Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill Debate

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Department: Department for Business, Energy and Industrial Strategy

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Earl of Lytton Excerpts
Wednesday 10th November 2021

(2 years, 4 months ago)

Grand Committee
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Lord Hunt of Kings Heath Portrait Lord Hunt of Kings Heath (Lab)
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My Lords, I beg to move that Clause 1 does not stand part of the Bill. Of course, I hope that in the end Clause 1 does stand part of the Bill, but I want to use this as a way of raising issues I would have raised at Second Reading; noble Lords will recall that its timing was moved at very short notice indeed. I would like to register my protest to the usual channels about that, and the fact that none of us who had put our names down were consulted, which is a very poor show indeed.

My primary interest concerns the Government’s decision to establish a £1.5 billion fund to support further reliefs from business rates in the 2021-22 financial year for those businesses that have not received business rates relief. It is absolutely right to support those left-behind businesses, as I call them, but I have questions, which centre largely around the process of releasing this money. The businesses that this is aimed at are arguably some of the most in need, and yet they are having to wait much longer than is acceptable to have a chance of receiving any of this money.

In March, the Government announced the fund and said:

“This is the fastest and fairest way to support businesses outside the retail, hospitality and leisure sectors who have been adversely affected by the pandemic.”—[Official Report, Commons, 25/3/21; col. 78WS.]


But here we are in mid-November, eight months on, and still not a single business has received any money.

To give one example of the real-world impact of not releasing these funds any sooner, English UK, the body representing the English language schools sector, has informed me that, in the last month alone, no fewer than five English language schools have been forced to close, largely because they were excluded from business rates relief. Indeed, 38 English language schools have closed since the pandemic started— 15% of that trade body’s membership. It is hardly surprising: some schools had to pay £300,000 in business rates over the last two financial years, with virtually zero customers.

So, the need for speed is very apparent, but there is a problem in that the guidance to local authorities over the distribution of the money is still awaited. Many businesses do not know whether they will qualify for the fund, given that, as I understand it, the criteria have not yet been published. We just have to go on the March announcement:

“The £1.5 billion pot will be distributed according to official data on the impacts of the pandemic on different sectors, ensuring an even and more proportionate allocation of support across England based on the economic impacts of COVID-19 and not on estimates of the impact on a property’s value.”


As I have already said, there is a real risk that many businesses will not survive long enough to take any benefit from the fund. We do not have the guidance, and my understanding is that the Government’s intention is that it will not come at least until the Bill has received Royal Assent. Surely, given the urgency of the situation, the draft guidance could be issued so that local authorities can begin to prepare their schemes. How long are businesses going to have to wait to get this relief? Of course, I understand that the guidance has to be prepared carefully; there are matters to be enunciated through that guidance, but the policy announcement was made in March. Eight months later, we are still waiting to know what the criteria are for the distribution of these funds.

In addition, for English language schools a complex situation arises because a small handful of councils interpreted the expanded retail discount differently and awarded business rates relief. Consequently, it has been something of a lottery, depending on where the schools are situated. I do hope that the Minister will confirm that just because some councils took the bold step to offer business rates relief to English language schools, this will not jeopardise the chances of those that did not to receive additional funding.

Obviously, I welcome the Government’s existing pandemic support for businesses via the expanded retail discount focused on helping businesses in retail, leisure and hospitality. The release of the additional funds is also welcome, although it is a tacit admission that the previous relief did not reach all those businesses, which, as I said, could show a catastrophic impact due to the coronavirus restrictions. However, the lack of guidance to local authorities suggests to me that it will be many months before businesses receive any of these funds. I am using this opportunity to urge the Minister to sort this out, to get the guidance out quickly and to make sure that local authorities understand that the money has to be distributed as quickly as possible, according to fair criteria. I beg to move.

Earl of Lytton Portrait The Earl of Lytton (CB)
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My Lords, noble Lords will know of my professional interest in business rating and that I was at one time an employee of the Inland Revenue Valuation Office Agency. I added my name to this clause stand part debate for reasons very much along the lines that the noble Lord, Lord Hunt, set out in making an excellent case for why this clause should be challenged.

I give the Government their due: they have made a massive commitment to the relief of business rates during the pandemic, but I do not believe any business thought, following a relatively modest individual level of relief, and given the overall scale of the impact of the pandemic on business activity, that the Government would then make an arrangement such as to eliminate a main ground of material change of circumstances for everyone.

That is the purpose of Clause 1. It is a binary choice; it is either in or out. My understanding is that the Government are not going to concede on the point so this will probably be my last comment on this bit of the Bill. Clause 1 is the only bit of the Bill that concerns me.

