Non-Domestic Rating Bill

Lord Thurlow Excerpts

Committee stage
Monday 3rd July 2023 Grand Committee

[The Earl of Lytton (CB)]

My Lords, I have four amendments in this group, of which Amendments 8, 10 and 13 relate to the matter explained by the noble Baroness, Lady Pinnock. Amendment 14 is a little different and to do with downward-only transition.

Before I go any further, I should have thanked the Minister earlier for her drop-in sessions and her willingness to engage on the Bill. To some extent, it is a joint venture between business, professions and the Government in trying to wrestle with the issues of local government revenues. I understand that.

The purpose of Amendments 8, 10 and 13 is to create an ability for the Secretary of State to adopt a shorter cycle, be it of one year or two years, but they are not prescriptive as to what that might be. That is simply because, having considered the situation and how things have bedded in, the Government should at least have the ability to do so without then seeking a legislative slot later. Although it is counterintuitive to suggest anything that might smack of a Henry VIII clause, this is a sort of Henry VIII clause that I think might be useful in this particular instance.

I pick up something that the Minister said at Second Reading, which the noble Baroness, Lady Pinnock, mentioned, namely the potential instability of more frequent revaluations. However, this does not seem to be a problem in Hong Kong or Scotland; why should it be here? The noble Baroness, Lady Pinnock, alluded to my next point, which is that the stability of the system is within the gift of the Government in terms of their wider policies. I would argue that it is the level of business rates—levied at around 50p in the pound at the assessed rateable value—that is itself the harbinger and cause of a degree of instability. Professionals and businesses just need to feel that there is a better commitment—a more bankable expression of intent—about this. That is why these amendments would serve to allow the shortening of the revaluation gap and, of course, its attendant antecedent date.

I now turn to Amendment 14, which, had I spotted it before, I might have disaggregated from this group because it relates to downward-only transition. Although the Minister made some hopeful noises at Second Reading, I have not yet persuaded her to signpost the permanence of what is otherwise a very welcome item in this Bill; namely, the removal for the next revaluation of downward transition. It always seemed to me invidious that those whose rateable values were reduced should see the benefit only by such minimal and curmudgeonly means as to deprive them of the effect of a significant reduction, not just for many years but, sometimes, for many revaluations. Now that the principle is established that the transition no longer has to equal and offset the transitional phasing of increases by those who should be paying, it is time to confine this rather dishonourable measure to oblivion, if I may so suggest.

Let us not forget that, for every measure of palpable unfairness, perceived or actual, in the business rates, there will be an unknown number of potential entrepreneurs who simply will not lay themselves open to such practices because they see the system as unfair and operating unfairly against them. To that extent, the system is not as elastic an economic function as may be supposed. That is the background to my amendments.

[Lord Thurlow (CB)]

I take a slightly different position. I support these amendments, but I want to introduce a brief note of caution. The case for a reduction in the frequency of updating rateable values has been extremely well made, but I think experts should have a voice in the proposal. I think we should wait until the three-year review process has bedded in and all interested parties should then be free to comment, before reducing that interval further from three to two years, or even one year. Clearly, the VOA has a central role—the most important role—but ordinary ratepayers have a role too. It is possible that an annual or biannual revaluation will become unworkable. That is unlikely with digitisation and the wider use of technology, but any period longer than one year between revaluations is, by definition, quickly out of date. We saw that in high relief with volatile rental markets during and following Covid.

My amendment suggests that the Government listen to the view of the VOA, of course, but also to the RICS, the Rating Surveyors’ Association and the Institute of Revenues Rating and Valuation, together with other accredited advisory groups, before making a decision on these further reductions. I ask the Government to write into the Bill that they will listen to the voices of these experts before further reductions are agreed to.

[Lord Shipley (LD)]

My name appears on three of the amendments in this group. I think that the case made by the noble Lord, Lord Thurlow, is very strong. We have to be certain. I believe a reduction from three years to two years—and, in an ideal world, to one year—would be the right thing to do.

I should state for the Committee stage, however long that lasts, that I am a vice-president of the Local Government Association.

