Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (Second sitting)

Luke Hall Excerpts

Committee stage
Tuesday 6th July 2021 Public Bill Committees

[The Minister for Regional Growth and Local Government (Luke Hall)]

Q Thank you both for your evidence this afternoon. You clearly both have a wealth of experience, so it is really useful to hear your thoughts. What has your experience been of how the scope and extent of MCC claims have evolved over recent years? Could you talk us through the changing landscape of using this type of appeal over the past few years?

David Magor: When this legislation was introduced, you saw various significant events that triggered MCC changes. When you are looking for things that are similar to covid, you perhaps look at the crash of 2008 and things like foot and mouth disease. These are factors that are taken into account when you are looking at the broad picture. The covid situation, as we all know, is quite unique. The normal material change of circumstance is an essential part of the overall evaluation process. You need to reflect the changes in communities and in the environment, such as buildings being demolished or empty and so on—the material changes that happen in every neighbourhood from day to day. There are roadworks and 101 different things. Those have been dealt with very adequately by the Valuation Office Agency. The agents, on behalf of ratepayers, put in the challenges under the new challenge and appeal process, and it has worked very effectively. It has ensured that the distribution of the rate is as fair as it can be when you have got a five-year cycle of revaluations.

The special circumstances that come to mind are the crash in 2008 and foot and mouth disease. It worked quite adequately but, of course, it was nowhere near on the scale of covid, and the impact of covid on the economic wellbeing of communities.

Adrian Blaylock: The only thing I would add is the position since the end of March 2020. From 1 April 2017 to 31 March 2020, just short of 160,000 MCCs were lodged against the 2017 rating list. By the end of June, that had grown to just over 300,000, so had almost doubled in that three-month period. By the end of March 2021, 568,000 MCCs had been lodged with the Valuation Office Agency. There has been a significant increase, and it is fair to say a good proportion of those will be related to the pandemic.

[Luke Hall]

Q A lot of the early feedback we received suggested the potential scale of the appeals was causing concern in local government. We started to hear talk from local government about potential savings to frontline services that would need to be made. Could you tell us your experience of the way local government started to approach that potential task, and whether that started to impact on budgeting and forecasts for councils in setting their budgets?

David Magor: Since the introduction of the rates retention scheme, local authorities have had to forecast the impact of changes in the valuation list from year to year when preparing their budgets. You started with 50% retention, and moved to pilot schemes of 75% and 100%. When you have a rates retention scheme that works in that way, if you make a mistake in forecasting the reduction in value, you will significantly affect the finances of the local authority and the budgeting process.

Every chief financial officer has to make a forecast of the impact of a change. They would have to make a provision against that forecast and, of course, provisions prevent you from spending money, because you are providing for an event that is likely to happen. Certainly, as far as forecasting for the 50% rates retention scheme was concerned, every time you looked at your rateable value and the changes in that over the forthcoming year, you were conscious that any forecast you made, 50% of that reduction in value would fall on your budget.

That was the way the retention scheme worked, and it created a great deal of concern because chief financial officers were making very significant provisions. As I said, making provisions curtails the local authority’s ability to spend. Elected members quite rightly get very concerned about that. Then the MCC checks and challenges came in, with the checks first. As Adrian said, the enormous number of checks has now reached half a million, and the challenges emanating from those are well in excess of 100,000. You are talking about a massive impact on the valuation resources of the list. Local authorities have to make provision for that.

Through this Bill you would remove that risk and, as the Chair said, transfer it to central Government, because you would fund it through a relief scheme. The real problem is whether the relief will be sufficient to meet the needs of the ratepayers who are expecting a reduction in rateable value.

Adrian Blaylock: That is right. The risk and the responsibility of a local authority to set aside sufficient funds to cover any potential losses to the rating list could be significant. If I can just give you some indication of where we were: at the end of 2019-20, local government had just short of £3 billion sat in provisions for alterations of lists and appeals. This is all pre-covid. This is nothing to do with the pandemic, just essential changes to the rating list. Every year, they have to forecast what they think they will lose in the forthcoming year and there is roughly £1 billion a year being added to that pot, regardless of covid. So the potential loss on top of those normal everyday changes to the rating list—well, I would not like to think what would happen to local government finances if it went ahead. You would need a significant level of provision to be able to carry that. We have already seen local authorities applying to MHCLG for capitalisation directions because they are struggling to pay the day-to-day costs of running their services. How many more authorities would need to go down that route if that is where we get to? That is what concerns me.

