Non-Domestic Rating (Lists) (No. 2) Bill Debate
Full Debate: Read Full DebateDepartment: Department for Levelling Up, Housing & Communities
Lord Kennedy of Southwark
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Non-Domestic Rating (Lists) (No. 2) Bill
Lord Kennedy of Southwark ExcerptsThursday 4th February 2021
(3 years, 2 months ago)
Grand CommitteeRead Full debate Non-Domestic Rating (Lists) Act 2021 View all Non-Domestic Rating (Lists) Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 146-I Marshalled list for Grand Committee - (1 Feb 2021)
“Statement on consultation with the Valuation Office Agency and local authorities
Within one month of the passing of this Act, the Secretary of State must publish a statement detailing how the Valuation Office Agency and local authorities were consulted in relation to the provisions of this Act prior to its passage.”Member’s explanatory statement
This new Clause would highlight the need for the Government to work closely with the Valuation Office Agency and local authorities by ensuring that the Government details how they worked with them in relation to the provisions of this Bill.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, as this is my first contribution, I draw the attention of the Committee to my relevant registered interests: as a vice-president of the Local Government Association, chair of the Heart of Medway Housing Association and a non-executive director of MHS Homes Ltd.
Amendment 1 would put on the face of the Bill a new clause requiring the Secretary of State to publish a Statement setting out
“how the Valuation Office Agency and local authorities were consulted in relation to the provisions of this Act prior to its passage.”
A property’s rateable value, which business rates are based on, has been assessed independently of Ministers by the Valuation Office Agency since 1990. The Bill will, among other things, make a change to when the Valuation Office Agency must publish draft rateable values. The noble Lord, Lord Greenhalgh, has told us previously that this is to support the smooth transition of the revaluation. The publication of these draft rateable values will be aligned with the timing of decisions relating to the multipliers and transitional arrangements.
This is only a probing amendment and I am hopeful that the noble Lord will be able to set out for the Grand Committee exactly how what is asked for in the amendment has been done. If the agency and local authorities have not been consulted, can he tell us why not, and why the Government think that that is an acceptable course of action?
Amendment 6, in the names of the noble Baronesses, Lady Pinnock and Lady Thornhill, would insert a new clause into the Bill. I am very much in support of this new clause, as it would provide for an impact assessment of the timing of a rates revaluation. I am sure that we will get a full explanation of the amendment from the noble Baronesses.
There is of course a wider debate to be had about the whole question of business rates and their appropriateness as an element of local government funding. It is important to note that the Government have cut £15 billion from central government funding for local government in the last decade. The Covid-19 pandemic has had a catastrophic impact on local authority finances, with income falling and costs rising. The current lockdown, which is the right thing to do, will also have a serious impact. Here, the Government need to keep their promise to fully fund local authorities for the costs of the pandemic.
According to the Local Government Association, local councils in England will face a funding gap of more than £5 billion just to maintain services at current levels. But to respond to demand pressures and plug the existing funding gap, an additional £10 billion per year in funding will be needed by 2023-24. For those reasons and many others, which I am sure we will hear from the noble Baronesses, Lady Pinnock and Lady Thornhill, I support their amendment. I beg to move.
Baroness Thornhill (LD) [V]
My Lords, I, too, am a vice-president of the Local Government Association.
I wish to speak in favour of Amendment 6, which stands in my name and that of my noble friend Lady Pinnock, and to support Amendment 1 in the name of the noble Lord, Lord Kennedy of Southwark.
I am very aware that this is a narrowly focused Bill and that it has had broad support and been welcomed. However, it is significant that, despite that, several Members of your Lordships’ House have taken the opportunity to table amendments. I believe that that shows the depth of concern around the whole issue of business rates. The amount of interest shown in both this tightly drawn Bill and the Government’s consultation for their ongoing business rates review shows how important it is for the review to be both bold and radical.
