Non-Domestic Rating Bill

Lord Shipley Excerpts

Report stage
Tuesday 19th September 2023 Lords Chamber

Moved by

[Lord Shipley]

4: Clause 4, page 15, line 36, at end insert—
“(4) Omit subsections (8A) and (9).”Member's explanatory statement
The intention of this amendment is to remove the prohibition on a billing authority giving relief on a hereditament occupied by a billing authority, a precepting authority or a GLA functional body.

[Lord Shipley (LD)]

My Lords, now that we have begun Report, I remind the House that I am a vice-president of the Local Government Association.

I have said previously that there are many good things in this Bill. When we have moved amendments, as we are doing today, the aim is to make it a better Bill. The Government—any Government—face huge challenges with business rates. Inflation-linked rises in the cost of business rates is one challenge, and I think it is generally acknowledged that business rates have simply got too high for many businesses to cope with. Proportionately, when you go back one or two decades, business rates are indeed very high.

A second problem lies with internet sales, which, frankly, are destroying the high street. One-third of retail sales are now online, and that is having a devastating effect. Just two days ago, the British Retail Consortium wrote to the Chancellor, calling on him to freeze property taxes in order to prevent further high-street closures. As the consortium said, a rise would have the impact of

“threatening the viability of many shops and hindering the industry’s capacity to invest”.

I subscribe to that view, and I hope that when we come to the Autumn Statement some indication will be given that that will be the Government’s intention.

As I said in Committee, while I welcome revaluations moving to every three years, I would prefer them to be every two years, because valuations that are more up to date reduce costs and confusion and make life easier for lots of businesses. I see this Bill as a staging post to getting to two years—we shall look at that in a future group. I would also prefer locally set multipliers and would like to think that the Government would look at greater fiscal powers for local government over the next two or three years. That said, this Bill makes positive changes, and I would now like to address the amendments that I have put down to make the Bill even better.

In moving Amendment 4, I will also speak to Amendments 16, 17 and 18. The intention of Amendment 4 is to remove the prohibition on a billing authority giving relief on a hereditament occupied by a billing authority, precepting authority or GLA functional body. These prohibitions prevent authorities awarding relief to premises such as markets which they own. This was a particular issue in the 2020 retail, leisure and hospitality relief, where billing authorities found that they could not give relief to premises of which they, or a precepting authority, were the occupier—including, for example, local authority markets. My amendment, which is supported by the Local Government Association and by the National Association of British Market Authorities, would address this problem.

There are in the country some 1,150 markets, of which 84% are operated or controlled by local authorities. They perform a vital role in the retail sector and our community infrastructure, and many have long histories. During the recent Covid pandemic, however, these markets were unable to enjoy the substantial financial help provided by the Government on business rates because of a restriction in Section 47 of the Local Government Finance Act 1988 that prevents a local authority giving relief to itself or to a precepting authority. Local authority markets were obliged to bear the full burden of business rates while many businesses and, indeed, markets operated by private and community organisations were able to take advantage of the substantial help provided by the Government.

In 2022, the National Association of British Market Authorities carried out a major survey of our markets. Stall occupation in many markets has fallen significantly from 2018, when the last survey took place. The number of traders continues to fall: five years ago, there were 32,000 market traders; last year, the number had fallen below 30,000. Many local authorities report having to subsidise their markets to enable them to continue operating. With the many demands on local authority budgets, there is a prospect of these subsidies being withdrawn to protect front-line services, which could threaten the continued existence of many markets, many of which are a venue for information on a wide range of public services, making available banking, library and health services where such services are no longer represented at other venues in the area.

The Government have previously changed their position on this general issue as they granted a specific exemption to Section 47, providing that local authority public conveniences should no longer be liable for business rates. This earlier concession provides added support for the amendment now being sought.

Amendment 16 would require the Secretary of State to consult on the benefits and practicality of a system of accreditation for rating advisers. This amendment seeks to explore an avenue to combat the rogue and unprofessional practices of some rating advisers. It is about having a consultation, because the new system defined in the Bill will get more complex, with new reporting requirements and demands for greater accuracy. There will be greater demand for rating advisers. In my view, such rating advisers should be accredited and maintain professional standards if they offer commercial services. Therefore, I advocate a consultation on what steps should be taken.

Amendment 17, supported by the noble Lord, Lord Black of Brentwood, who is unable to be here today but whom I thank for his support, provides that advertising rights in respect of social infrastructure sites, including bus shelters, other advertising rights granted by contracting authorities and public telephone kiosks shall be exempt from local non-domestic rating. The current business rates system is challenging the viability of advertising-funded social infrastructure and community services. It is now increasingly at risk. Yet these sites return value to local communities through rental payments, service provision, their installation, their very existence, their cleaning and their maintenance, as well as any other social investment, including living roofs, air quality sensors and solar panels, all of which help local authorities meet their net-zero targets. If a business rates exemption applied, it could lead to higher investment directly into local communities. Councils can benefit from rent, revenue and profit sharing currently amounting to around £143 million a year, paid directly to them, but it is claimed that the new legislation that the Bill represents puts this at risk.

