Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Bill

Dominic Raab Excerpts

2nd reading: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 23rd April 2018 Commons Chamber

[The Minister for Housing (Dominic Raab)]

I beg to move, That the Bill be now read a Second Time.

The Bill takes forward two important measures to promote fairness derived from the autumn Budget: fairness for hard-pressed businesses that face an unjustified tax hike because of the so-called staircase tax; and fairness for the families, young people and many others who see properties lying empty while they struggle to find somewhere to live. On the first issue, we are determined to support the occupiers of business premises in multiple occupation and to ensure that they do not face unfair penalties. For more than 50 years, businesses that operated in adjoining units or rooms accessed from a common corridor staircase received one rates bill. That applied, for example, if a business occupied three consecutive floors in an office block or if a business occupied two rooms separated, let us say, only by a wall.

The rule was widely understood and accepted among all ratepayers, rating professionals and the Valuation Office Agency. No one was looking to change that approach. However, as a consequence of a Supreme Court decision in 2015 concerning an office block occupied by the accountancy firm Mazars, the situation was put in some doubt. After considering the Supreme Court judgment, the Valuation Office Agency concluded that it had to change its long-standing practice. As a result, each unit of property accessed from common parts has to have its own rating assessment, regardless of whether the properties are adjoining or associated with the same business. So, for an office block housing more than one business, each floor will now typically need to have its own rating assessment, even if successive floors are occupied by the same business.

We are not criticising the Supreme Court for reaching that judgment or the Valuation Office Agency for changing its practice as a result, but we have monitored the impact of the changes and it is clear that they have had troubling and damaging implications for ratepayers. First, moving from rating assessments that cover several floors to individual floors has increased some rateable values and rates bills, even when there has been no change to the property or locality. That is because the rateable value per metre squared is sometimes lower for larger properties, reflecting the normal practice in the market whereby landlords will offer discounts on rents for occupiers willing to take more space. This left some ratepayers suddenly facing a backdated increase in their overall rates bill.

Secondly, some businesses have lost small business rate relief as a consequence of the changes. That is not what we wanted to see, given its role in supporting the small independent businesses that are vital contributors to local economies and communities. As hon. Members will be aware, small business rate relief is a generous measure providing relief for ratepayers of property up to £15,000 in rateable value, and as a result more than 600,000 small businesses, occupiers of a third of all properties, pay no business rates at all. It is targeted at ratepayers with only one property and one rates bill to ensure that it benefits small independent businesses, which are very much the lifeblood of our local economy.

As a result of the change in practice that has seen some single rating assessments split in two, some ratepayers who were previously eligible for small business rate relief have lost some or, in some instances, all, of that relief. We understand that the number of small businesses affected by the loss of relief is relatively low, at fewer than 1,000, but that is still about 1,000 too many.

These businesses already pay their fair share. They deserve our support and this Bill will make sure that they get it. That is why we have decided to restore the previous practice of the Valuation Office Agency under clause 1. This will again see adjoining properties that are part of the same business receiving one rating assessment and paying one rates bill. We have decided to do this retrospectively. It is important that we get the process right, so we carried out a technical consultation on draft provisions over eight weeks after Christmas, supported by workshops held by my officials with the ratings sector. Indeed, there were meetings with expert valuation surveyors, too.

The Minister for Local Government, my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), answered detailed questions from the Chair of the Select Committee. I am pleased to say that a good response to the consultation has helped us to improve some of the draft provisions. We published a summary of those responses and an explanation of the improvements on the Ministry’s website. I want to take this opportunity to express my appreciation on behalf of my Department and the Valuation Office Agency for the help we received from the Rating Surveyors’ Association, the Royal Institution of Chartered Surveyors and the Institute of Revenues Rating and Valuation in this work. It is probably worth saying that the Federation of Small Businesses supports the measure, too. As a result of this work, I am confident that the provisions we are introducing in clause 1 are technically sound and meet the Government’s aims, and that they will be welcomed not just by ratepayers but by everyone who wants to see British businesses thriving, especially small businesses and those on our precious high streets.

We are also determined to deliver a fairer deal for the many people who want and need decent, secure and affordable homes. We are straining every sinew to build more homes. Last year, we saw 217,000 new homes delivered, the highest number in all but one of the past 30 years.