It is also significant that all the amendments seek to hold the Government’s feet to the fire with regard to the various ongoing impacts of the Bill, be they on sports clubs, the high street or local government finance—hence, Amendment 6 stipulates a timeframe of six months. This is due to the fact that the instability and uncertainty provoked by the impact of Covid-19 are exacerbating issues that were already of significant concern—and we are not out of the woods yet.
Indeed, the amendment seeks to continue to draw your Lordships’ attention to the challenging situation regarding local council finances. The latest figures from the Local Government Association show that the financial impact of Covid-19 on local authorities is an estimated £9.7 billion for 2020-21, with a further £2.8 billion of lost income from council tax and business rates. However, it must be noted that these figures were reported before the lockdown and the spread of the new strain was known. This is a significantly different set of circumstances from when the 2020-21 funding package was last evaluated, and is part of the reason for continuing concern around council finances. I am sure it is appreciated by all noble Lords just how important business rates are to the individual finances of a local authority.
One reason for the amendment is to highlight the volatility of the tax base, which is so unpredictable at present. For example, the loss of office space to residential—a topic much discussed with the Minister in this House—is a trend that is likely to continue with inevitable loss of revenue. The Valuation Office Agency is currently negotiating appeals and challenges for offices, airports and factories under a material change of circumstances appeal, due to Covid-19. A rebate of up to 25% was mooted. The reduction in income could be substantial. If a rebate were forthcoming, would subsequent losses be repaid to local government in line with the recently announced tax income guarantee? Some 75% of losses will be guaranteed for 2020-21, but nothing has been said yet about 2021-22. Of course, local government must make up the other 25%.
The amount of money that councils have had to put aside for appeals is also significant, hence local government concerns around cutting down the window of time to appeal and getting the number of appeals reduced. The more certainty that we can add to the processes the better. To date, councils have had to divert £3 billion from services to appeals. A significant amount of money is also tied up in irrecoverable losses for both business rates and council tax. With debt recovery and enforcement activities understandably limited due to the pandemic, and with limits on activities and pressures on court time, councils’ ability to recover debts and secure income as they usually would, will be restricted. These are not usual times, and more businesses are likely to fail.
I use these points to illustrate one purpose of the amendment and the volatility of this important tax base. There is much instability in the system at present, which is being masked by the current, much-needed and much-valued reliefs offered to businesses from the Government. This could change significantly when the reliefs end; it could impact on local authority incomes, but we do not know when this will be. If the amendment is not accepted, could the Government at least agree to look closely at the impact once all reliefs have been suspended? This could provide vital evidence on which sectors are most impacted as well as on local councils’ finances.
Regarding Amendment 1, it was noted by several noble Lords at Second Reading that the VOA has been formally criticised as being cumbersome and difficult to deal with, and its valuations opaque and inconsistent. This is why I endorse what has been said by the noble Lord, Lord Kennedy of Southwark, and support his amendment and additional amendments tabled by my noble friends. In short, the amendment asks the Government how the pandemic that happening now will affect the revaluation in 2023, based on values at April 2021, which will not be looked at again until 2028.
The Deputy Chairman of Committees (Baroness Watkins of Tavistock) (CB)
I have received no requests to speak after the Minister, so I call the noble Lord, Lord Kennedy of Southwark.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I thank all noble Lords for their contributions to this short debate. In particular, I thank the noble Lord, Lord Greenhalgh, for his full response on the issues raised by the two amendments. I will read the noble Lord’s response carefully before considering whether this is an amendment to which I will wish to return on Report.
The noble Baroness, Lady Thornhill, made a compelling case for her amendment and set out the difficult situation in which local authorities find themselves. We will come to amendments later on regarding appeals, but the noble Baroness highlighted the real problems that are faced today. The noble Lord, Lord Bourne of Aberystwyth, raised further important points and questions that, again, we may need to come back to on Report. However, at this point, I am happy to withdraw my amendment.
