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

Baroness Pinnock Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Thursday 4th February 2021 Grand Committee

On the wider point about the reform of business rates and what we are doing today, this Bill is, I think, essentially non-controversial in what it is seeking to achieve. What will be more contentious, I suspect, is looking at the way we levy business rates or commercial taxes on business in future. This issue has been thrown into high relief by the pandemic, making more obvious the imbalance between physical high street retail, out-of-town retail and, of course, online businesses. This is an important issue, and it is clearly essential to our nation that we get the balance right; all three parts of that servicing of retail are important. I would be grateful if the Minister could provide some thoughts on that. I appreciate that he cannot be precise on the approach or the timescale, but some indication of when we will address this important issue would be welcome.

[Baroness Pinnock (LD) [V]]

My Lords, I remind the Committee of my interests, as recorded in the register, as a member of Kirklees Council and a vice-chair of the Local Government Association.

The debate on these amendments has been a relatively short but, I trust, helpful for the Government. As we have heard from my noble friend Lady Thornhill, and the noble Lords, Lord Kennedy and Lord Bourne, to cover the cross-party contributions to this debate, there are significant concerns about the timing of the assessment—or the antecedent valuation date, to give it its official title—of new rateable values. Some have experienced enormous challenges over the last year, none of which are of their making. The challenges of the pandemic have brought large parts of the hospitality and retail sectors to their knees. Now is not the time to undertake an assessment of rental values, which is in large part the basis of the valuation.

Will the Minister agree to discuss with the department the possibility of a delay to the AVD? This concern is at the heart of the amendment in my name and that of my noble friend Lady Thornhill. A six-month review would establish whether it is practicable to assess new rental values that feed into the final valuation. A delay is preferable but, failing that, a review is essential as it would highlight the difficulties of doing this while a pandemic is rife. The concerns from those of us who have had extensive local government experience is that local authority finances will be adversely impacted. Of course, the Government have given assurances that any loss of income from business rates will be fully compensated—at the moment. However, they have not, as yet, given such a commitment for when the revaluation comes live in 2023. Will the Minister provide copper-bottomed assurance that no local authority will lose income from the revaluation, and that any necessary top-ups will be provided? I look forward to the Minister’s response to these questions, which will inform any amendments to be tabled at Report.

As we discussed at Second Reading, the Government have chosen a particularly inopportune time for the revaluation of business rates. The valuation day is set for April of this year, and I urge the Minister to consider delaying the date and accepting the proposal in both these amendments. I look forward to his reply.

[The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)]

My Lords, I first point out my residential and commercial property interests as set out in the register.

I am grateful to the noble Lord, Lord Kennedy, for raising the points highlighted by his proposed new clause. The business rates system is unusual among taxes because its implementation is split between the Valuation Office Agency, which is an agency of HMRC, and local authorities. Many noble Lords have, like myself, experience of working in local government and know and understand how important the relationship is between the VOA, local authorities and my department in running the business rates system.

As the Committee would expect, one of the issues raised in our discussions with local government has been how revaluations impact on local government funding, so I am grateful to the noble Baronesses, Lady Pinnock and Lady Thornhill, for tabling their amendment on that subject.

In relation to the provisions of this Bill, we have worked closely with the VOA to ensure that a revaluation in 2023 can be delivered on time. The antecedent valuation date of 1 April 2021 was set by a statutory instrument laid on 6 August last year, since when the VOA has been preparing for the revaluation. It has already started to collect the information it needs to value 2 million properties and is on target to complete the exercise to plan.

As I discussed at Second Reading, Clause 1 also moves back the latest date by when the draft rating list must be published before the revaluation to no later than the preceding 31 December. In practice, we expect this to be around the time of the autumn fiscal event, when the multiplier and the transitional relief scheme are also announced. That will mean that rating lists will come to local government a little later than previous revaluations, but we do not expect this to mean any delays in the process of billing or estimating business rates income.

