Non-Domestic Rating (Lists) Bill (First sitting)

Jim McMahon Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 25th June 2019 Public Bill Committees

[The Chair]

Okay. I call Jim McMahon.

[Jim McMahon (Oldham West and Royton) (Lab/Co-op)]

Q Thank you. Welcome, Dominic. It is good to see you. What impact do your members consider that the current business rates system is having on our high streets and town centres?

Dominic Curran: An extremely adverse impact. The business rates level has risen 50% since its inception in 1990. It has risen by 10p in the pound, from 40p to just over 50p, in the last decade alone, at a time when there is, as you well know, an enormous retail transformation happening on the high street. That prohibitive level of business rates is hindering our members’ ability to invest in their stores and in the retail experience for the future that we hear so much about and that our members want to be a part of.

[Jim McMahon]

Q Quite often when we hear about the decline of the high street and the pressures in town centres, it is framed as a challenge between the on-street and the online, when actually most of your members will trade in both ways. Do your members have a view on how best to balance the shift to a growing online presence with the cost of occupying high street locations?

Dominic Curran: Yes. We have put in a submission to the Treasury Committee, which, as you will know, is holding an inquiry on the impact of business rates at the moment. Fundamentally, we think the system is broken. It needs reform. Our overarching call is for a wide-ranging, fundamental reform of the entire suite of business taxation. The problem is that, in the past, there have been reviews just of the business rate system in isolation. Given its links to local government finance, and the wider impact of how different taxes affect the ways in which businesses operate—online and offline—we need a much more wide-ranging review.

That said, we recognise that that is quite a big, long-term ask, so we have called for some immediate reforms—most importantly and immediately, a freeze in the multiplier, and then a way of using the forecast increased revenue from corporation tax to offset business rates revenue, so that we can begin to, essentially, treat all business taxes with one coherent tax system, and use one element to help another element. An online tax, which is often prayed in aid, is not the best idea. If it is an online tax on goods, it would effectively be levied 100% on the retail sector. Retail pays 25% of business rates, so if you were to use the online tax to recycle the revenue from that to help retailers, they would essentially be paying 100% of the tax and getting 25% of the benefit.

[The Chair]

May I just interrupt for a moment? Questions and answers need to be within the scope of the Bill, which is specifically about the timing of bills and business rates, and we should try to constrain ourselves to that very narrow basis and avoid talking about wider issues. Was there a supplementary within scope, Mr McMahon?

[Jim McMahon]

Q The revaluation period is being brought forward, which is a subject of the Bill. Revaluations obviously have a direct cash impact on the members that each of you represent. With the revaluation that will now take place in 2021, and the subsequent revaluations every three years, should there be scope to review the treatment of direct-to-consumer warehousing—for instance, the Amazon warehouse delivering direct to the end consumer—and the amount of business rates that they pay per square metre compared with the high street department store?

Dominic Curran: I think—

[The Chair]

Again, I do not mean to be difficult, but I am advised that consumer warehousing is not strictly within the scope of the Bill, which is on the timing. Do you want to make a comment within the scope of the Bill?

Dominic Curran: I would only say that I think that all business properties should be valued every three years, as the Bill suggests.

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[Rishi Sunak]

Thank you.

[Jim McMahon]

Q To follow up on that point, when the revaluation is brought forward, that will not dispense with the appeals already in the system—they are still there and need to be administered—and it will just create the opportunity for further appeals. Have your members expressed any concern about the capacity in the valuation office? Do you have any concerns about what it might mean if no additional capacity is brought in and there is a more recent revaluation in 2021?

Martin McTague: I can certainly answer that. There is widespread concern about the lack of capacity in the VOA. It is bizarre that the solution seems to be that you impose a six-month cap on appeals. That is effectively saying, “It’s so difficult to get these appeals through the process that we are going to cap the time required to do it.” Yet the information is not available to the business rate payer to be able to challenge things easily. The point that you made at the beginning—that the VOA is fundamentally under-resourced to deal with this change—needs to be addressed quickly.

Edward Woodall: I agree with Martin. The feedback I get from my members is that there is a lack of capacity at the VOA to allow them to engage meaningfully in the process and talk to individuals. There is also a challenge, which we will probably come to, about the structure of the process it has developed—check, challenge, appeal—and people’s ability to interact with that, which is causing difficulties.

