not every two years or even annually so that there is greater sensitivity to changes for businesses?

In their review of non-domestic rates, the Government stated:

“Annual revaluations would provide for the fastest updating of values, ensuring a highly responsive and up-to-date system, and this would mean tax liabilities would be closely reflective of economic conditions, economy wide or localised economic slowdowns would more quickly feed through into lower rateable values”.


That was posed by the Government, and we agree. Yet, in this Bill, they are failing to implement that very same thing. I hope the Minister can explain that for us.

Clause 1 makes changes to unoccupied hereditaments. This is a complicated part of the Bill. Can the Minister confirm that this will mean the continuation of the three months’ total relief from business rates for a property that is unoccupied? It seems that the proposal in the Bill is for an option for small business rates to be levied, as opposed to the standard business rates, after the three months. Can the Minister explain how this will encourage owners of empty high street shops, for instance, to relet or find a new use? It is almost the opposite to the way the council tax levy is used to encourage domestic properties back into use as homes. It will be interesting to hear what the Minister has to say on that. The Local Government Association’s briefing draws attention to the fact that, somehow, large vacant sites may not pay business rates at all. This appears to be an anomaly, and perhaps the Minister can throw some light on that as well

These Benches support the grace period for improvements, especially those designed to decarbonise or promote net zero, and the changes applied in this Bill to low-carbon heat networks. All that is very positive. However, we have concerns about the Valuation Office Agency’s responsiveness and accountability to ratepayers. My noble friend Lord Shipley has voiced concern about this, as has my noble friend Lady Thornhill, who asked about reciprocal responsibilities for the Valuation Office Agency alongside those in the Bill. There are new, very considerable burdens on ratepayers to provide more detailed information, so why not for the Valuation Office Agency as well? Can the Minister say how the work of the Valuation Office Agency is accountable to ratepayers? The only example I have is that it produces an annual report, which is a statement of fact rather than an opportunity for accountability to the business community.

I turn to the issue of business rate income. The changes to the existing system will mean a potential reduction in overall income as a result of the Bill removing the duty to be revenue neutral. As we know, local government depends on business rates for a large part of its funding. The Bill makes it clear that all business rate income has to be allocated to local government funding. However, where there is a reduction in income as a result of the Bill, the reference is only to compensation. It does not explicitly state there will be full compensation for loss of income. This is very important to local government, which is under huge financial pressure at the moment and cannot sustain any further loss of income. I look to the Minister, who has local government at her heart, to give us the assurance that any loss of income will result in full compensation.

In this context, I welcome the Government’s promise—I think to the Local Government Association—to consult on avoidance and evasion, along the lines of measures already introduced by the Welsh Senedd and the Scottish Government.

I support what my noble friend Lord Shipley raised about the devolution to councils of business rates, as has been done in the West Midlands. I thank the Local Government Association again for its briefing, which also includes the idea of devolution of more powers over income from business rates. The LGA’s asks include:

“Giving councils more flexibility on business rates reliefs such as charitable and empty property relief”


and

“Giving councils the ability to set its own business rates multiplier—


that would be interesting—

“or at the very least be able to set a multiplier above and below the nationally set multiplier”.

Finally, the Local Government Association underlines what all of us have said about the need for

“Consideration of alternative forms of income … including an e-commerce levy with the funding retained by local government”.


This has been an interesting debate, enhanced by the expert contributions of the noble Earl, Lord Lytton, the noble Lord, Lord Thurlow, and the noble and learned Lord, Lord Etherton. I look forward very much to the Minister’s response.

Non-Domestic Rating Bill

Baroness Pinnock Excerpts

Committee stage
Monday 3rd July 2023 Grand Committee

I also noted in the helpful briefing provided by the Chartered Institute of Taxation that it is asking why the new relief for improvements will not be introduced until 2024. Its concern is that leaving it until then will incentivise a delay in undertaking improvements. I will be interested in the Minister’s response on that.

[Baroness Pinnock (LD)]

My Lords, at the outset of the debate I remind the Committee that I have relevant interests as a councillor and as a vice-president of the Local Government Association.

This group of amendments is significant because it focuses our attention on energy efficiency and on how the business rates system could be adjusted to encourage more businesses to improve the energy efficiency of their premises. Amendment 1, in the name of the noble Lord, Lord Ravensdale, is important in that regard. As he said, an earlier Bill on non-domestic rating focused on relief for energy generation and storage, but not energy efficiency. Energy efficiency is the non-glamorous side of getting to net zero. It is about improving the general energy efficiency of buildings through loft and cavity wall insulation, putting in more efficient heating systems and so on.

