Non-Domestic Rating (Lists) (No. 2) Bill

Lord Stunell Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Thursday 4th February 2021 Grand Committee

[Lord Stunell (LD) [V]]

My Lords, I wish to speak to Amendment 5, in my name and that of my noble friend Lady Pinnock, but I also make clear that I support the intentions of both the other amendments in this group. My noble friend Lord Addington will speak to his Amendment 7 shortly. Amendment 2, just moved by the noble Lord, Lord Kennedy, sits four-square alongside our Amendment 5 and I am happy to add my support to the case that he has put forward.

I remind the Minister that the Government’s previous intention was to have the revaluation come into force this year. They had moved that forward from the original 2022 date because of the deteriorating situation of the high street retail sector and the very clear disconnect between outdated valuations and current purchase prices and letting rates. The most obviously outrageous example of that is, of course, the underpricing of out-of-town distribution centres and warehouses.

Covid-19 has changed the situation in two significant ways, the first of which the Government have responded to, but the other is the one I want to draw particular attention to and which Amendment 5 seeks to address. As it was unrealistic to carry out the necessary work on the ground to carry out valuations because of lockdown and infection control restrictions, the date of 1 April this year was set in place of 1 April last year.

That is one of the responses, but it does not take account of the other impact of Covid. There has been a huge acceleration in the existing trend of retail transferring from the high street to online. It is interesting, indeed compelling, that the Association of Convenience Stores, which has 35,000 local shops and forecourt sites in its membership, has reported that 42% of independent shops polled would have gone out of business already if it had not been for the Government’s business rate moratorium—that is the drastic impact on income for the physical retail sector. We can see from the business pages of any national newspaper that many high street names have closed down or downsized, or are being asset-stripped by hungry online operators buying up their brand. This is an acute crisis, but also a chronic one. Everyone understands that the online shoppers newly recruited by the pandemic have found that it is an easy way to buy and is perhaps better than trudging round in the rain. Nobody expects the retail business of the high street to return to its former levels.

On these Benches, we very much welcome the 100% business rate discount that the Chancellor has introduced. We believe that, in any case, it will need to be extended until there can be a return to what I might call peacetime trading. But those peacetime retailers cannot expect to return to the same volume of sales. Every one of them knows that their turnover will be down and their already dwindling profits will be even less in the post-Covid, peacetime marketplace. When the Chancellor’s scheme ends they will face what were already unreasonably high rating valuations still in full force. Many will be forced into closure. The shutters will come down across the country, leading to a spiralling reduction in footfall and undermining the viability of what remains.

I said at Second Reading that it would be good to see some joined-up thinking by the Government, with a seamless move from the Chancellor’s support scheme for retail running through to the new reduced level of business rates that will come with this measure, as far as the high street retail industry is concerned. I must say to the Minister that it is no good the cavalry coming over the hill two years later simply to count the dead. Either the cavalry must come sooner or the Chancellor must extend his scheme to fill the gap—or a properly planned bit of both. Otherwise there will be precious few retail business left to take advantage of the lower rates bills that we all expect this measure to offer. Hence our amendment: an impact assessment, as the Minister well knows, does not just look at the impact of doing what is proposed, but poses the important question, “What other ways have you looked at to achieve the same outcome?”

Such an impact assessment as we propose would show pretty clearly that delaying implementation of the new valuations to 2023, whatever the actual valuation date, will lead to far more businesses failing and far more damage to the high street than having a 2022 start date for the new system. It would show that extending the Chancellor’s scheme to bridge whatever gap remains would be excellent value for money, bringing a huge financial and community well-being dividend to put the high street back on its feet. It would also certainly show that any gradual phasing-in of the improvement beyond 2023—so that it was in some way cushioned and delayed the benefit to the retail sector—would be terminal. I suggest also, perhaps slightly with my tongue in my cheek, that it would set an interesting precedent, where two government departments look at a policy in the round and agree a sensible way of taking in each other’s washing rather than taking separate decisions—one on the 100% business rate discount and the other on the start date of the new valuations—in two different soundproof silos.

[Lord Moynihan (Con)]

My Lords, I will speak to Amendment 7, in my name and that of the noble Lord, Lord Addington. Before I move to the detail of our amendment, this Committee provides us with the opportunity to set out the critical importance of making the case for further government measures to support sport, recreation and an active lifestyle as we emerge from the Covid epidemic.

