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.