I am convinced that currently revaluations are too infrequent. The Government have accepted that case. We are going to three years, and that is indeed better, but to reduce appeals and to ensure a fairer system requires two years or fewer. Like my noble friend Lady Pinnock, I will be very interested to know why we cannot draw on the comparator of the Netherlands since it does a revaluation every year.

There are clearly advantages to more frequent revaluations. We will have fewer appeals because the valuation would be more accurate. It would be fairer to businesses and reduce complaints about the system. I read very carefully the letter the Minister wrote after Second Reading, but it is not clear to me that there are any administrative barriers to moving from three years to two years.

We support Amendments 8 and 10, which suggest that the Government introduce a change to two-year revaluation or to one-year revaluation by order, as long as the affirmative procedure is used. As I said a moment ago, I think the points made by the noble Lord, Lord Thurlow, matter. I hope the Government will pay particular attention to Amendment 12 because it would enable us to be certain that it would not be a mistake to move to two years. We are sufficiently open to say that we want to go to two years and would like to go to one year, but we are very happy to build in a timescale which enables that to happen securely.

--- Later in debate ---

Moved by

[Lord Thurlow]

15: Clause 10, page 19, leave out lines 4 and 5 and insert—
“(2) V must disclose the information to P without delay if requested by P.”Member's explanatory statement
This adds an obligation on the Valuation Office Agency to reveal their rental comparables/evidence used in arriving at a Rateable Value when challenged in the interests of transparency. This may satisfy ratepayer concerns at fairness early in the process and reduce the numbers resorting to appeal.

[Lord Thurlow (CB)]

I declare my interest as a former chartered surveyor. I should have done so earlier, and I apologise. I, too, join in the chorus of thanks to the Minister and her Bill team for the help and meetings a week ago. I also thank the noble and learned Lord, Lord Etherton, who is absent, for adding his name to my amendments in this group. I am sorry that he is not here to add his voice. This group of amendments is focused on the operation of the VOA and rooted in the desire for transparency for the ratepayer. It is a matter of simple public interest.

The current arrangements require registration for the check, challenge, appeal process before the VOA reveals the evidence it relied upon in assessing rental value. Amendment 15 questions why the VOA should be so secretive. There is no need for it. On appeal, the evidence is revealed, so why not admit it on first inquiry without the need for the CCA registration process? We all hope that the VOA’s figures are correct when assessing new rateable values and that its assumptions in arriving at them are well founded. It is hoped that, by the evidence being shown at the outset of any inquiry, most ratepayers would agree with the VOA’s evidence and accept its valuation. This would avoid the cost, resourcing and administration of the CCA process for the VOA and ratepayers.

With the help of the RICS, I have looked at some of the statistics for recent check, challenge, appeal numbers. In the quarter to March this year, more than 10,000 CCA notices were received. This is the first stage in the appeal process. Fortunately, 90% of them came from interested persons, and I believe that means ordinary people, not agents acting on behalf of ratepayers, so the leaseholder or the freeholder. It is a good thing in the absence of a requirement to use accredited agents, which we will come on to. But 10,000 registrations is an unusually high number. It is to some extent the result of the publication of the latest business rates revaluation. It must put great pressure on VOA resources.

If I am reading the VOA’s published data correctly, in the rating list period 2017-23, 30% of challenges resulted in a reduction. That is far too high. It suggests that the VOA may be taking a bullish view of estimated rental value, rather than an objective one. The VOA translates from estimated rental value to rateable value. This is very likely to lead to a growing trend towards challenges of the fairness of assessments, which is a concern. I do not want to overlook the fact that 70% of CCAs were found in the VOA’s favour, but 30% is still too high for successful appeals. My amendment seeks to reduce the volume of CCAs by thousands of appeals through applicants withdrawing at an early stage in the process.

My other amendment in his group is Amendment 17. It is a simple matter concerning confidentiality of information. Occasionally there is a confidentiality clause in a rent review or a new letting. There may be a means by which the VOA can obtain that detail but the ratepayer cannot. There may be other reasons for confidentiality. Why should the VOA be allowed to factor this evidence into its assessment if the ratepayer may not? It is akin to the VOA informing the ratepayer that it has information it cannot reveal which supports its figures. My amendment does not dispute the reasons for confidentiality being protected—not a bit—but requires simply that any information which cannot be shared with the ratepayer must be disregarded. The ratepayer must be empowered to challenge all the evidence used against them. I beg to move.