Local government of course needs the multipliers and details of relief schemes before it can calculate liabilities, and it is only once that full package is confirmed that bills can be issued. That is the case whether we are in the year of a revaluation or not. Nevertheless, I can assure my noble friend Lord Bourne and the Committee that my officials meet representatives of local government regularly and will continue to discuss these matters with them to ensure the smooth delivery of business rates bills.

More generally, my department and the VOA are continuously looking at how we can improve consultation and closer working with local government. In recent years the VOA has introduced a data gateway under which it is able to share information about ratepayers with local authorities in order to support the billing process, and last year we made regulations empowering local authorities to provide the VOA with information on a quarterly basis about the properties that ratepayers occupy. This was introduced with the support of local government and will ensure that the VOA has up-to-date information ahead of 1 April 2021, which is the intended valuation date for the 2023 revaluation.

One specific matter we have discussed with local government is how to reflect in the local government finance system the changes in business rates income at revaluation—and I recognise that this is the matter on which the noble Baronesses, Lady Pinnock and Lady Thornhill, seek reassurance through their amendment. The purpose of the revaluation is to ensure that business rates bills reflect the up-to-date rental value of properties.

This of course means that some ratepayers will see increases and some will see reductions as a result of the revaluation, and it follows that the business rates income for individual local authorities will fluctuate in the same way. Some local authorities will see their business rates income rise at the revaluation and others will see it fall. Between revaluations, local authorities can increase their business rates income by supporting growth and investing in their area. Their share of this type of growth is retained by them through the rates retention scheme.

In contrast, the changes we see in local authority income levels at the revaluation come mainly from the trends and variations in the wider national economy and the commercial property market. These factors are largely outside the control of individual local authorities and the Government’s view is that such changes in business rates income levels at the revaluation should not feed through into local government budgets.

Therefore, our intention—as it was at the previous revaluation in 2017—is that we will, as far as is practicable, ensure that retained rates income for individual local authorities under the business rates retention scheme is unaffected by the 2023 revaluation. For the 2017 revaluation we achieved this by adjusting the tariffs and top-ups in the scheme to reflect the change in income at the revaluation. We consulted local government on the mechanics of these adjustments from as early as the preceding summer. This was a collaborative process and one which we intend to repeat for the 2023 revaluation. This process will give local authorities the budget assurances they need regarding revaluation. As such, the timing of the revaluation and how it affects the distribution of business rates income should not impact directly on local government finances.

I hope, therefore, that I have reassured the Committee on the degree to which my department and the VOA work closely together and in partnership with local government on business rates matters, and on the steps we will take to protect local government finances at the time of the revaluation. These working relationships are important, and we are indebted to those in local government who offer their time and expertise to support us in running and improving the rating system.

I hope that, with these assurances, the noble Lord, Lord Kennedy, and the noble Baronesses, Lady Pinnock and Lady Thornhill, will agree not to press their amendments.

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[Lord Addington (LD)]

My Lords, how do you follow that? Jeremy Clarkson being mentioned in a debate in Grand Committee is something new to me. I congratulate my noble friend in sport—my collaborator in sport; that is probably a better way to put it. The essential point is that amateur sport, its clubs and the structure around them are a vital part of our social infrastructure. No one disagrees with that. Will the rating system be a support or a brake on this? How do you generate local money for such a universally accepted good? I congratulate the Government on giving some money to it, although not enough—not as much as it has lost—considering the changes that it will have to go through.

Anybody who has gone through pre-season training will know that it is a bit of a shock to the system. When you have had a year away from it, without playing properly, and you come back to find out that you have problems raising money as well, would you want to sit on the committee? As my noble friend in sport—to use his term again—says, it is a complicated and difficult system and people do not know how to deal with it. I must draw attention to some of the activities I have helped with, including getting the RFU a guide to local government. There were people telling me then, “It is not needed because the information provided is on 53 different websites under 42 different links, and if you understand the law it is fine.” That was the general consensus. These people are amateurs, taking part for fun—and they are giving the Government what they want: activity levels, social interaction and, very often, an informal job market.

