Non-Domestic Rating (Multipliers and Private Schools) Bill

Lord Thurlow Excerpts

Committee stage
Monday 24th February 2025 Grand Committee

[Lord Fox (LD)]

My Lords, I welcome the Minister back to his place and say that the whole House was sorry to hear of his family’s loss.

We on these Benches welcome this Bill as a narrow tinkering of a broken system. It may have some beneficial effects, but I remind your Lordships that the non-domestic rates system has been broken for years, and if this tinkering distracts from a full and proper review of the system, then it is a malign influence rather than a benefit.

From scrutinising the Commons debate on this Bill, it seems that the Government sought to limit debate by asserting that its purpose was to use multipliers to manipulate the non-domestic rates of a subset of businesses in what it calls high streets. This measure is focused on retail, hospitality and leisure hereditaments. Having done this, the broad government claim is that our high streets will somehow be protected and that investment will be encouraged. In wording Amendment 1, we attempted to include words that spelled out the spirit of the Government’s Commons claims, but I have to say that the Public Bill Office resisted all attempts to include the concept of protecting high streets and encouraging investment in the purpose statement. The PBO has confirmed the narrow nature of this Bill.

The Government cannot have it both ways. If they accept the restraints of their own handcuffs and restrict this Bill to varying multipliers for this subset of businesses, the Minister cannot claim to be protecting high streets. There are at least three reasons that make this true. First, high streets are much more than retail, hospitality and leisure, as we will see from various groups of amendments. If the Government’s actual purpose is to protect high streets, they would spread its activity more widely. This will be effectively asserted from these Benches and from those of His Majesty’s loyal Opposition.

Secondly, the Government present no evidence that their claims to be protecting high streets will actually come to pass. As we know, the non-domestic rating system is complex. It is further complicated by the application of reliefs, which will vanish as these multipliers arrive. Increasing the multipliers for larger businesses is another complication. In addition, there is the issue of valuations—this is the elephant in the room that this Bill ignores. They are always up. There are many puts and takes that affect the individual business rates that a business pays and what its competitors pay, yet there has been no attempt at an impact assessment. I have to put it to the Minister that no one actually knows the effects that this Bill will have.

Thirdly, we know that there are some important consequences for activities that fall outside the retail, hospitality and leisure focus that could be badly affected by the consequences of this Bill. My noble friend Lady Pinnock will highlight the issue of medical and health-related premises, and I will seek to demonstrate that an important sector of our creative industry—independent music venues—will be hit hard. In both cases, we need the Minister to confirm that increasing rates for these activities is an unintended, rather than an intended, consequence. Both these activities are important parts of well-functioning high streets, although of course there are other activities that also contribute. This is a consequence of blunt targeting, and it needs to be sorted.

I propose this amendment with a heavy heart, because the narrowness of the purpose allowed by the PBO identifies the limitations and faults of this Bill. But there is hope. First off, the Minister could accept my noble friend’s Amendment 51, when it comes up. That is a good starting point but, otherwise, I am sure that we can work with the Minister to come up with a new Short Title and Long Title that will allow us to properly set about protecting our high streets. My colleagues and I stand ready to help the Minister in this regard. I beg to move.

[Lord Thurlow (CB)]

My Lords, I stand to introduce the second group, in which, conveniently, there are three amendments, all in my name—

[The Deputy Chairman of Committees (Lord Geddes) (Con)]

We are still on group 1. We will come to group 2 in the fullness of time.

[Lord Thurlow (CB)]

My apologies.

[Baroness Scott of Bybrook (Con)]

My Lords, I will speak to Amendment 1 and to my notice opposing the Question that Clause 1 stand part of the Bill. I was pleased and interested to see that the Liberal Democrats had tabled a purpose clause, given that they have criticised purpose clauses tabled by my Conservative colleagues on other Bills. On the purpose clause tabled by my noble friend Lord Davies of Gower—

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Moved by

[Lord Thurlow]

2: Clause 1, page 2, leave out lines 1 to 2
Member’s explanatory statement
This amendment, connected to another in the name of Lord Thurlow, seeks to remove the power to introduce higher multipliers for more valuable properties.

