Non-Domestic Rating (Lists) Bill

Viscount Younger of Leckie Excerpts

2nd reading (Hansard): House of Lords
Monday 30th September 2019 Lords Chamber

Moved by

[Viscount Younger of Leckie]

That the Bill be read a second time.

[The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Viscount Younger of Leckie) (Con)]

My Lords, the Bill gives this House the opportunity to support a measure widely requested by businesses. It will improve the business rates system by ensuring that rating assessments are more up to date and fairer. It is a Bill which will increase the frequency of business rates revaluations. A move to more frequent revaluations has been one of the most repeated requests from the business community, including from representative bodies such as the Federation of Small Businesses, the Confederation of British Industry and the British Retail Consortium.

Business rates are a tax on non-domestic property. They are paid not just on business premises but on local and central government buildings, hospitals, utility networks and even the very building we are in today—the Palace of Westminster—so although this Bill may seem small and technical it is in fact important to very many ratepayers and local authorities across the country. The tax base for business rates is the property’s rateable value which, in broad terms, is based on its annual rental value. Like all rateable values, the assessment of the Palace of Westminster can be seen on the current non-domestic rating list, which dates from 2017 and is available to view on the website of the Valuation Office Agency. Before noble Lords reach for their iPhones to look up that website, I can save them some time and effort: the rateable value of Parliament is currently £16.09 million.

Rateable values are currently based on the rental market values as at 1 April 2015, and the purpose of regular revaluations is to ensure that those values keep pace with the changes in the rental property market. The next revaluation was due to take place in 2022 but this Bill will bring it forward to 2021. As I have said, this has been requested by a wide range of business groups. Preparation for the revaluation is already under way and it will be based on the rental property market as at 1 April 2019.

It may be helpful to noble Lords if I explain how the revaluations work and why they are so important to businesses. Revaluation is a significant undertaking. The Valuation Office Agency has collected details of hundreds of thousands of rents to ensure that it has a good evidence base for the revaluation. It is now analysing that rental information and preparing valuations on more than 2 million properties. This is clearly a substantial exercise and one of the most important undertaken by the agency. This Bill will ensure that the results of its work will come into force one year early on 1 April 2021.

I shall give noble Lords an example. Take a shop on the high street. A shopkeeper will currently pay business rates based on the market value of rents in that high street as at 1 April 2015 and will have been paying that since 2017. Clearly, much has changed since 2015 and businesses rightly expect to see the information underpinning their bills updated accordingly. Over recent months, the Valuation Office Agency will have been collecting all the new rental evidence it can on that high street. This evidence will come from new leases and tenants moving into empty shops and from lease renewals and rent reviews on existing shops. The agency will have collected these rents on official returns and will now be analysing the results. Having regard to all this rental evidence, the valuation officer will then take a view—in line with certain statutory assumptions—of the market rental value of that high street as at 1 April 2019, which, as I have said, will be the valuation date for the 2021 revaluation.

This new assessment of market rental values will then be used to update all the shops on that high street, so the 2021 revaluation will therefore reflect the change in rents on that high street between 2015 and 2019. This exercise is repeated across all high streets, shopping centres, industrial estates, business parks and offices in order to give a full picture of the change in the relative value of non-domestic property across England and Wales. It is on this updated picture of rateable values that the new bills are based. I hope noble Lords will be able to see how important the revaluation and this Bill are to those businesses. More frequent revaluations will ensure that business rates bills are more up to date and more closely reflect the current rental value of the property and relative changes in rents.

However, in deciding whether to have more frequent revaluations, we need to strike a balance between the more up-to-date assessments that would flow from such a reform and the uncertainty that more regular changes to bills will create; and of course there is a cost to more frequent revaluations. The 2021 revaluation is expected to cost about £50 million over its duration. We believe that revaluations every three years strike the right balance, so this Bill will ensure that that happens after 2021.

Finally, the Bill will change the latest date by when draft rateable values can be published before the revaluation from the end of September to the end of the preceding December. Ratepayers have told us that they accept the trade-off that comes from increasing the frequency of revaluations and favour fairer, more up-to-date assessments. Shortening the period of the draft rating list is part of this trade-off and ensures that the time the list remains in draft continues to be proportionate to the shorter revaluation cycle. This change in the publication of the draft rating list will help pave the way for three-yearly revaluations. However, the Bill will still allow the valuation office to publish rateable values earlier than the end of December, so we will give ratepayers as much notice as possible of their draft rateable values and new rate bills within the new three-yearly cycle.

