Non-Domestic Rating Bill

Baroness Scott of Bybrook Excerpts

Committee stage
Monday 3rd July 2023 Grand Committee

[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.

--- Later in debate ---

[Baroness Scott of Bybrook (Con)]

My Lords, I will continue. The 12-month relief will provide a breathing space for the investment to start to generate returns before business rates have to be paid. I know that some feel that 12 months is not long enough to incentivise the types of major refurbishment and improvement often made to properties by landlords and developers. However, as I explained to the House at Second Reading, this relief is designed to help occupiers make improvements to their existing premises rather than subsidising general commercial property development.

The noble Baroness, Lady Hayman of Ullock, asked what “occupied” meant. We already have a current discretionary heat network scheme that we have worked up with full guidance in partnership with the heat network sector and local government. That guidance is already published. Once the Bill receives Royal Assent, we intend to translate that guidance into regulations and to make those in good time to ensure a seamless transition between the current discretionary scheme and the new mandatory scheme. I suggest that noble Lords look now at the guidance as it will make it clear what will go forward. In the meantime, we will work with the heat network sector on the regulations in case they need any tweaking.

Nevertheless, as this is a new relief, it is right that the Government evaluate whether it is working and delivers value for money. Therefore, the Bill as currently drafted includes powers to extend the duration of the improvement relief and in 2028 the Government will review the scheme. That will be the appropriate time to consider whether to continue with the scheme and how effectively the relief is operating. As part of that review, we will consider whether 12 months remains the correct duration for the relief. We have, however, allowed for a longer period of relief for low-carbon heat networks, given the particular role that they play in reducing our dependence on natural gas. That relief runs until 2035. Amendment 5, from the noble Baronesses, Lady Hayman and Lady Pinnock, would extend that to 2050. As with improvement relief, we have to balance the need for support with maintaining the services funded from the tax, as I have said. The end date in the Bill aligns with our ambition to phase out new natural gas boilers by 2035. By that date, new low-carbon heat networks will no longer have to compete with natural gas alternatives. Under those circumstances, we hope that the relief will no longer be necessary and, therefore, 2035 will be the right time to end the relief. However, as with the improvement relief, we will keep this under review and the Bill includes powers for us to extend the 2035 date, if it is necessary at the time.

I hope I have given noble Lords the explanations and assurances that they were seeking and that the noble Lord is able to consider withdrawing his amendment.

[The Earl of Lytton (CB)]

The Minister mentioned regulations following Royal Assent and I am happy with that, but could she confirm that this will have a consultation process attached to it? She also referred to something that I interpreted as a post-legislative review. What is the framework for that in this instance?

[Baroness Scott of Bybrook (Con)]

On the regulations, we are consulting at the moment and that will be discussed afterwards. If noble Lords want to put anything in, I suggest they look on GOV.UK. I shall sit down so that the noble Earl can ask his second question because I did not quite pick it up.

[The Earl of Lytton (CB)]

It was about the post-legislative review and its framework, in so far as it would apply to the workings of the Bill once it gets Royal Assent.

[Baroness Scott of Bybrook (Con)]

As far as I know, we do not have a framework yet, but as soon as we have—I assume it will go out to some sort of consultation—I shall make sure that noble Lords are aware of when it is issued.

[Lord Ravensdale (CB)]

My Lords, the noble Earl, Lord Lytton, made a compelling argument for a general extension of improvement relief, as did the noble Baronesses, Lady Pinnock and Lady Hayman, for extending heat network relief. For me, this is all about joining the dots across the legislation, so that we have a coherent picture. As the Minister said, we already have a permanent exemption for renewable energy and storage. All these factors feed into our overall strategic targets, so we need a coherent picture across the legislation. The Minister rightly talked about fiscal responsibility and the need to bear it in mind.

The other side of the picture, to counter that, are all the benefits to increasing private investment—in the case of energy efficiency, lower bills—and the benefits from overall economic growth that would flow from that. I look forward to further discussions with the Minister leading up to Report, but for now I beg leave to withdraw my amendment.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

[The Earl of Lytton (CB)]

I would like to tease out a little more information following the Minister’s response on Amendment 17. What happens, in effect, is that the evidence is part of an adjudication process. In my professional line of business, there are various stipulations about surveyors acting as expert witnesses and the way in which these things are to be handled. Amendment 17 is particularly important because, when one gets into a situation where there is an appeal pending, there is this little thing about equality of arms. If one party is able to use information that is held confidentially, to the exclusion of the other party, I do not think that equality—that transparency standard—is met. We are talking about what is ultimately something that leads to an appeal before the valuation tribunal.