Those things are valuable. If the Government will not accept the amendment, please will they heed those words? I hope that the Minister comes away from the debate saying that he will make greater efforts to make the various bits of government talk to each other. If the DCMS proposes something, the department of health may say, “That’s a good idea,” while the Department for Education says, “Yes, but it can’t get in the way of exam results,” and local government says, “What—us?” That seems to be about the way it goes. You can start from any of those departments and stick a couple more in there as well; I will not insult the Minister by trying to mention them all.

If we can get some idea that we are taking the problems of this vital sector seriously, it will reassure many people. Also, Members of the Committee should remember that all the structural problems they see here are the same for virtually any other volunteer sector. I could have mentioned music or any other such sector. Every time that you take on some commitment to a property for a voluntary activity, you have the same problems. When the Minister replies, I hope that he will give us an idea about the thinking here. At the moment, it seems to be a case of, “Oh yes, that’s terribly good, we should support it, but it seems to be somebody else’s problem.” Take a stand here—say it is yours.

[Baroness Pinnock (LD) [V]]

My Lords, this group of amendments relates to the impact of the timing of business rate revaluations on the retail sector and, hence, the future of our town and city centres. In the first group of amendments, we discussed the timing in general terms, but my colleagues and I ask the Government to fully consider the implications of a revaluation on business profitability and survival.

For many small businesses, business rates are a significant overhead, along with the rent for the property. As my noble friend Lord Stunell reminded us, the Government’s original intention was to have a revaluation assessment in 2019, but this was moved because of negative forces affecting retailers. That negative impact has not gone away, as he said. We support the relief provided by the Government as part of their Covid response, but these are very uncertain times. This Bill proposes to push back the date on which the multiplier is announced from the September to the December prior to the new valuations coming live—in this instance, it means an announcement in December 2022. This will give businesses just three months to analyse the implications for them of the new rates bill they will be paying from April 2023. The amendment in my name and that of my noble friend Lord Stunell would enable the Government to consider the consequences of the new valuation for particular business sectors and particular regions before the multiplier was determined. An impact assessment would have to consider all the angles of the proposal and would throw light on the effect of the revaluation. It is a positive amendment which would help the Government get to a fair outcome in the revaluation of business rates.

As the Minister will know, in 1990, when the system was created, the multiplier was 34.8%. In 2020, that had risen to 51.2% for large businesses and just under 50% for small businesses. The multiplier is a crucial factor in the final business rate bill. The consumer prices index is the relevant figure used for the multiplier. Does the Minister think it is now time to reconsider the level of the multiplier? I suspect that the answer to my question will be that we should wait for the business rate review that the Government constantly promise. That will give no comfort to businesses, who will know from this Bill that they are expected to pay business rates under this outmoded scheme for at least another five years. There is obviously an effect on the profitability of individual businesses, but there is also the cumulative effect on town and city centres. As the noble Lord, Lord Kennedy, reminded us, one in 10 shops currently lies empty.

The revaluation is just one of the uncertainties that businesses are having to grapple with. The town centre funds and high-street funds that the Government have announced are all well and good, but they just paper over the cracks while the main issues affecting business survival are largely ignored in policy definition and implementation.

My noble friend Lord Addington and the noble Lord, Lord Moynihan, have raised an issue close to their hearts: the effect of business rates on amateur sports clubs. Both were right to do so and made the case with knowledge, experience, and powerful arguments which we fully support. Every community will have an amateur sporting activity at its heart, one that provides enjoyment and an opportunity to develop skills and teamwork through physical activity. They are vital ingredients of a healthy community. I urge the Minister to take note of the arguments made and come to Report with a proposal for action to help amateur sports clubs. I look forward to his response on all the points made.

[Lord Greenhalgh (Con)]

My Lords, this group of amendments allows us to consider the impact of the 2023 revaluation on rates bills, the multiplier and, specifically, our high streets, town centres and amateur sports clubs. Understandably the Committee, businesses and all ratepayers would like to know how the 2023 revaluation will affect rates bills. However, it will be some time before we know that. The carrying out of a business rate revaluation is a significant exercise which requires the careful application of the considerable expertise within the Valuation Office Agency. The two-year gap between the date on which valuations will be based, 1 April this year, and the date on which the next revaluation will be implemented, 1 April 2023, is necessary to ensure accurate rateable values. For this reason, we will not know the result of the revaluation until much later, in 2022. The Government will not therefore be in a position to make an assessment of the next revaluation in respect of any specific sector or the rating list as a whole within six months of the Bill receiving Royal Assent, as is sought by some of these amendments.