“Assessment of impact of timing of business rates revaluations on prosperity of towns and high streets
Within six months of the passing of this Act, the Secretary of State must publish an assessment of the impact of the timing of business rates revaluations on the prosperity of towns and high streets.”Member’s explanatory statement
This new Clause would create an assessment of the impact of timing of business rates revaluations on the prosperity of towns.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, Amendment 2 in my name seeks to place in the Bill a new clause that would require the Secretary of State to publish an assessment of the impact of the timing of business rates revaluations on the prosperity of towns and high streets. We need a root-and-branch reform of the business rates system to make it fairer and to help bricks-and-mortar retailers compete fairly with the online, out-of-town warehouse operations that are putting our much-loved high streets at risk.
Even before the Covid-19 pandemic, we saw a serious decline in footfall on our high streets, and we now have the tragic situation where, on average, one in 10 shops is standing empty. Something must be done to reverse this decline. My amendment seeks to focus minds on this pressing problem. I hope that the Government will take the opportunity to consider it carefully and to accept it.
Amendment 5, in the names of the noble Baroness, Lady Pinnock, and the noble Lord, Lord Stunell, is another that I am happy to support. It gives us an opportunity to examine whether the revaluation based on property values as on 1 April 2021 is right. There are some suggestions that property values will fall even further, and, if that is the case, we could be creating further problems for our hard-pressed high streets.
Amendment 7, in the names of the noble Lords, Lord Addington and Lord Moynihan, brings us back to an issue that both noble Lords spoke about at Second Reading. It proposes a new clause that would require the Secretary of State to publish an assessment of the impact of the changes in the timing of business rate revaluations on amateur sports. I fully support this amendment and cannot see any reason why the Government would want to resist it.
Some amateur sports clubs have charitable status and some have community amateur club status, which provide a level of tax advantage. Charitable status provides for 80% rates relief, with the ability of the local authority to offer a top-up. But many sports clubs are not charities and will not be able to secure this benefit, and I think that it is important to understand the effect of these changes on these organisations. I am sure that we will receive detailed explanations of the amendments later in the debate but, at this stage, I beg to move.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I thank all noble Lords who spoke in this short debate.
I was not particularly convinced by the Minister’s response to my amendment. We are asking only for an assessment of the impact of the timing of the business rate revaluation on the prosperity of towns and the high street. I would have thought that the Government would have wanted to do this anyway, to arm themselves with some data, facts and information so that they make good, sound decisions that will have the right long-term effects. So we may come back to this amendment on Report.
I very much support the remarks of the noble Lord, Lord Stunell. I fear, though, looking at the Government and their record, that the soundproofed silos referred to by the noble Lord are firmly in place and contribute significantly to the issues and problems that the Government face. We often hear that departments do not talk to each other. The Government have a lot of issues here, many of which can be traced back to the way in which the Government operate on policy matters.
I also agree with the remarks of the noble Lords, Lord Moynihan and Lord Addington. I very much support the call for further support for community sport, particularly in our poorer communities. The call to exempt for ever community sports clubs is the right thing to do. We want to see everybody get active, fitter and healthier. Almost every night of the week, we see those adverts from the Government asking us all to be healthier, get fitter, walk more and do more sport, so that is absolutely the right thing to do.
If we support providers of community sport and improve our health as a nation, the savings to the NHS and the Exchequer will repay the relief many times over. In that sense, it is a no-brainer. As the noble Lord, Lord Addington, said, these clubs give us the activity levels that we all want to see—so, again, I very much support his amendment. Indeed, I hope that he and the noble Lord, Lord Moynihan, will bring their amendment back on Report. I assure them that, if they do not get the assurances that he wants from the Government then, we will happily support them if they want to divide the House at that stage. Perhaps we need to pass this amendment to give the Minister and the Chancellor of the Exchequer a little more encouragement to do the right thing. But at this stage I beg leave to withdraw the amendment.