I have a high regard for Amendment 1 for the reason that the noble Lord outlined, which is that the payback period for energy-efficiency improvements can be very long. Therefore, giving just one year’s relief is a drop in the ocean. If we want to encourage businesses to make these improvements and to invest in their property by improving their energy efficiency, there must be relief on business rates. This is a positive amendment and, if the noble Lord, Lord Ravensdale, wants to pursue it on Report, I am sure that we will give it positive consideration.

The other amendments in this group, in the name of the noble Earl, Lord Lytton, suggest five years of relief. That is another way forward. I think that we will have to debate five years of relief or unlimited relief. If we are really concerned about getting to net zero, there has to be a real incentive to do so.

I co-signed Amendment 5, in the name of the noble Baroness, Lady Hayman of Ullock, about heat networks because I thought that it was important in itself. The Government have a scheme—the heat network efficiency scheme—which gives grant funding to communal heat networks or district heating schemes. This amendment matches well with that. If the Government are giving with the one hand but taking with the other, that seems a negative approach to encouraging heat network schemes. That is why I very much support Amendment 5 in particular.

Maybe when we get to Report the amendment will not say “2050” but will be unlimited, matching the other amendments in this group, which are making a positive push towards getting businesses, via the relief through the business rates system, to become more energy efficient. These are all good, probing amendments. I know that the Minister is supportive of energy-efficiency schemes and moving towards net zero, so I look forward to her positive response to this group of amendments.

[The Parliamentary Under-Secretary of State, Department for Levelling Up, Housing & Communities (Baroness Scott of Bybrook) (Con)]

My Lords, I start by welcoming our new Deputy Chairman of Committees on his first outing today. I think that I am allowed to say that—anyway, I have said it.

These amendments from the noble Lord, Lord Ravensdale, the noble Earl, Lord Lytton, the noble and learned Lord, Lord Etherton, and the noble Baronesses, Lady Hayman and Lady Pinnock, concern the two new business rate reliefs introduced by the Bill: the new improvement relief and a relief for low-carbon heat networks.

First, on the improvement relief, during the review of business rates a key ask from ratepayers was support for those businesses looking to improve their property. Clause 1 delivers on that ask by introducing the improvement relief. The noble Earl, Lord Lytton, asked about the definitions of “improvement” and “relief”. These definitions are in the draft regulations, on which we are consulting. We will consider those matters following consultation.

Clause 1 will ensure that from 1 April 2024 no business will face higher business rates bills as a result of qualifying improvements it makes to a property it occupies, in the 12 months following those improvements. When a ratepayer makes improvements to the rateable part of their property, that is likely to increase its rateable value and, therefore, the rates bill. To deliver the relief, Clause 1 will ensure that, where that happens and the qualifying conditions for improvement relief have been met, that increase in the rateable value will be delayed for 12 months. Clause 3 does the same for the central rating list.

As is common for business rate reliefs, the detailed rules will be in regulations made under the powers in these clauses. My department has published those regulations in draft so that the House may see during the passage of the Bill how we intend to use these powers.

The amendments we are considering in relation to improvement relief, from the noble Lord, Lord Ravensdale, the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, seek to extend the period of relief from one year to five years and to allow unlimited relief for energy-efficiency improvements.

Of course, I understand the concerns we have heard and why some consider that the relief should be extended. It is a question we face when we come to consider and review all the reliefs in the business rates system. We recognise the importance of energy-efficiency improvements to properties. We have already ensured that eligible plant and machinery used in onsite renewable energy generation and storage, such as rooftop solar panels, wind turbines and battery storage, are exempt from business rates from 1 April 2022 until 31 March 2035. Onsite storage used with electric vehicle charging points is also exempt. We have done this using existing powers.

However, as with all tax breaks, we must balance the need for support with the need to fund the vital public services that those taxes support. In the case of improvement relief, we considered these matters at length during our review and, following extensive engagement with business groups, settled on a 12-month relief.

Under the current system, as one would expect for a tax based on the value of property, businesses may see an immediate increase in their rates bill for improvements they make to their property, where those improvements increase the value of the property, but they may see a lag in the return or income that flows from that investment.

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Moved by

[Baroness Pinnock]

7: Clause 5, page 16, line 4, leave out “third” and insert “second”
Member’s explanatory statement
This amendment would require central non-domestic rating lists to be compiled every two years.