[John Redwood (Wokingham) (Con)]

I am a strong supporter of what the Minister is trying to do but, on the question of a more penal tax on empty properties, will he assure me that, if a property is empty pending permissions for subdivision or improvement to get it into a better state so that it can be enjoyed as a home, there will be some flexibility so that people are not being taxed while they are trying to do that work?

[Dominic Raab]

My right hon. Friend is absolutely right, and that is precisely why we have a minimum period of two years, to ensure that we strike the right balance and encourage the use of existing resources in our housing stock without penalising those who want to get their housing stock on to the market but are taking a bit of time to do so, for whatever reason—perhaps because of renovations or the challenges of the local market.

[Mr Clive Betts (Sheffield South East) (Lab)]

rose—

[Dominic Raab]

I will give way to the Chair of the Select Committee.

[Mr Betts]

I want to return to the issue of the staircase tax, which the Committee looked at when we examined the draft Bill. We were generally content with the objectives and policy goals, but we raised a particular issue to which we have not yet had a satisfactory answer. It relates to the Government’s commitment that local authorities would be compensated for any financial costs incurred due to this measure. That was what the Government said they would do when they announced that they were bringing in this legislation but, since then, all we have had from them is, effectively, a nil. It seems that they are going to do nothing whatever about this, even though they accept that there could be an impact on individual authorities. We do not know what that impact will be because the Government have not given us their workings on this, but can the Minister at least give us an indication that he is prepared to look at this again and give us his assessment of the impact on individual authorities? Will he give us an indication that he is prepared to do something about this?

[Dominic Raab]

The Chair of the Select Committee makes an important point. We clarified the situation for local authorities after the Budget and we have written to them. I do not think it would be right to compensate local authorities for what would effectively be an inadvertent windfall resulting from a judicial determination. From the point of view of Government policy, that was not something we wanted to see, and we have moved as swiftly and reasonably as we can to correct this.

[Mr Betts]

We accept that the legislation takes the position back to what people thought it was before the court decision. In the meantime, however, we have had the court decision and local authorities will have done their estimates based on that decision, so the Government are effectively changing local authorities’ financial positions from what they thought they would be a few months ago. Given that the Government initially said they were going to compensate local authorities, why have they gone back on that commitment?

[Dominic Raab]

We did tell local authorities about this as soon as was reasonably possible and, as I mentioned in my previous answer to the hon. Gentleman, I do not think it is right for local authorities to gain from an inadvertent windfall at the expense of small businesses in our local communities.

I shall return to the second aspect of the Bill: council tax on empty dwellings. We are straining every sinew to build the homes that this country needs but, at the same time, we must make the best use of our existing housing stock, and that is what the second clause of the Bill is designed to achieve. It sets out an adjustment to the council tax empty homes premium, which will help to deliver on that.

[Wera Hobhouse (Bath) (LD)]

In coalition, the Liberal Democrats allocated more than £200 million to the empty homes programmes. However, in 2015, under the Conservative Government, that funding was completely cut. Is it not important to reinstate that money in order to bring empty properties back into use as affordable homes?

[Dominic Raab]

Of course, that was a period of coalition government. In our judgment, that method does not provide the best value for money, which explains why we are taking the approach that we are taking in this Bill.

Doubling the council tax on empty dwellings is just part of a range of measures that we are taking to fix the housing market, but it is an important step. The average house price in England is currently almost eight times the average income, compared with four times the average income in 1999. Families in their early thirties are half as likely as their parents to own their own home, and the same challenge faces private renters, whose housing costs now typically account for just over a third of their spending. This Government are committed to turning that around by taking action on all fronts. Fundamentally, that must mean making more homes available by building and delivering more homes, but we are also committed to making better use of the stock that we already have, including by supporting local authorities to use their stock efficiently and ensuring that they are doing all they can to bring homes that have remained empty for an extended period back into use.

Councils already have some powers and incentives in this area. In 2010, we inherited a situation in which council tax discounts were applied to all empty homes. That was not right because 300,000 properties were left empty while many hard-working families were struggling to find homes. Owners of long-term empty homes should be incentivised to bring them back into use and that was why in 2013 we enabled councils to charge the full rate of council tax on empty properties. We have also put in place powers for local authorities to charge a council tax premium of up to 50% on homes that had been vacant for two years or more.

[Eddie Hughes (Walsall North) (Con)]

In Walsall, we have seen a 40% reduction in the number of long-term empty properties since 2010. Does my hon. Friend anticipate the measures in the Bill helping us to tackle that still further?