This Bill makes a step-change improvement to business rates. It is supported by the business community and is necessary to allow the Valuation Office Agency to complete the 2021 revaluation. Last, but no means least, I greatly look forward to the maiden speech from my noble friend Lord Randall of Uxbridge this afternoon. I beg to move.

--- Later in debate ---

[Viscount Younger of Leckie]

I thank noble Lords for their contribution to this short debate. I shall deal with all the points they have raised in just a moment, but I start by paying tribute to the excellent maiden speech from my noble friend Lord Randall of Uxbridge. I am pleased to know that his voice can now, at last, be heard in this Chamber. I found the speech rather reflective, not just of the historical context of Uxbridge—it was interesting to hear of the role of air defences in the Battle of Britain—and more; my noble friend was also quite right that in this House there is more of a focus on compromise. Perhaps it is fair to say that there is a lot more courtesy in this House. He did not say “compared to the other place” but, given the climate at the moment, his point was well made.

I also thank all noble Lords for their kind words about my new appointment. It is not lost on me that I have big shoes to fill. My predecessor, my noble friend Lord Bourne, held the role for some time, so I have much to learn.

A good number of points were raised by the noble Baroness, Lady Pinnock, and the noble Earl, Lord Lytton. If they will forgive me, I will address their points towards the end of my remarks.

As I said in my opening speech, business rates are an important tax, providing a vital source of revenue to help local government pay for local services. We believe that in this country we offer a highly competitive basket of taxes, which ensures that public services are funded in a balanced and fair way. Of course, we also recognise that some businesses need help. Since the 2016 Budget we have announced reductions in business rates worth more than £13 billion coming up over the next five years.

For example, we have made 100% small business rate relief permanent and doubled the threshold for 100% relief from 2017. This means that 675,000 of the smallest businesses now pay no rates at all. For the high street, at Budget 2018 we announced the business rates retail discount, providing eligible retailers with a rateable value of less than £51,000 with a third off their bills for two years from April 2019. That is delivering help now worth an estimated £1 billion and is in addition to the Prime Minister’s plan to unite and level up cities, towns and coastal and rural areas across our country. In July, we announced a £3.6 billion towns fund to re-energise local economies so that everyone can share in a new era of prosperity.

I listened carefully to the remarks made by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Kennedy, about high streets, and they are absolutely right to raise the issue. The point should be made that we want to encourage people into high streets as well as out-of-town retail centres. The high streets are a focus at the moment and have a crucial role to play as we work to grow the economies of all parts of the country, so the fund I just mentioned includes an accelerated £1 billion future high streets fund. This will support local areas in England to renew and reshape town centres and high streets in a way that improves experience, drives growth and ensures future sustainability. I add one more thing, which is that it provides an excellent experience for those who want to come into the high street, and we have much more to say about that as we take the policy forward.

More than 300 local authorities bid for a share of the funding in round one. More than 100 places have now been successful in progressing to the next phase of developing, detailed business cases; 51 places were announced on 5 July and a further 50 on 26 August. Successful local authorities will each receive up to £150,000 revenue funding and support from officials.

In response to the noble Baroness, Lady Pinnock, who asked about the impact on local authorities of the rates retention scheme, I assure her that local authorities will be compensated for the revaluation. As was the case at the 2017 revaluation, we intend to make any adjustments as are necessary to the rates retention scheme to ensure that locally retained income is, as far as practicable, unaffected by the 2021 revaluation. However, to reassure her further, we will consult local government on how to make those revaluation adjustments to the rates retention scheme nearer the time. This is something we successfully achieved for the 2017 revaluation, and I am confident that that can be repeated for 2021.

We are aware of concern from local authorities that changing the date of the draft rating list from the end of the previous September will impact on their billing and budgeting process. The Bill provides only that the end of December preceding the revaluation is the latest date by which the draft list must be published. It may be that a sensible time to make the draft list available is at the time of the autumn Budget, alongside the confirmation of the multipliers and transitional relief. That is something that we will discuss with local government, and the Bill will allow us to do just that.

For local authorities, we intend to make any adjustments as are necessary to the rates retention scheme to ensure that locally retained income is, as far as practicable, unaffected by the 2021 revaluation. As I said, we will consult local government on that.

I recognise that this matter was raised in Committee on the Bill in the other place, and we are working with the Local Government Association and other local government representatives to ensure that the publication of the draft list fits with the local government budgeting process. My officials met the LGA in August to discuss this matter, and we continue to work with the sector. As was noted by Councillor Watts of the LGA when giving evidence to the Bill Committee in the other place, we are confident that this matter is perfectly soluble.