Can the Minister say whether I have got it right that the VOA can have a protected category of evidence, as it were, that it is not prepared to share? This is something that has come up on my radar when looking at some of the blogs that have come out of the rating surveying world. It is a matter of fundamental importance in terms of the administration of any sort of justice system and adjudication, which is what this is. I would therefore like to pin down the Minister a little more on that point.

--- Later in debate ---

[Baroness Scott of Bybrook (Con)]

I think we made it very clear that the information that can be shared is the information that does not affect the data protection. Therefore, there will be information that cannot be shared because it will affect data protection. Because this is quite a legal issue, I will offer noble Lords a further, in-depth meeting, with lawyers there. If we are to get to the bottom of this, it is better to do that with a lawyer with us talking about the data protection law. Would the noble Earl be happy with that?

[The Earl of Lytton (CB)]

I thank the Minister; that would be very helpful.

[Baroness Scott of Bybrook (Con)]

We will be in touch.

[Lord Thurlow (CB)]

I thank all noble Lords who have taken part in this group. I thought that the reference made by the noble Earl, Lord Lytton, to a timely VOA response was particularly apt, and I was grateful for his support just now on Amendment 17 on confidentiality. I thank the Minister for the offer to follow up.

The comment from the noble Lord, Lord Shipley, that the amendments in this group are simple common sense was one of the most powerful pieces of oratory that I have heard this afternoon, and I hope that it materialises very soon. I admired his well-made comments about the rogue agents, and once again I thank the Minister for her comments in that regard, as to how the Government intend to protect the public. I thank the noble Baroness, Lady Hayman, for identifying a number of concerns over the VOA’s resourcing, which tie in directly.

--- Later in debate ---

with the extent of the information required depending on the nature of the property. So, unless the use of the building is relatively restricted, and therefore its future use is apparent—a storage unit, for example—the intended use could span a number of different uses. So the question is what would the consequences be if the intended and actual use differed in relation to the terms of the penalties? I can see someone frowning—I hope I am being clear. Perhaps we can pick this up at a later date if I am not being completely clear about this. It is just in case there is a difference between what you say you will use it for and then, ultimately, what you do use it for.

[Baroness Scott of Bybrook (Con)]

Group 4 consists of Amendments 22 to 26, tabled by the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton. They are concerned with the application of penalties for non-compliance with the VOA duty. As we have said, we will not initiate the VOA duty until we are satisfied that all ratepayers can reasonably and efficiently comply. There will be a soft launch of the duty, during which time no penalties for non-compliance will be issued and the VOA will raise awareness and expand its engagement with sector bodies and businesses of all sizes. As was said, issuing penalties will be the last resort. The VOA and HMRC will ensure that the new online service is simple to use and will take multiple steps to encourage ratepayers to comply, through reminders and warnings, before issuing a penalty.

Amendment 22 seeks to prevent the imposition of penalties where ratepayers’ errors or omissions are the result of reasonable reliance on VOA guidance. However, it is already the case that the VOA is able to apply penalties only where the ratepayer could reasonably be expected to know that the information would assist the VOA. All ratepayers will need to do to ensure that they are complying is follow guided steps on GOV.UK. If the ratepayer follows this guidance, the VOA will not, under the existing provisions of the Bill, be able to apply penalties. Thus, we do not think that this amendment adds anything of substance to the position as it already stands. If a penalty is issued in error where a ratepayer has relied on VOA guidance, the Bill gives the VOA the power to remit it. Ratepayers will also be able to appeal any penalty applied, and this will be independently reviewed by the valuation tribunal.

Amendments 23 to 25 are designed to address the penalty tariffs applicable to instances where a ratepayer has either failed to notify the VOA or provided false information. I will briefly explain the Government’s approach here. The Bill sets out the maximum level of penalty which the VOA may apply depending on the nature of the failure to comply. Our intention, as set out in our response to the technical consultation, is for the VOA sometimes to levy lower penalties than are set out by the framework of the Bill. Penalties will be levied as a percentage of the change in the rateable value rather than the entire rateable value and, where penalties are issued for a failure to provide information, the minimum penalty will be reduced for those on lower rateable values.

