Non-Domestic Rating (Multipliers and Private Schools) Bill

Lord Fox Excerpts

2nd reading
Wednesday 29th January 2025 Lords Chamber

[Lord Fox (LD)]

My Lords, I join the noble Baroness, Lady Scott, in sending our condolences to the noble Lord, Lord Khan, and his family. It must be hard for him at the moment, but he can be sure of the warmth from your Lordships’ House.

In speaking to the Bill, I will not comment on Clause 5 because I am sure that quite a few others will speak at some length on it, and we will certainly have a chance to revisit it in some detail at later stages. Instead, I will dwell on business issues, which corresponds with my Front-Bench duties. I declare that I have a family member who owns an independent shop.

There is an aphorism that perfection is the enemy of the good. The Bill is not perfect, and its lack of transparency makes it hard to see what may be good about it. I hope that, during the course of this debate and the later stages of the Bill, the Government see fit to shine more light on it and offer more transparency so that we can get a better feel for all the moving pieces.

However, the Bill is evidently not a comprehensive reform of the business rates system, despite Labour’s manifesto commitment to do so. We know that the business rates system is deeply flawed. Of course I would say that a commercial landowner levy, as proposed by the Liberal Democrats at the last election, would go a long way towards addressing many of the entrenched problems in the current system.

I turn to concerns directly about the Bill. First, it fails to address the core issue of the imbalance between businesses that trade from out-of-town premises to those that trade from bricks and mortar shops within a town centre. The noble Baroness, Lady Scott, analysed this problem, but, of course, this Government inherited it from the noble Baroness and her colleagues, so although they are able to analyse it now, they failed to do anything to address these issues when they were in their control.

At the heart of this issue is the imbalance between in-town and out-of-town valuations. Historically, as the noble Baroness, Lady Scott, pointed out, valuations on high streets massively outstrip those on warehouses. This mismatch in valuations looms large when considering business rates. We look forward to future reviews of that when and if they come; it would be helpful if the Government could give us a timetable for what will happen in addition to this Bill.

Furthermore, the Bill does not ensure that businesses that invest in their properties will not face an increase in their rate bills. Will the Minister exclude any new investment made now from future business rate valuations from April, so that businesses are able to invest in their future and will not see that investment push up their rate bills even higher? That is an inverse relationship and makes no sense.

The Bill is intended to help retail, hospitality and leisure businesses—the so-called RHL—and has been heralded by the Government as a cut in business rates for them. However, there is no guarantee of that. As I have said, there are a lot of moving pieces and, when all things are considered, businesses could still face increases in the tax burden of their businesses.

The Bill spells out the end of small business rates relief, but we do not know what the intended tax rates will be. As a result, a number of smaller and independent high street businesses will likely be hit hard by this process because, although we do not know what will happen, we can only assume that the Government will not slash rates in the future. Research by the House of Commons Library that was commissioned by my honourable friend Daisy Cooper MP, the member for St Albans, shows that from April 2026 these reforms to business rates could leave small and independent businesses in effect much worse off than the big chains—to some extent, a different version of a problem set out by the noble Baroness, Lady Scott. We cannot both be right, but either way that creates a problem.

I shall explain. At the moment, the 75% relief is capped at £110,000, but when the relief goes to zero then that cap will no longer exist. I understand why the cap was there; it was implemented because business rate relief is classified as state aid. The cap therefore ensures that businesses do not benefit from a subsidy above the limit specified in the Subsidy Control Act 2022—one of the Bills that I had the great pleasure of working on. The new multipliers will comprise lower tax rates for specified sectors rather than reliefs and therefore will not engage the subsidy control regime. That is why the cap of £110,000 will be scrapped from 2026-27. I am sorry for explaining things, but it helps me to understand them even if it does not help anyone else.

The Library research shows that the net effect of abandoning the cap could be that small businesses end up 80% worse off, while big multiple outlet chains could be 40% better off because they can aggregate their gains and off-set their costs across their chain. I appreciate that the Government plan to review business rates in the 2026 financial year—at least, that is what they have said—which I hope will analyse the impact on business rates, but it is also important to understand that differential assessment now, while we are assessing the Bill.

