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

Lord Thurlow Excerpts

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

The number of NDR appeals will rise dramatically. Can the Minister say whether sufficient trained personnel are ready to hear these appeals, or will there be a return to the scenario I started my speech with, where appeals wait years to be heard? It is vital that businesses and local authorities are able to see just what the likely wait for an appeal will be. The regular publication of the numbers waiting for an appeal is vital. Local authorities and businesses could be waiting for huge appeals to be heard with millions at risk, as noble Lords have indicated. This is not good for the recovery of the economy. A rapid system of hearing business appeals is essential and publication of the waiting list within six months of the passing of this Act would be a reasonable timeframe to assist local authorities to assess the seriousness or otherwise of the situation. I fully support this amendment and look forward to the Minister’s response.

[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.

--- Later in debate ---

[Baroness Pinnock (LD) [V]]

My Lords, the purpose of Amendment 4, which stands in my name and that of my noble friend Lord Shipley, is to open up a debate about the revolution taking place in the retail sector. It is a revolution that is being accelerated as a consequence of the pandemic, which has resulted in the non-food retail sector being in shutdown for many months, with a very large transfer of shopping to online retailers. Retail analysts suggest that this significant change in shopping habits is here to stay.

Recent reports on the retail sector make the same points. Bill Grimsey, in his report in 2018, described the effect of business rates on the retail sector as “malevolent” and one that hinders growth. Business rates are, of course, just one inhibiting factor that affects the vibrancy of the physical high street. However, it is like a weather vane, indicating that all is not well with the retail elements of our town centres.

The array of shopping giants that have closed in recent years is a health warning that the Government do not appear to be heeding. Toys “R” Us, Maplin, Poundworld and others closed their doors in 2018. This year, a staple of the high street, Debenhams, is finally closing its physical presence on the high street. The Arcadia Group, which includes a string of well-known brands in many towns, is in administration. There seems little prospect of any of them reopening their shop doors; the businesses will simply go online.

The combination of closures is a large hit on many towns, as those businesses provided both an attractive shopping experience and business rates income for local authorities. The Government really do have to address this with some urgency. The problem is well known: physical retailers have financial overheads that their online equivalents do not.

The comparison of overheads in terms of business rates is stark. In my own town of Cleckheaton in West Yorkshire, an average-sized shop on the main street with 30 square metres of floor space is paying at the rate of £250 per square metre, resulting in a rates bill of around £3,750 per annum. A large Amazon warehouse adjacent to a nearby town in Yorkshire has 40,000 square metres of floor space. The rate per square metre for this giant in the retail sector is £45 per square metre. This results in a business rates bill of £900,000 per annum. If Amazon, as an example—there are others—were required to pay at the same rate as this smallish shop in a small town centre in West Yorkshire, its rates bill on this warehouse alone would be £5 million per annum. That is why attempts to save our high street will fail unless this hugely unfair advantage enjoyed by online retailers is addressed—hence the amendment from the Liberal Democrats.

The very least that the Government should do is to review the impact on local high streets and assess whether the new revaluations harm even further the ability of the retail sector to compete successfully with online businesses. We cannot, like the myth of Canute, hold back the tide of change in shopping habits. However, what the Government can and should do is provide a level playing field for retailers. This is not a problem that can be kicked down the high street in the hope that the sticking plasters of high-street and town funds from the Government will stem the demise of town centres; nor is there an easy solution, but then Governments are elected to deal with difficult problems.

There is an urgency in finding a solution, as I have indicated. Will the Minister provide any certainty for high-street retailers that the Government accept that a revolution in retail habits has to be accompanied by a revolution in business rates? I look forward very much to the Minister’s response.

[Lord Thurlow (CB) [V]]

My Lords, I thank the noble Baroness, Lady Pinnock, for tabling this amendment, together with the noble Lord, Lord Shipley.

There is no doubt that an impact assessment of the new valuations on the high street is worthwhile and important. It is actually vital. We have already seen the change in the high street referred to by the noble Baroness, Lady Pinnock. The former retail parades that once flourished now see nail bars, estate agents, coffee shops and charity shops proliferate. I am delighted, of course, for the charity shops and their sector, but please understand that many of these shops are paying a 20% rates bill and are there because their landlords heave a sigh of relief that they have found someone to relieve them of the burden of the empty premises rates that would be applied after they have lost their traditional tenant.

Our high streets and shopping centres are the focus of local communities. Social health and welfare to some extent depend on them. We cannot afford to lose them because of unrealistic operating costs. I was very pleased when the noble Lord, Lord Greenhalgh, referred just now to the Government’s recognition of the importance of vibrant town centres. The health of those centres lies in the gift of the Government, right now, and in their ability to construct fairness in the apportionment of the NDR burden.

This amendment includes reference to the ability of high streets to compete with online. It is an often-discussed subject, and the urgency of rebalancing the rates burden could not be more pressing. The noble Baroness, Lady Pinnock, mentioned Amazon. I saw in today’s Times an appalling reference—appalling to me, anyway— that £1 in every £20 spent on retail is spent through Amazon. I assume this was a reference to last year, or to the last accounting year.

Amazon, of course, is a giant, but there are hundreds of online retail businesses and we are right in the midst of a massive societal transfer of shopping habits from the traditional shop or store in or out of town, in or out of a covered shopping centre, to online. Covid, of course, has forced that rate of change to accelerate faster than it otherwise would—but it was a concern many years ago.

There are numerous constructive proposals to recoup a fairer contribution from the online sector to the tax base. To equitably rebalance the transfer of sales between online and the high street may require a 40% reduction in the high street burden. That is a huge reduction. I am afraid that the Treasury cannot expect revenue neutrality by simply transferring this across to other commercial sectors. The slack is just not there, particularly if we have to take a reduction from the office sector as well. Logistics, industrial and warehousing will not fill the gap. That is a real worry and a concern. Local authority funding has been referred to already, but I am afraid that it is something that needs addressing.

I support the amendment. The health of the high street cannot wait for the results of the fundamental review that was discussed at Second Reading and has been mentioned by the noble Lord, Lord Greenhalgh. I was very grateful for that, but the issue is too pressing.

My principal concern remains the difficulty of assessing rental value in these most uncertain times. I do not think that it will be possible. Appeals may descend into chaos. Certainly, I predict long delays. Rental values will have to be assessed post Covid, not in eight weeks’ time. A short-term arrangement will be necessary for the non-domestic ratepayers on the high street and in the retail sector to cope with the transfer to online, and I hope that the Minister will be able to make some constructive comments to help give comfort to all of us who are concerned.