[Lord Thurlow (CB)]

My Lords, after my practice run, for which I apologise, I rise to address this second group. Conveniently, it consists of three amendments, all in my name. Before doing so, I should mention that I was formerly a chartered surveyor and spent several decades working in the realms of commercial property. This included a certain amount of rating, so I have considerable experience. I also beg the Committee’s leave inasmuch as I was unable to take part at Second Reading, but I have read Hansard and spoken to colleagues.

The purpose of Amendments 2 and 4—the latter is consequential on the former—is to remove the power to introduce higher multipliers for the more valuable RHL properties on the valuation list. There is a fundamental flaw in the Government’s proposal to pay for the reduced multiplier, hereditament or—I cannot remember what it used to be called—poundage by taxing the larger organisations. To understand this, we must look for a moment at what characterises a successful high street and distinguishes it from one that withers and fades. Although a high street that has withered will continue trading, it will have lost its heart as a retail centre and lost the social cohesion that it provides to the community. There is a gradual decline in the presence of national multiples, which are the key to high streets’ economic health.

A key presence in a successful high street are the anchor retailers, as we have heard. These may be department stores—though, sadly, few remain—other large retailers, such as Marks & Spencer, or possibly a leisure centre. Importantly, nowadays, it may also be a large supermarket. Most larger towns now have a town centre shopping scheme, of course. These are developments that have been carried out behind the retail frontage, usually, but with one or two shopping units providing access to the prime section of that high street. They are anchored by a large retailing presence: the department store or the supermarket in the shopping centre. They also frequently have the advantage of providing car parking and bus station services to the high street, which are particularly important these days with traffic restrictions and general congestion.

It is important to understand that anchor retailers are the lifeblood of our high streets, many of which are pedestrianised to improve the experience and safety of pedestrian traffic. The proposal to charge the larger retailers or RHL traders premium rates will cause yet more of these anchors to close down. This will structurally destabilise the complementary nature of a balanced retail offer. These anchors, including supermarkets, are already under extreme financial pressure.

It is no accident that the large department stores are fast disappearing from our high streets. To ask the higher NDR companies to pay this extra tax is punishment in the extreme. British Home Stores has gone, as has Binns in the north-east. C&A, which many of us will remember, is a good example of another that was forced to close by its parent because it could not afford all the costs, yet it trades healthily and thrives across continental Europe and in other countries around the world. It closed in this country because it could not afford to trade any longer; there was nothing wrong with its product.

Ironically, the only retailers that can afford the high street costs are the mail order giants, and the Government know who they are. Yet we must tread carefully in taxing the fulfilment centres, which are linked to the remaining high street operators and which, by managing to operate away from the high street, can control their costs and keep operating. They are a very different category from the Amazon generic, if I may use that phrase, which the noble Baroness, Lady Scott of Bybrook, already mentioned.

Amendment 45 probes the wisdom of asking the large ratepayers—£500,000-plus is proposed—to subsidise the RHL discount for smaller traders. As already mentioned, the sweeping and inclusive size-related premium will impact many high street retailers attempting to stay afloat by resourcing their mail order businesses elsewhere. They are not the Amazon generic. Asking the larger retailers to subsidise the smaller ones is robbing Peter to pay Paul. The unintended consequence is that the larger retailers will find it harder to continue. It will be another financial burden for them to bear, and it is too much. High street shops will then close to save costs, impacting in turn the economic health of the town.