Has the Minister’s department gamed out the whole rates system and its effect on large chains versus single individual outlets? Will there be an impact assessment that sets out the impact on small businesses on high streets? Will she publish all this analysis, and ensure that the Government at least do not rule out introducing new small business relief in a targeted way to support such small independent businesses? That is one reason why the absence of an impact assessment of the Bill’s effect on the high street seems, frankly, inexplicable. How can a Government propose a change such as this without looking at the impact, and how can we consider the Bill without knowing what its effects will be?

RHL businesses are a very important part of most high streets—I would say a key part—but they are only one element of a well-functioning, prosperous high street, and the Bill does not offer immediate support to businesses outside the RHL sector. What about banking hubs and Post Offices? What about small businesses, such as accountants and those in the creative industries? What about the light engineering and manufacturing sector? In the Commons, the response has been that this Bill is targeted at the RHL sector, but look at the short title and the long title and you will see that it is not. It can definitely include these other elements, and so will the amendments that we will bring in Committee.

Furthermore, the implication we have heard from ministerial quarters is that these non-RHL businesses have a choice where they locate. This is a pernicious assumption. In other discussions, where we have talked about the need to enhance our high streets and market towns, much has been said about creating a mixed environment and a mixed economy. That means a mix of not just retail, hospitality and leisure outlets but banks, Post Offices, small businesses, offices and light engineering, all playing a role in bringing people to an area and creating a lively local economy. The Bill works diametrically counter to this, and will make it less likely that such beneficial mixed use happens. Moreover, we are increasingly seeing large tracts of towns being owned by one landlord. In this way, competition for rents is eliminated, making it even harder for small concerns to negotiate a reasonable rent.

Finally, the Bill fails to address the issue of business rates non-payment, which runs at a higher level even than council tax avoidance. In the days where councils are even more cash-strapped, they need help in collecting what is due.

In summary, this Bill is very unlikely to materially help market towns across our country. The change from a system of capped temporary relief to an uncapped lower multiplier will inadvertently end up with small businesses subsidising, and doing worse than, big corporations. We on these Benches believe that the Government should complete the consultation before unfreezing the rates relief, which could badly affect small businesses in our high streets. The Government say that they want growth, and so do we—we all do—but these business rates changes will stifle the growth of small businesses and our high streets at a time when we should be unleashing them. We urge Ministers to think again.

--- Later in debate ---

[Baroness Taylor of Stevenage (Lab)]

Knowing the Chancellor as I do, I am sure she was extremely well prepared for taking on the commitment and had some idea of what was going on well before she came into office. I am sure that that was her being well prepared.

The noble Baroness, Lady Scott, and the noble Lords, Lord Waldegrave and Lord Maude, raised the impact on charitable activity if schools stopped or reduced their activity. They will continue to operate as charities and there will be no other tax changes specific to their charitable status.

I see I am running out of time, so I will close. I have a number of other points, including on several points of detail made by the noble Earl, Lord Lytton.

[Lord Fox (LD)]

I will read the noble Baroness’s statement in Hansard with great interest but does she recognise that, far from clarifying the issue, which has a number of moving parts, she has thrown some more moving parts into the bag? For us to have a sensible and reasoned approach to Committee, we really need some more clarity. I hope she will take that back with her from this debate. We are willing and ready to engage but it is very difficult, with the degree of murk we are currently encountering.

[Baroness Taylor of Stevenage (Lab)]

I hear the noble Lord’s remarks, and of course I will take that back. I and, I am sure, my noble friend Lord Khan will be happy to undertake any further engagement that noble Lords wish to have before we go into Committee.

The two key points seem to be that this was not a general review of business rates, which we know it is not—a further, wider review of business rates is going on—and the clarification of the VOA valuations, which will set out what categories properties over and under £500,000 will come into. Of course, we will do our best to clarify any further questions that noble Lords have as soon as we can.

I thank all noble Lords who contributed to the debate. This is our first step on the road to transform the business rates system. We want to provide certainty and support to our high streets by enabling the delivery of a permanent tax cut that is sustainable and levels the playing field between the high street and the online giants. It will also help break down barriers to opportunity and support all parents to achieve their aspirations for their children. All parents have aspirations for their children, and it is right that we do our best to support them in delivering and achieving them by raising additional revenue to support the more than 90% of children who attend a state school.