Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Baroness Pinnock Excerpts

2nd reading
Tuesday 19th October 2021 Grand Committee

[Baroness Pinnock (LD)]

My Lords, I draw the Committee’s attention to my entry in the register of interests, which includes my roles as vice-president of the Local Government Association and as a member of Kirklees Council. The Bill includes two elements, which the noble Lord, Lord Cormack, described as being “cobbled together”—I cannot but agree. The only connection that I could find was that they both relate to businesses. Clause 1 concerns business rates, and Clauses 2 and 3 address the “directors disqualification” part of the Bill title. I anticipated a rather dull afternoon discussing this, so I thank the noble Lord, Lord Sikka, for changing my view of directors’ disqualification. It has been a lively debate, and I think that a lot of people will be reading Hansard as a consequence.

I want to start by talking about Clause 1, which is the part about non-domestic rates. Many businesses have had a very tough 18 months during which they have endeavoured to keep afloat. I accept that the Government have provided considerable financial support to businesses to mitigate the worst of the impacts of the Covid pandemic. Nevertheless, it is not surprising to me that many have tried any potential route that may provide financial relief. As we have heard, this has resulted in businesses applying to the Valuation Office Agency for what is called a check of their rateable value, the aim being to get a revaluation based on material change of conditions that has impacted on their business as a consequence of Covid restrictions and measures. At this point, I thank the House Library for a very helpful explanation to a non-professional of the measures in the Bill.

The purpose of the Bill is to manage this growing number of checks. The government argument is that businesses have been able to access government loans and some grants to tide them over the Covid period and that these are sufficient to address the trading difficulties resulting from lockdowns and restrictions imposed by the Government. The problem with this argument is that, undoubtedly, some businesses will have not been able to access these funds and the recourse taken by unusually large numbers of applying for MCCs is a warning sign that all is not well. I concur with the noble Earl, Lord Lytton, and the noble Lord, Lord Cormack, on this matter, particularly that the £1.5 billion fund that has been set aside by the Government for relief to compensate for these changes is almost certainly inadequate. The pleas that we have heard from the noble Earl and the noble Lord, as well as from the noble Lord, Lord Bourne, that we must see the detail of the fund before we progress this Bill are urgent. I hope that the Minister can give us some assurances that this will happen before Committee.

Clause 1 is retrospective and has a catch-all approach. The only circumstances that businesses can use to apply to the VOA will be physical changes to the property and special considerations in relation to mineral extractions and waste disposal firms. I accept that unless this legislation is passed, the business rates system will be undermined. That is its purpose, but lots of things are not adequate. I am sure that the Minister will have put them right by the time that we are in Committee.

[Noble Lords]

Oh!

[Baroness Pinnock (LD)]

We have a really lively session; it is excellent.

As a measure that will deal with an immediate problem flowing from the very rare circumstances of a pandemic, we can but agree with it. However, I have a few questions for the Minister. Can he explain the financial impact of these changes on local government? About 25% of local government funding comes from business rates, so any change, however small, can have a considerable impact on really tight council budgets. It is important for those of us who are concerned about local government, as the noble Baroness, Lady Blower, said, to know exactly what the impact will be. When the noble Lord, Lord Callanan, introduced the Bill, he emphasised the importance of certainty of local government funding from business rates.

Can the Minister explain what estimations have been made of the impact of impending rises in interest rates on businesses that have accepted government loans during Covid? The implications for what might happen are obvious. Concerning the £1.5 billion relief fund, we need to know the details and what happens when the fund runs out, as I suspect it will. Also, we need answers to the questions asked by the noble Baroness, Lady Blower, about administrative costs for local government in handling it.

Next, can the Minister say when much-needed fundamental changes to the business rate system will occur? We have been promised them for quite a long time now, and there is a lot of concern around local government and the business world that the current system is not answering the questions it needs to on town centre businesses on the one hand and digital businesses on the other, as the noble Lord, Lord Bourne, said. My concern is about warehouse and distribution centres, which do not pay their fair share by any means. That must be put right. Finally, will the Minister confirm whether a review of these measures is being planned within, say, a year of their introduction, so that we know what is going on?

I turn to Clauses 3 and 4, which relate to director disqualification. The last-minute changes to the timing of this debate have ensured that a number of people who would have spoken are not available. This includes my noble friend Lord Fox, who actually could have spoken because the Bill he has been speaking on has finished. I am sure he will be here for Committee but he has provided me with the following words, as this is definitely not my area of knowledge, let alone expertise.

He writes that these Benches welcome the intentions of the director disqualification part of the Bill. It is right that powers be created so that those who have fraudulently benefited from payments introduced to protect businesses during Covid are brought to book and the money recovered. Like other noble Lords, we received a briefing from R3, which represents insolvency practitioners; I am sure the Minister and the department also heard from it. Its members must file a report on the directors’ conduct with the Insolvency Service when acting as officeholders in a formal insolvency process, so its experience in this is welcome. Its concerns, like ours, focus on how the Bill will actually work and how it will help the wider creditor network.

First, we should be clear about one thing. The work of the Bill should not be at the expense of investigations into insolvent rather than dissolved companies. As R3 explains:

“R3 members already repeatedly express their frustration that not all their reports highlighting suspected serious legal breaches are acted on.”


Can the Minister assure the Committee that additional resources will be available to take on the extra activity created by the Bill, rather than it cannibalising an already stretched situation? Perhaps he can offer some crumb of comfort to the wider insolvency community by talking to his colleague the Chancellor of the Exchequer about this. Given that the Chancellor is embarking on a “non-spending review”, an activity such as this which brings money both back to government and into legitimate circulation will benefit the economy and pay back many times.

Our second point seeks detail as to how in practice this legislation will recover the money. What will be the mechanisms to recoup money from culpable directors? Do the Government intend to use tools such as compensation orders? This is significant because, unlike an insolvency process, where returns are made to the creditor body, the so far little-used compensation orders normally benefit only one creditor—in this case, we guess, HMRC.

Although the Government have indicated that they will expand the number of creditors who can benefit from a compensation order, this has not been made clear in the legislation, so we have to assume they will not. Where there are multiple creditors, an insolvency procedure has to date been more successful at recovering money owed to these creditors. How will the Bill protect all the other creditors as well as HMRC? I look forward to the Minister’s response.