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I am grateful for this debate and to noble Lords for raising these three important issues. I hope the noble Lord, Lord Shipley, will be prepared to consider withdrawing his Amendment 4 and not pressing others.

[Lord Shipley (LD)]

My Lords, I thank the Minister for his reply, which I found very helpful. I shall withdraw Amendment 4. I hope that all the amendments I have put my name to today will form part of a constant review of business and non-domestic rate structures, because the system is showing serious signs of stress. I do not think it can continue as it currently is. As a consequence, Governments of whatever persuasion will have to address the fact that reform of business rates is increasingly essential. I beg leave to withdraw my amendment.

Amendment 4 withdrawn.

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Moved by

[Lord Shipley]

5: Clause 5, page 16, line 4, leave out “third” and insert “second”
Member's explanatory statement
This amendment would require central non-domestic rating lists to be compiled every two years.

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[Lord Shipley (LD)]

My Lords, I move Amendment 5 in my name, and will speak also to Amendments 6 and 7, which would, in effect, do the same thing. My name also appears on Amendment 15, which is in the name of the noble Baroness, Lady Hayman of Ullock. I will leave her to speak mostly to that amendment. It is about review and the point I made a moment ago—that we have to keep reviewing business rates and how they operate because of the challenges currently faced.

I have tabled these amendments so that we can hear again from the Government the justification for a three-year review, as opposed to the two-year review which I would prefer. I prefer two years because it has many advantages. It would be more efficient and reflect changes in valuations more quickly. It could reduce work and it would be really good if it could be done.

I understand that there is already a reduction to three years and to reduce it further would be pretty hard to do as quickly as it would have to be done. Therefore, I would probably accept the Government’s advice that they are mindful of the need to move to two years, that there are major advantages to it and that that is the sense of the journey they are following. It would be very helpful. I have tabled Amendments 5, 6 and 7 so that the Minister can respond and confirm again that it is the intention to get towards a system that does a business rates review every two years. I beg to move.

[Baroness Hayman of Ullock (Lab)]

My Lords, I thank the noble Lord, Lord Shipley, for his amendments. This group is all about revaluations and reviews of rates. The first three amendments, which the noble Lord, Lord Shipley, has introduced, would change the timeframe for compiling non-domestic rating lists. I thank the noble Lord, Lord Thurlow, for his support and encouragement for my Amendment 15, and I support his Amendment 19. Those amendments are looking for broader reviews of the business rates policy. The intention is to look at how frequently we should review our business rates.

One reason we have concerns about the current system—and it is good that the Government have looked at this and reduced it to a certain extent—is that if reviews are done only over a certain period, the rest of the system needs to be fit for purpose. We are concerned that the current system makes it extremely hard for businesses to appeal their assessments. If you have an assessment that is high, it is difficult to appeal and to manage that, which creates difficulties, particularly for small businesses. The whole system needs to be much more fit for purpose if it is to work for businesses and for local authorities.

The Labour Party’s policy is to scrap business rates altogether and to replace the current system with one which works to incentivise investment. We think there should be more frequent revaluations. If property values drop for particular reasons outside a business’s control, there should be the ability to do more frequent revaluations. Where businesses are caught out in this way, bills should be reduced. There should be incentives and rewards for businesses which, for example, move into and invest in empty properties. It is about encouragement. Earlier, we talked about green improvements and energy efficiency and how you encourage businesses to invest in this way. The whole system needs to be a bit more nimble and more effective in supporting small businesses. The Government need to work with businesses, people working for those businesses and public bodies in order to get a system that is genuinely fit for purpose and supports local businesses and local authorities in the way it needs to.

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[Baroness Swinburne (Con)]

As the noble Lord will probably appreciate, I am not an expert in this area, unlike him. But I will contact the team and make sure that he has a thorough answer in writing. I believe that some of these issues have already been addressed in this review, but I will confirm that in writing to him.

[Lord Shipley (LD)]

My Lords, I am grateful to the Minister for her reply, and I was pleased to hear her say that we share the same objectives. I very much hope that we do and that we can continue to do so, because there are some fundamental issues here. Theoretically, I do not regard business rates as a good tax, in the sense that I think there are other ways in which taxation could be raised from businesses. However, it is the system that we have, and altering it would take a large amount of time: it would take several years to get movement on that. For that reason, I ask the Government to look very carefully at some of the suggestions that have been made in your Lordships’ Chamber this afternoon. The point that has been made by the noble Lord, Lord Thurlow, is very important. A warehouse should not be counted as a warehouse for business rates taxation if it is delivering a retail function. That is my first point.

