Non-Domestic Rating Bill

Helen Morgan Excerpts

2nd reading
Monday 24th April 2023 Commons Chamber

[Helen Morgan (North Shropshire) (LD)]

I have been looking forward to this legislation, partly because I am passionate about any measures that will revive the fortunes of the high street in North Shropshire’s historic and beautiful market towns, and partly because, from my previous role as an accountant and financial controller, I have first-hand experience of dealing with the business rates system.

Businesses are facing tough conditions. Every ingredient, nut and bolt and widget purchased is more expensive. Many businesses are finding it impossible to pass on those additional costs to consumers. On top of that, energy costs have been historically high. Many businesses were forced to sign up to fixed-price energy contracts when prices were stratospheric. The Government left those businesses facing a cliff edge when support was withdrawn at the beginning of this month. Many pubs, cafés and restaurants have seen a 90% cut in Government help. In my constituency, they are reporting to me that they are looking at closure. Businesses have it really tough right now and they need a break. They need a Government who will

“cut the burden of tax on business by reducing business rates…via a fundamental review of the system.”

Those are not my words but the commitment that the Conservatives made in their 2019 manifesto.

The Bill before us today is a disappointment. It tinkers around the edge of an outdated tax that does not work for the modern economy. Our high street shops are competing with online retailers that do not have the same overheads as the physical shops that form the backbone of our communities’ common spaces. Business rates increase those costs further, making it even harder to compete. The Treasury Committee’s 2019 report, “Impact of business rates on business” confirmed that view.

In market towns such as Oswestry in my constituency, the smaller independent stores benefit from small business rates relief. They are not paying anything, so more frequent revaluations will not help them because they pay nothing in the first place. The opportunity was to make the difference for the larger retailers—the anchor tenants and the drivers of footfall that are needed to bring people back to town centres in person. I think that opportunity has been missed.

Turning to the detail of the Bill, there are some steps in the right direction. The increase in the frequency of revaluations, from every five years to every three years, is clearly welcome. It is also right to enable businesses to use business rates improvement relief to encourage businesses to improve and upgrade their properties. We would hope that the relief might encourage businesses to look towards ways in which they can embrace decarbonisation.

It also seems sensible to link business rates to a unique taxpayer reference. The provisions around notification of completion of works look to be a welcome measure to reduce the possibility of fraud in relation to buildings being removed from the rating list while being refurbished. From experience, that struck me as a potential weak spot for fraud, so that measure is welcome.

However, I want to expand on the onerous nature of placing a responsibility on businesses to keep the Valuation Office Agency informed about market value and changes to the lease or ownership. Businesses already receive a notification to inform the Valuation Office Agency when something material changes at a premises—primarily, ownership or the registration of a lease—and they must provide detailed information to confirm that the rating value is still appropriate. Moving to an annual notification, even in the event of no change, would mean yet another form to fill in for the beleaguered financial controller, with whom I have huge sympathy, who is already bogged down in seemingly endless monthly and quarterly ONS returns, on top of their monthly and quarterly financial reporting requirements. It is estimated that around 700,000 small businesses that currently do not pay rates at all will be included in this annual form-filling exercise, with significant penalties in place if they get it wrong.

Speaking from my own experience, the VOA is not quick to decide and respond when changes are notified. I spent a year persuading the VOA to put a new office building on the rating register and to record other alternations to a mixed-use site, including inviting the officers on a personal visit to assess the site at first hand. This was after the pandemic restrictions had been removed. Changes in case manager, records lost, confusion, and lack of interaction between the valuation for business rates and council tax meant that it was an administrative nightmare, as well as a business planning nightmare.

Businesses need to know what their rates liability is going to be. Cash-flow planning is critical to staying afloat, particularly at a time when businesses are struggling with soaring energy costs and rocketing inflation. Businesses cannot do that if they do not know what their rates bill will be; we should remember that the rates bill is backdated to the point circumstances change, not to the point that the Valuation Office Agency makes its decision.

I am extremely nervous about imposing a further administrative burden on small and medium-sized businesses, complete with harsh fines and penalties, when there is no acknowledgement of the importance of a swift response from the VOA. Surely some timetable could be put in place, at least for interim assessments, to help businesses to plan. I would be grateful if the Minister could consider corresponding reliefs or an appeals system, with remedies provided, when the VOA has taken an unreasonable amount of time to reach a decision, or got its decision wrong or in a state that requires challenge.

The current business rates system is broken. The Federation of Small Businesses said:

“these changes do not amount to the fundamental overhaul the system needs, to reduce the chilling impact of a regressive tax that you pay before even earning a penny in turnover, let alone profit.”

