Non-Domestic Rating (Lists) (No. 2) Bill

Earl of Lytton Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Monday 18th January 2021 Lords Chamber

[The Earl of Lytton (CB) [V]]

My Lords, I welcome the opportunity to debate these two Bills, which I support. I thank the Minister for an online meeting last week. I refer to my professional involvement with non-domestic ratings, my membership of the RICS and other bodies, and my interests as a vice-president of the LGA and the NALC, and as a business property owner.

My own experiences started in the Inland Revenue valuation office in 1975. At that time, residential and commercial properties shared a common valuation approach based on an assumed rent between a hypothetical landlord and a hypothetical tenant. I observed both the Layfield report and the Lyons report, which looked at local government finance and central government grant. My maiden speech here was on the Local Government Finance Act 1988, enacting the ill-fated community charge and setting domestic and non-domestic systems on different trajectories. I was in private practice when the poll tax was replaced with council tax, or CT, based on bands of capital value as at 1991. Business rates remained rent based. Subsequently, there was a capping on limited CT increases, but original value bandings for England remained. Business rates, by contrast, were subject to inflation-plus annual increments to uniform business rates, with periodic revaluations. This divergence has changed the tax burdens.

Things sharpened up when the Labour Government curtailed empty property relief, but nothing matched the later financial shock of the 2010 revaluation, based as it was on 2008 peak-of-market rents, by which time of course values had fallen, with insolvencies and rent voids soaring. I saw demands for a fairer approach, reliefs and more frequent revaluations grow, and the effects of the Treasury principle of fiscal neutrality meaning that changes could not of themselves adversely affect tax yield. Welcome exemptions and reliefs for the very smallest premises were thus funded by larger ratepayers. I benefit from that.

Transitional relief for large changes in the rates burden balanced gainers and losers, but the way in which downward transition now operates means that, in the example of a shop in Canterbury, the 2021-22 rates bill will still be 80% more than it would have been without the relief. That seems intrinsically unjust. More frequent revaluations would reduce or eliminate the need for transitional relief but lack delivery. Ideally, we should have annual revaluations but, like the noble Lord, Lord Shipley, I suspect that that may be impractical, although it is proposed for Scotland. Meanwhile, too many rates bills are still coloured by the never-repeated 2008 rental values.

A surge in rating appeals of course followed the 2010 revaluation—many thousands on that list are still outstanding—in response to which the Government introduced a check, challenge, appeal, or CCA, system. It was designed to weed out frivolous cases and reduce administrative burdens, but it also put significant barriers in the way of genuine cases, perceived by appellants as protecting the Valuation Office Agency, the VOA, from the inevitable results of poorly resourced, researched and compiled valuation lists. Avoidance, needless to say, has become more prevalent.

Criticism continues. Largely because of the inflation-proofed and fiscally protected yield, the uniform business rate has risen to over 50p. Some businesses pay more in business rate than rent; reliefs apart, all pay much more on any measure than their services-hungry residential counterparts or businesses under any comparable European tax. The Minister may well wish to reflect on this legacy. The pandemic measures have been very welcome, but even they do not alter the underlying landscape.

I turn to what I call the “lists Bill”. It puts back the next revaluation to 2023 and cuts to three months the deposit of the rating list before it comes into force. The Minister has said how the antecedent valuation date works, but a 2023 revaluation means a 2021 AVD. Although I am assured that the Valuation Office Agency is confident of the evidence base—despite lockdown, furlough, forced closures, pop-up rent deals and rate holidays—other experts think that market rental evidence this April will be thin and unreliable. For bars, clubs and property valued on fair maintainable trade, current evidence will be largely absent. Delaying the AVD to, say, September or December is possible, but apparently not in contemplation due to VOA operational timeframes. I am not entirely convinced on that but am keeping an open mind.

The reduced three-month list deposit period was originally linked to three-yearly valuations—on which the Bill is silent, so it is a little asymmetric. Checking an assessment and pointing up errors in January is one thing; getting the VOA at a busy time of year to make corrections in time for dispatching rate bills in March is another. Bear in mind that rate demands are payable in full until the rateable value is amended. I note that the LGA says it is altogether too short a lead-in period for its members. So this “lists Bill” has consequences.

On public lavatories, I welcome the overdue and long-promised exemption. I thank the Minister for writing to me last October and for confirming backdating. What the Bill sets out is reasonable and appropriate, but it highlights the need to examine public facility exemptions more generally.

Rental values still afford an excellent market-derived business tax base, but problems with the business rates system remain and, as the noble Lord, Lord Shipley, said, major reform is certainly needed. On this, professionals, local government, businesses, the CBI, Revo and trade organisations are united. I commend the Government for commissioning their fundamental review and thank the Minister for his reassurance, but can he confirm that Parliament will have a chance to debate it?

I hope the review will be bold and will look at the overall business rates system and its fairness within local government finance, alongside the appropriateness of exemptions and reliefs and issues of avoidance. I hope that alternative revenue streams, such as those related to online trading and opportunities for locally managed and levied revenues, will be included. It is not before time; critically threatened physical retailing, as well as many investments, pension schemes and jobs may depend on getting this right.