The key to all this is to separate the fulfilment centres operating behind the scenes of the high street retailers—the big organisations—from the Amazon generic. Dealing with this is complicated and difficult, and it is a matter of definitions. The solution is to ask the experts. There has been consultation on the Bill, but there has been no impact study of this aspect. There needs to be a simple invitation to the experts in the field—the Rating Surveyors’ Association, the RICS and one or two others—whose profession is focused on these subjects, to come up with proposals, ideas and suggestions that can then be refined and considered as a satisfactory solution to funding the discount that the small RHL players will enjoy. Amendment 45 addresses that funding problem. It should not be the highest ratepayers; they suffer enough. I beg to move.

[The Earl of Lytton (CB)]

My Lords, I am very grateful to my noble friend Lord Thurlow for introducing this point. I support the general thrust of what he said, although I do not see any great likelihood that this will move the government position at all.

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I am particularly conscious of the support that the noble Lord, Lord Thurlow, has previously expressed for reform of the business rates system, so I hope he welcomed the discussion paper on transforming business rates that the Government published at the 2024 Autumn Budget. I trust that he will bring the full weight of his professional experience and knowledge to support the Government in their endeavour to reform the business rates system and, in the meantime, will withdraw his Amendment 2.

[Lord Thurlow (CB)]

I thank noble Lords who have taken part in this group. The most important takeaway is that it would be too little, too late to postpone until 2027. The acute pain felt in the high street is great enough for there to be substantial loss of retail presence if we do not move more swiftly. We have heard from all sides of the Committee that the lack of impact assessments on the specific, granular issue of definitions is of very serious concern. It needs only another 12-month delay for consultations with experts to take place.

The noble Baroness, Lady Pinnock, revealed with clarity—the noble Lord, Lord Fox, referred to it as well—that there is a harsh difference between an Amazon warehouse with a rental value, on which rateable values are based, of £4.50 per square foot, versus £45 on the high street. That is a massive difference. Amazon are paying 10%. We are tinkering with the deckchairs if the rate poundage is increased for these larger retailers because it cannot be increased—as the noble Lord, Lord Fox, pointed out—to anything near what will be required to provide balance.

The difficulty is one of definitions. I would be grateful if we could speak to the Bill team before the next stage of the Bill. There is scope to introduce a new use class order specifically for the purposes of rating—not for planning, but rating. This would identify the difference between a fulfilment centre for a high street business and an Amazon generic. If that was offered, I would withdraw my amendment.

Amendment 2 withdrawn.

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[Lord Jamieson (Con)]

May I deputise? Before I do, I declare my interest as a councillor in Central Bedfordshire. In moving Amendment 3, I shall speak to Amendments 18, 37 and 43 in the name of my noble friend Lady Scott, and in favour of Amendment 32 in the name of the noble Lord, Lord Thurlow.

Amendment 3 seeks to introduce discretion for billing authorities in the application of the higher multiplier. The other amendments in the name of my noble friend Lady Scott—Amendments 18, 37 and 43—question whether the Treasury is the right authority to define these hereditaments. The purpose of these amendments is to seek the Government’s reaction to the proposal that local authorities should have a role in deciding which businesses pay the newer, higher multiplier. Local authorities are in a unique position to comprehensively understand the challenges and circumstances faced by their local businesses, which a centralised body certainly is not.

For all its strengths, we know that His Majesty’s Treasury does not have the local knowledge and in-depth understanding of the needs of individual high streets to make informed decisions on business rates that work in the best interests of the local areas. Local authorities are on the ground and are intimately familiar with the economic, social and cultural landscape of their high streets and areas. From my own experience in Central Bedfordshire, I know the positive impact that a well-run local authority can deliver for its high streets. We are interested to hear how the Government seek to empower councils in these areas. We have heard a great deal from the party opposite about the value of devolution; this is a good example of where the Government should put these sentiments into action. The amendments in the name of my noble friend Lady Scott look to empower local authorities to tailor policy to best suit their local area’s specific needs.