The Bill also introduces an offence where a ratepayer has knowingly or recklessly made a false statement. In these cases, a ratepayer could be subject to criminal sanction. Alternatively, making a false statement will lead to a civil penalty, the amount of which is provided by new paragraph 5ZD. Where the civil penalty is applied, in practice the maximum penalty will be 3% of the change in the property’s rateable value plus a fixed penalty of £500. To address the amendment, the Bill rightly provides a more severe penalty for knowingly or recklessly providing false information.

The point has been made that there should be a cap on daily penalties following an initial instance of failure to provide information. This information can have a direct impact on tax liability, so it is crucial that the duty is underpinned by a fair and proportionate but robust compliance regime. However, I can provide the reassurance that, even after the initial 60-day deadline, ratepayers will receive a reminder, warning and final warning before a penalty is applied. Only after an additional 30 days would the first daily penalty of £60 be issued. Ratepayers will be able to request a review and appeal of any penalties imposed. The daily penalties will be stopped when the ratepayer provides the required information, so as soon as the ratepayer complies, the penalties are effectively capped.

Applying daily penalties in this way is not an uncommon feature of taxation penalty regimes. For example, Schedule 36 to the Finance Act 2008 deals with powers for HMRC to request information from taxpayers and imposes penalties for a failure to provide such information. It includes penalties of up to £60 per day for as long as the non-compliance continues, without an overall cap on liability.

Amendment 26 seeks to alter the burden of proof which the valuation tribunal should apply when deciding whether to uphold a penalty decision. Of course, when considering a higher penalty for a ratepayer who has provided false information, the VOA must in the first place be satisfied beyond reasonable doubt that the information was provided knowingly or recklessly. There is considerable protection for ratepayers already.

Nevertheless, I am grateful to the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, for raising questions about the appeals process. We will of course review the relevant text. I hope that, given that I have explained why the system of penalties is designed as it is, noble Lords will agree the amendments are not necessary.

[The Earl of Lytton (CB)]

My Lords, I thank the noble Baronesses, Lady Pinnock and Lady Hayman, for their contributions on this group of amendments. The noble Baroness, Lady Pinnock, referred to the necessary balance here, and I agree. The noble Baroness, Lady Hayman, queried whether the application of criminal charges is properly introduced here, whether the Valuation Office Agency is the right outfit to make that call and whether it will be given the necessary guidance and assistance to make consistent rulings in that respect.

It seems to me that the question is about the discretion of the VOA to do things—its ability to do or not do—as opposed to a legal duty. It seems to me that some sort of duty on the VOA is part and parcel of its overarching statutory duty to, for instance, maintain a correct valuation list. It also seems to me that those duties should mirror the obligations and penalties imposed on the ratepayer, otherwise it is a very asymmetric situation. That is, to some extent, what I was trying to deal with in Amendment 16.

The Minister has given various explanations of the Government’s position here. On Amendment 22 and the question of “reasonably be expected to know”, she said that this covers the guidance given and therefore the amendment does not add anything of substance and that there is a right of appeal. I think I will have to consider carefully what she said. With regard to Amendments 23 and 25, I felt that I had detected a series of typographical errors, but I understand the Minister to have said that they are not errors and that the Bill is deliberately worded that way. I am not sure that on a fair reading that is likely to be the case, so I hope they may be looked into at some stage or other.

On the cap or no cap, I have already pointed out that there is a degree of asymmetry between the approach that has been adopted in the Bill in this respect and what happens with failure to deal with the form of return. I appreciate that there is the “knowingly or recklessly” test, but we have a rather circular argument here because, if the VOA is again the sole arbiter of “knowingly or recklessly” and the thing then proceeds to a tribunal that says something different, I would hope that we could have got to a situation well before then where the ground rules were understood. Is the Minister saying that the wording of the Bill is in all respects what was intended and that there are no typographical errors in it as I had supposed? Will she please clarify that point?

[Baroness Scott of Bybrook (Con)]

No, there are no typographical errors in the Bill. I think the noble Earl asked that question earlier, and there were none.

Just to be clear on criminal offences and why they are necessary, there is already a criminal offence for providing false information in response to a request for information by the VOA. So we are not putting in a criminal offence—there is already one there as it stands now. It is interesting that criminal charges will be only for “knowingly or recklessly” giving false information. If it is just a false statement, for whatever reason, that would still be a civil penalty.