[Dominic Raab]

The progress that has been made in my hon. Friend’s constituency is hugely welcome. If we look at the behavioural change across the board as a result of previous measures, we can see that 90% of councils have taken up the powers to apply the premium and that all but three of those councils are charging it at the maximum level of 50%. This has resulted in a 9% fall in the number of properties subject to a premium in those areas using the premium every year since the power was introduced.

[Jim Shannon (Strangford) (DUP)]

In Northern Ireland, measures have been taken in relation to accommodation above shops that is not being used for commercial purposes. The Minister has referred to rates relief for shops, and there is also a way of doing that in relation to the space above the shops in order to provide accommodation. Has he given any consideration to that possibility?

--- Later in debate ---

[Dominic Raab]

I am not quite sure what means the hon. Gentleman has in mind for achieving that, but perhaps we can thrash that out in more detail in Committee. Of course we will always remain open to adopting the smartest ways of doing things to ensure that we get the right balance.

[Dr Sarah Wollaston (Totnes) (Con)]

I welcome the Bill and its measures to give councils the tools they need to ensure that we drive down the number of empty properties. Will the Minister also use this opportunity to ensure that those who own second homes are contributing their fair share through council tax, and that they are not able to sidestep that by opting to pay business rates and then claiming eligibility for small business rate relief? If we are to achieve our goals on decent, affordable homes, it is important that everybody should pay their fair share.

[Dominic Raab]

My hon. Friend makes a powerful point. The situation to which she refers is slightly different from that of vacant homes, but I would say that we need to balance the economic impact of any measures in that area with the underlying public policy imperative that she has rightly referred to. We have also made changes on holiday homes in the context of council tax and stamp duty. We will keep the point she raises under due consideration and I have also discussed it with the Minister for Local Government.

In addition, our new homes bonus scheme provides a financial reward for councils that bring empty homes back into use, so this involves a carrot as well as a stick. This has generated £7 billion in new homes bonus payments to local authorities since 2011. Since these measures took effect, the number of properties left empty in England for six months or longer has fallen by a third since 2010, from 300,000 to just over 200,000. So these measures can work and they can deliver changes in behaviour.

[Justin Tomlinson (North Swindon) (Con)]

I wholeheartedly support these announcements. Only this weekend, I was talking to some very angry residents who have had to live for decades next door to empty properties owned by one individual who does not wish to bring his houses back on to the market. This is blighting residents’ housing in those neighbourhoods and there are even rats escaping from the abandoned houses. I wholeheartedly support any measure to protect the existing residents.

[Dominic Raab]

My hon. Friend makes a powerful point and I suspect that that situation is reflected much more broadly, both regionally and nationally.

Based on our experience as of today, we will go further in the Bill by doubling the premium’s maximum level to 100% and by allowing councils to charge double the rate of council tax on homes standing empty for two years or more. We are trying to strike the right balance between respecting the legitimate interests of those who own property with the overriding imperative in my Ministry to make the best use of existing housing stock, to ensure that we provide the homes that people in this country need.

Of course, given the demand for housing, we cannot just leave properties lying empty for years and the Bill will provide a positive incentive to avoid that. If vacant homes lay empty for too long, not only is that a waste of a much-needed resource, but they can become a blight on the local community, as my hon. Friend the Member for North Swindon (Justin Tomlinson) said, whether through squatters, vandalism or other forms of antisocial behaviour. Different areas will have different housing needs and different numbers of long-term empty homes, and the legislation will respect the fact that local authorities know their communities and their areas best, which is why we will keep the premium as a discretionary discount, allowing councils to decide whether it is appropriate for their communities and enabling them to set the level of premium that should be charged.

We understand that local authorities will want to reflect carefully on the local housing market in deciding whether to issue a determination when, for example, a homeowner is struggling to rent out or sell a property in a challenging market, which was a point made by my right hon. Friend the Member for Wokingham (John Redwood) earlier. For that reason, we published guidance in 2013 to remind local authorities to consider the reasons why a property may lie empty in particular circumstances. The guidance makes it clear that the premium should not be used to penalise owners of homes that are genuinely on the market for rent or sale. I should also say that the Bill will not bring any extra properties within the scope of a premium; it simply applies to those properties that might already have been affected by a higher premium.

In taking these measures to help to secure homes and to lift an unreasonable burden on business, the Government are delivering on our commitments to support the enterprise economy and to build a fairer society, backing small businesses and backing working families who dream of getting on to the housing ladder. I commend the Bill to the House.