My second point is on Amendment 15, moved by the noble Baroness, Lady Hayman of Ullock. It relates to the possibility of reducing the small business rate relief threshold. I take the point the Minister made about the number of properties that have already qualified for business rate relief, but I think the Government ought to look at that being increased. I thought the point made by the noble Lord, Lord Thurlow, was hugely material: business rates used to be half the rental level but have now become almost 100% of the rental level. This is simply not tenable: we cannot go on with that. As the noble Earl, Lord Lytton said, we are witnessing the continued attrition of our high streets and something has to be done about that.

The third point I make on what the Government could do urgently is not to increase business rates by the current level of inflation. I think the Government may well be willing to consider that—I hope the Chancellor would. All these things matter because business rates have got out of balance. Having said that, I beg leave to withdraw the amendment.

Amendment 5 withdrawn.

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[The Earl of Lytton (CB)]

My Lords, I regret to say that in this amendment I am obliged to refer to a rather contentious matter. As I have made clear, I am not going to divide the House, but a serious question needs to be answered. I tabled the amendment to delete Clause 14 because of my concern that what the Government claim Clause 14 does is at material variance with the wording, as I see it, of the Bill. It is also at serious variance with what I understand to be the current assumptions regarding the, as it were, state and condition of the hereditament for valuation purposes not in terms of its individual condition as to the fabric but where it sits in its economic and practical environment.

As I understand it, the Government claim to be restoring matters to those understandings that prevailed previously, but the proof of the pudding shows that is not so or we would not have this clause before us because it would then be unnecessary. In my view, an earlier measure to remove the status of Covid as a material change of circumstances—which is what this is all about—was legitimate. It was deliberately circumstance specific and affected the whole country and so could rightly be described as a pan-national economic event. But the Government now seek to extend that principle to any change affecting the physical enjoyment of the hereditament as a consequence of what is described as an “economic” matter and that that should be disregarded as a material change of circumstances. In other words, it should not be possible if that change occurs for somebody to challenge their assessment.

I dispute that this approach has ever been the test of a material change of circumstances hitherto. Copious cases—Addis Ltd v Clement (VO) in particular—have clarified this. There is an obvious reason: where a public authority takes steps that deny or degrade the benefits of enjoyment of a hereditament, it is offensive that a tax unadjusted to reflect this fact should continue to be levied. This is not just a modern confection but goes to the heart of fair and just administration, the rule of law, confidence in government and the certainty and security of process that affect investment, productivity, and commitment to medium and long-term partnership. It is an essential part of a social and economic contract—unwritten it may be but there all the same. Any Government would be wise to observe these obvious and potent economic factors in administering the needs of the nation. We are talking about an ancient principle.

The Government make a distinction in relation to an economic matter affecting society at large but then go on to define this as any matter directly or indirectly attributable to a “relevant factor”. In fact, these are not economic matters at all but the fiat of some authority exercising powers that are not of general economic application to the nation at large or a significant part of it. The definition of “relevant factors” is set out at Clause 14(l)(d) in new paragraph 2ZA(3)—near the bottom of page 32 for those noble Lords following this astutely. In effect, it means that any legislation, regulation or advice of any country or public authority or steps to comply with these is to be disregarded in terms of what amounts to a material change of circumstances—so much for being ruled by our own laws. It also does not clarify the status of pronouncements from organisations such as the WHO, the UN or International Monetary Fund. So, in future, if a local authority alters the entire geometry of the use and enjoyment of a business premises through, let us say, planning powers, it will not count as an MCC, regardless of how severe the impacts may be. This provides a perverse incentive to disregard negative effects of sudden policy decisions which, as I say, may be nothing to do with economic choices.

I wonder whether when formulating these measures the Government ever considered the growing mistrust of their handling of the business rates regime generally and the effect, along with others no doubt, on high streets from trader and investor confidence, or ever paused to consider off balance sheet indications in any of these respects. The Government in seeking to differentiate general economic changes from direct physical enjoyment at hereditament level do not seem to be able to make a tidy distinction between the two, so they take a line of least resistance and bundle them together. That is Clause 14.

By way of further explanation, there are of course two poles to consider: first, those matters which affect the economy as a whole to be dealt with on revaluations—there is no dispute about that; we accept that as we accepted it in Covid. Then there are other more rapid and acute physical changes to the hereditament itself. Again, there is no dispute on that because they will continue to be treated as material changes of circumstances. In between, there are those immediate and localised regulatory and other measures affecting an individual property or those in a defined location and not shared with the wider economy of a town or a region.