[Baroness Pinnock (LD)]

My Lords, my noble friend Lord Shipley and I have Amendments 7, 9 and 11 in this group, all of which seek to achieve the same end; namely, that the revaluation period be reduced to two years. The Minister and the Bill team have been very generous with their time and that has enabled a discussion of the time gap between revaluations. The Government have decided on a three-year gap. We are suggesting that a shorter gap may enable a valuation that more closely reflects business confidence and thus rental values.

There is a revaluation this year, which will be based on rental values in 2021. Under the Government’s proposal, the next revaluation will be in 2026 and based, therefore, on rental values in 2024. In the Government’s own business rate review of 2020, respondents wanted a shorter gap between the assessment of revaluations and implementation. Hence the amendments to Clause 5, which reduce the three-year gap to two years, as this will result in a closer alignment between business confidence and the revaluation. Businesses, as we are all very aware, are facing considerable challenges as a result of factors well outside their control. The significant fluctuation in economic outlook, reflected, for instance, in the level of inflation and the rise in interest rates, creates uncertainty for businesses. A narrower gap between revaluations is one step that will help businesses.

In our discussions with the Minister, it became clear that there are no administrative barriers to a two-year gap. Indeed, the Netherlands has for many years managed a similar system with annual revaluations. Other amendments in this group are designed to achieve the same outcome and come from noble Lords who have considerable experience in these matters. The noble Earl, Lord Lytton, the noble and learned Lord, Lord Etherton, and the noble Lord, Lord Thurlow, all have considerable expertise and knowledge in practice and have picked up the same issue of the period between revaluations.

It seems to me, an amateur in these things, having read the reports from businesses asking for a shorter period between revaluations, that the Government should go back and go for two-yearly revaluations. It would be better for everybody. If we have, as the Government say they have, a priority to support businesses and give them greater certainty and confidence in the system, I am sure the Minister will again respond positively to this set of amendments. I beg to move.

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[The Earl of Lytton (CB)]

I am delighted about what the Minister has just said. I thank her for that and apologise for making her say it twice, if I did. It is my understanding that this is now a permanent abolition of downward relief, which is extremely welcome.

[Baroness Pinnock (LD)]

My Lords, I thank the Minister for her response. As she rightly said, this is at the heart of the changes being introduced in the Bill. I thank her for recognising that there could indeed be a further review to reduce the gap between revaluations. However, although I may have misheard her, I thought that the Minister said that the review conducted by the Treasury was—

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[Baroness Pinnock (LD)]

I shall try to pick up from where I left off. I may or may not have heard the Minister aright so this is just to check. The very good Library briefing on the Bill references the Treasury review into business rates. I shall refer to the Library briefing, then the Minister can say whether or not I have misunderstood. It says:

“On the longer-term proposals, most respondents stated that … revaluations should happen more often”—


we agree with that. But then it says that

“the gap between when the revaluations were assessed and when they came into force should be shorter than the current two years”,

which was one of the points that I was trying to make.

I may have misheard the Minister—if I have, I apologise—but the point that the review was making was to say yes to a shorter gap than five years, and the Government have pitched on to three. At the same time, the assessment year should be shorter than the two years that it currently is—that is what I think the review was saying, and I was trying to say that part of the argument for reducing the gap between the assessment year and the revaluation year is to make it narrower.

[Baroness Scott of Bybrook (Con)]

The response was three years, because of the reasons that I put forward—but, yes, we have aspirations to squeeze that to two years. That is the issue that we are discussing, and it is absolutely right that we are trying to do that. It is where we would like to get to, but it will take the changes that we are making to the Valuation Office Agency to do that—and then there is the digital aspect, and things like that, which we have already talked about.

[Baroness Pinnock (LD)]

I beg leave to withdraw the amendment.

Amendment 7 withdrawn.

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I trust that I have addressed the many points raised by noble Lords, and I am grateful for the engagement we have had previously on the issues. I ask the noble Lord to withdraw his amendment.

[Baroness Pinnock (LD)]

I think that I have listened very carefully but, on the digitisation of business rates, which I support, did the Minister explain the arrangements that could be made for businesses in remote locations where there is little or no mobile signal and where broadband has yet to reach them, despite what I accept are the Government’s best intentions that that should be the case? I live in the upper Pennines region, where there are businesses and remote farming communities. So far, they do not have either. Ditto in the Yorkshire Dales; I know of businesses there with neither a mobile signal—one that works, anyway—or a broadband connection. What arrangements will be made for such businesses?

