Non-Domestic Rating Bill

Lord Etherton Excerpts

2nd reading
Monday 19th June 2023 Lords Chamber

[Lord Etherton (CB)]

My Lords, I declare my interest as the owner of investment retail property in the high street. I am extremely grateful to the Minister for her clear and illuminating introduction to the Bill, and to the noble Lord, Lord Shipley, and the noble Earl, Lord Lytton, who have covered a wide range of the issues. Many of us, including myself, have spoken about this issue of business rates in the context of the Levelling-up and Regeneration Bill, so I will keep my comments very brief.

As the Minister has outlined, there are good provisions in this Bill. A reduction of time between revaluations from five years to three is a good move. Indexing non-domestic rating multipliers to the consumer prices index rather than RPI is obviously welcome. Introducing rates reliefs for improvements to property and heat networks is also desirable, and allowing the Treasury to give businesses the immediate benefit of rates reductions while maintaining transitional relief for rates increases is good. Undoubtedly, a great number of positive things have come from the Bill.

However, as noble Lords have pointed out, there are significant flaws and omissions, and I want to deal with them briefly. First, I take up the question of the obligation to notify the VOA of any changes affecting a property’s retail value. This is separate from the annual return, and its effect is to extend a reporting obligation to businesses that currently pay no business rates due to reliefs. They will have to send information to the VOA—a purely bureaucratic exercise that will not result in any increase in the business rates receipts. It is, for them, just a bureaucratic headache, and they will have to do this within 60 days of the change or face a penalty. I question whether this is an appropriate obligation for the people I have mentioned, who pay no business rates and would not pay any, despite the change I have indicated. It has been suggested that an additional 700,000 businesses may have to send such information, pursuant to that duty to notify.

So far as the material change of circumstances is concerned, I agree with both noble Lords who have spoken before me. I can see no good reason why legislation or other public body advice that may impact on rateable value should not be taken into account as a material change of circumstance. The Minister referred to vaping, but many other circumstances could indeed have an impact on rateable values through legislation. We cannot predict this, but simply banning outright any possibility of that sort of change through legislation having an impact on rateable values seems to me to be quite wrong. One suggestion from one of the people who briefed us was that changes in the laws relating to energy protection certificates might have an impact.

The next matter is annual revaluations. I would certainly support the suggestion of the noble Lord, Lord Shipley, that, if we cannot have annual revaluations, we should at least go for two-yearly revaluations in the interim. Getting as near as you can to the actual date in respect of valuation and payment is obviously of great value to everybody, and particularly to businesses operating through retail trade.

I also support both noble Lords’ view that consideration should be given to changing the antecedent valuation date, which is normally two years before the list is applied. Property values are already two years out of date before the first rates bill is set according to the valuation appeal. That antecedent valuation date should be set at one year, as in Scotland, as has been referred to, to bring valuations as close to current market conditions as possible.

I think the noble Earl, Lord Lytton, mentioned that limiting the new improvement relief to 12 months does not seem to make much sense. It will certainly do little to encourage long-term investment. There should be a permanent abolition of downwards transitional phasing but we do not currently find that in the Bill.

At the end of the day, the point I want to emphasise is that the problem here is, quite simply, that business rates are too high. The background for this discussion is that the Centre for Retail Research has found that more than 17,000 shops closed in 2022 and more than 5% of retail staff—150,000—lost their jobs last year through insolvencies and store closures, and there is no doubt that a major contributing factor to that is the business rates system in England. The current rates have been referred to; the standard multiplier for 2023-24 is 51.2p in the pound. We can contrast that with the uniform business rate multiplier of 34p at its introduction in 1990. Again, I agree with the noble Lord, Lord Shipley, that the 49.9p in the pound business multiplier for small businesses is too high.