The Government are to be congratulated on the steps that they have taken: the £300 million sport winter survival package, which specifically should help the top-end spectator sports in England and provide important support to rugby union, horseracing, women’s football and the lower tiers of the national football league; and £100 million through the national recovery fund to support publicly owned leisure facilities impacted by Covid-19. However, this is nowhere near the £1.75 billion investment package to protect the world-class arts, culture and heritage sector, which was designed to help the showcase institutions as well as the small local arts and culture initiatives across the country.

Consider the scale of this investment to help sport alongside the £2 billion announced to investment in cycling and walking, not by DCMS but the Department for Transport last May, since when—as recently as last weekend—the Sunday Times led on the front page with the impending loss of £110 million to professional sport if gambling logos are banned from sports shirts. Sport on television has provided a beacon of hope and escape for millions of people during the current Covid lockdown—a massive ray of respite amid the boredom and gloom of lockdown. In that context, there has been more coverage of the return to terrestrial television of the England-India test series starting in Chennai tomorrow than there has been of actual coverage of matches in many an overseas test series in the past.

The Government have responded well to the need of our elite sports men and women with safe and necessary exemptions from many of the Covid regulations. These exemptions will need to continue when the new travel quarantine regulations are announced shortly. The Six Nations depends on the exceptionally safe arrangements made for professional sport and the vital good sense of those involved to observe strictly the bubbles in place to protect them. Neither the French team—nor, for that matter, Andy Murray, when he resumes the ATP tour—should be required to spend two weeks in the Gatwick Holiday Inn when they arrive here.

Of course, even those who represent our country would not expect to be, nor should be, vaccinated before the vulnerable groups of all ages in society. I hope, however, that when that cohort is complete, consideration will be given to many of our Olympic and Paralympic athletes ahead of their vital international training, selection and competition schedules later this year.

That is the backdrop to today’s call to extend the business rate holiday granted to the retail, hospitality and leisure sector indefinitely, and the opportunity within six months of the passing of the Bill to publish an assessment of the impact of the timing of business rate revaluations on the viability and health of amateur sports and sporting activity. I hope to abolish them for that sector altogether.

The holiday has been invaluable to sports organisations that own their property, including national governing bodies, professional clubs and community clubs and organisations. However, the rates bill in the past has often been the anchor that dragged many sports clubs towards the rocks of administration and financial difficulties, and at this time we must focus on how we increase opportunities for everyone to follow an active lifestyle. Declining participation rates, a major drop-off in sport after school years, the loss of playing fields and the reduction in local authority spend in England—sport and recreation is a discretionary-line item spend in their accounts, rather than the compulsory priority that it should be—have collectively led to the absence of the much-hoped-for sports legacy from the 2012 Olympic and Paralympic Games. Obesity levels, boredom among the young and lack of opportunities for all pepper the landscape over the UK.

In contrast, I can only praise my noble friend the Minister’s commitment and support for sport in successive policy areas in his department. At Second Reading, he listened carefully to the representations made, as he did previously to my noble friend Lord Botham on this subject. He knows that the business rate holiday can directly benefit community sports clubs, with their sole objective of providing healthy and enjoyable recreational and sporting opportunities, ensuring that all ages re-emerge into the light stronger, fitter and more active in future years than suggested by the pattern of growing obesity and falling participation as a proportion of our growing population, which we saw in the years approaching the pandemic. That alone is one of the major reasons for the increasing call on the NHS in the 2010s. It was in danger of being overburdened before, let alone during, the pandemic.

Like me, the Minister knows that the country faces stubborn inequalities, that the activity gap is widening and that places and spaces, community sports clubs and leisure facilities are critical to providing opportunities for a more active nation to emerge from the epidemic—yet the hardest hit are in deprived communities. Such clubs proliferate in our poorer communities, not least in the East End of London, where life expectancy falls one year for every Underground station passed on the Jubilee line between Westminster and Stratford. Life expectancy is 10 years less there. That is why the Government need to support the Sport and Recreation Alliance, with its campaign to boost activity, from traditional or formal sport to the informal fun and enjoyment that many people can derive from outdoor recreation, movement, dance, and physical activity. Let us make sure that local clubs registered as community amateur sports clubs are exempt from business rates for ever.

My hope is that the case is considered to extend similar support to all sports clubs which provide community sport and recreational opportunities. In comparison to other sectors, business rate liability for the community sport sector remains unfairly high in relation to income. Community sport clubs often have limited financial resources, as they seek to increase membership subscriptions in ways that are affordable, thus enabling community participation without those subscriptions being extortionate.