I turn to another question raised by the noble Baroness, Lady Pinnock. She asked about scrapping business rates and explained the Liberal Democrat policy. I just say that the Government concluded a fundamental review of the business rates at Budget 2016 and decided to retain business rates as a property tax. Respondents to the review agreed that property-based taxes were easy to collect, difficult to avoid, relatively stable and clearly linked with local authority spending. Some respondents suggested alternative tax bases. However, there was no consensus, as respondents were clear that other taxes, such as a land value tax, have their own issues, including agreement on how land should be valued, and would not address the perceived unfairness between high street and online retail. I should not expect the noble Baroness to agree with that, but that is based on real evidence that we produced.

The noble Baroness also asked about resources for the Valuation Office Agency. I reassure her and the noble Lord, Lord Kennedy, that we believe that good progress has been made, particularly in clearing outstanding appeals, which were mentioned, going back to the 2010 list. At 30 June, there were around 62,000 outstanding appeals from the 2010 list. The majority of these—more than 50,000—are waiting for the resolution of litigation. We understand that the VOA is on track to clear the 2010 appeals within its control by the end of September 2019. I believe that good progress has been made. While I do not have completely up-to-date figures to hand, I understand that the VOA is expecting to have cleared the remaining appeals today—the end of the month. If for any reason situations arise where this does not occur, I have been assured that a timetable will be agreed with the ratepayer or their agent for the resolution of their case. I recognise the seriousness of this matter, but I hope that noble Lords are reassured that we are on the case and have the evidence to support that.

The noble Earl, Lord Lytton, raised a number of questions. He started by saying that this is too little, too late. He might not be surprised to hear that I do not agree with him. However, I shall address his question. The first was about whether the 2021 revaluation will be revenue neutral and how the multiplier will be adjusted. We will adjust the multiplier from 2021 to 2022 to offset the estimated change in total rateable value due to the valuation after allowing for inflation and forecast future appeals. He will know that we are required by law to do that. He further asked whether we plan to move to more frequent revaluations. To be fair to him, I understand how annual revaluations would further improve the rating system. It is something we will certainly consider in future, but in deciding whether to have revaluations more frequently than three years, rather than five years, we will need to strike a balance between the more up-to-date assessments which would flow from such a reform and the uncertainty that it would create by more regular changes to bills, and we will need to take the cost into consideration.

The noble Earl also asked about the revaluation process and the unacceptable burden on businesses. As I said earlier, and as he will know, revaluation is an important part of the business rates system that ensures that bills are more closely aligned with relative market values. The majority of businesses saw no change or a fall in their business rates liability following the 2017 revaluation. A £3.6 billion transitional relief scheme is providing support for the minority of businesses facing an increase in their bills. An additional £435 million of support to businesses was announced at the 2017 Spring Budget. I hope that reassures him that it is not the problem he thinks it might be.

The noble Earl also said that the CCA system was criticised at the Commons Treasury Select Committee. The numbers show that the system is operational and customers are using the service to make checks and challenges. The VOA published its road map in 2018, which set out the IT improvements that it will make to the system as it continues to deliver against that plan. The VOA has delivered some key improvements to the system, addressing specific concerns from stakeholders, including adding frequently requested features, such as an application programming interface—a so-called API—on check and streamlining the registration process to make the system easier to use. As of 31 March 2019, the VOA has registered more than 100,000 checks and more than 17,000 challenges under the new “check, challenge, appeal” system.

Towards the end of his remarks, the noble Earl asked how the revaluation will be delivered. I fully understand concerns regarding funding for the Valuation Office Agency, some of which I addressed earlier. Rating valuation is a specialised field, but we are confident that it can secure the staff it needs to discharge its statutory duty now and in the future. We are keeping a very close eye on it. I confirm that the agency is currently on track with preparations and resourcing for delivering the 2021 revaluation. The agency is also actively working to train and recruit staff to ensure that it can continue to fulfil its statutory duties. To this end the agency is continuing to develop and train its workforce for the future, including a targeted rolling recruitment campaign for chartered surveyors and those studying for accredited surveying qualifications.

I am ever grateful to all noble Lords this afternoon, for their many helpful points and questions raised. Your Lordships have that expertise and knowledge in the field of local government, and it is my first experience of that. Noble Lords’ expertise in the field of business rates valuation is less well known but equally appreciated. I am delighted that we have the noble Earl, Lord Lytton, here to keep us up to the mark—put it that way.

The Bill looks small and technical but, in fact, has widespread application in improving the business rate system for over 2 million ratepayers. It underpins the £50 million revaluation project currently being delivered by the Valuation Office Agency.

Bill read a second time and committed to Committee of the Whole House.