“Assessment of the impact on appeal waiting lists
Within six months of the passing of this Act, the Secretary of State must publish an assessment of the impact of the Act on business rates appeal waiting lists.”Member’s explanatory statement
This new Clause would create an assessment of the impact on business rates appeal waiting lists.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, Amendment 3, to which the noble Baroness, Lady Bakewell of Hardington Mandeville, has added her name, raises the important issue of business rate appeal waiting lists.
As we heard at Second Reading, there are still 40,000 unresolved rating list appeals from 2010—11 years ago. As a result of this backlog, local authorities had to divert more than £3 billion from services to deal with the appeals risk from 2010 and 2017. This is an unacceptable situation; I am sure that the noble Lord, Lord Greenhalgh, would agree with me on that. Local authority finances are under extreme pressure, and this unacceptable situation is being made even worse.
The amendment would place a duty on the Secretary of State to conduct and then publish an assessment of the impact of the Act on business rate appeals. This is an opportunity for the Minister to explain the position of the Government and how they are working to deal with this backlog of appeals. I beg to move.
Baroness Bakewell of Hardington Mandeville (LD) [V]
My Lords, I draw the Committee’s attention to my interest as a vice-president of the LGA.
It is a pleasure to take part in this debate and speak to the amendment in the name of the noble Lord, Lord Kennedy of Southwark, to which I have added my name. I am familiar with rating appeal tribunals from my previous life when I sat on domestic rating appeals. Some had been waiting in the pipeline to be heard for a very long time. The noble Lord referred to these timelines.
However, this is about business rates. Some years ago, before the Government transferred the retention of business rates to local authorities, unitary and district councils were responsible for collecting business rates but had no say in setting them; nor were they able to retain the rates collected. If the local authority had no major facilities in its area that would attract business rates, this was straightforward. However, if there were major infrastructure projects—I use this term loosely—this caused huge problems as, for reasons best known to the Government, these facilities were expected to pay business rates despite not trading as businesses.
I can speak only from my experience of Somerset but feel certain that this situation will have been replicated across the whole country. Taunton Deane Borough Council and South Somerset District Council were lucky enough to have major infrastructure in their areas. In Taunton Deane, it was the MoD camp at Norton Fitzwarren and a large hospital at Musgrove Park, in addition to several superstores. In the case of South Somerset, it was the MoD Royal Naval Air Station at Yeovilton and Yeovil District Hospital, as well as superstores. The MoD bases and NHS facilities are of course funded from central government budgets in the first place. All these assets attracted business rates covering millions of pounds. The MoD, NHS hospitals and superstores appealed against their business rates—the latter were in a slightly different category as they were trading businesses and, hopefully, making a profit, but millions of pounds were at stake.
The Government informed local authorities that they could, if they wished, agree a lower figure with the appellant. However, any difference from the figure originally set and the lower figure agreed by the local authority would have to be made up to the Government from local householders’ council tax. Many of these pending appeals waited four, five, six or even seven years to be heard. As the noble Lord, Lord Kennedy of Southwark, has just said, we have now been waiting more than 10 years for the 2010 appeals. All this time, local authorities were wondering whether they would be faced with massive bills in unpaid business rates that the Government would be expecting to receive. When appeals were heard and were successful, this money was passported back to central government. However, there was also an expectation that any shortfall would be made up by local authorities, so it was a win/lose situation for local councils and their taxpayers.
We now have a situation where local authorities operate under a business rate retention scheme. However, with high street retail outlets and other town centre businesses under extreme pressure because of the Covid pandemic, huge numbers of appeals against business rate assessments are likely.
Household rates and housing benefit levels are set on a sub-regional basis by the valuation office. Our valuation office was based in Bournemouth; the price of a property in Bournemouth was vastly different from the value of one in South Somerset. Can the Minister say whether business rates are similarly set on a sub-regional level and whether the buoyancy of the local economy is considered?