The cohort of sport and recreational facilities in this country is ageing; too many are falling into disrepair. The costs to operate, repair and maintain are onerous. The result is that sport pays a disproportionate level of business rates, which in themselves are a brake on the key policy objective of making this nation healthier and more active. Sheffield Hallam University recently published a report on the social and economic value of community sport and physical activity in England, valuing it at £85.5 billion. The analysis valued physical and mental well-being at £9.5 billion, mental well-being itself as well as mental health at £42 billion, individual development at £282 million, and social and community development at £20 billion. That evidence makes a compelling case for investment in community sport and physical activity. One keyway in which that can be achieved is a major change in how my noble friend’s department and the Treasury approach a new system of support for exempting those clubs involved in community sport schemes from the business rate system.

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[Lord Thurlow (CB) [V]]

My Lords, I thank the noble Lord, Lord Kennedy of Southwark, and the noble Baroness, Lady Bakewell of Hardington Mandeville, for tabling this amendment. I declare my interest as set out in the register. I also take the opportunity to thank the surveyors Gerald Eve for their time and assistance in preparing for this debate.

My concern is the rapid rate of the collapse of high-street businesses—not just the well-known brands that have been referred to but small family businesses, private enterprises and start-ups serving local markets while hoping to succeed, expand and grow. As the noble Lord, Lord Kennedy, commented, the system needs root and branch reform. These retailers’ rating assessments are currently based on pre-crisis levels of rental value, but those values have really collapsed. They were set at a time when there was a healthy economy, with low interest rates and constructive market tension in the leasing marketplace, arriving at competitive rents that were exactly what supply and demand required. That has been lost—which is to say, the values have collapsed as turnover has collapsed—and the rates applied and being paid today are much too high.

We have seen this collapse in values for several reasons; the rates payable by these businesses are the final straw. They can appeal, but there will be long waiting lists. We heard the noble Lord, Lord Kennedy, say that there were 40,000 still hanging over, some from 10 years ago. I am afraid, too, that hundreds, if not thousands, of small businesses will be forced to pay the published rates until appeals are heard, whenever that may be. They will of course have long gone and disappeared as businesses by then.

This is why I am absolutely certain that an impact assessment on appeal waiting lists arising from this Act is so important. I consider six months the absolute minimum period to attempt the impact assessment. It is unfortunate—the sooner the better—but I do not see how they can do it in less. The surveyors may be stretched to their limits to process the appeals.

The process involves a check, challenge, appeal programme, which puts the onus of setting rental value for rateable value purposes on the appellant. The only way to arrive at rental venue is to look at comparable properties and find the latest rental evidence from the marketplace, which is then applied. But there is virtually no evidence. The markets have been sliding, both for offices and retail, and we know that the rating assessments are now significantly in excess of what they should be.

I mentioned retail, but imagine the difficulty of estimating rental value for offices in two months’ time, when the date occurs. Many office buildings are empty or on a skeleton staff rotation. If they are more than a couple of floors tall, social distancing means that you cannot get into a lift. Businesses are, as we speak, considering their future office needs. Working from home, like so many of us are in this debate, means that less square footage is likely to be required. As I said, in the bottom of the trough of this rental crisis, experts will have great difficulty estimating rental values.

Will the Minister please impress on the Government the importance of urgency in addressing this rateable imbalance? Businesses are collapsing in all communities. I support the impact assessment on appeal waiting lists, but it is difficult not to imagine that the appeal process will struggle under the weight of appeals, and I urge the Government to prepare for that probability.

[Lord Stunell (LD) [V]]

My Lords, it is a privilege to speak after the noble Lord, Lord Thurlow, because he has more or less stolen my thunder, which means I can be really quite brief. He outlined very clearly a common thread in all the debates so far today: the absolute urgency of getting this problem fixed. We all know that it needs a longer-term fix, with a complete overhaul of the system, but, if we are to stay where we are with the current system unamended while we wait for that golden day of amazing reform, I fear that many businesses in the country will collapse and fail, not just in the high streets, but, as the noble Lord, Lord Thurlow, so elegantly and persuasively said, in the office sector and elsewhere. Something has to be done in the meantime—which, of course, was the burden of some of the earlier debates.

The point of the amendment and the impact review is to challenge the Government by saying that what they propose to do—or, perhaps more accurately, what they propose not to do—will leave many businesses in profound despair about how they will manage in the next 18 months or two years. It is obvious that many people will appeal. The number of appeals will be large, not small, and if we start with a backlog from the previous system, that will get worse still.