--- Later in debate ---

[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.

[The Earl of Lytton (CB)]

My Lords, I thank the noble Lord, Lord Shipley, and the noble Baroness, Lady Hayman, for their support in connection with this. Although I understand what the Minister says is the intention of Clause 14, having been taken through it in some detail by more than one expert, I am bound to say that I do not agree with her about the effect of the clause. There is a difference in understanding, and I wonder whether it could be dealt with by a further discussion—the Minister is nodding, which I am grateful for. It is very difficult if somebody reads this in one way and says, “This could cover a multitude of things that could be excluded”, and the Minister says, “Actually, it is not intended to do that and these are the safeguards that we have built in”.

All I can say at this juncture is that I will certainly return to this on Report. I hope that there can be a meaningful dialogue on this in the meantime. It would be wrong for me to go into a detailed unpicking of what the Minister said at this hour and given the other pressures on us. To that end, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Shipley (LD)]

My Lords, my name appears on two of the amendments in this group. Underlying the whole group is a major issue: the Treasury now sees business rates as a source of general income to government, but many small businesses see them as a contribution to local services. That has got out of balance.

I strongly support Amendment 36, in the name of the noble Lord, Lord Thurlow, who has just spoken. He talked about the impact of online shopping on small high street outlets and said that there was a public interest case to be made. Indeed, Amendment 29, moved by the noble Baroness, Lady Hayman of Ullock, probes the possibility of reducing the threshold for small business rate relief on high streets. A number of us raised that issue at Second Reading.

A number of issues are raised in this group. I have an amendment on the hospitality sector. It is not clear to me what reason there would be for not having a hospitality sector review, as I propose. It is about assessing the consistency of approach; we have spoken a lot about high streets, but this applies to the hospitality sector as well. There needs to be an assessment of whether there is a consistent approach for setting non-domestic rateable values between hospitality businesses occupying premises of similar size and trading style. I cite public houses, restaurants, live performance theatres and exhibition spaces as examples. This is the kind of thing that government should be doing anyway, but there is a huge policy issue now around what business rates are for and how we make sure that they are being fairly charged.

[Baroness Scott of Bybrook (Con)]

My Lords, group 6 covers several amendments probing the Government’s support for high street businesses and the wider impact of the Bill. I am grateful for the useful discussions that I have had with noble Lords on what are, undoubtedly, significant issues.

Amendments 30 and 31, from the noble Baroness, Lady Pinnock, and the noble Lord, Lord Shipley, seek a review of the effect of business rates on the retail and hospitality sectors. I recognise that the conditions for businesses in town centres and high streets are concerning for many noble Lords. The Government take these concerns seriously and recognise the impact that increased competition from online businesses, changing consumer behaviour and Covid-19 has had on the fortunes of some high street businesses.

That is why the Government have taken decisive action to ensure that business rates are manageable for ratepayers on the high street. First, 720,000 properties, including many smaller retailers, pay no rates as a result of small business rates relief. Additional support has also been provided for those that do have rates bills: at the Autumn Statement, the Chancellor announced a package of business rates measures worth £13.6 billion. This included a general freeze of the multipliers for all properties, as well as increased support—from 50% to 75% relief—for retail, hospitality and leisure properties, which is worth over £2.1 billion. As we heard, the Government also scrapped downward caps and, as we move to more frequent revaluations through the Bill, we will see a business rates system that better reflects real market values, which was the leading ask of businesses in our review.

I understand that the noble Earl, Lord Lytton, and the noble and learned Lord, Lord Etherton, tabled Amendment 26 to encourage the Government to more actively intervene in how different types of property used in the retail sector are valued. Valuation is, of course, conducted independently by the VOA. All properties subject to business rates are assessed to the same standard of rateable value, which is, broadly speaking, the annual rental value. Properties are valued by reference to the evidence on the level of rents, which is agreed by landlords and tenants for that specific property class. If, at the most recent revaluation, the evidence shows that those open market rental values have increased, rateable values will change with them. Nevertheless, in all cases, the method must result in the common standard of rateable values.

In our review of business rates, the Government sought views on many different ways in which the valuation system could be changed. However, there was strong majority support for retaining the existing basis of rateable value. Therefore, we do not support significant changes to the industry-recognised valuation methodology, as was suggested.