Non-Domestic Rating (Alteration of Lists and Appeals) (England) (Amendment) Regulations 2017

Earl of Lytton Excerpts

Monday 11th September 2017 Lords Chamber

Moved by

[The Earl of Lytton]

That this House regrets that the Non-Domestic Rating (Alteration of Lists and Appeals) (England) (Amendment) Regulations 2017 and the Valuation Tribunal for England (Council Tax and Rating Appeals) (Procedure) (Amendment) Regulations 2017 have been introduced without adequate regard for the concerns of experts in rating appeals, following incomplete testing, and on a truncated timescale (SI 2017/155 and SI 2017/156). 30th Report from the Secondary Legislation Scrutiny Committee, Session 2016–17.

[The Earl of Lytton (CB)]

My Lords, in moving this Motion, I draw attention to my interests as a vice-president of the LGA, as a practising chartered surveyor and as a former Valuation Office employee. I am very grateful to the usual channels for finding a slot for this, to my two valiant external advisers for all their help and to the Minister for meeting us earlier in the year.

Noble Lords will know that the Valuation Office Agency, or VOA, is an executive agency of HMRC with responsibility for compiling the rating list on which business rates are based. Section 41 of the Local Government Finance Act 1988 stipulates that the list shall be accurate and that revaluations shall take place every five years. Business rates raise, I believe, around £28 billion annually. I am told that the 2010 list has been the subject of more than a million appeals and, at 30 June 2017, 223,430 of them were said to be still outstanding.

When deferring the 2015 revaluation, the Government undertook to have a thorough review of business rates. The deferral was claimed to give business ratepayers certainty. The 2014 Treasury/DCLG discussion paper also stated:

“The next step is to improve the business rates system in England so that it works better in the 21st century. We want to find ways to make the business rates system simpler, more transparent and more responsive to economic circumstances”.


However, ratepayer certainty included continued unfair 2010 rating list levels of assessment based on values at the peak of the market but applied to the economic climate of a crash. The certain purpose was the maintenance of the business rate yield. Furthermore, since 2010 there has been a process of blocking the sharing of valuation information, the shrinking of avenues for challenge and appeal, and an increase in the costs and complexity for ratepayers to the point of “like it or lump it”.

In 2016 a consultation on the check, challenge and appeal, or CCA, proposals received virtually no ratepayer support. Following repeated demands, the Government did not release the responses, as noted rather critically by the Secondary Legislation Scrutiny Committee, or SLSC, in its 30th report of 2016-17, and despite reassurances given to me by the Minister. The responses finally appeared just before the summer recess and only following further freedom of information requests. No matter; the VOA had already embarked on the changes, regardless of views. I suggest that the entire consultation was something of a waste of taxpayers’ money and possibly an affront to public expectations.

On 17 March this year, just two weeks before the new rating lists were due to come into force, the Government laid the two SIs before Parliament to implement virtually unchanged the scheme as first proposed, and, as noted by the SLSC, curtailing parliamentary scrutiny in order to salvage the government timetable.

In theory, a web-based CCA system could and should be relatively simple. HMRC has a good record of building robust online platforms for such things as VAT, PAYE and income tax, so when, still as a beta test, CCA went live on 1 April, rather surprisingly it demonstrated overcomplexity and substandard IT architecture, with inferior user accessibility and convenience.

To access CCA, you first have to create a new Government gateway account. You must provide detailed personal information which relates to your identity and is unconnected with the business ratepayer or the premises. Given that the property itself is fixed and that the billing authority generally knows both its location and the ratepayer identity, this seems excessive and intrusive. Tough luck if you do not have a UK passport, because then it is down to a fully manual process.

The key to checking one’s assessment is adequate information, but online CCA does not apply to all rateable property types. The first stage involves confirming the physical facts, which would be fine were it not for decades of poor data input and property inspections by the VOA. So, from April is added the requirement for the ratepayer to do the job for it, including providing answers to unknown and possibly unknowable construction history matters going back as far as 1900, and topped off with a £500 fine on VOA say-so for any false information, courtesy of the Enterprise Act 2016.

Whatever the business use, one must claim properties individually, and I am told that CCA cannot cater for ratepayers with large numbers of assessments; for them, the system is all but inaccessible, as each property must be separately and manually entered. Only when registered can one obtain the so-called additional information and appoint an agent to handle one’s case. The agent must perform the same sort of account-forming process with proof of identity. I am told that it can take up to an hour for each and that it is an iterative process, to be completed for each ratepayer client. Registration is not instantaneous. Once logged on, the degree of additional information is minimal. So, for a business to get a reasonable sense of whether its rateable value is likely to be correct, the task is labyrinthine, costly of time and inherently uncertain. No wonder the Federation of Small Businesses described the system as a “shambles” in its press release of 25 July.