Dominic Curran: Absolutely. Our members are enormously frustrated with the VOA on a day-to-day basis. The appeal system is clogged up at best. It needs better resourcing. There certainly should not be a cap on appeals, in terms of the time length. But more frequent revaluations would, to an extent, reduce the need for appeals, because valuations would be less out of date, although they would probably still be somewhat out of date.

[Rishi Sunak]

Q A final quick question, Mr Curran. One of the things that the VOA has to do at the moment is to deal with appeals. You just made the point that more frequent revaluations ought to reduce the volume of appeals. Will you elaborate on that point, because, obviously, less appeal work would be an offset to the increased work of more frequent revaluations?

Dominic Curran: The argument is strongest if we were to move to a system of annual revaluations. With an annual revaluation, it almost would not be worth appealing a valuation that you thought was wrong, because it would change in a year’s time anyway. The other effect would be that the valuation probably would not be so wrong, because your annual changes would be on a much smoother line—looking at it on a graph—whereas if we revalue every seven years, as we have, you get quite a steep change. Obviously, somewhere between seven years and one year, the line gets smoother and smoother. It is a question of judgment which number we pick. Using that logic, three years should have fewer appeals than five or seven, but one year should have fewer than three. We will see how good the VOA is at dealing with three-yearly revaluations.

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[The Chair]

Thank you. Who will be the first Member to ask a question? I call Jim McMahon.

[Jim McMahon]

Q Thank you, Chair. I thank the panel members for taking the time to come and give evidence. This is a question for each of you in your different guises. We heard in the previous evidence session that there is concern about the Valuation Office Agency’s capacity to deal with the revaluations and the appeals that may follow. Have you got any views on that?

Annie Gascoyne: I am happy to go first. It is an issue that the VOA has struggled with the number of appeals in the past. There would be a challenge with VOA capacity if we moved to annual revaluations, which is what businesses would like to see in the longer term, because it would mean that the revaluations were more in sync with the economic cycle and what businesses are able to pay. However, we think that the three-year revaluations are a good stopgap, and are something that the VOA should have the capacity to deal with. That said, there have been issues with the check, challenge, appeal system and the VOA’s IT systems, which were implemented too quickly without due thought to some of the more complex business relationships when it comes to property.

The VOA has some work to do to look at modernising its IT infrastructure, perhaps taking lessons learned from how making tax digital for VAT was implemented. We should see whether there are ways that the VOA can streamline the process so that, in the longer term, instead of three-yearly revaluations, which is what we are talking about today, we can move towards annual valuations, and potentially in the future self-assessment, which would simplify the process for everyone in the long term.

Councillor Watts: Thanks for the question, Jim. We have significant worries about the VOA’s capacity. Clearly, if we are going to give it more work, which this Bill does, it will need to be properly resourced. It is worth adding, even at this early stage, that this is not just about the VOA’s capacity to do extra work in the future. There is a very significant backlog of work stored up at the VOA and the appeals tribunal. It is a sad fact that there is more than £2.5 billion tied up in council reserves that could be spent on public services. That is currently being kept back to guard against the risk of appeals from the 2010 revaluation. Clearly, if that money is to be freed up to be used on public services, as we all want, we need to crack through the backlog of appeals rapidly, and we must recognise that more regular revaluations will lead to more work in the future. We think that more resource is needed at the VOA so it can get through what is already a pretty big mountain of work, and there will be more work if the Bill passes.

Adrian Blaylock: I agree with my colleague from the LGA. He is right that the VOA is struggling with its capacity, in terms of the backlog of appeals from the 2010 list. I do not think we have yet seen the impact of the 2017 list and the switch to the check, challenge, appeal system. Moving to three-yearly revaluations will certainly have an impact on the VOA’s resources, which has an impact on local government because of the provisions it has to set aside for loss on appeals. It is really important that the VOA is resourced sufficiently under the new CCA system to deal with the revaluations and the appeals, or whatever we want to call them, coming out of the more frequent revaluation.