[Ms Marie Rimmer (St Helens South and Whiston) (Lab)]

Q There are three very specific exemptions to the restrictions on appeals set out in clause 1(5), inasmuch as the valuation decision must take into account the effects of covid-19 on the quantity of minerals extracted and the quantity of waste disposal from the property, along with the physical state of the property being affected. Do you think those exemptions are reasonable and are there any other circumstances that you feel should be included?

David Magor: I must admit that the Bill is very well framed. We have looked closely at the Bill, clause by clause, and it meets its specific purpose. The approach to dealing with the material change in circumstances and to withdrawing or removing the covid ones is very sound. I find the provisions of clause 1 fit for purpose and they meet the needs of Government. That is a relief, in the sense that it seems to be fair. Of course, it is important that in making decisions in relation to the clauses that you have mentioned the Valuation Office Agency is transparent and gives the ratepayer and ratepayer’s agent every opportunity to make their case for other matters that are outside the covid situation.

Adrian Blaylock: I have nothing to add to that. I agree with David.

--- Later in debate ---

[Navendu Mishra (Stockport) (Lab)]

Q Can you comment about how these provisions will affect local government’s income from business rates? We hear a lot about cuts to local government in the last 11 years, but how will this impact finances?

Sarah Pickup: These provisions mitigate against the need for having to make provisions against the material change of circumstances. In that sense, they are beneficial to local government, because it takes away that uncertainty, albeit we need the clarifications around timing and discretion as part of this.

If we stand back and think about business rates as a source of finance for local government and the Treasury’s fundamental review of business rates, they form 25% of local government income and are really important. Alongside council tax, business rates are one of the two main sources of funding, but where we stand now is that there is a whole patchwork of reliefs and new provisions for relief to businesses against their core business rates commitment. It means that the future is very uncertain. The way in which the next revaluation will go is uncertain and, arguably, while business rates have a role going forward, some significant reforms are needed to make them a stable source of finance for local government going forward.

[Luke Hall]

Q Thank you for your evidence: I know the LGA conference is happening today. Can you think back and tell us when the LGA first heard about the potential scale of losses through MCC challenges and appeals? What was the reaction of local government at that time? What issues were they raising with you and how widespread was the concern? What time did it start to build up?

Sarah Pickup: Gosh, it is really hard to recollect precisely; so much has gone on in the last year. It was probably about a year ago; it may be slightly less. There was a lot of discussion at the point when the Valuation Office Agency started to discuss how it might address these appeals. I think there might have been some leaks in the press. That is when the discussion started to come to the fore a bit more, because there were some quite substantial proposals around the adjustments to valuations that might go forward. I think there was an attempt to address this on a uniform basis, rather than deal with every appeal and address it individually. We have gone from there to this scheme which approaches the issue differently, probably more straightforwardly and in a more timely way, certainly in the short term.

The anxieties around appeals are ever present and this was just an addition to the pre-existing issue about businesses’ ability to put in appeals right up through a rating list with no time limit on it. The check, challenge, appeal process has made a difference to that, but we have not yet seen the end result of the number of appeals from the 2017 list, because the time window has not closed yet.

[Luke Hall]

Q It would be interesting to hear your view, from a local government perspective, on exactly why the LGA thinks that ruling out MCC appeals for councils provides extra certainty—I think that is what the LGA has said—and how big a difference that has made to councils and their planning of their finances.

Sarah Pickup: There is a greater degree of certainty, because they do not face a period of time of not knowing whether an appeal will be successful or not, nor the extent of that success, and therefore having to make additional provisions on their balance sheet. Instead, they have a scheme to operate that offers them resources to provide discretionary funds to local businesses, which is welcome. As we have said, there is still some uncertainty in relation to what the guidance says and whether the scheme delivers what businesses expect, and whether, if not, there is either a pressure on the council to fund beyond the resources that have been made available, or a pressure because businesses cannot manage without the relief that they had been expecting, and therefore some businesses start to fail.

[Seema Malhotra]

Q As a slightly different angle on this, I was just wondering about any contact that you may have had, or experience that you may have had, with the Valuation Office Agency at the moment, and whether it has the resources it needs for the work it is currently undertaking—its existing functions—as well. I would be very interested in your perspective on that.

Sarah Pickup: I do not have detailed knowledge of its precise funding at the moment, but over time, we certainly have made a case that we support the Valuation Office Agency being funded adequately to deal with the task in hand, because there has been a very big backlog of appeals on the books. It has been pulling those down, and the change to check, challenge, appeal has impacted on that. Nevertheless, there is still a backlog, and our fears were that if the Agency was not properly resourced, you would end up with overlapping backlogs of appeals from different rating lists creating ever more uncertainty and not really taking away that need for councils to keep assessing the provisions that they need to make on their balance sheets.