[The Earl of Lytton (CB)]

My Lords, I have five amendments in this group. I support the noble Lord, Lord Thurlow, in what he has just said in relation to Amendments 15 and 17. My Amendment 16 follows on from that, and for that reason I will be quite brief about it. The amendments tabled by the noble Lord, Lord Thurlow, and my Amendment 16 seek to provide a duty on the Valuation Office Agency to provide such information, subject only to data protection legislation.

This addresses something that has been a bone of contention for many years, namely that a target and tax revenue focus in HMRC seems to have affected areas of Valuation Office Agency practice to the point where—or where the appearance has been that—evidence has been withheld, right up to tribunal-stage appeals. Over the years, as I have monitored the updates from the Rating Surveyors’ Association and others, I have noted with alarm some examples—I hope these instances are few and far between—of appalling and unprofessional practice, not, as one might suppose, from rating agents of an indifferent moral persuasion and possibly no professional training at all, but from the VOA itself. I worked for the VOA’s predecessor body, the Inland Revenue Valuation Office, for nearly seven years. Then, it was held in universally high esteem for its ethical and professional principles. It would be highly regrettable if, as time has gone on, that were no longer a given—I want to stress that.

This amendment does no more than insist on the same standards for disclosure and candour from the VOA that it requires of private sector agents acting for ratepayers. If this or something similar is not agreed to, there will be not only a rising tide of criticism within the profession but some sort of backlash from the First-tier Tribunal and Upper Tribunal, which will ultimately force the issue. We need to deal with that at this stage.

I move on to Amendments 18 to 20 in my name. Again, I can deal with these quite briefly. All three interlinked amendments try to remove the requirement for an annual return. The principle is that the requirement for notification arises only when there is a change in that status requiring the notification. At Second Reading, there was some consensus that the proposed volume and frequency of making returns to the Valuation Office Agency in relation to changes was misconceived. We heard that it would bring into scope some 700,000 hereditaments on which an additional return-making duty will fall—we are talking about a return per hereditament, not a blanket return per operator. If you are, for instance, an outdoor advertising company—that trade body has been in touch with me, as it has with many other noble Lords—with thousands of billboards, or an operator of cashpoints, this starts to matter. I do not know whether the latter is a good or bad example.

I accept that, if we move to two-yearly or yearly valuation, the real-time provision of data capture becomes that much more important. But why, in all logic and seriousness, if a return is required for a change within 60 days after the event, is it also necessary to make an end-of-year return in addition for the same hereditament, especially as a form of return can be requested at any time by the VOA? To put it another way: the desire for real-time notification and coherence of VOA record-keeping cannot be a justification for unnecessary duplication of duties on the ratepayer. I really do not think that this should be a matter for negotiation; it is a matter of straightforward common sense.

I move on to Amendment 21 in my name. It seeks to ensure that ratepayers do not receive retrospective increases in their rating liabilities where the Valuation Office Agency has not acted promptly on the receipt of ratepayer-provided information. It is to prevent retrospectivity where there is delay in acting on the ratepayer’s provision of information on a notifiable event. Its intention is to cover all situations where the rateable value is likely to be affected, including entering a new hereditament into the rating list. I think it is basically self-explanatory, but it is the counterpart to the duties on the ratepayer to furnish information in a timely manner and, of course, the penalties for failing to do so—about which more in due course.

--- Later in debate ---

[Baroness Scott of Bybrook (Con)]

We will be in touch.

[Lord Thurlow (CB)]

I thank all noble Lords who have taken part in this group. I thought that the reference made by the noble Earl, Lord Lytton, to a timely VOA response was particularly apt, and I was grateful for his support just now on Amendment 17 on confidentiality. I thank the Minister for the offer to follow up.