Suffice to say that the CCA website has met with a hail of complaints: that it simply does not do what it claims, frequently crashes, is full of glitches and involves significant delays in verification of registrations, and so on. For ratepayers seeking temporary reductions for material changes in circumstances, this matters, with a real risk of injustice because of their inability to lodge a challenge within the timescale. For billing authority requests it is the same issue, with potentially costly write-offs. At the beginning of August, four months after the website’s introduction, the VOA admitted that the matter needed attention and brought in staff from HMRC digital to help deal with it. Meanwhile, CCA remains partially operative at best.

Assuming that you achieve the check stage, things can move on to the challenge stage, and that is the prelude to a reference to the Valuation Tribunal for England, or VTE. But here, in SI 156, there is a further hurdle: the need to provide detailed evidence of a valuation. This new requirement now amounts to nothing short of a proof of evidence by or on behalf of the ratepayer sufficient to justify the challenge. The burden of proof is on the appellant; the VOA does not have to prove anything, despite the fact that it has unique access to all rental returns and transaction data to enable it to compile the list. Moreover, the VOA is required to respond only to the matters contained in the challenge deposition. There is no requirement, as in previous times, for it to justify the wider accuracy of the assessment. Newer or additional evidence may not be added at a later date, other than in very exceptional circumstances. So a great deal of up-front work is necessary just to tease out whether the VOA has got its sums right or used acceptable or appropriate evidence.

Worse, the VOA since 2010 cites confidentiality under the Commissioners for Revenues and Customs Act 2005 as the basis for withholding valuation information from ratepayers, notwithstanding the specific provisions of Section 18 which allow disclosure in relevant circumstances. It is a convenient gagging provision. One supposes that the VOA would never knowingly use questionable evidence and that it employs men and women of utmost integrity, but mistakes do happen. Its parent, by contrast, might be disposed towards any other means available to it to maximise revenue.

There is supposed to be a separation of the revenue and valuation functions but I wonder whether that still pertains. The Government, quite reasonably, point to the large number of unmeritorious appeals against 2010 list assessments. Many made by relatively few claims firms were blanket appeals. Some use highly questionable tactics, even leaving ratepayers with large bills for incompetent advice and lousy service. I suggest that poor maintenance and management of the tax base also creates opportunities for such activities. However, apart from that, does abuse on one side ever justify a Government impeding fair redress for the taxpayer in a country where it is supposed that the rule of law prevails? It can only get worse if, as planned, VOA manpower shrinks by 20% in the next three years.

SI 156 also introduces a new system of charges for appealing cases to the VTE. I suppose the Government felt that reducing appeals to employment tribunals by introducing fees was a good precedent but after the recent Supreme Court decision I am doubtful. At least the employee has the alternative of workplace mediation but nothing similar exists for the business ratepayer.

Some rating assessments are very small but none the less highly significant for those who pay the rates and do not necessarily get small business exemption. Even a modest level of fees matters if your business involves a lot of very small assessments. I submit that the new fees are inappropriate and unreasonably fetter access to justice for no demonstrable public benefit, the point made eloquently by the VTE itself in response to the 2016 consultation but apparently ignored.

Additionally, there is a subtle shift in how the VTE is to treat valuation evidence. The VOA is charged with maintaining an “accurate” rating list. Compare and contrast that with the new test of “reasonable” valuation in rating appeals. The VOA maintains these terms mean in effect the same thing, but if this SI passes into law the argument must surely follow from some eminent member of the Bar that Parliament clearly meant something different. After all, the terms “accurate” and “reasonable” are clearly not the same and one can quite reasonably reach a valuation conclusion that later proves manifestly inaccurate, as everyone knows. It is bad policy to leave such things to the courts.

I leave to one side the issue of secondary legislation attempting to overturn a definition in primary legislation, but it looks to me slightly suspect.

In so far as these new factors compound to fetter ratepayer access to a fair means of redress, my attention has been drawn to the case of Daly v the Home Secretary in which the Judicial Committee of this House on 23 May 2001 approved a 1999 Privy Council decision to adopt a three-stage test in determining whether a limitation by an Act, rule or decision is arbitrary or excessive. These stages, in summary, are: first, that the legislative objective is sufficiently important to justify limiting a fundamental right; secondly, that the measures are designed to meet that objective and are relevant to it; and, thirdly, that the means used are no more than is necessary. I find little if any evidence that such tests have been applied to these statutory instruments. Furthermore, many decisions taken by the VOA which are clearly adverse to ratepayers in their implementation appear to be based on VOA policy rather than the law. If this is administrative convenience dressed up as precedent to overcome decades of poor management, then I suggest there is more legal turmoil to come.