Fundamentally, policy is about not only implementing rules but creating a framework that works in practice. Therefore, it is essential, even if the Government are unable to accept the amendments in this group, that local authorities are consulted properly before the Bill is passed. Can the Minister set out the consultation process undertaken to date and confirm for the Committee the further steps that his department will take to consult local authority leaders on these changes? Can he also update the Committee on how this change to our business rates system will interact with the Government’s wider plans to reorganise local authorities? We know that the environments in which businesses operate vary dramatically throughout the UK. However, this issue is neglected in the drafting of this legislation.

It is concerning that the broad applications of the definitions of hereditaments, which will be determined by the Treasury, will not address these regional disparities and enable a focus on what works locally. When created by the Treasury, definitions are designed with an overarching and national perspective and may risk creating unintended consequences for local businesses. They do not account for the nuances of local businesses, which are well understood by local authorities, so we must be cautious about adopting a one-size-fits-all approach when introducing legislation that will undoubtedly have significant implications for local businesses. The Government risk implementing blanket definitions that are disconnected from the realities faced locally.

Finally, I turn to Amendment 32 in the name of the noble Lord, Lord Thurlow, which seeks to remove the power of the Treasury to define a retail, hospitality and leisure property; this addresses the fact that it is local authorities who decide what constitutes a retail, hospitality and leisure relief property, in line with the government guidance. In tabling this amendment, the noble Lord appears to have many of the same concerns as those expressed in my noble friend Lady Scott’s amendments. I look forward to hearing his speech. We did not discuss this matter before Committee so I was pleased to see on the Marshalled List that I have a friend on this issue on the Cross Benches; I thank and offer my support to the noble Lord, Lord Thurlow, and hope that we can work together constructively after Committee.

To conclude, I hope that all noble Lords will listen carefully to the concerns raised in this group of amendments. I look to the Minister to engage proactively with the issues addressed in this amendment. I beg to move.

[Lord Thurlow (CB)]

My Lords, the noble Lord, Lord Jamieson, has taken the words out of my mouth. I support much of what he has said.

The starting place for my comments on this group is that the Bill seems to reverse the attempts to regionalise power from the centre; it would take the ability to define these hereditaments back to central government. As the noble Lord, Lord Jamieson, said clearly, the definition of RHL properties needs local expertise. There are regional disparities, to which he referred; it is terribly important to understand that. Regional disparities are huge. This measure is a generic product, but it is subject to huge regional variations. One size does not fit all hereditaments. That is an important starting place. It is no accident that the government guidelines allow local authorities to define RHL in accordance with the existing government guidance. That is very sensible. They are the people on the ground. They understand the give and take, as well as the commercial flows, involved.

A large supermarket on a high street may be the only anchor present in that town, being vital to the health of the high street, probably with a car park or a bus stop, and the only source of sufficient turnover of pedestrians to justify its presence in the high street at all. It has to be understood that, if these anchors pack up and leave, high streets really do suffer. There is a terrible price to pay for letting them go and anything that imperils their presence has to be terribly carefully decided, which is why it is a local issue, not a central government one. I strongly urge the Government to allow local authorities to continue to make these decisions.

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I hope that I have been able to provide further information and clarification for noble Lords and that, with that, they will be able to withdraw or not press their amendments.

[Lord Thurlow (CB)]

Does the Minister have any comments to make on the possibility of redefining the use classes for the purposes of rating, which would focus on the Amazon generic problem?

[Lord Khan of Burnley (Lab)]

I forgot to mention this to the noble Lord, Lord Thurlow; it would be helpful for him to sit down with me to discuss that, as well as his previous request, as soon as he has time in his diary. This is a discussion that we should have to engage on that particular point.

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[Lord Fox (LD)]

My Lords, this is another example of the blunt instrument in operation. We have talked about increasing tax on public services, some of which have the ability to recover the money via new burdens, while some do not. But these services are offered by private sector organisations, and we know for a fact that they will not get recompense from the Government for this, which will increase their costs, reduce their profit and may eliminate their viability altogether. When post offices and Crown offices are retreating from the high street, this is not a good time for those businesses.