[Jim McMahon]

Q My next question is probably more for Richard and Adrian, in terms of your member authorities and your members. It is about the impact of rate retention. Are you confident that the floors and ceilings are sufficient to mitigate a potential shift in values away from many of your member areas? We know that the 2017 revaluation led to significant shifts away from many regions, towards London and the south-east in particular. In fact, only London saw an increase across all value types; many other areas saw declines. Do you have concerns about what that might mean for members who are part of rate retention pilots?

Adrian Blaylock: It depends where we go in terms of rates retention. The consultation that happened in December and the switch to the alternative model for rates retention give local authorities certainty, in terms of a guaranteed baseline funding level, regardless of what a revaluation does. If we go down that route, I do not think it will be an issue, but you are right that, if you look at the impact of any revaluation, there are winners and losers in the different regions across the country. It is important that there is a rebalance of funding across local government so that no single authority is overly adversely affected. The safety net built into the current rates retention system seems to be working adequately for 50% retention. It probably needs to be reviewed as part of the move to 75%, and ultimately—hopefully—100%. I guess that will have to be part of the consultations about how we move to that sort of system.

Councillor Watts: I agree with that. There is a wider point, which I will stray into only briefly because it is not precisely the topic of the Bill. The risk we face on business rates is that we represent a council area that has seen a very rapid rise in valuations, which has put enormous pressure on many of our small and medium-sized businesses, and we are seeing holes in our high street for the first time in a while as a result of rapid increases in rates and rents. There is a disparity between the amount being paid locally and the amount being received locally, which at some point stops adding up for people. There is a challenge relating to the wider business rates system. Some areas are seeing very rapid rises in the value of property. Most businesses do not own the property they operate from, and therefore do not feel the benefit of the rise in its capital value; they just get a high rent bill as well as a high rates bill.

[Jim McMahon]

I recognise from the outset that this is slightly expanding the scope, but I will try to be disciplined about it. Do your members have a view about the treatment of plant and machinery in the revaluation?

[The Chair]

I think we cannot go there, given the timeframe. You were right to give a warning. Do you have another question that is in scope? Stephen Morgan, you have one.

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[Graham P. Jones (Hyndburn) (Lab)]

Q Do you foresee any problems with the roll-out of the business rate retention scheme and this Bill? Do you think any anomalies or complexities will emerge from those two?

Adrian Blaylock: Nothing obvious occurs. There are a lot of unknowns about rates retention—we are talking about whether we carry on with a similar model to what we use now, just with the 75%, or whether we go for the alternative model, which was favoured in the December consultation—and what local government needs is certainty of funding, and understanding of when and how the money will come. So I do not think that the Bill particularly causes any issues, but it would be nice to get some early indication of where we are going with rates retention and how that will change.

Councillor Watts: I do not think there are any in-principle reasons why the Bill creates problems for business rates retention.

Annie Gascoyne: I agree.

[Jim McMahon]

Q Is there a call from your members for a more fundamental review of business taxation, rather than the silo approach of the review of business rates?

Annie Gascoyne: You mean beyond business rates? We would see a fundamental reform of business rates as being high on our priority list—

[The Chair]

May I just intervene? Sorry to interrupt. To be in scope, a question has to be about timing, so do you want to rephrase that question to be about the timing of change? Otherwise it is not in scope.

[Jim McMahon]

The question has been answered. I need no further response.

--- Later in debate ---

[Rishi Sunak]

No.

[Jim McMahon]

Q May I ask one question of Richard? Is the LGA making a specific request that the change of date from September to December be reviewed as part of this process?

Councillor Watts: We are, yes. In effect, our request is that we would welcome further conversations with the Government about getting a date. We understand the arguments for shifting it, because it is quite a long time and 30 September is quite early in the process. However, for one year out of three when that impacts on the potential local government announcement, we would like to understand more about how the Government would like to co-ordinate between this announcement in December and the local government spending announcement having to be earlier than it, because that is a change in precedent. We cannot push the local government spending announcement each year beyond 31 December—it is already too late where it is, given that local budget setting for any authority of size is effectively always concluded before the spending settlement on the basis of guesswork, then tweaked when the settlement is announced in the House.

[The Chair]

As there are no further questions, I thank all members of the panel for their evidence. I invite the Government Whip to move the adjournment.

Ordered, That further consideration be now adjourned. —(Jeremy Quin.)