Previously, our town centres have been made up of well-known retail high street clothing stores, yet these have all but disappeared. The brands are being snapped up by online businesses that buy the brand and stock but not the premises, as we have seen this week. My noble friend Lord Stunell has already referred to this. How are local authorities that now depend on business rates to balance their budgets to proceed with an increasing number of empty properties?
Many businesses will survive: insurance agents, estate agents, solicitors, food outlets and supermarkets. However, many supermarkets have long since withdrawn to retail business parks, where there is a significant turnover of retailers as each goes into administration. Mothercare, Staples and Homebase are examples; their premises are often left empty for a considerable time. It seems that now is the time for a radical rethink of just what the Government expect business rates to deliver and what type of business they propose to be classified as liable for business rates. This will now include large warehouse facilities servicing online purchases.
The exponential rise in online shopping has been the saviour of householders who have either been subject to lockdown or, prior to lockdown, isolating to protect themselves due to their underlying health conditions. From my office window, I have an excellent view of the C-grade road that serves the 12 houses in our area. The number of delivery vans going up and down has dramatically increased since Christmas. Whether it is with home deliveries from supermarkets or deliveries by DPD, Yodel or another, they are extremely busy and often call long after it has gone dark. Apart from the supermarkets, the vans are delivering goods that householders have ordered from online businesses. Surely now is the time for these businesses to play their part in the local economy and pay business rates; the noble Lord, Lord Bourne of Aberystwyth, referred to this.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, I thank all noble Lords for their contributions to the debate. I agree with all the remarks of the noble Baroness, Lady Bakewell of Hardington Mandeville. She is right when she calls for all online businesses that deliver goods bought online to pay their fair share of taxes.
The noble Lord, Lord Thurlow, made a compelling case for intervention to stop the rapid collapse and decline of businesses on our high streets. No one wants to see, in effect, an end to our high streets, but that is what we will face if the Government do not take urgent, effective action. I fail to see why they are not acting with more urgency on this. They have given no convincing reason or justification either today or previously when these matters have been discussed.
The point that the noble Lord, Lord Thurlow, made about offices is exactly the conversation that we are having at MHS Homes, where I am a non-executive director. We have a fantastic office in Chatham, where all the staff, except those working on the ground, were based, but we are now wondering what our operation will look like in the future. There is nothing unusual about that—many organisations and businesses are having exactly the same conversation about what to do.
I will look carefully at the response from the noble Lord, Lord Greenhalgh, but I may well decide to bring this issue back on Report. However, at this stage, I am happy to withdraw the amendment.
Lord Shipley (LD) [V]
My Lords, I first remind the Committee that I am a vice-president of the Local Government Association.
The noble Lord, Lord Thurlow, has made some very salient points, notably that it is vital that urgent action is taken to help high street businesses by reducing their operating costs. I recall the noble Lord, Lord Thurlow, saying at Second Reading—and again today—that it would prove very hard to estimate rentable and hence rateable values for the traditional retail sector even with this deferral, because new lettings will for the time being be rare events.
When I spoke at Second Reading, I pointed out that retailers pay over a quarter of business rates in England and Wales. That is a very large amount of money, but it will now decline significantly as less is generated from high streets. There is, though, an immediate opportunity to even up business rate receipts by switching a greater burden from the high street to online businesses through the revaluation process itself, because we do not have a fair balance at the moment.
At Second Reading, the Minister said the Government would report in the spring on its fundamental review of business rates. He said he was
“sure that the fundamental review will look at alternative taxes to capture the shift in our shopping habits.”—[Official Report, 18/1/21; col. 1069.]
I welcome that and hope it happens, and I draw his attention to the potential for an e-commerce levy on online businesses.
As we have heard, the move online of Arcadia brands and Debenhams in recent days represents what seems to be an irreversible trend—but that cannot be allowed to mean lower rents and rates for online businesses at the cost of the high street. This proposed new clause would require an assessment of the impact of any business rates revaluation on local high streets to be undertaken within six months, looking in particular at the ability of high street retail outlets to compete with the huge retail businesses that operate online.