Although I welcome the Chancellor’s further business rates announcements, the fact is that the underlying problems have not gone away. I have very little doubt that someone in HM Revenue & Customs thought quite hard about this and concluded that the removal of a Covid clause for material change of circumstances also conveniently eliminated many other forms of material change, in so far as it would probably be impossible to make a reliable distinction between one and the other. I guess they calculated that those who had not benefited at all could be ignored—that they could afford to concede a short-term position but recover, no doubt with added interest, in the longer term—something they would keep quiet about in the interim. HMRC would thus hold to the mantra of fiscal neutrality, which I have mentioned in the House before, and reinforce its view that there are too many appeals, that managing appeals does not sit easily with the general direction of travel, and that making things administratively cheap to run trumps fairness and equity to ratepayers in a system that has become overstretched, if not overstressed, by the demands made of it over many years. This of course has followed the earlier massive reductions in the capacity of the Valuation Office Agency.

Whatever may be promised by way of additional resources to that agency, which is a critical part of all this, it will be years before the capacity and technical excellence of a once venerable body of professionals gets back to anything near its former self, always assuming that the new resources—if indeed they are new—are other than a race to develop some automated valuation algorithm.

The Government are particularly good at window dressing, but in making a promise of £1.5 billion to be spent by local authorities for further relief of certain business rate payers, they make no reference to the manner, timing or precise purposes to which this relief will be put, so it remains, to some extent, a “jam tomorrow” aspiration. The Minister might like to enlighten the Committee—here I follow the noble Lord, Lord Hunt of Kings Heath—on the origins of the £1.5 billion figure and how it has been calculated, just as every business rate payer and every billing authority would like to know how it will be distributed in practice.

While I am at it, perhaps the Minister can also tell us when the promised further guidance that relates to that distribution will be published. I may be accused of harbouring dark suspicions, but I suspect that it will be too late do anything about it for the 2022-23 fiscal year. This will also be the assumption of local government finance officers and businesses alike, if the Minister cannot assure us of an early date, this side of mid-January 2022, when finance officers will be fixing their budgets and businesses considering their forward programmes. A company that got hammered—excuse the term, but I think it is right—in 2020, may not get any help until 2023. If I am right, that will be just another facet of the creative accounting by the taxman which ultimately costs jobs, blunts enterprise, discourages investment and dents productivity—end of homily.

On previous occasions, I have mentioned the total lack of trust and confidence among those medium-sized and large businesses whose rates bills do the heavy lifting in this area of local government finance. I have previously pointed out the business rate unfairness, its asymmetry with regard to the use of local government services and the dangers of gaming the system of valuation and fair access to appeals, which have now gone on for many years. The Government may consider that the fundamental review that they have responded to will save business rates as a tax, but I am fairly confident that, economically and practically, it is probably too late.

I believe that the Minister is an honourable man. I do not blame him: he inherited this situation, so I give him the benefit of the doubt in suggesting that he can do something about rolling back a bad position in his response today, which I await with interest. That is why I oppose Clause 1 standing part of the Bill.

Lord Cormack Portrait Lord Cormack (Con)
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My Lords, I endorse what the noble Lord, Lord Hunt of Kings Heath, said—not for the first time, on a variety of subjects. When we debated in Grand Committee a couple of weeks ago, it was a very peculiar and unsatisfactory situation. The date had been changed twice. I do not particularly complain about that—it was nothing to do with the ghastly, terrible tragedy of the murder of Sir David Amess; it was changed irrespective of that—but there should have been a proper Second Reading and there should have been proper consultation with those such as the noble Lord, Lord Hunt of Kings Heath, and others who had indicated an interest in the Bill.

My interest is entirely with Clause 1, and I will not say anything later, because I will not move my amendments. They were tabled with advice from the clerks, for which I am extremely grateful, merely to try to ensure that the Bill would not come into force until at least six months after we knew about the distribution of the £1.5 billion. We may return to that on Report—I take it that there will be a proper Report on the Floor of the House, because we are not allowed to vote in Committee, for reasons we all know, appreciate and understand.

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Earl of Lytton Portrait The Earl of Lytton (CB)
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My Lords, it might be of assistance to the Committee if I offer a few words of clarification, because the noble Baroness, Lady Pinnock, has given us some extremely perceptive insights into the whole issue.

With regard to Amendment 1, the issue here is that the Government have chosen to replace what would have been the objectively and judicially managed process of appeals against the assessment of the value of the real estate with what is, in fact, a wholly discretionary sum, with all that that entails, which will, as we heard from the noble Lord, Lord Cormack, be spread thinly across a huge number of non-domestic ratepayers, who will presumably plead some sort of hardship. That seems to transfer a load of administrative activity on to local government and away from what one would normally expect to be the longer-term process.

The Minister made a comment about the pandemic never having been in focus in terms of dealing with material change of circumstances. I am not sure he is entirely right in that interpretation. The acid test is fundamentally one of the perceptions of the longevity of the problem. It is quite clear that this will be a multi- year factor.