In both the Conservative Party’s 2019 election manifesto and the December 2019 Queen’s Speech, there was a commitment to

“protecting your high street and community from excessive tax hikes and keeping town centres vibrant”

and to make sure that the business rates revaluations and valuations achieved that. The Levelling-up and Regeneration Bill focuses on failing high streets and town centres, and there is no doubt that to a large extent that is due to one of the only overheads that retailers cannot negotiate away or down—the rates.

The failure to reduce the uniform business rates significantly is all the more surprising bearing in mind the Office for Budget Responsibility’s forecasting that income from business rates will rise to nearly £36 billion by 2027-28 from its current level of £28.5 billion. We must do something much more dramatic about this than we currently find in the Bill.

Non-Domestic Rating Bill

Lord Etherton Excerpts

Report stage
Tuesday 19th September 2023 Lords Chamber

As the noble Lord, Lord Shipley, stated, the system of non-domestic rates is effectively broken. The heart of my Amendment 19—the Amazon amendment—is simply to introduce fairness for high street retailers and the small businesses in the high street. I hope that the Government will respond with their intentions, specifically to address what I describe as the Amazon factor.

[Lord Etherton (CB)]

I strongly support Amendment 19 from the noble Lord, Lord Thurlow. I too read the article in the Times yesterday to which he referred. The fact of the matter is that, while rents have decreased substantially due to inflation and other measures, rateable values are very high and the rates payable are now no indication at all of the actual rental value of the properties. That is one of the reasons why, in an unstable market, it is very important to have the valuations done as often as possible, to reflect the actual rental value of properties.

The second point on which I very strongly support the noble Lord, Lord Thurlow, relates to what he has called the Amazon amendment. This is the one critical factor that would bring rates into the modern world. Unless we address this critical issue, we are ignoring the reality of modern-day retail life. It is critical that the Government address this Amazon amendment as soon as they possibly can. If one reads the professional press—such magazines as the Estates Gazette—this is always raised by every retailer as one of the greatest iniquities, and possibly the greatest iniquity, of the current rates system.

[The Earl of Lytton (CB)]

My Lords, I congratulate the noble Lord, Lord Thurlow, particularly on Amendment 19. It is a pleasure to follow the noble and learned Lord, Lord Etherton, on this because it strikes at the heart of what I have always felt about the rating philosophy. The noble Lord, Lord Shipley, inferred a few minutes ago that rating is demanding too much of the tax base to which it is applied. I have made the same point myself over many years. I remember one eminent rating surveyor telling me, “You know, once the rate in the pound starts to get near to 50%, things start changing. People’s attitudes start changing”.

I am afraid that HMRC, which has global responsibility for this, has been extremely slow to catch up with what is happening and to realise the paradigm shifts created by the increasing burden of business rates. Leaving aside things such as small business relief and so on, I did a calculation—a few years ago, so the analogy is even more potent now—showing that business rate payers in small premises of between 1,000 square feet and 3,000 square feet were paying materially more by reference to property value and square footage occupied, by some considerable factor, than their residential counterparts. I use that because when I first started working in this area, in what was then known as the Valuation Office, all those years ago, there was a common rating system, and residential and commercial had a common base. That is why I got little old ladies in cottages in Lewes High Street in Sussex complaining that the pub next door, which sold all this liquor, had a rating assessment that was half theirs.

What has happened is that, because of the burdens, markets have shifted. The noble Lord, Lord Thurlow, referred to traders who operate from industrial estates— I think that was one of his examples. I used to joke about this, because the archetypal online operation was a stockroom that was a van on the motorway somewhere, a showroom that was a glossy website, a till that was an online payment portal and a communications system that was a pocket mobile and an email address—this was how the thing operated. People have got very slick, because now you have a big industrial shed at the front of which is a retail and trade counter, which occupies quite a small part of the footprint, and the rest is a big storage shed. We all know the names they have. They sell plumbing, electrical equipment, household goods, all of which you can order online. This is one of the difficulties, because seeing the opportunities of online, many of these operators have seen that the two operate very beneficially with the physical hereditament they occupy as well: the two have a synergy that works effectively. This is absolutely a moment when the Government need to take stock.