My noble friend Lady Bakewell asked the Minister some piercing questions that I hope he will respond to about the efforts being made to train panels and find the expert support needed to get the appeals in the system moving through at a proper level. What about the waiting times? Is the Minister, or indeed the VOA, setting a target to deal with this backlog to make sure that it does not pile up behind the new unfolding situation? The noble Lord, Lord Kennedy, has already pointed out the 40,000 appeals. I know that some of those are very specific to one or two topics, but that is not quite the point: one or two specific topics might crop up in this round of appeals and this revaluation that will cause similar problems.

So I strongly support the thrust of the amendment and I believe that we do need an impact assessment. We need some positive action from the Government and I look forward to hearing how the Minister proposes that that should happen.

[Lord Greenhalgh (Con)]

My Lords, this proposed new clause would require the Secretary of State to publish an assessment of the impact of the Act on the appeals waiting lists. The Government recognise the importance for businesses and local government of having an effective appeals system. The process we have put in place allows ratepayers to understand how their rateable values have been assessed and how to challenge those valuations where they feel that is necessary. Of course, changes to the revaluation cycle can impact on the appeals process, so I welcome the opportunity to consider this through the amendment.

I will first explain the system for appealing rateable values. The Government introduced the check, challenge, appeal system in 2017, known as CCA, because the previous system was failing. Over 1 million cases were received from ratepayers on the 2010 rating list. Many were submitted with little or no evidence and around 70% of Valuation Office Agency appeals resulted in no change. This delayed the VOA’s ability to deal effectively with well-founded cases.

The CCA system introduced a new “check” stage, at which ratepayers must first check and confirm the details of their property. This ensures that factual matters are resolved without any further action. At the next stage, “challenge”, the ratepayer must set out the basis of their case. This provides that only substantive cases progress into the system to be considered by the VOA. The final stage, “appeal”, allows the ratepayer access to the independent Valuation Tribunal, but only where they have exhausted discussions with the VOA. The amendment as drafted is concerned only with the last stage, “appeal”, but I trust that the Committee will want me to discuss more generally the CCA system.

By March 2020, the VOA’s CCA system had been showing modest volumes: around 158,000 checks and only 31,000 challenges. Of course, the pandemic has increased these numbers, and as of 31 December 2020 the VOA had registered over 440,000 checks and over 90,000 challenges. Of these, the VOA has resolved over 400,000 checks and 24,000 challenges.

Nevertheless, I know that some ratepayers and agents have concerns about how CCA operates. The Government acknowledge the issues ratepayers faced when CCA launched, particularly with the software and the use of the system. However, the VOA has improved, and continues to improve, its service for ratepayers. This includes changes to enable CCA users to submit multiple property claims, as well as improvements to the registration process to make it simpler and quicker to register.

In February last year my department published an interim review of the CCA system. Although we recognised that it was still too early to fully judge the system, the review concluded that the reforms were helping to reduce the number of speculative appeals and to improve engagement between ratepayers and the VOA.

I know that noble Lords are also concerned with a number of cases—around 50,000—that have been outstanding for longer from the 2010 rating list. In fact, the majority of the 2010 appeal backlog cases concern ATMs and were stayed pending the outcome of a Supreme Court case. So these cases did not impact on most businesses and the delay was largely outside the VOA’s control. The Supreme Court issued a decision on this matter on 20 May 2020 and I can assure noble Lords that these outstanding 2010 cases are now being settled quickly.

As the amendment we are considering highlights, the CCA process is, of course, affected by the frequency of revaluations. Looking specifically at the Bill’s provisions, to ensure that rateable values better reflect the impact of the pandemic, the Bill will move back the next revaluation to 2023. This of course will give the VOA and the Valuation Tribunal at least an extra year to clear cases on the 2017 rating list ahead of the next revaluation.

More generally, as I set out at Second Reading, the Government are undertaking a fundamental review of business rates. This includes a commitment to look at more frequent revaluations, and we would need an appeals system which supported that. The fundamental review will therefore also examine what reforms might be necessary to the CCA system to support more frequent revaluations.

The call for evidence on the review was published in July and asked respondents to provide proposals for changes to each stage of CCA to improve the system, while recognising ratepayers’ desire for a quicker resolution of cases and greater transparency. The Government are currently considering the responses to the call for evidence, and the review will conclude in spring 2021.

I hope that I have been able to reassure your Lordships about the importance that we place on delivering an effective, functioning appeals system that resolves cases in a timely manner. The proposed new clause raises important questions about appeals and the frequency of revaluations, which the Government are already fully considering as part of the fundamental review. I hope that, with those assurances, the noble Lord, Lord Kennedy, can agree to withdraw the amendment.