Fundamentally, Liberal Democrats disagree with business rates. They are harmful to high streets and our wider economy, and the current framework is a huge burden for small businesses. They tax productive business investment in structures and equipment, rather than taxing profits and land value.

The Liberal Democrats would abolish the broken business rates system and replace it with a commercial landowner levy. That levy would be paid initially by the landlords of commercial properties, not the businesses occupying them, and it would feature annual revaluations, which Netherlands has proved are possible administratively. It would tax only the land value of commercial sites, not productive investment. Removing buildings, utilities and other physical capital from taxation would boost business investment, in turn increasing productivity and wages.

Liberal Democrat plans would improve our high streets by boosting investment and helping shops that struggle. None of that will be achieved by today’s Bill.

[Peter Aldous (Waveney) (Con)]

The Bill is welcome as it was a 2019 Conservative manifesto commitment to carry out a fundamental review of business rates, the final report for which was published alongside the 2021 autumn Budget.

I support the Bill generally, but I have two concerns. First, the Bill should be seen not as the endgame but as the start of the process to radically reform business rates. The ultimate objective should be to reduce the uniform business rate multiplier to something in the order of 30p in the pound; to carry out annual revaluations; to abolish the multitude of complicated reliefs; and to digitalise the Valuation Office Agency. If we do so, business rates will be reduced to an affordable level, the system will be put on a long-term and more easily understood footing and we shall be able to get on with so-called levelling up—removing barriers that impede regional growth. That will enable businesses to know where they stand and to make long-term investment decisions. The message I continually get from the Suffolk Chamber of Commerce, which carries out quarterly economic surveys, is that the No. 1 concern for businesses in Suffolk is always business rates.

My second worry is that the Bill will increase rather than ease the bureaucratic and administrative burden on businesses. I urge the Government to introduce amendments to prevent that. I shall set out my concerns in more detail later.

Before I came to this place, I was a chartered surveyor; I did not specialise in business rates, but I carried out appeals from time to time. Business rates are a tax with certain inherent advantages for the Treasury: they yield approximately £25 billion per annum, they are relatively easy to collect and they are difficult to avoid. However, if the system is not administered properly, they can have a significant negative impact on businesses generally, on specific sectors—we have heard about the challenges facing hospitality and retail—and on local economies.

Business rates are in effect a tax on existence rather than on profitability, so it is important that they be kept as low as possible. High business rates not only discourage occupation, but disincentivise investment in innovation, improvement and expansion—and if you will forgive a quick commercial interlude while I am on that subject, Madam Deputy Speaker, I must congratulate PCE Automation of Beccles, which has just received the King’s award for enterprise in recognition of excellence in innovation.

At a time of high inflation, high utility costs and stubbornly high rents, business rates are a fixed cost that occupiers cannot escape. The Chancellor made some significant and welcome announcements in his autumn statement, including the revaluation that is now coming into effect, the reform of the transitional relief scheme and the freezing of the uniform business rates multiplier. The Bill provides the necessary legislative framework for some of those changes and for others that arise from the Government’s review, as well as making some minor legislative adjustments and correcting some anomalies. I shall not go through the Bill’s provisions in detail at this stage, but I repeat that I applaud the Chancellor for the undertakings that he made in November, which are much needed in these challenging times. As I say, however, the Bill must be seen as the start, not the conclusion, of the process of radical reform.

It is also necessary to guard against some unintended consequences. As drafted, the Bill will add to the regulatory burden on businesses at a time when we should be seeking to ease and reduce it. The new duty to notify set out in clause 13, which the VOA has justified as necessary to facilitate the move to a review every three years, will result in a mountain of paperwork for ratepayers. Businesses will now have to notify the VOA of any changes to their properties within 60 days, or find themselves facing punitive fines or even imprisonment. It is not right for us to expect businesses which are already facing an extraordinarily challenging regulatory environment to put up with that.

This obligation was formerly the VOA’s, but has now been transferred to the ratepayer. The VOA has no corresponding obligation, and is able to respond to requests for information at its leisure. Ideally, the duty to notify should be removed from the Bill in its entirety, but if the Government wish to impose this new duty, they must do so with the principle of reciprocation in mind. The VOA must have a corresponding duty to respond within 60 days, giving the ratepayers rebates on their business rates bills equivalent to the penalties imposed on them if there is a failure to respond within that time.