I wanted some further clarity on this, so I sent some examples of queries to the department. I hope it received those and that, in replying, the Minister may be able to throw some light on them. The first one was where a local authority reduces the hours of operation of certain licensed premises to provide better amenity for nearby residents and as a result business is curtailed— I referred to the conflicts earlier today. Secondly, an important town centre car park is closed due to concerns about the concrete frame and as a result footfall for traders in that part of town declines substantially. Thirdly, a small corner convenience store is affected because the large residential block next door is ordered to be evacuated over fire safety concerns and the occupiers are dispersed into other accommodation elsewhere. Fourthly, an authority in a popular holiday area makes licensing of holiday let premises mandatory but then limits or conditions the licences it issues to reduce the impact on local housing availability and as a result the income to certain operators is significantly affected. Finally, a biosecurity exclusion zone is declared in a defined area due to an animal disease outbreak. The public are advised to stay away and traders in the area suffer a sharp downturn in business. As I understand it, every one of those would be ruled out as being a material change of circumstances by virtue of Clause 14. The only qualification is on the last one. Does the geographical extent of the biosecurity exclusion zone alter the degree to which the effects fall to be disregarded as an MCC or does it make no difference?

Let me give an extreme example of what the effects might be. A metropolitan mayor decides to ban all petrol and diesel sales in his or her area under some statutory or regulatory power or perhaps on the advice of health officials concerned about air pollution, but by virtue of Clause 14—and maybe for up to three years until the next revaluation—petrol filling stations in the area would have to continue paying business rates as if nothing had happened. If that is not what the Government intend, they need to revise Clause 14 because that, on the best authority I know, is what it will do. The best authority I have—Members of this House, particularly learned Members, excepted—is rating counsel Luke Wilcox, who provided me with a note which says

“my main concern with clause 14 as it is currently drafted is that its effects will be much wider than the Government’s stated intention. The Government’s intention appears to be to treat general legislation as part of the general market conditions affecting revaluations, rather than as matters capable of being MCCs”.

He goes on to say that

“the phrase ‘indirectly attributable to’, as it appears in para 2ZA(2)(a), is so wide in its scope that matters affecting an individual property or class of properties, such as a planning or licensing decision, will cease to be MCCs (because they are made under a general legislative provision). Such an effect would appear to be beyond the Government’s stated intention. If such a significant alteration is to be made to the established law of rating, then it should be made following proper deliberation, rather than as an unintended consequence of a provision aimed at a different policy effect”.

In all this, there appears to have been little or no discussion with ratepayers or their professional advisers, nor any wider consultation with that class of stakeholders. It is undoubtedly a major departure from what is known as the “reality principle”—namely, that rating should reflect the real circumstances of the hereditament in assessing it for rating purposes. The Valuation Office Agency’s own rating manual does not use the approach now suggested. Whether it is going to be amended, I do not know—I suppose it will be—but, as it clearly states the situation that has commonly been understood for many years, that rather suggests that the Government’s claim of restoring what they say were the previous understandings is unsupported.

Many will feel that this is getting us towards the realms of no-appeals regulations—in other words, “Let’s not have any appeals at all and dispense with them, and the whole thing can be dealt with through by the arbitrary exercise of power through the Valuation Office Agency”. But that would have profound implications for the rules-based system—something that I have referred to before in relation to several government Bills.

This clause cannot go unchallenged. Although I am not proposing to press the amendment, I think it warrants a detailed comment from the Government as to how they think it will work fairly and equitably in the context of the rating system. I beg to move.

[Lord Shipley (LD)]

My Lords, I support the point of view expressed by the noble Earl, Lord Lytton. He has raised this very issue, I think at Second Reading and certainly in Committee, and I have given him support because I have grave doubts about the definition in the Bill of a “material change of circumstance”.

The noble Earl has given a list of possible examples of where there should be a material change of circumstance because of what happens in the area as a whole—perhaps a planning change or a licensing change undertaken by a local authority. When it comes to the Minister’s reply, it would be extremely helpful if there could be a letter to all of us who have taken part in the debate, but addressed to the noble Earl, Lord Lytton, explaining the Government’s view on each of the examples that the noble Earl has given.

I have another one to add to his list. As it stands, Clause 14 means that material changes of circumstance should relate to physical changes only to a property. That is how I interpret it. However, as the noble Earl has demonstrated, there can be many ways in which that physical property can be impacted upon and have a material change of circumstance because of what somebody else does. My example is that a local authority decides that a bus route will no longer come down one road but will go down a different one. The patronage of the shop—if it is a shop—goes down as a consequence. Is that a “material change of circumstance”? I suggest that it is and that it should qualify. I do not think that Clause 14 can apply only to a physical building. That is my position.