The comment from the noble Lord, Lord Shipley, that the amendments in this group are simple common sense was one of the most powerful pieces of oratory that I have heard this afternoon, and I hope that it materialises very soon. I admired his well-made comments about the rogue agents, and once again I thank the Minister for her comments in that regard, as to how the Government intend to protect the public. I thank the noble Baroness, Lady Hayman, for identifying a number of concerns over the VOA’s resourcing, which tie in directly.

--- Later in debate ---

The final review I ask for, in Amendment 35, is simply for an impact assessment. Do these changes actually incentivise improvements to business premises? Will business benefit from more frequent valuations? The amendment asks the question about devolving more powers over business rates to local authorities. These are important changes. Reform and review are at the heart of the amendments, and I look forward to hearing how the Minister will respond, especially to Amendment 36 in the name of the noble Lord, Lord Thurlow.

[Lord Thurlow (CB)]

That was an impressive introduction. I apologise for bringing this up so late. I was not going to table it, as it was too difficult, but I just could not not do so. I give great thanks to the Table Office for drafting and help.

This group is listed as reliefs and reviews, and I feel strongly that we should dwell more on reviews than reliefs. While injustices should be addressed in the short term with financial relief, the non-domestic rating system is broken, and it seems that the attempts to fix it have become too difficult and it has become easier to throw taxpayers’ money at reliefs than to review it. I believe that the attempts to resolve the injustices in the system have simply been considered too difficult—as I did until last night, or Friday—and have been kicked into the long grass. I would like nothing more at all than to hear from the Minister that action is expected very soon.

One particular injustice, perhaps the most trumpeted, is that of the small high street retailers we have heard about, struggling to survive against the onslaught of internet shopping. In ordinary business terms, the free-market economy dictates the survival rate of businesses, but in this case there is an important further dimension—so much more important—which is the public interest case for healthy high streets. They provide a social necessity to our communities, a valuable asset in the social fabric. We know the subject is complex. A number of high street retailers and major supermarkets have websites; some SMEs may rely on them. These and other good reasons simply complicate the matter; they do not make it impossible.

There is a fiscal irony here. The growing turnover and profitability of internet retail is directly felt in the high street by falling demand. Falling demand translates as falling rental value. It follows that the rateable value will fall. Without this amendment or something similar to it, net tax receipts will also fall. Introducing fairness to the rates paid by internet retailers will go some way—possibly a very long way—to making up for the loss of high street rate contributions.

The solution lies in a new property use class for the purposes of assessing NDR—not to overlap with use classes in the planning Acts; I would run a mile from that. This would be purely for rating. It would correct the current major imbalance between retailers paying warehouse rates and high street retailers paying high street rates. Warehouse rates are a fraction of high street equivalents. Internet retailers know this, and their profits swell by the artificial discount the system supports.

The amendment proposes that the Government conduct a review to make recommendations for a new rating use class. It would harness expertise from the commercial property sector. The amendment gives the Government 12 months to bring a new Bill before Parliament with recommendations to correct this widely recognised injustice.

[The Earl of Lytton (CB)]

My Lords, I support the amendments in this group. At one of my meetings with the Minister and her Bill team I was told that it was not HMRC—or they may have said Treasury—practice to produce an impact assessment as such, and I was directed to a series of notes in lieu. But business rates have an impact on business, employment, entrepreneurial activity and the health of our high streets, and have long seemed a substantial tipping point in decisions about taking on premises, where the tax levied is 50% of the determined market rental value. That puts into shade the collective cost of things such as insurance service charges and other occupational outgoings.

There is a basic imbalance here; I have said so on many occasions in the House and elsewhere. Upfront impact assessments and post-legislative review are exactly what is missing here. I agree with the noble Baroness, Lady Pinnock, that small business relief and small business exemptions are almost an admission of the failure of the system we have.

Turning to Amendment 36, tabled by the noble Lord, Lord Thurlow, I totally agree with its underlying principle that the tax base for local government finance needs to be broadened, with proportionately less of a burden falling on what we might call the traditional business rate payer. This is becoming an impediment. What are termed fundamental reviews have been a great deal less fundamental than they ought to have been. The system has been creaking for some time and one should take notice when things start to creak; it usually means that something is wrong. I very much relate to these amendments, and I look forward to the Minister’s comments.