However, I can say that, once enacted, the Bill will ensure that business rate bills from 1 April 2023 will be based on rental values as of 1 April 2021. This means that the business rates due on properties based on our high streets and in our town centres or in the leisure sector will be up to date and better reflect the impact of the pandemic.

Certainly, an important part of rates bills when we reach the 2023 revaluation will be the level of the business rate multiplier. It may help the Committee if I explain more about the process of setting the multipliers for 2023-24. As with all years, we are required to finalise the multipliers as soon as reasonably practicable after the local government finance report has been approved, normally in February. For example, at the last revaluation in 2017, the multipliers were confirmed on 9 March. Therefore, we expect to finalise the multipliers for 2023-24 in late February or early March 2023. In contrast, the new rating lists will not be compiled until 1 April 2023. Therefore, it would not be possible to publish the assessment sought in the amendment proposed by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Stunell, before the multiplier was confirmed but after the list had been compiled.

Nevertheless, I appreciate of course that noble Lords and businesses will want to understand the impact of the revaluation as early as possible and before the multipliers are confirmed. In practice, we will announce provisional multipliers and the transitional relief scheme much earlier in the process, at the time of the autumn fiscal event.

It is our intention at the same time to publish the entire draft rating list. This means that, as well as being able to see the sectoral or regional impact of the revaluation, individual ratepayers, be they on the high street or in the sports sector, will be able to check their own rateable value and calculate their own rates bill. This will give an overall picture of the revaluation and allow ratepayers several months’ warning of their new rates bills.

I point out to the noble Baroness, Lady Pinnock, that the process of setting the multipliers is controlled largely by rules in legislation. We are required to make an adjustment to the multipliers for 2023-24 to offset the estimated change in total rateable value due to the revaluation after allowing for inflation and forecasted future appeals. It is that adjustment which drives the level of the multipliers in 2023-24.

We cannot by law set multipliers higher than that calculated from the adjustment. The Chancellor may by order set a lower multiplier, however. Noble Lords will understand that that is a fiscal matter decided by the Treasury as part of the normal Budget process, balancing the pressures on businesses with the need to fund vital local services, but I assure the Committee that the Government will have full regard to the impact of the revaluation before deciding whether to exercise that power and set a lower multiplier.

Our town and city centres are important hubs of our communities, and I am proud of the steps that the Government have taken to support this crucial part of our economy. While this Bill represents a postponing of the next revaluation, I know from the comments made at Second Reading that noble Lords appreciate that this is a step taken in the exceptional circumstances of the pandemic. However, as I have said, once we reach 2023, the new rateable values will better reflect the impact of the pandemic on rental values in locations such as the high street.

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Moved by

[Baroness Pinnock]

4: After Clause 1, insert the following new Clause—
“Impact of timing of business rates revaluations: high street and online businesses
(1) Within six months of the day on which this Act is passed, the Government must carry out a review of the impact of this Act on local high streets.(2) The review under subsection (1) must make an assessment of the impact of the timing of business rates revaluations on high street businesses and their ability to compete with businesses operating mainly or wholly online.(3) The Government must lay a copy of the review under subsection (1) before both Houses of Parliament.”Member’s explanatory statement
This new Clause would require an impact assessment of the timing of rates revaluations on local high streets, particularly looking at the impact on their ability to compete with businesses that operate online.

[Baroness Pinnock (LD) [V]]

My Lords, the purpose of Amendment 4, which stands in my name and that of my noble friend Lord Shipley, is to open up a debate about the revolution taking place in the retail sector. It is a revolution that is being accelerated as a consequence of the pandemic, which has resulted in the non-food retail sector being in shutdown for many months, with a very large transfer of shopping to online retailers. Retail analysts suggest that this significant change in shopping habits is here to stay.