One of the things that we certainly would support is a time limit on the time when businesses can put forward checks, challenges, and especially appeals against any given rating list. We think that would help, and it is in place, I believe, in some of the other UK nations.

--- Later in debate ---

[Jeff Smith]

Q Can I follow up on a specific question that follows from something you said earlier? I was interested to hear you say that the hospitality trading levels in London are 20% to 30% of what they would normally be, and in the rest of the country it is around 60% to 70%. That is partly down to international travel, and I am guessing that there might also be areas—maybe coastal towns—that might be similarly affected by lack of footfall. I am wondering whether there is an evidence base for those regional or city-based variations that the Government might take into account in guiding the allocations, or is that a little bit too sophisticated to get into?

Kate Nicholls: It is certainly challenging to be able to get into, and I am not sure it would drill down as closely as local authority by local authority level, but there are certainly indications. You can measure footfall drops by high street data: there is good data from Springboard about footfall in our high streets, towns and city centres, as well as shopping centres. They are measuring it for retailers, but that would also apply to hospitality businesses. It is not just the international tourists: it is the offices, the work from home, and it affects different city centres differently according to the demographic that uses them. It is less to do with our coastal towns—they are benefiting from more domestic tourism and domestic footfall—but you are seeing it in London, Edinburgh, Glasgow, Manchester, and to a lesser extent Leeds, Sheffield and Newcastle. They are seeing a drop, but London is particularly badly affected because 70% of London hospitality is inbound tourism, and we are not going to see any pick-up in inbound tourism any time soon.

I think there are broad regional differences that you can apply: it is a very rough and ready crude assessment that you can place on it, but there is a possibility of looking at footfall data. However, I would urge the Government to look at the areas of the country and the constituencies where you have a disproportionately dense population of hospitality and tourism businesses—many of which will be SMEs—and where you have the supply chain businesses that support them. They tend to be local supply chains and to be geographically co-located, so that would be a good indicator of where that support needs to be directed.

[Luke Hall]

Q We are clearly moved to give 100% rate relief to many businesses with a £16 billion pot. Of course, I understand that some of the businesses you work with and represent will have been disappointed about where the line was drawn, so to speak. I just wonder, notwithstanding the point you made earlier in answer to the question about guidance, whether there is anything you would like local authorities to start thinking about as they start to draw up their own guidance schemes in response to some of the early challenges that have been faced by some of the businesses you will be working with.

Kate Nicholls: We would urge local authorities to work with us to identify themselves where the areas of greatest need are. One of the things that has frustrated a lot of our businesses is that there is a central message from Government, and it is not necessarily interpreted on the ground as fluidly as Government might have hoped. When you look at some of the local authority areas, we have had businesses that are clearly designed to be captured and covered by the support mechanisms that are available, but local authorities have often taken the view that if it is not directly specified in guidance and it is not a named company or a named type of business, they are precluded from using their discretion and being able to provide support to those businesses. That is the frustration that our businesses have had on the ground going forward.

It would be helpful if local authorities could be a bit more permissive in identifying the businesses that they know are hurting at a local level, rather than applying a prescriptive approach that says, “If your name’s not down, you’re not coming in,” or “Here’s a tick, you are covered.” That would help immeasurably in those businesses that tend to fall between the cracks because they are not clearcut: if you are a coach operator, are you a tourist business or are you not? A local authority should be able to understand its local area and know which ones are and therefore need to be helped, and which ones actually managed okay. Those are the kinds of areas in which we would like local authorities to use their own discretion, not wait to be told specifically by Government that they can help those businesses.

[Paul Scully]

Q Briefly, with my hospitality Minister hat on, and following on from that question, Kate, you will remember that Minister Huddleston and I wrote to local authorities asking them to use their additional restrictions grant before they access their top-up. Have you seen any evidence of any local authorities responding to that, either by giving more money to businesses on their books or by widening the base to fill some of the cracks that you are highlighting?

Kate Nicholls: There are a few notable exceptions, but you can measure on the fingers of fewer than two hands the local authorities and businesses we have been able to help that have had a positive response to that request. All too often, the response has been that the grants that we are talking about are closed, there is no more money, and they will get back in touch with the businesses if more money becomes available.

It is incredibly frustrating that you have this disconnect at a central level. We hear what is being pledged, and we hear and understand the work that is being done by Ministers to communicate to those local authorities, but the operators on the ground just get a “No”. Some local authorities have been more creative than others, and some have been more proactive than others, but generally speaking it has been a long, slow process, and it has been very difficult to get money out of the local authorities for the businesses that desperately need it. It has been too slow in being processed. We know, because of the work we are doing we are doing at a central Government level, that it is there and has been made available; it is just not cascading out.