My second concern relates to clause 14, which proposes changes in the circumstances in which rateable values may be altered outside the regular cycle of revaluations. I am concerned about the consequences of this clause, and I believe that it should be removed. Let me explain the background. A “material change in circumstances” allows ratepayers recourse to pursue relief on their business rates bills when factors outside their control have an impact on their ability to do business and to operate. To my mind, that is logical natural justice, but the VOA seems to dislike the paperwork associated with these claims, as is evidenced by its mass rejection of 400,000 covid-related appeals. It appears that to prevent the repetition of such circumstances, it is now proposed to exempt any Government legislation as qualifying grounds for a challenge. In practice, this means that the Government would be able to act with impunity and enact policies that could hamper businesses without allowing them the legal recourse to challenge them. That is fundamentally unjust.

As I have mentioned, the move to three-yearly revaluations should not be the endgame, but should be a stepping stone towards annual revaluations. The advantage of that approach is that there would no longer be a need for the current complex system of reliefs; businesses would in effect be paying a tax that moved with the market, and that would lead to greater long-term certainty which would then encourage private sector investment. At first glance, annual revaluations might seem too complicated and challenging, but, as we have heard, such a system operates in the Netherlands, and there is no reason why we should not have it here.

It is regrettable that, for many businesses, discussions and negotiations with the VOA are conducted in accordance with the philosophy of “one rule for us and another for them”. The proposed duty to notify embeds this sentiment still further. It must be removed, and the system must become more transparent. The VOA’s processes are notoriously opaque, and leave many ratepayers scratching their heads when they receive their revaluation figures. As it stands, a business’s only recourse when it comes to understanding its rateable value is to go through the VOA’s complex “check, challenge and appeal” process, which many feel is deliberately designed to discourage people from—dare I say it—peering behind the curtain.

The Bill, as currently drafted, does provide the VOA with the power to give more information to ratepayers, but only at its discretion, if it considers it “reasonable to do so”. This provision is set out in clause 10, but it is vague and undefined, and some might say that it provides the VOA with the ability to reveal information to no one while appearing to be forthcoming. If clause 13 requires businesses to provide reams of information to the VOA, it is only right that it should reciprocate. Ratepayers must be given the option to understand the process that defines the tax that they will be paying for the next three years, and to reasonably expect an answer within 60 days of submitting their request, thereby mirroring the duty to notify.

My final concern relates to another unintended consequence of the duty to notify, as currently drafted in the Bill, which is the wave of predatory, unqualified and unscrupulous rating advisers that I fear it may spawn. The ramifications of financial advice, whether good or bad, can be huge for individuals and businesses. Most financial advisers in most settings require a licence to give advice from a sanctioning body. One therefore has to ask why this does not also apply to rating advisers.

[Helen Morgan]

The hon. Gentleman is making an excellent speech. On his point about advice, financial controllers are inundated daily by people cold calling them and offering to challenge their rates bills. They have no idea who they are, yet they take a cut of any saving that might be made. This indicates two things to me: first, that the system is not fit for purpose; and secondly, that the rating values are inadequate in the first place. Does he agree with me on those points?

[Peter Aldous]

I agree with the hon. Lady. This is a specialist area of valuation. When I was practising as a chartered surveyor, I quite often got called in because the client, the business owner, had gone down the line of paying money upfront to someone who had sent them a circular—they may have paid them £1,000 or £2,000—and that person had suddenly disappeared. I often got called in to try to sort out that type of situation.

At the current time, with the publication of the new rating list, thousands of businesses are being flooded by solicitations from charlatan rating advisers who are taking advantage of the confusion created by the complicated rating system. There is a significant risk that many businesses, particularly SMEs, will have neither the understanding nor the capacity to meet the duty to notify. They will increasingly fall prey to such bad advice, and this could have a devastating impact. The Government should therefore consider some sort of licensing to protect businesses from the scourge of cowboys looking to take advantage of the duty to notify.

Madam Deputy Speaker, you will be pleased to hear that I have now reached my conclusion. Taking into account that we have been awaiting legislation on the reform of business rates for the whole of the 13 years that I have been an MP, this legislation is indeed welcome. For too long we have been carrying out reviews and searching for holy grail solutions that involve the abolition of business rates, but my personal view is that those do not exist. As I have said, the Chancellor should be commended for the positive announcements he made in his autumn statement, some of which are included in this Bill. The Bill should be viewed as a step in the right direction. However, as currently drafted, it contains a number of false steps that are likely to have unintended consequences. It is also vital to recognise that this is not the end of the reform of business rates, but it is the end of the beginning. I am happy to support the Bill this afternoon, but it has defects that need to be addressed as it progresses through this and the other place, and I hope that the Government will take on board the concerns that I and my colleagues across the Chamber have highlighted.