This was an avoidable state of affairs that looks like faulty departmental thinking and cost cutting. It is bad public relations, as evidenced by the widespread criticism of the new system, and appears to be designed to frustrate fair redress. It appears to be consistent with a longer-term policy beyond these SIs alone—ergo, not just a bedding-in problem, which I am sure the Minister may wish to pray in aid. It raises doubts over the stability of the tax yield given the likelihood of more concerted appeals in a system seen as increasingly unjust; it necessitates continued large provisions by billing authorities against list alterations—the last figure I was given was £2.5 billion—and it offends the basic understandings between taxpayer and taxman that underpin the rule of law.

Her Majesty’s Government have not addressed unfair transition, the illogical system of reliefs, the several questionable exemptions or the pitfalls for the unwary. Public conveniences and graveyards attract business rates; a public park does not. Charity shops sell new goods, often in direct competition with other high street premises, yet command 80% mandatory business rates relief. Web-based retailers often contribute little or nothing and yet put vans on streets and create waste streams that have to be dealt with. It all shows that little has been done to give effect to any meaningful reform of a creaking business tax, and if not in time for this latest revaluation, then when are we going to see it?

The question remains, “What are business rates for?” That has been ignored and so at present a modest office occupier, as I have said before in this House, still pays more than twice the council tax on a larger and much higher-value home and yet receives virtually no services. This country has the highest such annually recurring business property tax of any of our European neighbours.

This is not an example of pulling together but of tearing apart a once-respected system. It is for these reasons that I have tabled this regret Motion.

--- Later in debate ---

[Lord Bourne of Aberystwyth]

My Lords, I apologise for missing that point. I am not sure whether it was made when I slipped out—it conceivably was—but it is a fair point anyway. If I may, I will write to the noble Lord about it and copy that to other noble Lords who participated in the debate.

[The Earl of Lytton]

My Lords, I am extremely grateful to the Minister for the comprehensive answer he has given to the Motion. I am also most grateful to all other noble Lords who have spoken in this short debate. I would never go so far as to try to question matters of reasonableness and accuracy, or to cross swords with the noble and learned Lord, Lord Hope, especially as he is the Convenor of our Cross-Bench group—and a much cherished and honoured Convener as well.

However, two things come out of this. First, there is an urgent need to sort out CCA online. I am particularly grateful to the Minister for inviting me to discuss the process issues, because they are numerous. If I could arrange to come and see him with a team of people who could explain what the issues are and why they are so grindingly irritating to ratepayers, and give such a bad impression of the whole thing, then trying to clear the air on that would be very good.

Secondly, yes, the overall system needs fixing and there is to some degree a focus on these SIs in that context. But various things follow from that: there has to be proper finance for it overall—a point mentioned by the noble Lord, Lord Beecham; there has to be a justification of the impost in absolute and relative terms, compared with other things, and we have lost sight of that a little; and there has to be in the change in the style of management. We are to some extent in this together and if the Government are serious in saying, “We are pro-business”, we cannot have a situation where businesses are set on edge by such a system. It is entirely negative and unnecessary, so there has to be a change in the style of management.

Part of the key to this is the transparency of information. As soon as people start thinking that information is being concealed from them, they become suspicious that there is some malevolence hiding behind it. The proof of the pudding will obviously be in the eating here. The whole point about a non-domestic tax, particularly since it affects so many businesses, is that it must rest on the taxpayer’s confidence that it is being dealt with efficiently, expeditiously and, above all, fairly. We should bear in mind that business rates have a long and cherished heritage. When I started dealing with rating matters back in 1975, it was one of the lowest cost and most efficient means of collecting money for local government purposes. If we do not get that right, the alternative is mounting further appeals. If this provision eliminates individual appeals and starts giving rise to a whole series of class actions, the impediment—the drag—that it will cause in the system will be the same.

This has been a very welcome opportunity to air these views. There are certain things that I dare say the Minister and I are probably destined never quite to agree on. It would be almost inconceivable if that were the case. I appreciate that an effort is being made here, but we need the financial resource and manpower to go into that to try to sort this out. If it is not sorted out, it will continue to cause us problems. Having said that, and with thanks to all noble Lords who have spoken and to the Minister, I beg leave to withdraw the Motion.

Motion withdrawn.