The noble Baroness’s second amendment points to the lumpily uneven nature of what has now become the business rates system. She referred to the online retailers, many of which operate out of enormous distribution sheds. Their shop window is a website with a virtual walkaround operation, their stockroom is somewhere between a number of vans on the road and their fulfilment centres, as I believe they are called, and the till is PayPal or the equivalent.

The situation regarding the principle of business rates is that it was always supposed to be the benefit derived from the occupation of those premises. Over the years this has morphed into being, “You’re the owner so you pay up.” That is the principle behind the invidious situation we have now to do with empty rates. I add those who have high street premises that they cannot let; they cannot find an exempt or partially exempt occupier such as a charity to come and occupy it for them. They are stuck with this situation. There is no relief for them. Not surprisingly, they get boarded up and, in street frontage speak, they become a missing tooth in the jaws of a pretty girl, as it was once put to me. That needs to be sorted out.

The fundamental review I referred to earlier is, I think, trying to do the least it possibly can. When I said that I thought we were getting—or had got to—the point of no return, I meant it, because if this is not taken seriously and is not taken in hand, the only show in town will be what I understand is a bit of Labour Party policy, which is to abolish business rates and have some sort of sales tax instead. We know what has happened in the past—I cannot remember if it was the first or the subsequent Government under Mrs Thatcher that was elected partly on the premise that they were going to abolish the unfair ratings system.

If we are not careful, this simply becomes another mantra where, historically, a perfectly good, cheap to run system gets trashed. The Government will rue the day that they allowed this process to continue and allowed the forces within the revenue department to erode the system of fairness and confidence—this will be the net result. It affects everybody—businesses and local authorities—and prospects all round, because doubt, uncertainty and risk are corrosive of the entire process.

I very much take the point that the noble Baroness made in moving this amendment, and I hope that the Minister is taking this on board, because we are pretty much at a tipping point and many people have said to me that it cannot go on like this. I just felt compelled to make that intervention at this stage.

Baroness Blake of Leeds Portrait Baroness Blake of Leeds (Lab)
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Thank you for those contributions. There is no doubt among any of us about the real sense of urgency and the importance of the amendments that we are discussing in this group. Again, it is inevitable that the question of the £1.5 billion comes up, but we also need to keep a very close eye on the economic prospects as we go forward. I have to say, the confidence around that is not as great as perhaps we are being led to believe.

Again, I thank the noble Baroness, Lady Pinnock, for putting her name to Amendments 1 and 2, and for the comments of the noble Earl, Lord Lytton; he really got across that sense of urgency. I can confirm that Labour has called for the longer-term abolition of the current system of business rates, to be replaced by a new system that is better balanced between high-street businesses and the out-of-town online giants, as we have been hearing.

On Amendment 2, does the Minister agree with the assessment that we are in a very lumpy situation, and will he be looking at how the playing field can be levelled out? That is a really important question that we need some certainty on. Again, Labour has called for an increase in small business rate relief next year from the current threshold of £15,000 to £25,000. Does the Minister accept that we need an increase in relief to help small businesses cope?

I turn to the amendment in my name. It is important, at every opportunity that we have in this House, to really spell out the dire situation facing local authorities, particularly regarding the financial position that they are in. This is one reason local authorities are asking for clarity and a sense of urgency. They are also asking that, once the criteria are established, the way that this unfolds is kept under review, and for local authority guidance to be published as soon as possible. We made a very strong case for that at Second Reading.

We know that Covid-19 has had a devastating impact on local authority finances, with a combination of income falling and costs rising. The income element for local authorities, I am afraid, is one which the former Secretary of State would not take into account in terms of the losses that local authorities have been facing. This is on top of the fact that Conservative Governments since 2010 have cut £15 billion from central government funding to local authorities.

We are looking at a situation, according to the LGA, where councils in England will face a funding gap of more than £5 billion by 2024 just to maintain services at current levels. It estimates that the Government will need to find an extra £10.1 billion per year in core funding to local authorities by 2023-24 just to plug the existing funding gap. New research by the BBC, I understand, has shown that UK councils have found a £3 billion black hole in their budgets as they emerge from the pandemic. Put in that context, I think we can all understand why there is so much concern from local authorities about how much is going to be available to them to distribute, to enable businesses in their areas to survive and to continue to pay the rates due to them. Again, I ask whether the guidance can be issued to local authorities as a matter of haste and whether it is possible for us to have an understanding of when that will be.

I was actually in the room when the former Secretary of State told local authority leaders that the Government would provide

“whatever funding is needed for councils to get through this and come out the other side”.

Again, I ask: does the Minister believe that this promise has been kept? I do not think we need a list of all the different resources that have been given to local authorities, welcome though they have been. Unfortunately, they do not match the need and we know from the impact of the pandemic that need in our communities, through a whole raft of measures, is really going through the roof.

In that context, I hope that everyone will recognise the urgency required to resolve these matters but also the enormous challenges facing local authorities in the years ahead.