Recent reports on the retail sector make the same points. Bill Grimsey, in his report in 2018, described the effect of business rates on the retail sector as “malevolent” and one that hinders growth. Business rates are, of course, just one inhibiting factor that affects the vibrancy of the physical high street. However, it is like a weather vane, indicating that all is not well with the retail elements of our town centres.

The array of shopping giants that have closed in recent years is a health warning that the Government do not appear to be heeding. Toys “R” Us, Maplin, Poundworld and others closed their doors in 2018. This year, a staple of the high street, Debenhams, is finally closing its physical presence on the high street. The Arcadia Group, which includes a string of well-known brands in many towns, is in administration. There seems little prospect of any of them reopening their shop doors; the businesses will simply go online.

The combination of closures is a large hit on many towns, as those businesses provided both an attractive shopping experience and business rates income for local authorities. The Government really do have to address this with some urgency. The problem is well known: physical retailers have financial overheads that their online equivalents do not.

The comparison of overheads in terms of business rates is stark. In my own town of Cleckheaton in West Yorkshire, an average-sized shop on the main street with 30 square metres of floor space is paying at the rate of £250 per square metre, resulting in a rates bill of around £3,750 per annum. A large Amazon warehouse adjacent to a nearby town in Yorkshire has 40,000 square metres of floor space. The rate per square metre for this giant in the retail sector is £45 per square metre. This results in a business rates bill of £900,000 per annum. If Amazon, as an example—there are others—were required to pay at the same rate as this smallish shop in a small town centre in West Yorkshire, its rates bill on this warehouse alone would be £5 million per annum. That is why attempts to save our high street will fail unless this hugely unfair advantage enjoyed by online retailers is addressed—hence the amendment from the Liberal Democrats.

The very least that the Government should do is to review the impact on local high streets and assess whether the new revaluations harm even further the ability of the retail sector to compete successfully with online businesses. We cannot, like the myth of Canute, hold back the tide of change in shopping habits. However, what the Government can and should do is provide a level playing field for retailers. This is not a problem that can be kicked down the high street in the hope that the sticking plasters of high-street and town funds from the Government will stem the demise of town centres; nor is there an easy solution, but then Governments are elected to deal with difficult problems.

There is an urgency in finding a solution, as I have indicated. Will the Minister provide any certainty for high-street retailers that the Government accept that a revolution in retail habits has to be accompanied by a revolution in business rates? I look forward very much to the Minister’s response.

[Lord Thurlow (CB) [V]]

My Lords, I thank the noble Baroness, Lady Pinnock, for tabling this amendment, together with the noble Lord, Lord Shipley.

There is no doubt that an impact assessment of the new valuations on the high street is worthwhile and important. It is actually vital. We have already seen the change in the high street referred to by the noble Baroness, Lady Pinnock. The former retail parades that once flourished now see nail bars, estate agents, coffee shops and charity shops proliferate. I am delighted, of course, for the charity shops and their sector, but please understand that many of these shops are paying a 20% rates bill and are there because their landlords heave a sigh of relief that they have found someone to relieve them of the burden of the empty premises rates that would be applied after they have lost their traditional tenant.

Our high streets and shopping centres are the focus of local communities. Social health and welfare to some extent depend on them. We cannot afford to lose them because of unrealistic operating costs. I was very pleased when the noble Lord, Lord Greenhalgh, referred just now to the Government’s recognition of the importance of vibrant town centres. The health of those centres lies in the gift of the Government, right now, and in their ability to construct fairness in the apportionment of the NDR burden.

This amendment includes reference to the ability of high streets to compete with online. It is an often-discussed subject, and the urgency of rebalancing the rates burden could not be more pressing. The noble Baroness, Lady Pinnock, mentioned Amazon. I saw in today’s Times an appalling reference—appalling to me, anyway— that £1 in every £20 spent on retail is spent through Amazon. I assume this was a reference to last year, or to the last accounting year.

Amazon, of course, is a giant, but there are hundreds of online retail businesses and we are right in the midst of a massive societal transfer of shopping habits from the traditional shop or store in or out of town, in or out of a covered shopping centre, to online. Covid, of course, has forced that rate of change to accelerate faster than it otherwise would—but it was a concern many years ago.