The timing could fit well—if the Government wanted it to—with the fundamental review of business rates, and I hope that they will take the opportunity provided by the amendment. It would be strongly and warmly welcomed by high street retail businesses because, as the noble Lord, Lord Thurlow, said a moment ago, the matter has become very urgent.
Lord Kennedy of Southwark (Lab Co-op)
My Lords, Amendment 4, moved by the noble Baroness, Lady Pinnock, seeks to insert a new clause into the Bill which, as we have heard, would require an impact assessment of the timing of rates revaluations on local high streets and, importantly, would look at the impact on their ability to compete with businesses that operate online.
We have a serious problem with our high streets. The problem was in many cases a crisis before the pandemic, as we have discussed today on previous amendments. We can all point to the closed and boarded-up shops in areas that we know. The pandemic has created an even more serious problem for high streets and has put many businesses at risk. We need action from the Government to deal with all the issues that are destroying our high streets and our shopping parades.
We will all have seen the news that Boohoo is purchasing Debenhams and that ASOS is purchasing Topshop, but they are purchasing the names and not continuing with their high street presence. Why they are doing that is the question we need to look at. Clearly, they have taken the view that they do not need, or that it is too expensive to operate, a high street presence. This is why urgent action is needed. The issue with online retailers needs to be addressed. It has been discussed in the other place. My honourable friend the Member for Manchester Central, Lucy Powell MP, has said:
“The pandemic has accelerated changes to the way we shop, yet the government continues to disadvantage bricks and mortar businesses against online companies … The support on offer for struggling business has been a series of sticking plasters. Unless the Government puts in place a long-term plan to help high street businesses survive this crisis and recover on the other side, we will see more well-loved high street names vanishing, and many more jobs lost.”
I could not agree more. I also agree with the noble Lord, Lord Thurlow, that we need vibrant, healthy town centres. As he said, the power to help the high street is in the hands of the Government. I hope the Minister will address that point.
Lord Greenhalgh (Con)
My Lords, I am grateful to the noble Baroness, Lady Pinnock, and the noble Lord, Lord Shipley, for a further opportunity to speak about our high streets. As I outlined when we debated the second group of amendments today, we will not know the impact of the revaluation on rates bills until later in 2022, so it would not be possible to produce now the report outlined in the amendment we are discussing. However, we can be sure that, once we publish draft rateable values alongside the multiplier and the transitional relief scheme later in 2022, ratepayers will be able to see precisely how revaluation will affect their rates bills.
The noble Baroness, Lady Pinnock, raised an important point about online businesses compared to those that operate on the high street. Businesses which sell mainly or wholly online do not avoid business rates. They may also operate shops—many high street retailers also sell online—and they will require significant warehouse and distribution facilities, often in high-value locations. Nevertheless, business rates are a tax on the use of property and the rates bill is based on the value of the property. It follows that business models that occupy less property and perhaps operate from less valuable locations will pay less in business rates.
Property taxes have several key advantages over other forms of business taxation: they are relatively efficient to collect, they provide a relatively stable source of revenue to local government that helps ensure the provision of essential public services, and they provide relative certainty for ratepayers from one year to the next. However, there is undoubtedly a click-and-collect revolution, as outlined by the noble Baroness, Lady Pinnock, and the noble Lord, Lord Kennedy. The Treasury’s fundamental review of business rates is considering alternatives taxes, including a potential online sales tax. The review will need to consider matters such as the economic impacts of such a tax and assess the concerns and risks that have been raised in the call for evidence.
Supporting the high street is a priority for us. In this year alone, no retailer on the high street is paying business rates. With the assurance that the matter of online business is being considered as part of the fundamental review and the updating of rateable values to better reflect the impact of the pandemic which will come from the 2023 revaluation, I hope that the noble Baroness, Lady Pinnock, and the noble Lord, Lord Shipley, can agree to withdraw their amendment.