The amendment of the noble Lord, Lord Thurlow, refers to high streets. I will return to this in a few minutes when I get to amendments of mine. Unless we get this right, the attrition of high streets will continue, and they will change into something that is not a general purpose destination for people wanting to shop for everyday goods. They will become a sort of entertainment centre with restaurants and bars and the night-time economy. That may be a good idea, but there is an area of conflict here. If we want to bring residential property back into town centres, then residential occupiers do not relish the thought of people turning out at eleven o’clock at night, having had a jolly good time at the bar. That is one of the issues. Another issue is that a lot of these places need to be serviced; they need to have their bins emptied. If there is a local authority or contractor refuse lorry turning up at 6 o’clock in the morning, people will get fed up with that.

We have to start getting this right, as to what the complementary uses are and how to deal with them. More particularly, how do we reverse this process of the alienation of people—who are otherwise willing and able traders—from our traditional high streets? This matters because that is how they are designed and built. That is the social construct that led to the buildings being built and appearing the way they are. I shudder at trying to transform them into totally different uses. When I see things like permitted development for change of uses in town centres, I worry about what will happen and whether that is an irreversible change that will produce more of the conflicts that I have referred to.

Although I slightly shudder every time somebody mentions a review of business rates, because we seem to have an awful lot of them, I think that this is a body of work that needs some serious thought from academics, practitioners and particularly from people like valuers and retailers, because that is where this analysis comes in. The valuers are not making the roles; they are simply interpreting how people go about their business and do their trade. The derivative is a value, and whether it is a rateable value, a capital value or for investment purposes, we need not alienate these purposes. I congratulate the noble Lord, Lord Thurlow, because he has raised an absolutely fundamental point in relation to non-domestic rates.

--- Later in debate ---

[Lord Thurlow (CB)]

My Lords, I rise to support Amendment 8, moved by the noble Earl, Lord Lytton, and particularly the reciprocal duty of disclosure by the VOA apart from for data protection reasons, to which the noble Earl referred—although I object to the latter myself. However, I think it is repugnant that, in this country, where we so treasure transparency in the law and all its constituent parts, the government department responsible for non-domestic rates does not have to reveal its evidence to an applicant, which may be a small business struggling to survive, unless the rates are challenged formally. To challenge a rating assessment formally inevitably requires that small business, possibly teetering on the edge of survival, to instruct a rating specialist to advise it at a fee. Only when there has been a challenge is the valuation office required to reveal its evidence. Why on earth do we tolerate this opaque behaviour on the part of a government agency? It is fundamentally wrong, and I congratulate the noble Earl, Lord Lytton, on raising this very important issue. If it did not involve cost in this way and impact those vulnerable smaller businesses particularly—we are talking not just about shops but about businesses, offices and small industrial properties—it would be less sensitive. But I think this is very important, and I hope the Minister will be kind enough to give us a full response.

[Lord Etherton (CB)]

My Lords, I also support Amendment 8 in the name of the noble Earl, Lord Lytton. Ideally, it is worth avoiding appeals. Appeals can be avoided only if there is confidence that you have the material available. That presupposes a sharing of information that is open and transparent. One of the criticisms that is often made is of the time taken in appeals, the obscurity of the role adopted by the valuation office and its failure to disclose information. It seems to me that it is in everybody’s interests, economically and in terms of management time and stress, to avoid appeals by an early disclosure of information where requested.

[Baroness Hayman of Ullock (Lab)]

I thank the noble Earl, Lord Lytton, and others for speaking to these quite technical amendments. As the Minister said previously, I would not say that I am an expert on these issues, but it is very important that they have been raised. It is particularly important with valuations and penalties that we properly understand the implications of the Bill.

I have one question for the Minister on government Amendment 12, which limits the daily penalties that are applicable. I wonder where the figure came from and whether the Minister thinks it will be a sufficient deterrent.