Non-Domestic Rating (Preparation for Digital Services) Bill

Earl of Lytton Excerpts

Tuesday 11th June 2019 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, in welcoming the Bill I draw attention to my profession as a chartered surveyor, with a career-long involvement, on an off, in the business rates system. I am also an honorary member of the Institute of Revenues Rating and Valuation—the professional body most closely involved with business rates—and a vice-president of the LGA. My observations, I suspect, will be on principles that the Minister may feel are perhaps to one side of the Bill, and I have alerted him to some of the points that I shall raise. I make these comments because promises such as predictability, fairness and improvement have been made in the past and have certainly not appeared as the jelly bean at the bottom of the machine in the way that businesses expected. Therefore, my comments are fairly broad.

The Bill is the first stage that will lead to a logical extension of the online payment system that HMRC already has for dealing with things such as PAYE, VAT and tax returns. I agree with the Minister that it makes sense to have a single payment portal for a supermarket chain, mobile mast or ATM operator, to give just three examples. However, the recent introduction of digital tax returns under the Making Tax Digital initiative, characterised by truncated lead-in times, inadequate information for taxpayers and a lack of provision of properly tested online software systems rightly attracted the criticism of your Lordships’ Economic Affairs Committee. The system for rating appeals against rating assessments—check, challenge and appeal, or CCA—also shows that HMRC is capable of producing some poorly designed systems that fail basic tests of user interface, coherence of IT architecture and operational competence. Even now, that system is short of what was intended and what was promised.

As if mistakes applied only to fallible taxpayers, HMRC has failed to address customer service and allied issues, which are the very basics of justice, transparency and fair treatment for ratepayers. Rather, barriers of complexity and underresourcing, and the principles of the Court of Star Chamber, appear to prevail.

HMRC sometimes appears to forget that it has a concurrent duty to treat the taxpaying public and businesses in a reasonable manner and with a degree of humanity. They are human beings, not automatons. This means having an intelligible tax code with proper back-up and operational judgment while it is being managed, and proper resourcing of new tax initiatives with adequate access to a system of redress. HMRC’s priority in recent times seems to be to protect itself rather than delivering services to taxpayers.

A demand for business rates might, on the face of it, be a simple multiplication of rateable value and a non-domestic multiplier, were it not for the extensive range of reliefs and exemptions—so the geometry is not quite the same as for other taxes. Business rates also depend on the government valuers’ increasingly questioned opinion of the annual value of the property. So the tax base at the moment does not command universal confidence.

There are some key issues. Study after study has revealed that digitising an already overcomplicated system will not help, and attaching a new payment system to an inadequately resourced tax base does not do so either. HMRC presides over a very complex series of systems, but this also creates vulnerability to evasion, cyberattack and software malfunction and, ultimately, to the simple inability of staff to deal with the monster that has been created. If, on top of this, systems are introduced with half-baked design that use the taxpaying public as a guinea pig, what the chief executive of the IIRV dubbed the “test and learn” approach is unacceptable. By all means let HMRC devote time and energy to researching and developing framework systems, but it should not impose them without prior testing. That, necessarily, must be part of the budget and the specifications submitted to Ministers for approval.

Again using the example of CCA, it is clear how system overload, resource cuts and poor design, compounded by what I believe is a rather disgraceful gaming of the business rates revaluation process, lead to wholesale mistrust. This comes at a time of acute vulnerability for, in this case, high-street retailing—all of which was foreseeable but was largely ignored. So I am afraid that I do not absolve HMRC of throttling the goose that once laid if not golden eggs then at least a regular and highly cost-effective supply of cheaper ones. This suggests that there needs to be a steadying hand somewhere on the tiller. Spending money on a payment system when the tax base management is still wanting puts the cart before the horse. I can never overlook an opportunity to quote a dictum of Jean-Baptiste Colbert, who observed:

“The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing”.


To that I say, “Hear, hear”—but I question whether HM Treasury can tell the difference between a hiss and a last gasp.

Although I am now reasonably clear about how the exercise authorised by the Bill will be funded, I would like to know the cost. If the payment system is to be operated by HMRC instead of the billing department of the local authority, what are the employment and ratepayer inquiry implications? How are reliefs, both discretionary and mandatory, to be given, and what will be the process of transmitting information on exemptions, vacancy and occupation? Further, how does a business rates retention system apply if all the money goes to HMRC in the first instance, and what implications would there be for refunds and responsibility for errors? I cannot expect answers at this stage but I hope that the Minister has noted those questions and that in due course we will get clear explanations.

It has frequently been made clear that any change to the business rates system must be fiscally neutral; in other words, that the cost of adjustments must be met by countervailing ones to ensure equality of the tax yield—or, to put it more cynically, that the taxpayer funds HMRC’s mistakes. Can we be assured that any system eventually proposed as a result of the Bill will, as a minimum, be as efficient to operate as the current one and, further, that the costs of any changeover will be funded from other HMRC sources or from demonstrable savings and not loaded on to businesses by dint of fiscal neutrality or laid at the door of billing authorities?

What I am really asking for is proper parliamentary scrutiny of the activities of a department of state that does not always get it right first time—or at all—and should not be left entirely on its own to design, specify, construct and operate a new system without external overview. I also suggest that, having delved further, it should report to Parliament with a proper cost-benefit analysis and options paper before implementing anything. I would certainly be very grateful for the Minister’s reassurance to that effect.