[Baroness Scott of Bybrook (Con)]

I am told that there will be a non-digital availability. I will get all the details for the noble Baroness and I will write a letter, which will also go to the Library.

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[The Earl of Lytton (CB)]

My Lords, I was making the point that it should be a defence for a business rate payer to say that they had reasonably relied on published VOA or other guidance in respect of anything to do with being made liable for a penalty. Failure by a ratepayer to notify carries with it a number of penalties, at least one of which is entirely open-ended—more of that in a minute. The implementation of this will depend very much on the extent and quality of the guidance issued, especially as it is supposed that this will be comprehensible to unrepresented ratepayers. I particularly make that point because we are trying to make sure that this does not trigger a requirement across the board for more ratepayers to seek professional advice.

I appreciate that the VOA will not bring in notification and penalty measures until it is satisfied that they work smoothly and seamlessly. That is my understanding—my words, I stress, not necessarily the ones that the Minister would use. My submission is that no government body should be at liberty to state one thing in guidance and then do something quite different or to reinterpret established understandings at its own whim and caprice to the detriment, in this instance, of a ratepayer.

I shall deal with Amendments 23 to 26 as a job lot because their purpose is to fix a number of issues that appear to me to be typos or errors of construction or perception to do with the way in which the penalty regime will work. First, the fixed penalty minimums for incorrect information provided to the VOA appear to be the wrong way round and Amendments 23 and 24 serve to remedy that. I think the figures have just been transposed.

Secondly, unlike the penalties in relation to the provision of information to HMRC as opposed to the VOA, there is no cap whatever for non-compliance on the VOA notification. This seems contrary to legal principle in general and at odds with non-compliance with, for instance, the form of return under Schedule 9 to the 1988 Act, which is subject to a cap, so Amendment 25 seeks to address that.

Finally, there is the question of the Valuation Tribunal for England’s—VTE’s—determination of penalties, which the VOA has imposed in lieu of prosecution for false information. As drafted in the Bill, the burden of criminal proof is inverted, with the ratepayer having to prove “beyond reasonable doubt” that they did not commit the offence. That cannot be right or reasonable. I suspect that it is not intended, either—I hope I am correct. Amendment 26 seeks to deal with that.

That summarises my amendments in this group. I beg to move.

[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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I will be brief because it would be nice to finish, although a vote is coming. We very much support Amendment 31 in the name of the noble Lord, Lord Shipley. The hospitality sector has clearly laid out its particular concerns about how it may not come off so well from the improvement relief, the material changes to circumstances and the duty to notify. I am sure that the noble Lord, Lord Shipley, will mention them, so I beg to move.

[Baroness Pinnock (LD)]

My Lords, Amendments 30, 32 and 35 are in my name—

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[Baroness Pinnock (LD)]

My Lords, Amendments 30, 32 and 35 are in my name in this group. They cover two issues. One is reform and the other is review. The reform amendment is Amendment 30 because, as many of us said at Second Reading, we are tinkering at the edges of business rate reform and change. What is needed is, in fact, what the Conservative manifesto promised in 2019—a fundamental review of the system. Amendment 30 asks for a review and reform of the non-domestic rateable value system between different parts of the retail sector. It focuses particularly on the retail sector.

In Amendment 30, paragraphs (a), (b) and (c) of proposed new subsection (3) identify the different sectors: single-shop businesses in high streets,

“chain stores with multiple premises in city centres and out-of-centre shopping malls”

and “mainly online operations” by global businesses, which do not pay their fair share of taxation in any case and seem to be taxed very lightly in business rates compared to the sectors mentioned in proposed new paragraphs (a) and (b).

I would like the Government to agree to the amendment, as they already recognise that the system is not fair and equitable. For example, the current system acknowledges that small businesses are overtaxed by the existing system of assessment and responds to that by creating a plethora of business rate reliefs, such as small business rate relief, charitable relief and so on. The Treasury funds those reliefs, but how much better would it be if the system was designed from the outset to be more equitable between different parts of the retail sector? It would encourage more activity on our high streets, which benefits local businesses and the communities that they serve, and would also extract more money from those who have most and who have avoided taxation the best—global online retail businesses.

At this point I shall say, for brevity, that Amendment 36 in the name of the noble Lord, Lord Thurlow, is an excellent expression of what I have just tried to achieve with my Amendment 30, so I obviously totally support that and look forward to the noble Lord describing exactly how it will be achieved.