Non-Domestic Rating (Lists) Bill

Earl of Lytton Excerpts

2nd reading (Hansard): House of Lords
Monday 30th September 2019 Lords Chamber

[The Earl of Lytton (CB)]

My Lords, it is an absolute honour to follow the noble Lord, Lord Randall of Uxbridge, and to congratulate him on an outstanding maiden speech. He speaks with very great authority on the retailing and modern worlds from his experience with the family firm. I regret having received the speakers’ list only when I came into the Chamber, so I have not had the opportunity to discover anything embarrassing about him that I can share with the House. However, like many of us, he has a wiki page, which tells me that he studied Serbo-Croatian. Of course, we know of his distinguished career as a Whip in the other place. He will therefore be not only familiar with the usual channels, but unsurprised at some of the stranger bits of double Dutch and jargon that inhabit the business rates world. I look forward to many more of his contributions.

Many years ago, I made my own maiden speech on what is colloquially known as the poll tax Bill. Noble Lords with long memories will remember its fate. I hope that this Bill fares a little better, although, unlike the noble Lord, Lord Randall, I am not at all convinced of its greater worth. I take this opportunity to congratulate the Minister on his appointment and his arrival into the hypothetical world of rating assumptions, in which only really the property and the bills are tangible and most of the rest is some sort of statutory assumption. That is worth bearing in mind. However, the economic outcomes are real enough. The noble Viscount should therefore be especially wary of the complexities and risks. I certainly look forward to working with him on this sector. At my stage of life I have no particular axe to grind, though. As a Local Government Association vice-president, I see all sides. Having a professional involvement of 44 years with this area of local government finance, here is my contribution to what I hope will be a bit of semi-honest brokerage from a ratepayer’s perspective.

A few years ago this Bill, which mainly increases the frequency of rating revaluations, would have been welcome. At this stage, though, my fear is that it is too little and almost certainly too late. We have a five-year revaluation cycle—or did, until it suited the Government of the day to defer the 2015 revaluation date. They argued that that gave certainty to ratepayers. Perversely, it did so, but at the expense of pegging their business rates to the historically high levels of the antecedent 2008 valuation date, which in turn informed the 2010 valuation list. More realistically, it guaranteed certainty of tax yield to the Treasury. Let us not kid ourselves, then, that this was anything particularly to do with benefiting businesses.

The resultant seven-year gap up to the 2017 valuation list meant significant adjustments, which in many cases would have created welcome reductions in rates burdens were it not for something called transitional relief. That operates to shield ratepayers from sharp increases in rates, but is financed by negating the benefits of reduced assessments for the others. It also protects the taxman from falling tax yields and is, I understand, reputed by some experts to have given him a large windfall. It is the extended revaluation gap in a time of rapid change, though, which amounts to the Government taking their eye off the ball.

There is also something called fiscal neutrality. I apologise for inflicting this jargon on noble Lords; it is a Treasury mantra that means that any changes to concessions, such as transitional and small business reliefs, have to be off-set—effectively funded—by higher charges to the remaining ratepayers. At the same time, it provides a safety net, if not a windfall, for the taxman, so it appears at the very least to be somewhat asymmetric as to effect.

Unlike rents, which ultimately have to follow market reality, the national rate yield is a fully protected upward-only construct. This has resulted in extraordinary increases in overall rates burdens on businesses over recent years—extraordinary by comparison with other applicable indices. As a result, there has been mounting pressure for reform of a property tax that is now the highest of any comparable impost anywhere in the EU or the OECD area.

The Minister will tell us, no doubt, that the industry has asked for these valuations. The noble Lord, Lord Randall, also referred to that. I believe that the British Retail Consortium has, indeed, asked for that, but I understand that everybody else has been asking for still more frequent revaluations plus a host of other reforms. I therefore do not feel that the justification for the Bill is entirely there. In any event, it only scratches at a fundamentally much deeper problem.

In effect, the system has been gamed to breaking point, not only by some unscrupulous consultants, but by HMRC and the Valuation Office Agency. Nobody in the business community now has much confidence in it, perceiving it as unjust, unfairly administered with an overly complex system of redress called “check, challenge, appeal”, or CCA, to use its acronym, which is consciously designed, it would appear, to impede fair rights of challenge and appeal.

I commend to the House consideration of a closely argued submission made in March this year to the Treasury Select Committee in another place by Mr Jerry Schurder of Gerald Eve. He is an acknowledged expert in the business rates field. He outlines failings in all the main areas on which a tax properly and reliably rests. However, even if the Minister does not believe Mr Schurder, he cannot deny the evidence that businesses across the land are voting with their feet in responding to business rates burdens as a major consideration in their retailing, office and industrial space occupancy and decision-making, while investors hesitate to commit in the face of empty rates charges. When a taxation system causes behavioural changes on this scale, it is wise to consider carefully the underlying policy, which has certainly contributed to high street atrophy and business reticence. When anyone involved in upgrading their premises finds that they are in receipt of a higher rateable value, removing at a stroke much of the benefit of the improvement, it is also a retrograde system.

Business tax payers need confidence that they are being fairly treated. Here, I fear, they know that they are not. No Government can claim to be business friendly while presiding over unfair local business taxation. The results for retail streets, for visitor attraction to towns, for investment, pension scheme portfolios and so on are negative. However, I am afraid HMRC still does not get it and will shortly have to find radical and costly solutions that will not be fundable on the fiscal neutrality principle, as more and more people trade online or migrate to other methods of trading not involving high-value, high-priced premises. Business rates are not solely to blame, but they and their administration are now widely seen as a very significant factor.

To finish, and given the parameters I have outlined, along with the failure to keep to five-yearly revaluations previously and the subsequent attrition in Valuation Office Agency resources, can the Minister say how the proposal in the Bill will be implemented and funded? Will the additional costs of more frequent valuations ultimately have to be met by the ratepayers themselves? If so, how much more mismanagement should they be expected to fund? When it comes to billing authorities having 100% business rate retention, as we believe is the ultimate intention, what factor of reliability does he think will be a realistic measure of future rates yield? This clearly matters to local government finance officers. However, if the current system collapses through failure to rectify, modernise or resolve the deep mistrust now prevalent—I believe we are close to that situation—the consequential expense of replacing the system will be incalculable, along with a needless destruction of valuable taxation and valuation stock in trade. I refer, of course, to the information base on all properties that go into making up the valuation list.

I really cannot express much enthusiasm for this particular policy tick-box of a Bill, nor do I see it as tackling the real issues. However, given that there is an intention to do something—anything—it is at least welcome to that extent.