There are numerous constructive proposals to recoup a fairer contribution from the online sector to the tax base. To equitably rebalance the transfer of sales between online and the high street may require a 40% reduction in the high street burden. That is a huge reduction. I am afraid that the Treasury cannot expect revenue neutrality by simply transferring this across to other commercial sectors. The slack is just not there, particularly if we have to take a reduction from the office sector as well. Logistics, industrial and warehousing will not fill the gap. That is a real worry and a concern. Local authority funding has been referred to already, but I am afraid that it is something that needs addressing.

I support the amendment. The health of the high street cannot wait for the results of the fundamental review that was discussed at Second Reading and has been mentioned by the noble Lord, Lord Greenhalgh. I was very grateful for that, but the issue is too pressing.

My principal concern remains the difficulty of assessing rental value in these most uncertain times. I do not think that it will be possible. Appeals may descend into chaos. Certainly, I predict long delays. Rental values will have to be assessed post Covid, not in eight weeks’ time. A short-term arrangement will be necessary for the non-domestic ratepayers on the high street and in the retail sector to cope with the transfer to online, and I hope that the Minister will be able to make some constructive comments to help give comfort to all of us who are concerned.

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[Lord Greenhalgh (Con)]

My Lords, I am grateful to the noble Baroness, Lady Pinnock, and the noble Lord, Lord Shipley, for a further opportunity to speak about our high streets. As I outlined when we debated the second group of amendments today, we will not know the impact of the revaluation on rates bills until later in 2022, so it would not be possible to produce now the report outlined in the amendment we are discussing. However, we can be sure that, once we publish draft rateable values alongside the multiplier and the transitional relief scheme later in 2022, ratepayers will be able to see precisely how revaluation will affect their rates bills.

The noble Baroness, Lady Pinnock, raised an important point about online businesses compared to those that operate on the high street. Businesses which sell mainly or wholly online do not avoid business rates. They may also operate shops—many high street retailers also sell online—and they will require significant warehouse and distribution facilities, often in high-value locations. Nevertheless, business rates are a tax on the use of property and the rates bill is based on the value of the property. It follows that business models that occupy less property and perhaps operate from less valuable locations will pay less in business rates.

Property taxes have several key advantages over other forms of business taxation: they are relatively efficient to collect, they provide a relatively stable source of revenue to local government that helps ensure the provision of essential public services, and they provide relative certainty for ratepayers from one year to the next. However, there is undoubtedly a click-and-collect revolution, as outlined by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Kennedy. The Treasury’s fundamental review of business rates is considering alternatives taxes, including a potential online sales tax. The review will need to consider matters such as the economic impacts of such a tax and assess the concerns and risks that have been raised in the call for evidence.

Supporting the high street is a priority for us. In this year alone, no retailer on the high street is paying business rates. With the assurance that the matter of online business is being considered as part of the fundamental review and the updating of rateable values to better reflect the impact of the pandemic which will come from the 2023 revaluation, I hope that the noble Baroness, Lady Pinnock, and the noble Lord, Lord Shipley, can agree to withdraw their amendment.

[Baroness Pinnock (LD) [V]]

My Lords, I thank all noble Lords for their contribution to this short but very important debate. The noble Lord, Lord Thurlow, has stressed again the nigh impossibility of assessing rental values in the current climate. I hope the Minister will discuss with his department how rental values are to be assessed while the pandemic is rife.

My noble friend Lord Shipley reminded the Government of the potential of an online tax to create a level playing field for all retailers. I thank the noble Lord, Lord Kennedy, for his support. All noble Lords who have spoken have emphasised the urgency of responding to the situation facing our high street retailers. A revolutionary reform is needed. How much longer are online businesses to escape a fair assessment, compared with physical retailers? I am pleased that the Minister has just said that the Government are considering online taxes in the business rates reform, but I remind him that town centres cannot wait much longer. I beg leave to withdraw the amendment.

Amendment 4 withdrawn.