In a moment we will talk about flagship operations. I put it to noble Lords that banks and post offices are flagship operations. People travel to towns to visit a post office and banks, and then they spend their money on other things, so by denuding or putting in peril those sorts of operations, we are removing the attraction of town centres. We are making sure that they do worse rather than better. That is the first point.

Secondly, I have a relative who owns a shop in a country town—I do not have an interest in that shop—and one of their biggest difficulties is banking their money. They have to drive 20 miles twice a week to take bags of money to bank it because there is no longer a bank. The removal of a banking hub would make that even harder. It also drives shops to go fully digital, which means that people who do not want to use digital and want to keep using cash are no longer facilitated by those businesses. I have seen businesses that can no longer handle cash simply because they no longer have the necessary banking facilities.

Once again, we are looking at the RHL sector, but these businesses serve the RHL sector and make their lives operational. I am happy to support the various amendments in this group in the name of the noble Baroness, Lady Scott, and I look forward to the Minister explaining how taxing post offices and banking hubs will help the RHL sector in our town centres and high streets.

[Lord Thurlow (CB)]

I will say a few words in support of the excellent Amendments 8, 9 and 10 in the name of the noble Baroness, Lady Scott. It had not occurred to me but is worth saying here that, just as an anchor is critical to the economic health of the high street and the social contribution that comes with it, so are these very small and vital retailers—if that is the right word—for banking facilities, as well as the small facilities open all hours, 18 hours a day or whatever it may be. They are critical. In fact, they should perhaps be considered in a conversation about revising the use classes order because, as we heard with the good examples given, they are essential to the health of the local community.

[Lord Khan of Burnley (Lab)]

My Lords, in her contribution, the noble Baroness, Lady Scott, said that she hoped the Minister listens very carefully. Just to reassure her, I always listen very carefully and with great interest to everything that the noble Baroness says, as is the case for all noble Lords in this debate.

Six of these eight amendments seek to change the Bill to remove certain high street services from the higher multiplier. In the previous debates on the amendments in groups 4 and 5, I explained why the Government have taken a sector-agnostic approach to the higher multiplier and have not excluded any sector or type of property. The same considerations apply here and I will not repeat them.

As regard detail, it is worth being clear what type of retail properties on the current rating list would be caught in the higher multiplier. The Valuation Office Agency’s published data shows that, of the subsector of shops that are at or above the £500,000 threshold, 72% are supermarkets, large food stores or retail warehouses. That leaves only 900 other shops at or above £500,000 across England, and of these 630 are in London and the south-east. For most regions, the number of shops affected, excluding supermarkets, large food stores and retail warehouses is fewer than 50. These numbers are rounded to the nearest 10.

In particular, the noble Baroness, Lady Scott, mentioned petrol stations, and amendments would support petrol stations but, in reality, from the Valuation Office Agency’s data, the number of petrol stations above the higher multiplier threshold of £500,000 is fewer than five.

The danger with these carve-outs from the higher multiplier is that the benefit could, in part, flow to large businesses in thriving and valuable locations, reducing the ability for us to support smaller businesses and less valuable locations through the lower multiplier. We understand the importance of facilities such as post offices or banking hubs for local communities. The average post office has a rateable value of only £16,000, so we do not anticipate that the higher multiplier will apply to very many premises used by post offices, and post offices are eligible for the existing retail, hospitality and leisure relief.

We understand that Amendments 17 and 35 seek to add to the lower multiplier hereditaments that host banking hubs. In the debate we have just had on group 4, I explained why we feel it necessary to target the lower multiplier on RHL. These amendments could easily widen the lower multiplier to other settings and introduce a loophole to the Bill. I assure the Committee that the Government will continue to work closely with high street banks to ensure that communities and local businesses have access to the banking services they need. I hope the Committee is assured that the Government remain committed to banking hubs. With these facts and assurances, I hope that the noble Baroness, Lady Scott of Bybrook, will withdraw her amendment.

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[Baroness Pinnock (LD)]

My Lords, I thank the noble Baroness, Lady Scott of Bybrook, for this group of amendments which seeks to exempt so-called anchor stores from high streets.

We could do with a definition of an anchor store and, indeed, of a high street, but we will come to that in a later group. High streets vary enormously from small town high streets and market town high streets to larger town centres and city centres. When there is a new retail development in a town or city centre, the phrase “anchor store” often comes into play. It is very clear in the business sector that retail works better if there is one major store, which is a sun around which the satellites of smaller shops and businesses operate. This is the description that the noble Baroness, Lady Scott, provided. However, that is just for a group of retail businesses, often in a new situation—such as an out-of-town retail park, a new retail development within a larger town centre or an existing large business in a town centre, for example a Marks & Spencer or a John Lewis store that has a multitude of operations within it. That enables other businesses to exist and thrive from the footfall that the big name store attracts.

I agree with the noble Baroness, Lady Scott, about the importance of these so-called anchor stores, although I would like to see whether the Government have a definition that can be applied. I agree with her argument that smaller businesses develop and thrive as a result of the draw of a so-called anchor store and, equally, the argument that she makes that, because anchor stores are critical to the business environment for the totality of large, medium and small businesses—retail, leisure, hospitality or otherwise, within the sector—it is important to think about whether those often large retail businesses are exempt from the higher multiplier.

I am thinking of a local town high street where the Marks & Spencer closed and moved out some years ago. It was absolutely clear that that was the focus of shoppers going to that town. Once it went, it caused the closure of a whole section of shops in that town and very difficult situation for the businesses that were left. The town will require government money for regeneration to get back on its feet. That is what happens.

So it is important that the Government, in thinking about the Bill and the impact it will have on businesses, think about the consequences of what they are doing. In a previous group, I raised the consequences for public sector-funded businesses, but this is as important for the future health of our town centres. If you take out the key store around which others, like satellites, are drawn because its business sums no longer add up, the whole area will be on a downward spiral.

I will give the Committee an example from some figures that I remember, so they may be wrong. Take John Lewis, which is a big store. It knows that much of its business will move online. I think its business plan expects 60% of its business to move online. If we put an additional cost, as would happen under the large multiplier, on the remaining 40% of its business, I expect that one of the consequences would be that a greater proportion would move out of the high street to online to reduce those costs. That is not what this Government want to happen. They have argued for the importance of the health of our town centres for all sorts of reasons, not just to support small businesses but to support the community which goes there to meet and so on.

It is important that the Government think about the unintended consequences of this rough and ready Bill because it will potentially have very rough consequences on our high streets, particularly those which depend on a big store as the holder of the rest of the businesses around it. I look forward to what the Minister says, but I hope that he does not use “tough choices” and “fair and sustainable”.

[Lord Thurlow (CB)]

I will briefly add a few comments. I wholeheartedly support Amendment 11 from the noble Baroness, Lady Scott, in principle. The noble Baroness, Lady Pinnock, has clearly illustrated what happens to a town centre when the anchor departs and the economic health of the shopping environment dies.

The problem we have is that of definitions. When a comprehensive town centre development is designed by developers, it contains, without fail, something called an MSU—a major space unit. That is the anchor, the John Lewis or the Marks & Spencer. When that goes, the only possible replacement, generally speaking, is a supermarket.

If the supermarket becomes the anchor of the economic health of the high street, at the back of a shopping centre, filling the space of the department store that was there before, the supermarket really has to be described as an anchor. I do not disagree with the concept, but it makes the problem one of definitions and gets back to the question of use classes, which we will perhaps be able to speak about with the Bill team at another time.

I agree with the principle of this amendment, but I think it is more complicated. We need to get to the bottom of it, but it is one of definitions.